Office Properties me Trust(OPI) - 2024 Q3 - Quarterly Results

Quarterly Results Office Properties Income Trust reported Q3 2024 financial results, highlighting debt strategies, leasing, and key financial metrics Office Properties Income Trust Announces Third Quarter 2024 Financial Results Office Properties Income Trust (OPI) announced its Q3 2024 financial results, highlighting ongoing strategies to address its February 2025 debt maturity, including drawing on credit, property sales, and debt exchanges, while also reporting significant leasing activity and stable same-property occupancy - OPI is actively exploring strategies to address its $456.7 million debt maturity in February 2025. Actions include drawing the remaining $125 million from its credit facility, selling six properties for $46.3 million, and exchanging $42.5 million of unsecured senior notes for new secured notes and common shares[3] - The company executed 987,000 square feet of leasing with a weighted average lease term of 10.2 years and maintained same property portfolio occupancy of over 89%[3] - OPI declared a quarterly distribution of $0.01 per common share, payable on November 14, 2024, to shareholders of record as of October 28, 2024[4] - As of September 30, 2024, OPI owned 145 office properties with approximately 19.5 million square feet across 30 states, with 64% of revenues from investment-grade rated tenants[6] Third Quarter 2024 Highlights Key financial and operational highlights for Q3 2024 include a net loss of $58.4 million, Normalized FFO of $22.1 million, and same property cash basis NOI of $59.3 million, alongside significant investment activity and ongoing debt management efforts, noting substantial doubt about its ability to continue as a going concern due to upcoming debt maturities - Executed 987,000 square feet of total leasing at a weighted average lease term of 10.2 years[7] - Ended the quarter with same property portfolio occupancy of 89.3% and a weighted average lease term of 7.2 years (by annualized revenue)[7] Financial Metrics | Financial Metric | Q3 2024 (Millions $) | Per Common Share | | :------------------------- | :------------------- | :--------------- | | Net loss | (58.4) | (1.14) | | Normalized FFO | 22.1 | 0.43 | | Same property cash basis NOI | 59.3 | N/A | - Sold six properties, consisting of approximately 750,000 square feet, for an aggregate sale price of $46.3 million (excluding closing costs)[9] - Under agreement to sell 17 properties, consisting of approximately 1,609,000 square feet, for a price of $119.2 million (excluding closing costs)[9] - As of October 30, 2024, OPI's total available liquidity was $146.4 million[10] - $456.7 million of unsecured senior notes are due on February 1, 2025, leading to substantial doubt about the company's ability to continue as a going concern[10] - Since Q2 2024, exchanged an aggregate of $42.5 million of outstanding unsecured senior notes for $42.6 million of new 9.0% senior secured notes due 2029 and 5.1 million common shares[10] - In October 2024, OPI drew the remaining $125 million of capacity under its revolving credit facility[11] Financials This section provides a detailed overview of OPI's financial performance and position, including income statements, balance sheets, debt structure, and capital expenditures Key Financial Data OPI's key financial data for Q3 2024 shows a net loss of $58.4 million, a significant decrease from Q2 2024's net income of $76.17 million, with total assets decreasing to $3.73 billion and total liabilities to $2.45 billion Key Income Statement Metrics | Metric (in thousands) | 9/30/2024 | 6/30/2024 | 9/30/2023 | | :--------------------------- | :-------- | :-------- | :-------- | | Rental income | $120,620 | $123,686 | $133,361 | | Net (loss) income | $(58,414) | $76,171 | $(19,593) | | NOI | $69,205 | $76,046 | $83,698 | | Adjusted EBITDAre | $65,001 | $71,469 | $78,910 | | FFO | $21,640 | $258,969 | $33,269 | | Normalized FFO | $22,114 | $33,171 | $49,404 | | CAD | $(19,066) | $(1,079) | $17,353 | Key Balance Sheet Metrics | Metric (in thousands) | 9/30/2024 | 12/31/2023 | | :--------------------------- | :-------- | :--------- | | Total gross assets | $4,345,425| $4,639,848 | | Total assets | $3,725,951| $3,989,669 | | Total liabilities | $2,447,365| $2,733,990 | | Total shareholders' equity | $1,278,586| $1,255,679 | Per Common Share Data | Per Common Share Data | 9/30/2024 | 6/30/2024 | 9/30/2023 | | :-------------------- | :-------- | :-------- | :-------- | | Net (loss) income | $(1.14) | $1.56 | $(0.41) | | FFO | $0.42 | $5.32 | $0.69 | | Normalized FFO | $0.43 | $0.68 | $1.02 | | CAD | $(0.37) | $(0.02) | $0.36 | Condensed Consolidated Statements of Income (Loss) For Q3 2024, OPI reported a net loss of $58.4 million, a significant increase from the $19.6 million net loss in Q3 2023, primarily driven by a $41.8 million loss on impairment of real estate and higher interest expenses Consolidated Statements of Income (Loss) | Metric (in thousands) | Three Months Ended 9/30/2024 | Three Months Ended 9/30/2023 | Nine Months Ended 9/30/2024 | Nine Months Ended 9/30/2023 | | :-------------------------------- | :--------------------------- | :--------------------------- | :-------------------------- | :-------------------------- | | Rental income | $120,620 | $133,361 | $383,741 | $399,780 | | Total expenses | $144,974 | $123,784 | $487,432 | $350,113 | | Loss on impairment of real estate | $41,847 | $0 | $173,579 | $0 | | Interest expense | $42,580 | $28,835 | $116,405 | $80,591 | | Net (loss) income | $(58,414) | $(19,593) | $12,573 | $(32,281) | | Per common share (basic/diluted) | $(1.14) | $(0.41) | $0.25 | $(0.67) | - Weighted average common shares outstanding increased to 51,197 thousand in Q3 2024 from 48,403 thousand in Q3 2023[15] Condensed Consolidated Balance Sheets As of September 30, 2024, OPI's total assets decreased to $3.73 billion from $3.99 billion at year-end 2023, primarily due to a reduction in real estate properties, net, while total liabilities also decreased to $2.45 billion from $2.73 billion, driven by a significant reduction in unsecured debt, offset by an increase in secured debt Consolidated Balance Sheet Data | Metric (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------------------------- | :----------------- | :---------------- | | Total real estate properties, net | $3,077,136 | $3,415,500 | | Assets of properties held for sale | $125,781 | $37,310 | | Cash and cash equivalents | $22,363 | $12,315 | | Total assets | $3,725,951 | $3,989,669 | | Unsecured debt, net | $980,125 | $2,400,478 | | Secured debt, net | $1,341,844 | $172,131 | | Total liabilities | $2,447,365 | $2,733,990 | | Total shareholders' equity | $1,278,586 | $1,255,679 | - Unsecured debt significantly decreased from $2.4 billion to $980.1 million, while secured debt increased from $172.1 million to $1.34 billion, reflecting a shift in the company's debt structure[16] Debt Summary As of September 30, 2024, OPI's total debt stood at $2.33 billion, with a weighted average interest rate of 7.052% and a weighted average maturity of 4.9 years, composed of secured floating rate, secured fixed rate, and unsecured fixed rate debt, with a significant portion of unsecured notes due in February 2025 Debt Portfolio Overview | Debt Type | Principal Balance (in thousands) | Coupon Rate | Maturity Date | Years to Maturity | | :----------------------------- | :------------------------------- | :---------- | :------------ | :---------------- | | Secured Floating Rate Debt | $300,000 | 8.430% | 1/29/2027 | 2.3 | | Secured Fixed Rate Debt | $1,044,749 | 8.795% | Various | 4.9 (W.A.) | | Unsecured Fixed Rate Debt | $988,481 | 4.251% | Various | 5.6 (W.A.) | | Total / Weighted Average | $2,333,230 | 6.823% | | 4.9 | - A substantial portion of unsecured fixed rate debt, $490.854 million, is due on February 1, 2025, with a coupon rate of 4.500%[18] - In October 2024, OPI borrowed the remaining $125 million under its revolving credit facility, fully drawing it[17][19] - The company exchanged $42.5 million of outstanding unsecured senior notes for $42.6 million of new 9.0% senior secured notes due 2029 and 5.1 million common shares[17] Debt Maturity Schedule OPI faces a significant debt maturity of $490.854 million in unsecured fixed rate debt in 2025, with the majority of the company's debt maturing in 2029 and thereafter, totaling $867.708 million in secured fixed rate debt and $276.355 million in unsecured fixed rate debt due in 2030 and beyond Debt Maturity Profile (in thousands) | Year | Secured Floating Rate Debt (in thousands) | Secured Fixed Rate Debt (in thousands) | Unsecured Fixed Rate Debt (in thousands) | Total (in thousands) | | :--- | :---------------------------------------- | :------------------------------------- | :--------------------------------------- | :------------------- | | 2025 | $0 | $0 | $490,854 | $490,854 | | 2026 | $0 | $0 | $140,488 | $140,488 | | 2027 | $300,000 | $0 | $80,784 | $380,784 | | 2028 | $0 | $123,487 | $0 | $123,487 | | 2029 | $0 | $867,708 | $0 | $867,708 | | 2030 and thereafter | $0 | $53,554 | $276,355 | $329,909 | - As of October 30, 2024, OPI was fully drawn under its revolving credit facility after borrowing an additional $125 million on October 4, 2024[19] Leverage Ratios, Coverage Ratios and Public Debt Covenants OPI's leverage ratios show an increase in net debt relative to assets, with Net debt / total gross assets at 53.2% and Secured debt / total assets at 36.1% as of Q3 2024, while coverage ratios have declined, though the company remains compliant with public debt covenants Leverage and Coverage Ratios | Ratio | 9/30/2024 | 6/30/2024 | 9/30/2023 | | :--------------------------------------------------------- | :-------- | :-------- | :-------- | | Leverage Ratios: | | | | | Net debt / total gross assets | 53.2% | 52.3% | 54.9% | | Net debt / gross book value of real estate assets | 47.1% | 45.7% | 49.1% | | Secured debt / total assets | 36.1% | 34.8% | 4.4% | | Variable rate debt / net debt | 13.0% | 12.1% | 7.8% | | Coverage Ratios: | | | | | Rolling four quarter Adjusted EBITDAre / interest expense | 2.0x | 2.3x | 3.0x | | Net debt / rolling four quarter Adjusted EBITDAre | 8.1x | 7.7x | 8.1x | Public Debt Covenant Compliance | Public Debt Covenant | 9/30/2024 | Minimum/Maximum | Status | | :--------------------------------------------------------- | :-------- | :-------------- | :------- | | Total unencumbered assets / unsecured debt | 244.4% | 150.0% (min) | Compliant| | Total debt / adjusted total assets | 45.1% | 60.0% (max) | Compliant| | Secured debt / adjusted total assets | 26.0% | 40.0% (max) | Compliant| | Consolidated income available for debt service / debt service | 1.7x | 1.50x (min) | Compliant| Capital Expenditures Summary OPI's total capital expenditures for Q3 2024 were $35.2 million, an increase from $33.9 million in Q2 2024 and $24.2 million in Q3 2023, with lease-related costs constituting the largest portion at $29.1 million, reflecting ongoing investment in tenant spaces Capital Expenditures by Type (in thousands) | Capital Expenditure Type (in thousands) | 9/30/2024 | 6/30/2024 | 9/30/2023 | | :-------------------------------------- | :-------- | :-------- | :-------- | | Lease related costs | $29,148 | $25,965 | $15,677 | | Building improvements | $5,225 | $4,085 | $8,516 | | Recurring capital expenditures | $34,373 | $30,050 | $24,193 | | Development, redevelopment and other | $864 | $3,862 | $28,326 | | Total capital expenditures | $35,237 | $33,912 | $52,519 | - Building improvements per average square foot during the period were $0.26 in Q3 2024, compared to $0.20 in Q2 2024 and $0.41 in Q3 2023[22] Property Dispositions Since January 1, 2024, OPI has sold seven properties totaling 998 thousand square feet for an aggregate gross sales price of $84.81 million, as part of the company's strategy to manage its portfolio and address debt maturities Property Sales Since January 1, 2024 | Date Sold | Location | Number of Properties | Sq. Ft. (in thousands) | Gross Sales Price (in thousands) | | :--------- | :-------------- | :------------------- | :--------------------- | :------------------------------- | | 3/21/2024 | Chicago, IL | 1 | 38,500 | $248 | | 7/31/2024 | Malden, MA | 1 | 7,800 | $126 | | 8/13/2024 | Indianapolis, IN| 3 | 10,100 | $434 | | 9/10/2024 | Atlanta, GA | 1 | 17,610 | $126 | | 9/11/2024 | San Jose, CA | 1 | 10,800 | $64 | | Total (Since Jan 1, 2024) | | 7 | 998 | $84,810 | Investment in Unconsolidated Joint Venture OPI holds a 51% ownership in the Prosperity Metro Plaza joint venture, consisting of two properties in Fairfax, VA, totaling 346 thousand square feet with 72.3% occupancy and a weighted average remaining lease term of 3.2 years, reporting an equity in losses of $166 thousand for Q3 2024 Prosperity Metro Plaza Joint Venture Details | Joint Venture | OPI Ownership | Number of Properties | Location | Sq. Ft. (in thousands) | Occupancy | W.A. Remaining Lease Term | | :--------------------- | :------------ | :------------------- | :---------- | :--------------------- | :-------- | :------------------------ | | Prosperity Metro Plaza | 51% | 2 | Fairfax, VA | 346 | 72.3% | 3.2 years | Joint Venture Financial Performance (in thousands) | Metric (in thousands) | Three Months Ended 9/30/2024 | Nine Months Ended 9/30/2024 | | :-------------------- | :--------------------------- | :-------------------------- | | Equity in losses | $(166) | $(576) | | NOI | $682 | $1,986 | | Cash Basis NOI | $649 | $1,879 | - The joint venture has outstanding debt of $50 million with a 4.090% interest rate, maturing on December 1, 2029, with OPI's share of the principal balance being $25.5 million[70] Portfolio Information This section provides an overview of OPI's property portfolio, including occupancy, leasing activity, tenant diversity, and lease expiration schedules Summary Same Property Results OPI's same property portfolio, consisting of 123 properties, experienced a decline in performance for Q3 2024 compared to Q3 2023, with Same Property NOI decreasing by 7.6% to $65.17 million and occupancy falling to 89.3% from 93.9% Same Property Performance (in thousands) | Metric (in thousands) | 9/30/2024 (3 Months) | 9/30/2023 (3 Months) | % Change (YoY) | | :---------------------------- | :------------------- | :------------------- | :------------- | | Properties (end of period) | 123 | 123 | 0% | | Rentable sq. ft. | 16,881 | 16,803 | 0.46% | | Percent leased | 89.3% | 93.9% | -4.6% pts | | Rental income | $109,781 | $112,939 | -2.8% | | Same Property NOI | $65,167 | $70,522 | -7.6% | | Same Property Cash Basis NOI | $59,304 | $61,752 | -4.0% | | Same Property NOI % margin | 59.4% | 62.4% | -3.0% pts | | Same Property Cash Basis NOI % margin | 57.0% | 59.2% | -2.2% pts | - For the nine months ended September 30, 2024, Same Property NOI decreased by 7.0% and Same Property Cash Basis NOI decreased by 5.8% compared to the same period in 2023[72] Occupancy and Leasing Summary As of September 30, 2024, OPI's overall portfolio occupancy was 82.8%, a decrease from 89.9% in Q3 2023, with 987 thousand square feet of leasing executed, primarily through renewals, at a weighted average lease term of 10.2 years, and GAAP rent for new leases increasing by 26.3% Occupancy and Leasing Activity | Metric | 9/30/2024 (3 Months) | 6/30/2024 (3 Months) | 9/30/2023 (3 Months) | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | | Properties (end of period) | 145 | 151 | 154 | | Rentable sq. ft. (in thousands) | 19,543 | 20,293 | 20,705 | | Percentage leased | 82.8% | 83.5% | 89.9% | | Leasing Activity (Sq. Ft. in thousands): | | | | | New leases | 40 | 24 | 104 | | Renewals | 947 | 184 | 482 | | Total | 987 | 208 | 586 | | % Change in GAAP Rent: | | | | | New leases | 26.3% | (22.2%) | 1.9% | | Renewals | 0.5% | 0.2% | (3.7%) | | Total | 1.7% | (1.5%) | (2.7%) | | Weighted Average Lease Term (years):| | | | | New leases | 8.9 | 3.7 | 9.5 | | Renewals | 10.2 | 4.0 | 6.9 | | Total | 10.2 | 4.0 | 7.4 | - Total leasing cost and concession commitments for Q3 2024 were $65.9 million, significantly higher than $3.98 million in Q2 2024 and $25.36 million in Q3 2023[83] Tenant Diversity and Credit Characteristics As of September 30, 2024, OPI's tenant base is diverse, with the largest concentrations in Real Estate & Financial (18.0%), U.S. Government (16.6%), and Technology & Communications (14.6%), and Investment Grade tenants accounting for 59.5% of total annualized rental income Tenant Industry Concentration | Tenant Industry | Percentage of Total Annualized Rental Income | | :------------------------------ | :------------------------------------------- | | Real Estate & Financial | 18.0% | | U.S. Government | 16.6% | | Technology & Communications | 14.6% | | Legal & Other Professional Services | 14.6% | | Manufacturing & Transportation | 11.5% | | Other Government | 7.9% | | Government Contractors | 7.8% | | Energy Services | 1.3% | | Healthcare and Medical | 2.7% | Tenant Credit Rating Distribution | Tenant Credit Character | Percentage of Total Annualized Rental Income | | :---------------------- | :------------------------------------------- | | Investment Grade | 59.5% | | Not Rated | 35.3% | | Non-Investment Grade | 5.3% | Tenants Representing 1% or More of Total Annualized Rental Income The U.S. Government is OPI's largest tenant, representing 17.9% of leased square feet and classified as Investment Grade, alongside other significant investment-grade tenants such as Alphabet Inc. (Google), Bank of America Corporation, and Northrop Grumman Corporation Major Tenants by Leased Square Feet | Tenant | Credit Rating | % of Leased Sq. Ft. | | :------------------------------- | :----------------- | :------------------ | | U.S. Government | Investment Grade | 17.9% | | Alphabet Inc. (Google) | Investment Grade | 2.4% | | Shook, Hardy & Bacon L.L.P. | Not Rated | 3.7% | | Bank of America Corporation | Investment Grade | 3.6% | | State of California | Investment Grade | 2.7% | | Northrop Grumman Corporation | Investment Grade | 2.1% | | State of Georgia | Investment Grade | 1.9% | | PNC Bank | Investment Grade | 2.7% | | Automatic Data Processing, Inc. | Investment Grade | 1.8% | | Allstate Insurance Corporation | Investment Grade | 2.8% | | Open Text Corporation | Non Investment Grade | 1.0% | | Compass Group plc | Investment Grade | 1.7% | | Church & Dwight Co., Inc. | Investment Grade | 1.5% | | Leidos Holdings Inc. | Investment Grade | 1.0% | | Primerica, Inc. | Investment Grade | 2.1% | | Science Applications International Corp | Non Investment Grade | 1.0% | | Berkshire Hathaway Inc. | Investment Grade | 0.8% | | CommScope Holding Company Inc. | Non Investment Grade | 0.6% | - The top 22 tenants listed represent 56.5% of total leased square feet[86] Lease Expiration Schedule OPI's lease expiration schedule shows that 11.2% of total leased square feet, representing 9.8% of total annualized rental income, is set to expire in 2025, with a significant portion (37.7% of leased square feet and 39.7% of annualized rental income) due to expire in 2033 and thereafter Lease Expiration Profile | Year (1) | Leased Square Feet Expiring (in thousands) | % of Total Leased Square Feet Expiring | Annualized Rental Income Expiring (in thousands) | % of Total Annualized Rental Income Expiring | | :------------------ | :----------------------------------------- | :------------------------------------- | :----------------------------------------------- | :------------------------------------------- | | 2024 | 1,281 | 7.9% | $19,914 | 4.4% | | 2025 | 1,809 | 11.2% | $44,298 | 9.8% | | 2026 | 528 | 3.3% | $18,237 | 4.0% | | 2027 | 1,872 | 11.6% | $47,018 | 10.4% | | 2028 | 649 | 4.0% | $31,019 | 6.9% | | 2029 | 1,083 | 6.7% | $33,298 | 7.4% | | 2030 | 1,083 | 6.7% | $30,356 | 6.7% | | 2031 | 1,255 | 7.8% | $31,233 | 6.9% | | 2032 | 502 | 3.1% | $17,412 | 3.8% | | 2033 and thereafter | 6,119 | 37.7% | $180,040 | 39.7% | | Total | 16,181 | 100.0% | $452,825 | 100.0% | - The weighted average remaining lease term for the portfolio is 6.6 years[87] Appendix This section provides supplementary information including company profile, governance details, and reconciliations of non-GAAP financial measures, along with a warning concerning forward-looking statements Company Profile and Research Coverage Office Properties Income Trust (OPI) is a national REIT focused on owning and leasing office properties across the U.S., managed by The RMR Group, and is included in 122 market indices with coverage from several equity research firms and rating agencies - OPI is a national REIT owning 145 office properties with approximately 19.5 million square feet in 30 states as of September 30, 2024[6] - OPI is managed by The RMR Group (Nasdaq: RMR), an alternative asset management company with nearly $41 billion in real estate assets under management[90] - OPI is included in 122 market indices, comprising over 1% of the Bloomberg US Micro Cap Real Estate Price Return Index, Invesco S&P SmallCap High Dividend Low Volatility ETF INAV Index, and Bloomberg Real Estate Investment Trust Small Cap Index[89] - Equity research coverage is provided by B. Riley Securities, Inc. and rating agencies include Moody's Investors Service[91][93][94] Governance Information OPI's Board of Trustees consists of eight members, including Adam D. Portnoy as Chair and Managing Trustee, and seven independent trustees, with Yael Duffy and Brian E. Donley serving as key executive officers - Adam D. Portnoy serves as Chair of the Board & Managing Trustee[111] - The Board includes seven independent trustees: Donna D. Fraiche, Barbara D. Gilmore, John L. Harrington, William A. Lamkin, Elena B. Poptodorova (Lead Independent Trustee), Jeffrey P. Somers, and Mark A. Talley[95][96][97][98][99][100][101][102][103][104][105][106][107][108][109] - Key executive officers are Yael Duffy (President and Chief Operating Officer) and Brian E. Donley (Chief Financial Officer and Treasurer)[111] Calculation and Reconciliation of NOI and Cash Basis NOI This section provides a detailed reconciliation of Net (Loss) Income to Net Operating Income (NOI) and Cash Basis NOI, with Q3 2024 NOI at $69.21 million and Cash Basis NOI at $60.07 million, both showing a decline compared to Q3 2023 Reconciliation of Net (Loss) Income to NOI and Cash Basis NOI (in thousands) | Metric (in thousands) | 9/30/2024 (3 Months) | 9/30/2023 (3 Months) | | :-------------------- | :------------------- | :------------------- | | Rental income | $120,620 | $133,361 | | Property operating expenses | $(51,415) | $(49,663) | | NOI | $69,205 | $83,698 | | Non-cash straight line rent adjustments | $(8,854) | $(8,691) | | Lease value amortization | $59 | $56 | | Lease termination fees | $(218) | $(1,576) | | Non-cash amortization in other property operating expenses | $(121) | $(121) | | Cash Basis NOI | $60,071 | $73,206 | - The reconciliation shows that a net loss of $58.41 million was adjusted by various items, including depreciation and amortization, loss on impairment of real estate, interest expense, and gain on sale of real estate, to arrive at NOI and Cash Basis NOI[112] Reconciliation and Calculation of Same Property NOI and Same Property Cash Basis NOI This section reconciles total NOI to Same Property NOI and calculates Same Property Cash Basis NOI, with Q3 2024 Same Property NOI at $65.17 million (a 7.6% decrease from Q3 2023) and Same Property Cash Basis NOI at $59.30 million (a 4.0% decrease from Q3 2023) Reconciliation of NOI to Same Property NOI and Cash Basis NOI (in thousands) | Metric (in thousands) | 9/30/2024 (3 Months) | 9/30/2023 (3 Months) | | :---------------------------- | :------------------- | :------------------- | | NOI | $69,205 | $83,698 | | Less: NOI of properties not included in same property results | $(4,038) | $(13,176) | | Same Property NOI | $65,167 | $70,522 | | Add: Lease value amortization | $(163) | $(360) | | Less: Non-cash straight line rent adjustments | $(5,387) | $(8,071) | | Lease termination fees | $(218) | $(254) | | Non-cash amortization in property operating expenses | $(95) | $(85) | | Same Property Cash Basis NOI | $59,304 | $61,752 | - Same properties for the three months ended September 30, 2024, include properties OPI owned continuously since July 1, 2023, excluding properties held for sale, development activities, and unconsolidated joint ventures[119] Operating Metrics by Collateral Pool As of September 30, 2024, OPI's portfolio is divided into secured and unsecured properties, with secured properties (62 properties, 10.27 million square feet) exhibiting higher occupancy (94.0%) and longer weighted average remaining lease terms (8.3 years) compared to unsecured properties Property Operating Metrics by Collateral Pool (in thousands) | Property Type | Number of Properties | Sq. Ft. (in thousands) | Occupancy | W.A. Remaining Lease Term (years) | Annualized Rental Income (in thousands) | Trailing Twelve Months NOI (in thousands) | | :---------------------- | :------------------- | :--------------------- | :-------- | :-------------------------------- | :-------------------------------------- | :---------------------------------------- | | Secured Properties: | | | | | | | | Credit Agreement | 19 | 3,603 | 98.3% | 7.1 | $117,520 | $70,651 | | $300M Senior Notes 2029 | 17 | 2,126 | 98.5% | 9.2 | $70,232 | $45,504 | | $567M Senior Notes 2029 | 19 | 3,208 | 83.6% | 7.8 | $66,458 | $40,730 | | Mortgage Notes | 7 | 1,334 | 100.0% | 11.7 | $32,731 | $25,168 | | Subtotal Secured | 62 | 10,271 | 94.0% | 8.3 | $286,941 | $182,053 | | Unsecured Properties: | | | | | | | | Unsecured Properties | 66 | 7,613 | 75.5% | 5.6 | $149,290 | $94,953 | | Properties Held for Sale| 17 | 1,659 | 47.1% | 2.3 | $16,594 | $14,527 | | Total / Weighted Average | 145 | 19,543 | 82.8% | 7.2 | $452,825 | $314,370 | - Of the total square feet expiring through December 31, 2025 (3.09 million sq ft), 2.64 million square feet is not expected to be renewed, with 1.77 million square feet related to unsecured properties[114] Calculation of EBITDA, EBITDAre and Adjusted EBITDAre This section provides the calculation and reconciliation of EBITDA, EBITDAre, and Adjusted EBITDAre, with Q3 2024 Adjusted EBITDAre at $65.00 million, a decrease from $71.47 million in Q2 2024 and $78.91 million in Q3 2023, reflecting the impact of net loss and real estate impairments Reconciliation of Net (Loss) Income to Adjusted EBITDAre (in thousands) | Metric (in thousands) | 9/30/2024 (3 Months) | 6/30/2024 (3 Months) | 9/30/2023 (3 Months) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | | Net (loss) income | $(58,414) | $76,171 | $(19,593) | | Interest expense | $42,580 | $38,349 | $28,835 | | Income tax expense (benefit) | $230 | $(107) | $0 | | Depreciation and amortization | $46,047 | $50,391 | $52,266 | | EBITDA | $30,443 | $164,804 | $61,603 | | Loss on impairment of real estate | $41,847 | $131,732 | $0 | | (Gain) loss on sale of real estate| $(8,456) | $64 | $(244) | | Equity in net losses of investees | $166 | $180 | $765 | | EBITDAre | $64,000 | $296,780 | $62,124 | | Transaction related costs | $738 | $0 | $16,135 | | (Gain) loss on early extinguishment of debt | $(264) | $(225,798) | $0 | | Adjusted EBITDAre | $65,001 | $71,469 | $78,910 | Calculation of FFO, Normalized FFO and CAD This section details the calculation of FFO, Normalized FFO, and Cash Available for Distribution (CAD), with Q3 2024 FFO at $21.64 million, Normalized FFO at $22.11 million, and a negative CAD of $(19.07) million, representing significant declines compared to prior periods due to net loss and increased recurring capital expenditures Reconciliation of Net (Loss) Income to CAD (in thousands) | Metric (in thousands) | 9/30/2024 (3 Months) | 6/30/2024 (3 Months) | 9/30/2023 (3 Months) | | :-------------------------------- | :------------------- | :------------------- | :------------------- | | Net (loss) income | $(58,414) | $76,171 | $(19,593) | | Depreciation and amortization | $46,047 | $50,391 | $52,266 | | Loss on impairment of real estate | $41,847 | $131,732 | $0 | | (Gain) loss on sale of real estate| $(8,456) | $64 | $(244) | | FFO | $21,640 | $258,969 | $33,269 | | Transaction related costs | $738 | $0 | $16,135 | | (Gain) loss on early extinguishment of debt | $(264) | $(225,798) | $0 | | Normalized FFO | $22,114 | $33,171 | $49,404 | | Recurring capital expenditures | $(34,373) | $(30,050) | $(24,193) | | CAD | $(19,066) | $(1,079) | $17,353 | Per Common Share FFO, Normalized FFO, and CAD | Per Common Share Data | 9/30/2024 | 6/30/2024 | 9/30/2023 | | :-------------------- | :-------- | :-------- | :-------- | | FFO | $0.42 | $5.32 | $0.69 | | Normalized FFO | $0.43 | $0.68 | $1.02 | | CAD | $(0.37) | $(0.02) | $0.36 | Non-GAAP Financial Measures and Certain Definitions This section defines OPI's non-GAAP financial measures, including NOI, Cash Basis NOI, EBITDA, EBITDAre, Adjusted EBITDAre, FFO, Normalized FFO, and CAD, which are presented as supplemental indicators of operating performance and liquidity for a REIT, excluding certain historical and non-cash amounts to provide a clearer view of property-level operations and core performance - Non-GAAP measures like NOI, Cash Basis NOI, EBITDAre, Adjusted EBITDAre, FFO, Normalized FFO, and CAD are used to supplement GAAP results, providing insights into operating performance and liquidity by excluding certain non-cash items and historical amounts[117] - NOI and Cash Basis NOI focus on property-level operations, excluding amortization of capitalized tenant improvement costs, leasing commissions, non-cash straight-line rent adjustments, and lease termination fees[118] - FFO and Normalized FFO are calculated based on Nareit's definition, adjusting net income for depreciation, amortization, and gains/losses on real estate sales, with Normalized FFO further adjusting for transaction-related costs and early debt extinguishment[118] - CAD is defined as Normalized FFO minus real estate related capital expenditures and adjustments for non-recurring items and certain cash-settled amounts excluded from Normalized FFO[118] WARNING CONCERNING FORWARD-LOOKING STATEMENTS This section serves as a cautionary statement regarding forward-looking statements in the presentation, which are subject to various risks and uncertainties, including OPI's ability to address its going concern status, refinance debt, maintain liquidity, meet covenants, attract and retain tenants, and manage market conditions - The presentation contains forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from expectations[120][121] - Key risks include OPI's ability to address substantial doubt about its going concern status, make debt payments, refinance maturing debt, maintain sufficient liquidity, and comply with debt covenants[121] - Other risks involve tenant retention, future leasing activity, demand for office space, pending property dispositions, market and commercial real estate industry conditions (e.g., high interest rates, inflation), and geopolitical instability[121] - OPI does not intend to update or change any forward-looking statements unless required by law[121]