Office Properties me Trust(OPI) - 2024 Q1 - Quarterly Results

Quarterly Results This section presents the company's first quarter 2024 financial performance, highlighting key operational and financial achievements First Quarter 2024 Financial Results Announcement Office Properties Income Trust (OPI) announced its Q1 2024 financial results, highlighting significant leasing activity with a positive rent roll-up - Completed 488,000 square feet of new and renewal leasing at a 10.2% roll-up in rent with a weighted average lease term of 9.3 years[7] - Refinanced its revolving credit facility with $425 million in new facilities and issued $300 million of senior secured notes to pay off all 2024 debt maturities[8] - Generated $39 million from asset sales during the quarter[8] - Declared a quarterly dividend of $0.01 per common share[10] First Quarter 2024 Highlights This section summarizes OPI's key achievements in Q1 2024 across portfolio management, financial performance, investment, and financing activities - Executed 488,000 sq. ft. of leasing with rental rates 10.2% higher than prior rates[14] - Same property portfolio occupancy stood at 88.2%[14] - Weighted average lease term for the portfolio is 6.6 years by annualized revenue[14] Financial Performance | Financial Metric | Q1 2024 Value | Per Share | | :--- | :--- | :--- | | Net Loss | $5.2 million | $0.11 | | Normalized FFO | $38.3 million | $0.79 | | Same property cash basis NOI | $67.9 million | N/A | - Sold one property in Chicago, IL for $38.5 million[14] - Refinanced revolving credit facility with a new $325 million secured facility and a $100 million secured term loan[14] - Issued $300 million of 9.0% senior secured notes due 2029[14] - Redeemed all $350 million of 4.25% senior unsecured notes due 2024[14] Financials This section provides a comprehensive overview of the company's financial statements, debt structure, and capital expenditures Key Financial Data This section presents a five-quarter overview of OPI's key financial data, showing a net loss of $5.2 million and Normalized FFO of $38.3 million in Q1 2024 Selected Income Statement Data | Selected Income Statement Data (in thousands) | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Rental income | $139,435 | $133,773 | $132,422 | | Net loss | $(5,184) | $(37,151) | $(446) | | Adjusted EBITDAre | $73,799 | $76,216 | $78,487 | | Normalized FFO | $38,317 | $45,872 | $52,746 | | CAD | $22,340 | $8,560 | $31,178 | Per Common Share Data | Per Common Share Data | 3/31/2024 | 12/31/2023 | 3/31/2023 | | :--- | :--- | :--- | :--- | | Net loss | $(0.11) | $(0.77) | $(0.01) | | Normalized FFO | $0.79 | $0.95 | $1.09 | | CAD | $0.46 | $0.18 | $0.65 | Condensed Consolidated Statements of Income (Loss) For Q1 2024, OPI reported a net loss of $5.2 million, an increase from Q1 2023, primarily due to higher interest expense and a loss on real estate sales Income Statement | Income Statement (in thousands) | Three Months Ended 3/31/2024 | Three Months Ended 3/31/2023 | | :--- | :--- | :--- | | Rental income | $139,435 | $132,422 | | Total expenses | $107,405 | $109,485 | | Interest expense | $(35,476) | $(25,231) | | (Loss) gain on sale of real estate | $(2,384) | $2,548 | | Net loss | $(5,184) | $(446) | | Net loss per share | $(0.11) | $(0.01) | Condensed Consolidated Balance Sheets As of March 31, 2024, OPI's balance sheet shows total assets of $3.96 billion and total liabilities of $2.71 billion, with a shift from unsecured to secured debt Balance Sheet | Balance Sheet (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total real estate properties, net | $3,400,973 | $3,415,500 | | Total assets | $3,957,930 | $3,989,669 | | Unsecured debt, net | $1,847,664 | $2,400,478 | | Secured debt, net | $731,563 | $172,131 | | Total liabilities | $2,707,566 | $2,733,990 | | Total shareholders' equity | $1,250,364 | $1,255,679 | Debt Summary As of March 31, 2024, OPI's total debt was $2.63 billion, with a weighted average interest rate of 5.426% and a weighted average maturity of 4.9 years Debt Composition | Debt Category | Principal Balance (in thousands) | Weighted Avg. Interest Rate | Weighted Avg. Years to Maturity | | :--- | :--- | :--- | :--- | | Secured Floating Rate Debt | $290,000 | 8.910% | 2.8 | | Secured Fixed Rate Debt | $477,320 | 9.550% | 5.3 | | Unsecured Fixed Rate Debt | $1,862,000 | 3.827% | 5.1 | | Total | $2,629,320 | 5.426% | 4.9 | Debt Maturity Schedule The debt maturity schedule indicates significant upcoming obligations, with $650 million of unsecured debt maturing in 2025 - OPI has the following significant near-term debt maturities (in thousands): - 2025: $650,000 (Unsecured) - 2026: $300,000 (Unsecured) - 2027: $290,000 (Secured Floating) + $350,000 (Unsecured) = $640,000 total[24] Leverage Ratios, Coverage Ratios and Public Debt Covenants Leverage and coverage ratios show increased financial risk compared to the prior year, though the company remains in compliance with public debt covenants Financial Ratios | Ratio | 3/31/2024 | 3/31/2023 | | :--- | :--- | :--- | | Leverage Ratios: | | | | Net debt / total gross assets | 56.2% | 54.1% | | Secured debt / total assets | 19.4% | 1.2% | | Coverage Ratios: | | | | Adj. EBITDAre / interest expense | 2.6x | 3.2x | | Net debt / Adj. EBITDAre | 8.4x | 7.7x | - The company is in compliance with its public debt covenants, including Total unencumbered assets / unsecured debt at 178.1% (minimum 150.0%) and Total debt / adjusted total assets at 49.6% (maximum 60.0%)[27] Capital Expenditures Summary and Significant Redevelopment Information Total capital expenditures for Q1 2024 were $28.2 million, allocated to lease-related costs, building improvements, and redevelopment activities Capital Expenditures | Capital Expenditures (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Lease related costs | $16,768 | $18,497 | $13,041 | | Building improvements | $4,474 | $10,877 | $4,582 | | Development, redevelopment | $6,911 | $19,371 | $49,471 | | Total capital expenditures | $28,153 | $48,745 | $67,094 | - The significant redevelopment project at Elliott Ave West in Seattle, WA, is reported as substantially complete as of March 31, 2024[30][31] Property Dispositions During the first quarter of 2024, OPI completed the disposition of one property located in Chicago, IL Property Sold | Date Sold | Location | Sq. Ft. (thousands) | Gross Sales Price (thousands) | Price Per Sq. Ft. | | :--- | :--- | :--- | :--- | :--- | | 3/21/2024 | Chicago, IL | 248 | $38,500 | $155.24 | Investments in Unconsolidated Joint Ventures As of March 31, 2024, OPI holds investments in two unconsolidated joint ventures totaling $17.9 million, owning three properties with 59.3% weighted average occupancy Joint Venture Investments | Joint Venture | OPI Ownership | OPI Investment (thousands) | Location | Occupancy | Remaining Lease Term | | :--- | :--- | :--- | :--- | :--- | :--- | | Prosperity Metro Plaza | 51% | $17,898 | Fairfax, VA | 68.0% | 3.5 years | | 1750 H Street, NW | 50% | - | Washington, D.C. | 35.0% | 9.2 years | | Total / Weighted Avg. | | $17,898 | | 59.3% | 4.7 years | Portfolio Information This section details the company's property portfolio, including occupancy, leasing activity, and tenant characteristics Summary Same Property Results OPI's same-property portfolio experienced a decline in performance in Q1 2024 compared to Q1 2023, with occupancy dropping to 88.2% Same Property Performance | Same Property Results | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Percent leased | 88.2% | 94.2% | N/A | | Same Property NOI (in thousands) | $73,319 | $81,658 | (10.2%) | | Same Property Cash Basis NOI (in thousands) | $67,852 | $77,102 | (12.0%) | | Same Property NOI % margin | 60.8% | 64.0% | N/A | Occupancy and Leasing Summary In Q1 2024, OPI executed 488,000 square feet of total leasing, resulting in a 10.2% increase in GAAP rent for the same space, despite an overall portfolio occupancy decline Leasing Activity | Leasing Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Leasing Activity (sq. ft.) | 488,000 | 203,000 | | % Change in GAAP Rent (Total) | 10.2% | (18.5%) | | Weighted Avg. Lease Term (Total) | 9.3 years | 6.8 years | | Percentage Leased (end of period) | 85.6% | 90.5% | Tenant Diversity and Credit Characteristics OPI's portfolio relies heavily on government tenants, comprising 27.6% of total annualized rental income, with diversification across other industries - Government tenants are the largest source of rental income: - U.S. Government: 20.2% - Other Government: 7.4%[45] - The portfolio is diversified across several other industries, including Financials (16.2%), Technology & Communications (15.5%), and Legal & Other Professional Services (13.7%)[45] Tenants Representing 1% or More of Total Annualized Rental Income The U.S. Government is the largest tenant, occupying 20.3% of leased square footage, with the top 20 tenants collectively occupying 55.1% of total leased space Top Tenants by Leased Square Footage | Rank | Tenant | Credit Rating | % of Leased Sq. Ft. | | :--- | :--- | :--- | :--- | | 1 | U.S. Government | Investment Grade | 20.3% | | 2 | Alphabet Inc. (Google) | Investment Grade | 2.2% | | 3 | Shook, Hardy & Bacon L.L.P. | Not Rated | 3.4% | | 4 | IG Investments Holdings LLC | Not Rated | 2.0% | | 5 | Bank of America Corporation | Investment Grade | 3.3% | Lease Expiration Schedule The lease expiration schedule indicates near-term rollover risk, with 13.1% of leased square feet expiring in the remainder of 2024 and 10.8% in 2025 Lease Expirations | Year of Expiration | % of Total Leased Square Feet | % of Total Annualized Rental Income | | :--- | :--- | :--- | | 2024 | 13.1% | 13.0% | | 2025 | 10.8% | 8.6% | | 2026 | 8.3% | 8.1% | | 2027 | 11.9% | 10.7% | | 2028 | 3.8% | 6.2% | - The weighted average remaining lease term for the portfolio is 6.6 years based on annualized rental income[48][51] Appendix This section includes company background, governance details, and reconciliations of non-GAAP financial measures Company Profile and Research Coverage This section provides a brief company profile, noting OPI is managed by The RMR Group, and lists its equity research and credit rating coverage - OPI is managed by The RMR Group (Nasdaq: RMR), which had over $41 billion of real estate assets under management as of March 31, 2024[54] - The company's credit is rated by Moody's (Caa2/Caa1) and S&P (B/B-)[56] Governance Information This page lists the members of OPI's Board of Trustees and its executive officers, including key leadership figures - Key leadership includes Adam D. Portnoy (Chair of the Board & Managing Trustee), Yael Duffy (President and Chief Operating Officer), and Brian E. Donley (Chief Financial Officer and Treasurer)[58] Calculation and Reconciliation of NOI and Cash Basis NOI This section provides a detailed reconciliation of Net Loss to Net Operating Income (NOI) and Cash Basis NOI for the last five quarters NOI and Cash Basis NOI Reconciliation | Reconciliation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | NOI | $88,248 | $80,871 | $83,772 | | ... non-cash adjustments ... | | | | | Cash Basis NOI | $68,270 | $70,066 | $79,300 | Reconciliation and Calculation of Same Property NOI and Same Property Cash Basis NOI This table reconciles the total portfolio NOI to the Same Property NOI and Same Property Cash Basis NOI for Q1 2024 and Q1 2023 Same Property NOI Reconciliation | Reconciliation (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | NOI | $88,248 | $83,772 | | Less: NOI of properties not in same property | $(14,929) | $(2,114) | | Same Property NOI | $73,319 | $81,658 | | ... non-cash adjustments ... | | | | | Same Property Cash Basis NOI | $67,852 | $77,102 | Operating Metrics by Collateral Pool This section breaks down key operating metrics by the type of collateral securing the company's debt, showing high occupancy for secured properties Operating Metrics by Collateral Pool | Collateral Pool | Number of Properties | Sq. Ft. (thousands) | Occupancy | Weighted Avg. Lease Term | | :--- | :--- | :--- | :--- | :--- | | Subtotal Secured | 43 | 7,063 | 98.8% | 8.9 years | | Unsecured Properties | 108 | 13,230 | 78.6% | 4.7 years | | Total / Weighted Avg. | 151 | 20,293 | 85.6% | 6.6 years | Calculation of EBITDA, EBITDAre and Adjusted EBITDAre This table details the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre, starting from Net Loss for the past five quarters EBITDA, EBITDAre and Adjusted EBITDAre Calculation | Calculation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | EBITDA | $80,689 | $46,615 | $76,507 | | ... adjustments ... | | | | | EBITDAre | $83,303 | $74,545 | $74,793 | | ... adjustments ... | | | | | Adjusted EBITDAre | $73,799 | $76,216 | $78,487 | Calculation of FFO, Normalized FFO and CAD This section provides a detailed reconciliation from Net Loss to key REIT performance metrics: FFO, Normalized FFO, and CAD FFO, Normalized FFO and CAD Calculation | Calculation (in thousands) | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net loss | $(5,184) | $(37,151) | $(446) | | ... adjustments ... | | | | | FFO | $48,183 | $44,590 | $49,528 | | ... adjustments ... | | | | | Normalized FFO | $38,317 | $45,872 | $52,746 | | ... adjustments ... | | | | | CAD | $22,340 | $8,560 | $31,178 | Per Share Amounts | Per Share Amounts | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | FFO | $0.99 | $0.92 | $1.02 | | Normalized FFO | $0.79 | $0.95 | $1.09 | | CAD | $0.46 | $0.18 | $0.65 | Non-GAAP Financial Measures and Certain Definitions This section defines the non-GAAP financial measures used throughout the report, explaining their calculation and utility for investors - Provides definitions for non-GAAP measures including NOI, Cash Basis NOI, EBITDA, EBITDAre, Adjusted EBITDAre, FFO, Normalized FFO, and CAD, explaining why management considers them appropriate supplemental measures of operating performance for a REIT[71][72][73] - Defines other key operational and financial terms used in the report, such as 'Same properties', 'Investment grade tenants', 'Annualized rental income', and 'Lease related costs'[78][79][81]