Office Properties me Trust(OPI) - 2025 Q1 - Quarterly Results

Quarterly Results First Quarter 2025 Financial Results Announcement OPI reported significant Q1 2025 operational challenges, including tenant non-renewals and increased debt service costs, while executing leasing and property dispositions - Management acknowledges ongoing operational challenges from tenant non-renewals, headwinds in key markets, and increased debt service costs from re-financing activities[7] - Completed 223,000 square feet of new and renewal leasing at a 13.5% roll-up in rent and a weighted average lease term of over 10 years[8] - Sold three properties for $26.9 million and has agreements to sell three more for $28.9 million[8] - Declared a quarterly common share distribution of $0.01 per share[10] First Quarter 2025 Summary Q1 2025 highlights include a $45.9 million net loss, $26.9 million in property sales, and reiterated substantial doubt about OPI's going concern due to limited liquidity Q1 2025 Key Financial Results | Metric | Value | | :--- | :--- | | Net Loss | $45.9 million ($0.66/share) | | Normalized FFO | $4.4 million ($0.06/share) | | Same property Cash Basis NOI | $52.9 million | - Financing activities included redeeming $113.3 million of 4.50% senior unsecured notes due 2025 and exchanging $21.0 million of existing notes for new 8.0% senior priority guaranteed unsecured notes due 2030[13] - As of April 30, 2025, total available liquidity was $73.1 million in cash. The company continues to conclude there is substantial doubt about its ability to continue as a going concern[13] Financials Key Financial Data Key financial data for the last five quarters ending March 31, 2025, shows declining performance metrics and constrained liquidity with the revolving credit facility fully drawn Selected Financial Data (Q1 2024 vs Q1 2025) | Metric | Q1 2024 (thousands) | Q1 2025 (thousands) | | :--- | :--- | :--- | | Rental Income | $139,435 | $113,615 | | Net (Loss) Income | ($5,184) | ($45,867) | | Normalized FFO | $38,317 | $4,350 | | CAD | $22,340 | ($11,209) | - Total liquidity as of March 31, 2025, consisted of $63.7 million in cash and cash equivalents, with no availability under the $325 million secured revolving credit facility as it was fully drawn[16] Condensed Consolidated Statements of Income (Loss) Q1 2025 condensed consolidated income statement shows a significant increase in net loss to $45.9 million from $5.2 million year-over-year, driven by decreased rental income and increased interest expense Income Statement Comparison (in thousands) | Line Item | Q1 2025 (thousands) | Q1 2024 (thousands) | | :--- | :--- | :--- | | Rental income | $113,615 | $139,435 | | Total expenses | $101,897 | $107,405 | | Interest expense | ($53,378) | ($35,476) | | Net loss | ($45,867) | ($5,184) | | Net loss per share | ($0.66) | ($0.11) | Condensed Consolidated Balance Sheets The March 31, 2025, balance sheet reflects a reduction in assets and liquidity, with total assets decreasing to $3.57 billion and cash declining from $261.3 million to $63.7 million Balance Sheet Comparison (in thousands) | Line Item | March 31, 2025 (thousands) | December 31, 2024 (thousands) | | :--- | :--- | :--- | | Total assets | $3,569,759 | $3,822,286 | | Cash and cash equivalents | $63,745 | $261,318 | | Total liabilities | $2,463,096 | $2,669,482 | | Total shareholders' equity | $1,106,663 | $1,152,804 | Debt Summary As of March 31, 2025, OPI's total debt principal balance was $2.44 billion with an 8.407% weighted average interest rate and 4.8 years weighted average maturity, with the revolving credit facility fully drawn Debt Overview as of March 31, 2025 | Metric | Value | | :--- | :--- | | Total Principal Balance | $2,436,418 thousand | | Weighted Average Interest Rate | 8.407% | | Weighted Average Years to Maturity | 4.8 years | - The company's $325 million secured revolving credit facility and $100 million secured term loan both mature in January 2027[23] - As of March 31, 2025, OPI was fully drawn on its revolving credit facility[24] Debt Maturity Schedule The debt maturity schedule highlights significant upcoming obligations, particularly in 2027, with the company's debt predominantly secured (79.8%) and fixed-rate (82.6%) - A large portion of debt matures in 2027, totaling approximately $910 million[26] Debt Composition | Type | Percentage | | :--- | :--- | | Secured Debt | 79.8% | | Unsecured Debt | 20.2% | | Fixed Rate Debt | 82.6% | | Variable Rate Debt | 17.4% | Leverage Ratios, Coverage Ratios and Public Debt Covenants Key leverage and coverage ratios deteriorated in Q1 2025, with Net Debt to Adjusted EBITDAre at 9.0x and secured debt to adjusted total assets reaching its 40.0% covenant limit, restricting additional secured debt Key Ratio Trends | Ratio | 3/31/2024 | 3/31/2025 | | :--- | :--- | :--- | | Net debt / rolling four quarter Adjusted EBITDAre | 8.4x | 9.0x | | Secured debt / total assets | 19.4% | 54.5% | | Total unencumbered assets / unsecured debt | 178.1% | 159.0% | - As of March 31, 2025, OPI's ratio of secured debt to adjusted total assets was at the 40.0% maximum allowed under its debt covenants, restricting its ability to incur additional secured debt[28][30] Capital Expenditures Summary Total capital expenditures for Q1 2025 amounted to $13.8 million, a significant decrease from $36.1 million in Q4 2024, with the majority allocated to recurring capital expenditures Capital Expenditures (in thousands) | Category | Q1 2025 (thousands) | Q4 2024 (thousands) | | :--- | :--- | :--- | | Recurring capital expenditures | $13,738 | $33,336 | | Development, redevelopment and other | $83 | $2,813 | | Total capital expenditures | $13,821 | $36,149 | Property Dispositions Since January 1, 2025, OPI sold two properties totaling 249,000 square feet for gross sales proceeds of $26.9 million Dispositions Since January 1, 2025 | Date Sold | Location | Sq. Ft. (thousands) | Gross Sales Price (thousands) | | :--- | :--- | :--- | :--- | | 2/7/2025 | Parsippany, NJ | 100 | $5,750 | | 2/26/2025 | Santa Clara, CA | 149 | $21,150 | | Total | | 249 | $26,900 | Investment in Unconsolidated Joint Venture OPI holds a 51% ownership in the Prosperity Metro Plaza joint venture, with the property having 77.6% occupancy and $49.8 million in outstanding debt - OPI has a 51% ownership in the Prosperity Metro Plaza joint venture, with an investment value of $17.1 million[39] - The joint venture's property has an occupancy of 77.6% and is encumbered by a $49.8 million mortgage note maturing in December 2029[39][40] Portfolio Information Summary Same Property Results The same-property portfolio experienced a decline in Q1 2025 performance, with occupancy dropping from 91.4% to 85.4%, leading to a 7.3% decrease in Same Property NOI Same Property Results Comparison | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Percent leased | 85.4% | 91.4% | | Same Property NOI (thousands) | $60,482 | $65,269 | | Same Property Cash Basis NOI (thousands) | $52,904 | $59,115 | | Same Property NOI % change | (7.3%) | N/A | | Same Property Cash Basis NOI % change | (10.5%) | N/A | Occupancy and Leasing Summary As of Q1 2025, OPI's portfolio occupancy was 81.3%, a decrease from 85.6% year-over-year, with 223,000 square feet of new and renewal leases executed at a 13.5% GAAP rent increase Portfolio Occupancy Trend | Quarter | Percentage Leased | | :--- | :--- | | 3/31/2024 | 85.6% | | 6/30/2024 | 83.5% | | 9/30/2024 | 82.8% | | 12/31/2024 | 85.0% | | 3/31/2025 | 81.3% | - In Q1 2025, total leasing activity was 223,000 sq. ft., with a 13.5% positive change in GAAP rent and a weighted average lease term of 10.3 years[48] Tenant Diversity and Credit Characteristics As of March 31, 2025, OPI's portfolio has a strong credit profile with 59.9% of annualized rental income from investment-grade tenants, diversified across industries including Real Estate & Financial (17.1%) and U.S. Government (16.8%) - Investment grade tenants account for 59.9% of total annualized rental income[51] - The top three tenant industries by annualized rental income are Real Estate & Financial (17.1%), U.S. Government (16.8%), and Technology & Communications (15.5%)[51] Top Tenants Revenue is concentrated among top tenants, with the 23 largest accounting for 62.5% of total annualized rental income, led by the U.S. Government at 16.8% and Alphabet Inc. (Google) at 5.7% Top 5 Tenants by Annualized Rental Income | Tenant | Credit Rating | % of Annualized Rental Income | | :--- | :--- | :--- | | U.S. Government | Investment Grade | 16.8% | | Alphabet Inc. (Google) | Investment Grade | 5.7% | | IG Investments Holdings LLC | Not Rated | 4.6% | | Bank of America Corporation | Investment Grade | 4.3% | | Shook, Hardy & Bacon L.L.P. | Not Rated | 3.4% | - The top 23 tenants collectively represent 62.5% of the total annualized rental income[52] Lease Expiration Schedule The lease expiration schedule indicates significant rollover risk, with a cumulative 24.3% of leased square footage (22.9% of annualized rental income) expiring by the end of 2027 - A cumulative 24.3% of leased square footage (22.9% of annualized rental income) expires by the end of 2027[54] Upcoming Lease Expirations (% of Total Leased Sq. Ft.) | Year | % Expiring | | :--- | :--- | | 2025 | 8.5% | | 2026 | 3.1% | | 2027 | 12.7% | - The weighted average remaining lease term is 6.9 years by annualized rental income[54] Appendix Company Profile and Governance Information This section provides corporate details, noting OPI is managed by The RMR Group, and lists Board members, executive officers, and credit rating agencies - OPI is managed by The RMR Group (Nasdaq: RMR), which had approximately $40 billion of real estate assets under management as of March 31, 2025[60] Calculation and Reconciliation of NOI and Cash Basis NOI This section reconciles Net Income (Loss) to non-GAAP NOI and Cash Basis NOI, showing Q1 2025 NOI of $61.4 million and Cash Basis NOI of $53.8 million from a $45.9 million net loss Q1 2025 NOI Reconciliation (in thousands) | Metric | Value (thousands) | | :--- | :--- | | Net (loss) income | ($45,867) | | ... adjustments ... | ... | | NOI | $61,385 | | ... non-cash adjustments ... | ... | | Cash Basis NOI | $53,834 | Reconciliation and Calculation of Same Property NOI and Same Property Cash Basis NOI This section details the calculation of Same Property NOI and Same Property Cash Basis NOI, showing Q1 2025 Same Property NOI of $60.5 million and Same Property Cash Basis NOI of $52.9 million Q1 2025 Same Property NOI Calculation (in thousands) | Metric | Value (thousands) | | :--- | :--- | | NOI | $61,385 | | Less: NOI of properties not in same property results | ($903) | | Same Property NOI | $60,482 | | ... non-cash adjustments ... | ... | | Same Property Cash Basis NOI | $52,904 | Property Details (by Collateral Pool) This section provides a detailed breakdown of OPI's 125 properties, organized by the debt they collateralize, including data on square footage, occupancy, lease terms, and gross book value - The property portfolio is detailed by the specific debt instruments they secure, providing transparency into which assets are encumbered[68][69][72] Portfolio Summary by Collateral Status | Category | Number of Properties | Total Sq. Ft. (thousands) | Gross Book Value (thousands) | | :--- | :--- | :--- | :--- | | Subtotal Secured | 98 | 14,462 | $3,938,141 | | Subtotal Unencumbered | 27 | 2,812 | $674,854 | | Total | 125 | 17,274 | $4,612,995 | Calculation of EBITDA, EBITDAre and Adjusted EBITDAre This section details the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre, showing Q1 2025 Adjusted EBITDAre at $57.8 million, a decrease from $73.8 million in Q1 2024 Adjusted EBITDAre Trend (in thousands) | Quarter | Adjusted EBITDAre (thousands) | | :--- | :--- | | 3/31/2024 | $73,799 | | 6/30/2024 | $71,469 | | 9/30/2024 | $65,001 | | 12/31/2024 | $68,152 | | 3/31/2025 | $57,768 | Calculation of FFO, Normalized FFO and CAD This section details the calculation of FFO, Normalized FFO, and CAD, showing Q1 2025 Normalized FFO of $4.4 million ($0.06 per share) and a negative CAD of -$11.2 million (-$0.16 per share) Q1 2025 FFO and CAD Calculation (in thousands) | Metric | Per Share | Total (thousands) | | :--- | :--- | :--- | | Net (loss) income | ($0.66) | ($45,867) | | FFO | $0.05 | $3,231 | | Normalized FFO | $0.06 | $4,350 | | CAD | ($0.16) | ($11,209) | Non-GAAP Financial Measures and Certain Definitions This section defines non-GAAP financial measures used in the report, including NOI, EBITDAre, FFO, and CAD, explaining their purpose and calculation methodologies - Provides definitions and calculation methodologies for key non-GAAP metrics including NOI, EBITDAre, FFO, and CAD, clarifying how they differ from GAAP net income[82][83][84][85] Warning Concerning Forward-Looking Statements This section contains a standard safe harbor statement, highlighting key risks related to OPI's ability to continue as a going concern, manage debt maturities, liquidity constraints, and tenant retention - The forward-looking statements highlight significant risks, including the company's ability to continue as a going concern, manage debt maturities and liquidity, and address challenges in tenant retention and leasing[99][100]