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

PART I. Financial Information Financial Statements (unaudited) Q1 2025 unaudited financials show increased net loss, decreased assets, negative operating cash flow, and going concern doubt Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $3.57 billion, with liabilities also falling, leading to lower shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,569,759 | $3,822,286 | | Total real estate properties, net | $3,009,671 | $3,038,909 | | Cash and cash equivalents | $63,745 | $261,318 | | Total Liabilities | $2,463,096 | $2,669,482 | | Unsecured debt, net | $488,556 | $662,277 | | Secured debt, net | $1,872,355 | $1,872,357 | | Total Shareholders' Equity | $1,106,663 | $1,152,804 | Condensed Consolidated Statements of Comprehensive Income (Loss) Q1 2025 net loss widened significantly to $45.9 million due to decreased rental income and increased interest expense Statement of Comprehensive Income (Loss) Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | 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 Statements of Cash Flows Q1 2025 saw $28.6 million net cash used in operations and $185.0 million in financing, significantly decreasing total cash Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($28,588) | $26,632 | | Net cash provided by (used in) investing activities | $15,034 | ($4,362) | | Net cash used in financing activities | ($184,957) | ($4,878) | | (Decrease) increase in cash | ($198,511) | $17,392 | | Cash at end of period | $76,654 | $44,106 | Notes to Condensed Consolidated Financial Statements Notes highlight a "Going Concern" warning due to debt maturities, property sales, tenant concentration, and new equity programs - The company has concluded there is substantial doubt about its ability to continue as a going concern due to upcoming debt obligations, limited financing alternatives, and the illiquid nature of its real estate assets. The Board may consider a bankruptcy reorganization if refinancing is unsuccessful[23] - During Q1 2025, the company sold three properties for an aggregate price of $26.9 million, resulting in a net loss on sale of $4.7 million[29][30] - The U.S. government remains the largest tenant, representing 16.8% of annualized rental income as of March 31, 2025, down from 20.2% a year prior[39] - In March 2025, the company initiated an 'at the market' (ATM) program to sell up to $100 million in common shares. In Q1, it sold 238,343 shares for net proceeds of $145,000[55] - Effective January 1, 2025, the company terminated its lease with related party Sonesta and entered into a long-term management agreement for the same mixed-use property[66][67] Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights severe office sector headwinds, declining occupancy, a 30.4% NOI drop, and going concern doubt - Management reiterates that there is substantial doubt about the company's ability to continue as a going concern due to limited financing alternatives to refinance maturing debt. The Board may consider bankruptcy if these efforts fail[77] Key Performance Indicators (in millions, except percentages and per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Percent Leased (All Properties) | 81.3% | 85.6% | | Percent Leased (Comparable) | 85.4% | 91.4% | | Net Operating Income (NOI) | $61.4M | $88.2M | | Normalized FFO | $4.4M | $38.3M | | Normalized FFO per share | $0.06 | $0.79 | - The company faces significant lease expirations, with 8.5% of leased square feet expiring in 2025 and another 3.1% in 2026[93] Property Operations Q1 2025 portfolio occupancy declined to 81.3%, with new leases seeing a 3.5% rental rate decrease despite 19.3% increases in renewals Portfolio Occupancy (in thousands of square feet, except percentages) | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Total Properties | 125 | 151 | | Total Rentable Square Feet (thousands) | 17,274 | 20,293 | | Percent Leased (All Properties) | 81.3% | 85.6% | | Percent Leased (Comparable Properties) | 85.4% | 91.4% | Q1 2025 Leasing Activity (in thousands of square feet, except percentages and years) | Leasing Metric | New Leases | Renewals | Total | | :--- | :--- | :--- | :--- | | Rentable square feet leased (thousands) | 50 | 173 | 223 | | Weighted average rental rate change | (3.5%) | 19.3% | 13.5% | | Weighted average lease term (years) | 10.3 | 10.3 | 10.3 | - Capital expenditures for the quarter totaled $13.8 million, a significant decrease from $28.2 million in the prior-year period, primarily due to lower spending on lease-related costs and development activities[87] Results of Operations Q1 2025 rental income decreased 18.5%, NOI fell 30.4%, and interest expense surged 50.5%, leading to a $45.9 million net loss Results of Operations Comparison (in thousands) | Account | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income | $113,615 | $139,435 | ($25,820) | (18.5%) | | Total operating expenses | $52,230 | $51,187 | $1,043 | 2.0% | | Net operating income (NOI) | $61,385 | $88,248 | ($26,863) | (30.4%) | | Interest expense | ($53,378) | ($35,476) | ($17,902) | 50.5% | | Net loss | ($45,867) | ($5,184) | ($40,683) | n/m | - The decrease in rental income was primarily driven by property dispositions (non-comparable properties) and increased vacancies at comparable properties[106] - The increase in interest expense was due to higher weighted average interest rates resulting from financing activities undertaken in 2024[112] Non-GAAP Financial Measures Key non-GAAP metrics deteriorated in Q1 2025, with NOI decreasing 30.4% to $61.4 million and Normalized FFO falling sharply Reconciliation of Net Loss to NOI (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | ($45,867) | ($5,184) | | Add back various non-property level items... | ... | ... | | NOI | $61,385 | $88,248 | FFO and Normalized FFO Reconciliation (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | ($45,867) | ($5,184) | | Depreciation and amortization | $44,361 | $50,983 | | Loss on sale of real estate | $4,737 | $2,384 | | FFO | $3,231 | $48,183 | | Adjustments | $1,119 | ($9,866) | | Normalized FFO | $4,350 | $38,317 | | Normalized FFO per share | $0.06 | $0.79 | Liquidity and Capital Resources The company faces severe liquidity pressure with $73.1 million cash and significant debt maturities, leading to a "going concern" warning - As of April 30, 2025, total available liquidity was $73.1 million in cash, with the revolving credit facility fully drawn[134] Debt Maturities (in thousands) | Year | Debt Maturities | | :--- | :--- | | 2025 | $19,500 | | 2026 | $279,460 | | 2027 | $346,298 | | 2028 | $123,487 | | 2029 | $910,278 | | 2030 and thereafter | $332,395 | | Total | $2,011,418 | - The company is actively pursuing strategies to address debt obligations, including asset sales, debt exchanges, and equity issuances, but warns there is substantial doubt about its ability to continue as a going concern[134] Debt Covenants As of March 31, 2025, the company complied with most debt covenants but reached the maximum 40.0% secured debt ratio, restricting additional secured debt Debt Covenant Compliance as of March 31, 2025 | Covenant | Requirement | Actual | | :--- | :--- | :--- | | Total unencumbered assets / unsecured debt | >= 150.0% | 159.0% | | Total debt / adjusted total assets | <= 60.0% | 50.2% | | Secured debt / adjusted total assets | <= 40.0% | 40.0% | | Debt service coverage ratio | >= 1.50x | 1.54x | - Because the secured debt to adjusted total assets ratio is at the maximum level, the company is unable to incur additional secured debt, restricting a key avenue for refinancing[139][140] Quantitative and Qualitative Disclosures About Market Risk The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[149] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with no material changes to internal control - Management concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[150] - No material changes were made to the internal control over financial reporting during the first quarter of 2025[151] PART II. Other Information Risk Factors No material changes to the company's risk factors have occurred since the filing of its 2024 Annual Report on Form 10-K - No material changes to risk factors have occurred since the filing of the 2024 Annual Report[161] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, and officer certifications - The exhibits include various legal and financial documents, such as indentures for senior notes, the ATM sales agreement, and required certifications by company officers[162][164]