Office Properties Income Trust: Debt Exchange Won't Help The Common

Core Viewpoint - Office Properties Income Trust (OPI) has faced significant financial challenges, with a substantial drop in stock price and concerns over its ability to manage debt and generate cash flow [1][2][18]. Financial Results - For Q2-2024, OPI reported a net income of $76.2 million, or $1.56 per common share, largely due to financial maneuvers involving debt restructuring [3][4]. - Normalized Funds from Operations (FFO) were $33.2 million, or $0.68 per common share, indicating ongoing operational struggles [4]. - Same property cash basis Net Operating Income (NOI) was $65.1 million, reflecting a decline in property performance [4][11]. Debt Management - OPI exchanged $865 million of senior unsecured notes for a lower amount of senior secured notes, which resulted in a gain but increased the overall debt burden with higher interest rates [3][4]. - The company has a total debt of approximately $2.32 billion, with a debt-to-EBITDA ratio around 9.0X, raising concerns about financial sustainability [12][13][14]. Portfolio and Leasing Activity - OPI executed 208,000 square feet of leases in Q2-2024, with a weighted average lease term of 4.0 years, but occupancy rates dropped to 89.9% from 95.3% year-over-year [4][15]. - The company is under agreement to sell 12 properties totaling approximately 1.4 million square feet for $93.5 million, which may help alleviate some debt pressures [4][19]. Cash Flow and Dividends - The rolling four-quarter Cash Available for Distribution (CAD) fell to $0.97 per share, with negative CAD reported for the current quarter [11][18]. - Despite ongoing financial difficulties, OPI continues to pay a nominal dividend of $0.01 per share, which may not be sustainable given the rising interest expenses [18][20]. Market Outlook - The market perceives significant refinancing risks for OPI, with speculation that common shares may face a decline of over 95% [18][19]. - Unsecured bonds are yielding high returns, indicating investor skepticism about OPI's ability to manage its debt effectively [19][20].