Office Properties me Trust(OPI) - 2021 Q1 - Quarterly Report

PART I. Financial Information Financial Statements (unaudited) Presents unaudited condensed consolidated financial statements for Office Properties Income Trust, including Balance Sheets, Income, Equity, and Cash Flow Statements, with essential notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total real estate properties, net | $3,007,696 | $3,070,229 | | Cash and cash equivalents | $184,462 | $42,045 | | Total assets | $3,952,579 | $3,946,436 | | Senior unsecured notes, net | $2,035,304 | $2,033,242 | | Total liabilities | $2,331,581 | $2,337,044 | | Total shareholders' equity | $1,620,998 | $1,609,392 | Condensed Consolidated Statements of Comprehensive Income Highlights (in thousands) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Rental income | $144,524 | $149,885 | | Total expenses | $131,044 | $119,751 | | Gain on sale of real estate | $54,004 | $10,756 | | Net income | $37,860 | $10,840 | | Net income per share (basic and diluted) | $0.78 | $0.23 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $57,942 | $37,601 | | Net cash provided by investing activities | $113,896 | $42,095 | | Net cash used in financing activities | ($27,218) | ($146,386) | | Increase (decrease) in cash | $144,620 | ($66,690) | Notes to Financial Statements - Real Estate Properties (Note 3) Details the company's 180-property portfolio, Q1 2021 dispositions totaling $130.8 million with a $54.0 million gain, a $7.7 million impairment loss, and a planned $27.0 million acquisition - As of March 31, 2021, the portfolio consisted of 180 wholly-owned properties with approximately 24.6 million rentable square feet[22] - During Q1 2021, the company entered into 20 leases for approximately 575,000 rentable square feet with a weighted average lease term of 5.4 years[22] Q1 2021 Disposition and Impairment Activity (in thousands) | Activity | Details | Amount | | :--- | :--- | :--- | | Dispositions | Sale of 2 properties (321,000 sq. ft.) | $130,845 (Sales Price) | | | | $54,004 (Gain on Sale) | | Impairment | Impairment on 2 properties held for sale | $7,660 (Loss) | - The company has an agreement to acquire a property in Boston, MA for $27.0 million, with the acquisition expected to occur before the end of Q2 2021[25] Notes to Financial Statements - Leases and Concentration (Notes 4 & 5) The company granted $2,483,000 in COVID-19 rent assistance, while the portfolio shows concentration with the U.S. government as the largest tenant (25.9% of annualized rental income) and 36.3% of income from California, Virginia, and D.C - As of April 26, 2021, the company granted temporary rent assistance of $2,483,000 to 18 tenants impacted by the COVID-19 pandemic, generally structured as 12-month deferral plans[38][39] - The U.S. government is the largest tenant, representing approximately 25.9% of annualized rental income as of March 31, 2021, up from 25.0% a year prior[40] - The portfolio has geographic concentration, with properties in California (12.7%), Virginia (12.7%), and the District of Columbia (10.9%) accounting for a significant portion of annualized rental income[41] Notes to Financial Statements - Indebtedness (Note 6) Total debt was $2.24 billion ($2.07 billion unsecured notes, $170.2 million mortgages), with $750 million available on the credit facility and no outstanding borrowings, and compliance with all debt covenants - Principal debt obligations at March 31, 2021, were $2.07 billion in senior unsecured notes and $170.2 million in mortgage notes[42] - As of March 31, 2021, there were no amounts outstanding under the $750 million revolving credit facility, which matures in January 2023[44] - The company believes it was in compliance with all covenants under its credit agreement and senior unsecured notes indentures as of March 31, 2021[46] Notes to Financial Statements - Shareholders' Equity (Note 8) In Q1 2021, the company declared and paid a $0.55 per share common share distribution, totaling $26,575, with a similar distribution declared for Q2 Q1 2021 Common Share Distribution | Declaration Date | Record Date | Paid Date | Per Share | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Jan 14, 2021 | Jan 25, 2021 | Feb 18, 2021 | $0.55 | $26,575 | - On April 15, 2021, a further quarterly distribution of $0.55 per share was declared, payable in May 2021[51] Notes to Financial Statements - Related Party Transactions (Notes 9 & 10) The company, managed by RMR LLC, recognized $9,474,000 in Q1 2021 business management fees (including $5,200,000 incentive fee) and $4,612,000 in property management fees - The company has no employees and is managed by RMR LLC under separate business and property management agreements[52] - Net business management fees for Q1 2021 were $9,474,000, including $5,200,000 of estimated business management incentive fees This compares to $4,699,000 in Q1 2020, which had no incentive fee[53] - Property management and construction supervision fees paid to RMR LLC totaled $4,612,000 for Q1 2021, down from $5,064,000 in Q1 2020[54] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2021 performance, noting stable operations, capital recycling, and strong liquidity, with net income up due to property sales, though Normalized FFO per share decreased from $1.40 to $1.28 Overview and Property Operations The 180-property portfolio was 90.8% leased, with $2,483,000 in COVID-19 rent deferrals; Q1 leasing totaled 575,000 rentable square feet with a 3.2% rent roll-up, and the U.S. government is the largest tenant (25.9% of annualized rental income) - The COVID-19 pandemic has not had a significant impact on business to date The company granted temporary rent assistance of $2,483,000 to 18 tenants, with $2,118,000 (85.3%) collected as of April 26, 2021[63] Portfolio Occupancy | Metric | March 31, 2021 | March 31, 2020 | | :--- | :--- | :--- | | Total Properties | 180 | 184 | | Total Rentable Sq. Ft. (thousands) | 24,568 | 24,906 | | Percent Leased | 90.8% | 91.5% | - In Q1 2021, the company executed leases for 575,000 rentable square feet The weighted average rent increase was 3.2% above prior rents for the same space, with a weighted average lease term of 5.4 years[73] - Tenants with investment-grade credit ratings (or guarantees from investment-grade parents) accounted for 56.1% of annualized rental income as of March 31, 2021[87] Results of Operations Q1 2021 rental income decreased 3.6% to $144,524 due to dispositions, while net income surged to $37,860 from $10,840 due to a $54,004 gain on sales, and G&A rose 58.6% to $11,272 Financial Performance Comparison (in thousands) | Metric | Q1 2021 | Q1 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income | $144,524 | $149,885 | (3.6%) | | Net Operating Income (NOI) | $96,499 | $100,186 | (3.7%) | | General & Administrative | $11,272 | $7,109 | 58.6% | | Gain on sale of real estate | $54,004 | $10,756 | n/m | | Net Income | $37,860 | $10,840 | n/m | - The decrease in rental income was primarily due to property disposition activities[98] - The increase in G&A expenses was primarily the result of $5.2 million of estimated business management incentive fees recorded in the 2021 period[104] Non-GAAP Financial Measures Q1 2021 NOI was $96,499 (down from $100,186), FFO per diluted share was $1.17 (down from $1.34), and Normalized FFO per diluted share was $1.28 (down from $1.40) NOI Reconciliation (in thousands) | | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $37,860 | $10,840 | | Reconciling Items | ... | ... | | NOI | $96,499 | $100,186 | FFO and Normalized FFO Reconciliation (in thousands, except per share) | | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $37,860 | $10,840 | | FFO | $56,609 | $64,268 | | Normalized FFO | $61,809 | $67,550 | | FFO per diluted share | $1.17 | $1.34 | | Normalized FFO per diluted share | $1.28 | $1.40 | Liquidity and Capital Resources The company maintains strong liquidity with $750 million available on its credit facility and no debt maturities until 2022; Q1 operating cash flow was $57,942, and $130.8 million in property sales funded capital recycling - As of April 28, 2021, the company had $750 million available under its revolving credit facility and no debt maturities until 2022[121] - The capital recycling program is a key strategy, with two properties sold in Q1 2021 for $130.8 million and another sold in April 2021 for $39.0 million[123] Debt Maturities as of March 31, 2021 (in thousands) | Year | Debt Maturities | | :--- | :--- | | 2021 | $896 | | 2022 | $625,518 | | 2023 | $143,784 | | 2024 | $350,000 | | 2025 | $650,000 | | Thereafter | $472,000 | | Total | $2,242,198 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, managed by $2.24 billion in fixed-rate debt; the $750 million revolving credit facility is LIBOR-tied, and the company monitors LIBOR's phase-out - At March 31, 2021, total outstanding fixed-rate debt was $2.24 billion[141] - A hypothetical immediate one percentage point increase in interest rates would decrease the fair value of the company's fixed-rate debt obligations by approximately $103.6 million[143] - At March 31, 2021, the company had no outstanding floating-rate debt Its $750 million revolving credit facility is tied to LIBOR, which is expected to be phased out[147][152] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures are effective as of March 31, 2021[153] - There were no material changes in internal control over financial reporting during the first quarter of 2021[154] PART II. Other Information Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - There have been no material changes to the risk factors from those previously disclosed in our 2020 Annual Report[170] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, officer certifications, and XBRL data files - The report includes a list of filed exhibits, such as the Amended and Restated Declaration of Trust, various debt indentures, and required officer certifications[171][173]