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

Quarterly Results This section provides an overview of Office Properties Income Trust's (OPI) financial performance and operational highlights for the second quarter of 2025 Q2 2025 Financial Results Announcement OPI announced Q2 2025 financial results, notably suspending its quarterly cash distribution on common shares to preserve cash - On July 10, 2025, OPI suspended its quarterly cash distribution on common shares to preserve cash[11] - OPI is a national REIT focused on owning and leasing office properties to high credit quality tenants, owning 125 properties with approximately 17.3 million square feet as of June 30, 2025[13] - Approximately 59% of OPI's revenues were from investment-grade rated tenants as of the end of the quarter[13] Second Quarter 2025 Summary OPI reported a net loss of $41.2 million and Normalized FFO of $9.4 million in Q2 2025, with 85.2% same property occupancy and $90.1 million in cash, while expressing substantial doubt about its going concern ability Q2 2025 Key Metrics | Metric | Value | | :--- | :--- | | Net Loss | $41.2 million ($0.58/share) | | Normalized FFO | $9.4 million ($0.13/share) | | Same Property Cash Basis NOI | $55.0 million | | Total Leasing Executed | 416,000 sq. ft. | | Same Property Occupancy | 85.2% | | Weighted Average Lease Term | 6.8 years | - In July 2025, OPI sold one property of approximately 56,000 square feet for $2.2 million[14] - As of July 30, 2025, total available liquidity was $90.1 million in cash, and the company continues to conclude there is substantial doubt about its ability to continue as a going concern[14] Financials This section details OPI's financial performance, including key financial data, income statements, balance sheets, debt summaries, capital expenditures, property dispositions, and joint venture investments Key Financial Data OPI's Q2 2025 key financial data shows a net loss of $41.2 million and Normalized FFO of $9.4 million, with $78.2 million in total liquidity from fully drawn credit facilities Selected Financial Data (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Rental Income | $114.5M | $123.7M | | Net (Loss) Income | ($41.2M) | $76.2M | | Normalized FFO | $9.4M | $33.2M | | CAD | ($6.2M) | ($1.1M) | | Net (Loss) Income per Share | ($0.58) | $1.56 | | Normalized FFO per Share | $0.13 | $0.68 | - Total liquidity as of June 30, 2025, was $78.2 million, comprised solely of cash and cash equivalents, with the $325 million secured revolving credit facility being fully drawn[18] Condensed Consolidated Statements of Income (Loss) OPI reported a net loss of $41.2 million for Q2 2025, a significant decline from Q2 2024's net income, primarily due to lower rental income and higher interest expense Income Statement Highlights (Three Months Ended June 30) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Rental Income | $114,499 | $123,686 | | Total Expenses | $104,051 | $235,053 | | Interest Expense | ($52,507) | ($38,349) | | Net Gain (Loss) on Early Extinguishment of Debt | $148 | $225,798 | | Net (Loss) Income | ($41,186) | $76,171 | Condensed Consolidated Balance Sheets As of June 30, 2025, OPI's total assets were $3.56 billion, total liabilities $2.50 billion, and total shareholders' equity $1.07 billion, all showing decreases from year-end 2024 Balance Sheet Summary | (in thousands) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Real Estate Properties, net | $2,990,023 | $3,038,909 | | Cash and Cash Equivalents | $78,176 | $261,318 | | Total Assets | $3,560,949 | $3,822,286 | | Total Debt, net (Unsecured + Secured) | $2,365,193 | $2,534,634 | | Total Liabilities | $2,495,021 | $2,669,482 | | Total Shareholders' Equity | $1,065,928 | $1,152,804 | Debt Summary As of June 30, 2025, OPI's total debt was approximately $2.43 billion with a weighted average interest rate of 8.40% and 4.5 years to maturity, primarily composed of secured debt Total Debt Overview (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Total Principal Balance | $2,429,918 thousand | | Weighted Average Interest Rate | 8.395% | | Weighted Average Years to Maturity | 4.5 years | - The debt is comprised of $425 million in secured floating-rate debt, $1.51 billion in secured fixed-rate debt, and $491 million in unsecured fixed-rate debt[25] - The $325 million secured revolving credit facility was fully drawn as of June 30, 2025[26] Debt Maturity Schedule OPI's debt maturity schedule indicates significant upcoming maturities in 2026, 2027, and 2029, with 79.8% of debt secured and 82.5% fixed-rate as of Q2 2025 Debt Maturities by Year (Principal in thousands) | Year | Amount Due | | :--- | :--- | | 2026 | $145,531 | | 2027 | $910,278 | | 2028 | $123,487 | | 2029 | $267,992 | | 2030 and thereafter | $278,841 | - Debt composition is 79.8% secured and 20.2% unsecured, with 82.5% fixed-rate and 17.5% variable-rate by type[28] Leverage and Debt Covenants OPI's leverage ratios deteriorated in Q2 2025, with net debt to Adjusted EBITDAre at 9.3x, yet the company remains in compliance with public debt covenants, albeit with minimal margin on some Key Ratios and Covenants (as of June 30, 2025) | Ratio / Covenant | Q2 2025 Value | Requirement | | :--- | :--- | :--- | | Net debt / total gross assets | 55.6% | N/A | | Net debt / rolling four quarter Adjusted EBITDAre | 9.3x | N/A | | Total unencumbered assets / unsecured debt | 161.6% | min 150.0% | | Secured debt / adjusted total assets | 39.8% | max 40.0% | | Consolidated income available for debt service / debt service | 1.51x | min 1.50x | Capital Expenditures Summary Total capital expenditures for Q2 2025 amounted to $13.7 million, predominantly comprising $13.2 million in recurring capital expenditures for lease-related costs and building improvements Capital Expenditures (Three Months Ended June 30, 2025) | Category | Amount (in thousands) | | :--- | :--- | | Lease related costs | $8,830 | | Building improvements | $4,327 | | Recurring capital expenditures | $13,157 | | Development, redevelopment and other | $565 | | Total capital expenditures | $13,722 | Property Dispositions Since January 1, 2025, OPI has sold three properties totaling 305,000 square feet for a gross sales price of $29.05 million, averaging $95.25 per square foot 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 | | 7/8/2025 | Detroit, MI | 56 | $2,150 | | Total | | 305 | $29,050 | Investment in Unconsolidated Joint Venture OPI holds a 51% interest in the Prosperity Metro Plaza joint venture, valued at $17.0 million, with the JV having a $49.6 million mortgage where OPI's proportionate share is $25.3 million - OPI owns a 51% interest in the Prosperity Metro Plaza joint venture, with an investment of $16,990 thousand[39] - The joint venture property is 346,000 sq. ft., has an occupancy of 77.6%, and a weighted average remaining lease term of 3.8 years[39] - The JV has a $49.6 million mortgage note with a 4.090% interest rate, maturing in December 2029, where OPI's share of this principal is $25.3 million, though the debt is non-recourse to OPI[40] Portfolio Information This section provides detailed information on OPI's property portfolio, including same-property results, occupancy, leasing activity, tenant diversity, and lease expiration schedules Summary Same Property Results OPI's same-property portfolio experienced a decline in Q2 2025, with Same Property NOI decreasing by 6.1% and Cash Basis NOI by 10.3%, driven by a drop in occupancy to 85.2% Same Property Performance (Three Months Ended June 30) | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Percent Leased | 85.2% | 91.4% | N/A | | Same Property NOI | $62.4M | $66.4M | (6.1%) | | Same Property Cash Basis NOI | $55.0M | $61.3M | (10.3%) | Occupancy and Leasing Summary As of Q2 2025, OPI's total portfolio was 81.2% leased, with 416,000 square feet of leasing executed during the quarter at a 6.4% positive change in GAAP rent Q2 2025 Leasing Activity | Leasing Metric | New Leases | Renewals | Total | | :--- | :--- | :--- | :--- | | Square Feet | 138,000 | 278,000 | 416,000 | | % Change in GAAP Rent | 8.5% | 5.2% | 6.4% | | W.A. Lease Term (Years) | 4.7 | 5.8 | 5.4 | - Total portfolio occupancy was 81.2% at the end of Q2 2025, slightly down from 81.3% in the prior quarter[47] Tenant Diversity and Credit Characteristics OPI's tenant base as of June 30, 2025, shows 58.7% of rental income from investment-grade tenants, with the U.S. Government as the largest tenant category at 17.1% - By credit rating, tenants are segmented as: Investment Grade (58.7%), Not Rated (34.5%), and Non-Investment Grade (6.8%)[51] - The top tenant industries by annualized rental income are U.S. Government (17.1%), Real Estate & Financial (16.0%), and Technology & Communications (15.4%)[51] Top Tenants The U.S. Government is OPI's largest tenant, contributing 17.1% of total annualized rental income, with the top 21 tenants collectively representing 60.5% Top 5 Tenants by Annualized Rental Income | Tenant | Credit Rating | % of Total Annualized Rental Income | | :--- | :--- | :--- | | U.S. Government | Investment Grade | 17.1% | | Alphabet Inc. (Google) | Investment Grade | 5.8% | | IG Investments Holdings LLC | Not Rated | 4.7% | | Bank of America Corporation | Investment Grade | 4.4% | | Shook, Hardy & Bacon L.L.P. | Not Rated | 3.4% | Lease Expiration Schedule OPI faces significant lease expirations, with 20.2% of annualized rental income set to expire by the end of 2027, and a weighted average remaining lease term of 6.8 years Cumulative Lease Expirations (% of Annualized Rental Income) | Year | % Expiring in Year | Cumulative % Expiring | | :--- | :--- | :--- | | 2025 | 3.6% | 3.6% | | 2026 | 4.0% | 7.6% | | 2027 | 12.6% | 20.2% | | 2028 | 7.2% | 27.4% | | 2029 | 8.3% | 35.7% | - The weighted average remaining lease term is 6.6 years based on square footage and 6.8 years based on annualized rental income[55] Appendix This section includes supplementary information such as company profile, governance details, and reconciliations of non-GAAP financial measures Company Profile and Governance Information OPI is externally managed by The RMR Group, an alternative asset management company with approximately $40 billion in real estate assets under management - OPI is managed by The RMR Group, which had approximately $40 billion of real estate assets under management as of June 30, 2025[62] Reconciliation of NOI and Cash Basis NOI This section reconciles GAAP Net (Loss) Income to non-GAAP measures, showing a Q2 2025 Net Loss of $41.2 million reconciled to an NOI of $65.5 million and a Cash Basis NOI of $58.1 million Q2 2025 Reconciliation Summary (in thousands) | Metric | Value | | :--- | :--- | | Net (Loss) Income | ($41,186) | | NOI | $65,468 | | Cash Basis NOI | $58,078 | Reconciliation of Same Property NOI This section reconciles total NOI to Same Property NOI, adjusting Q2 2025 total NOI of $65.5 million to a Same Property NOI of $62.4 million and a Same Property Cash Basis NOI of $55.0 million Q2 2025 Same Property Reconciliation (in thousands) | Metric | Value | | :--- | :--- | | NOI | $65,468 | | Less: NOI of properties not in same property results | ($3,066) | | Same Property NOI | $62,402 | | Same Property Cash Basis NOI | $55,016 | Property Details (by Collateral Pool) This section details OPI's 125 properties by collateral pool, indicating 98 encumbered properties totaling 14.46 million square feet and 27 unencumbered properties totaling 2.81 million square feet Portfolio Summary by Collateral Status | Category | Number of Properties | Sq. Ft. (thousands) | Occupancy | Gross Book Value (thousands) | | :--- | :--- | :--- | :--- | :--- | | Subtotal Secured | 98 | 14,459 | 85.0% | $3,944,894 | | Subtotal Unencumbered | 27 | 2,811 | 61.4% | $657,207 | | Total | 125 | 17,270 | 81.2% | $4,602,101 | Reconciliation of EBITDA, EBITDAre, and Adjusted EBITDAre This section details the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre, reconciling OPI's Q2 2025 Net Loss of $41.2 million to an Adjusted EBITDAre of $61.6 million Q2 2025 EBITDAre Reconciliation (in thousands) | Metric | Value | | :--- | :--- | | Net (Loss) Income | ($41,186) | | EBITDA | $55,253 | | EBITDAre | $57,648 | | Adjusted EBITDAre | $61,645 | Reconciliation of FFO, Normalized FFO, and CAD This section calculates FFO, Normalized FFO, and CAD, reporting Q2 2025 FFO of $5.6 million, Normalized FFO of $9.4 million, and a CAD deficit of $6.2 million Q2 2025 FFO and CAD Reconciliation (in thousands) | Metric | Per Share | Total Amount | | :--- | :--- | :--- | | Net (Loss) Income | ($0.58) | ($41,186) | | FFO | $0.08 | $5,627 | | Normalized FFO | $0.13 | $9,419 | | CAD | ($0.09) | ($6,208) | Non-GAAP Financial Measures and Certain Definitions This section defines key non-GAAP financial measures like NOI, FFO, and CAD, explaining their utility for performance evaluation, along with other important report terms - Provides definitions for key non-GAAP metrics such as NOI, FFO, and CAD, explaining that they are used to provide results more closely related to property-level operations and to facilitate performance comparisons[85][86][88][89] - Defines other key terms used in the report, such as Annualized Rental Income, Gross Book Value, and Same Properties criteria[92][94][98]