Office Properties Income Trust: Why I Sold The Baby Bonds

Core Viewpoint - Office Properties Income Trust (OPI) faces a significant $500 million debt repayment due in February 2025, which constitutes 21% of its total debt of $2.14 billion, marking it as one of the largest single-year debt maturities for the REIT [1][2] Debt Profile - The February 2025 debt repayment has decreased by $150 million due to a private debt exchange, which allowed bondholders to swap existing debt for new 9% senior secured notes due in 2029 [2][3] - Only 23% of existing 2025 bondholders accepted the exchange offer, indicating a low acceptance rate compared to other tranches [2] Financial Performance - OPI reported fiscal 2024 second-quarter revenue of $123.68 million, a decline of 7.7% year-over-year but in line with consensus expectations [5] - Funds from Operations (FFO) were $0.68 per share, down from $1.11 per share a year ago, although it beat consensus estimates [7] Leasing Activity - The REIT's total occupancy rate fell to 88.5% from 90.6% a year ago, with 13% of leases set to expire by the end of 2024 [7] - OPI leased 208,000 square feet during the second quarter, but anticipates a dip in operating performance due to upcoming lease expirations [8] Cash and Interest Expenses - OPI held only $13.5 million in cash and cash equivalents at the end of the quarter, while quarterly interest expenses surged to $38.3 million, a 45% increase from the previous year [8] - The new quarterly interest expense is projected to reach $51 million, nearly double the prior expense of $27.4 million [8] Market Sentiment - Despite a recent rally where OPI's stock rose 35% from summer lows, concerns remain regarding the looming February maturity and the REIT's overall risk profile [4][5] - The current trading price of OPINL is at 52 cents on the dollar, reflecting a 12.2% yield, which may not sufficiently compensate for the increased solvency risk compared to the previous year [9]