Office Properties me Trust(OPI) - 2025 Q2 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements Unaudited Q2 2025 financials show declining assets, a net loss, negative operating cash flow, and substantial going concern doubt Condensed Consolidated Balance Sheets | Balance Sheet Items | June 30, 2025 ($ thousands) | December 31, 2024 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total real estate properties, net | 2,990,023 | 3,038,909 | -1.6% | | Cash and cash equivalents | 78,176 | 261,318 | -70.1% | | Total assets | 3,560,949 | 3,822,286 | -6.8% | | Unsecured debt, net | 488,754 | 662,277 | -26.2% | | Secured debt, net | 1,876,439 | 1,872,357 | +0.2% | | Total liabilities | 2,495,021 | 2,669,482 | -6.5% | | Total shareholders' equity | 1,065,928 | 1,152,804 | -7.5% | Condensed Consolidated Statements of Comprehensive Income (Loss) | Income Statement Items | Three Months Ended June 30, 2025 ($ thousands) | Three Months Ended June 30, 2024 ($ thousands) | Six Months Ended June 30, 2025 ($ thousands) | Six Months Ended June 30, 2024 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Rental income | 114,499 | 123,686 | 228,114 | 263,121 | | Total expenses | 104,051 | 235,053 | 205,948 | 342,458 | | Net (loss) income | (41,186) | 76,171 | (87,053) | 70,987 | | Net (loss) income per share | ($0.58) | $1.56 | ($1.24) | $1.45 | - The company experienced a significant swing from a net income of $76.2 million in Q2 2024 to a net loss of $41.2 million in Q2 2025, primarily due to lower rental income and the absence of a large gain on early extinguishment of debt that occurred in the prior-year period[11] Condensed Consolidated Statements of Shareholders' Equity - Total shareholders' equity decreased from $1.15 billion at the end of 2024 to $1.07 billion as of June 30, 2025, primarily driven by a net loss of $87.1 million for the six-month period[13][11] Condensed Consolidated Statements of Cash Flows | Cash Flow Items (Six Months Ended June 30) | 2025 ($ thousands) | 2024 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 3,811 | 58,499 | | Net cash provided by (used in) investing activities | 4,506 | (21,282) | | Net cash used in financing activities | (191,528) | (29,544) | | (Decrease) increase in cash | (183,211) | 7,673 | | Cash, cash equivalents and restricted cash at end of period | 91,954 | 34,387 | - Net cash from operating activities plummeted by 93.5% YoY for the first six months of 2025, dropping from $58.5 million to $3.8 million, reflecting deteriorating operational performance[15] Notes to Condensed Consolidated Financial Statements - The company has concluded that there is substantial doubt about its ability to continue as a going concern due to adverse market conditions, limited financing alternatives for upcoming debt obligations, and the possibility of considering a bankruptcy reorganization if refinancing is unsuccessful[22][23] - During the first six months of 2025, OPI sold three properties for an aggregate price of $26.9 million, with three additional properties under agreement to be sold for a total of $28.9 million as of July 29, 2025[29][31] - On July 10, 2025, the company announced the suspension of its quarterly distribution on common shares in order to preserve cash[57] - In March 2025, the company initiated an "at the market" (ATM) offering program to sell up to $100 million in common shares, selling approximately 4.2 million shares for net proceeds of $1.1 million through June 30, 2025[58] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses severe market headwinds, declining occupancy, and constrained liquidity, raising substantial doubt about going concern Overview - As of June 30, 2025, OPI's portfolio consisted of 125 wholly-owned properties, with the U.S. government as the largest tenant, accounting for 17.1% of annualized rental income[79] - Management reiterates substantial doubt about the company's ability to continue as a going concern due to limited financing alternatives, illiquid assets, and covenant constraints, with bankruptcy reorganization a possibility if refinancing efforts fail[81] Property Operations | Occupancy Metrics | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Properties | 125 | 151 | | Total Rentable Square Feet (thousands) | 17,270 | 20,293 | | Percent Leased | 81.2% | 83.5% | - For the six months ended June 30, 2025, the company entered into new and renewal leases for 639,000 square feet with a weighted average rental rate increase of 8.8% and committed $18.6 million in tenant leasing costs and concessions[89] - A significant portion of leases are set to expire in the near to medium term, with 12.6% of annualized rental income expiring in 2027 and 38.1% expiring in 2034 and thereafter[97] Results of Operations | Metric (Three Months Ended June 30) | 2025 ($ thousands) | 2024 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Rental Income | 114,499 | 123,686 | -7.4% | | Total Operating Expenses | 49,031 | 47,640 | +2.9% | | Net Operating Income (NOI) | 65,468 | 76,046 | -13.9% | | Net (Loss) Income | (41,186) | 76,171 | -154.1% | - The decrease in Q2 2025 rental income was driven by property dispositions and increased vacancies, while the significant drop in net income was largely due to the absence of a $225.8 million gain on early debt extinguishment recorded in Q2 2024[110][119] Non-GAAP Financial Measures | Per Share Data (Three Months Ended June 30) | 2025 | 2024 | | :--- | :--- | :--- | | Net (loss) income | ($0.58) | $1.56 | | FFO | $0.08 | $5.32 | | Normalized FFO | $0.13 | $0.68 | - Normalized Funds from Operations (Normalized FFO), a key metric of operating performance for REITs, declined sharply to $0.13 per share in Q2 2025 from $0.68 per share in Q2 2024, reflecting the deterioration in core operations[142] Liquidity and Capital Resources - As of July 30, 2025, the company's liquidity consisted of $90.1 million in cash, with its $325 million revolving credit facility fully drawn[148][156] Debt Maturities ($ thousands) | Debt Maturities ($ thousands) | Amount | | :--- | :--- | | 2025 | 13,000 | | 2026 | 279,460 | | 2027 | 346,298 | | 2028 | 123,487 | | 2029 | 910,278 | | 2030 and thereafter | 332,395 | | Total | 2,004,918 | - The company is in compliance with its debt covenants as of June 30, 2025, but notes its ability to incur additional debt is limited due to the narrow margin of compliance[162][163] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide disclosures under this item - As a smaller reporting company, OPI is not required to make disclosures under Item 3 regarding market risk[171] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, with no material changes to internal control over financial reporting during the period - Management's evaluation concluded that the company's disclosure controls and procedures are effective as of June 30, 2025[172] PART II. Other Information Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to risk factors from the 2024 Annual Report were reported[183] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2025, the company purchased a total of 18,065 of its own common shares at a weighted average price of $0.31 per share to satisfy tax withholding obligations for a former officer and certain former employees of RMR in connection with the vesting of share awards Unregistered Sales of Equity Securities and Use of Proceeds | Calendar Month (2025) | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 5,300 | $0.41 | | May | 7,406 | $0.33 | | June | 5,359 | $0.20 | | Total | 18,065 | $0.31 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, indentures related to various senior notes, and officer certifications