Office Properties Income: Debt Maturity Risk And The 15.2% Yielding Baby Bonds

Core Viewpoint - Office Properties Income Trust (OPI) is facing significant challenges due to declining occupancy rates, upcoming lease expirations, and a heavy debt maturity schedule, leading to a high-risk investment environment [1][3][7]. Financial Performance - OPI reported revenue of $139.44 million for the first quarter of fiscal 2024, a 5.3% increase year-over-year, exceeding consensus estimates by $9.67 million [11]. - The REIT's normalized Funds From Operations (FFO) for the first quarter was $38.3 million, equating to $0.79 per share, indicating a low trading multiple due to solvency and refinancing risks [8][11]. Debt and Liquidity - OPI has a total outstanding debt of $2.6 billion, with a weighted average maturity of 4.9 years and an average interest rate of 5.4% [3][5]. - The REIT is facing a liquidity crunch, particularly with $650 million in unsecured fixed-rate debt maturing in February 2025, which poses a significant solvency risk if not refinanced [7][9]. - OPI has initiated debt exchange offers to issue up to $610 million in new 9% senior secured notes, which will be secured by first-priority liens on 19 office properties [9][10]. Occupancy and Leasing - The portfolio consists of 151 properties across 20 million square feet, with a same-property occupancy rate of 88.2%, down from 93.3% in the previous quarter [11][13]. - A total of 333 leases are set to expire, with 13.1% in 2024 and 10.8% in 2025, indicating potential further declines in occupancy [11][13]. Market Position - OPI's market capitalization has decreased by 70% year-to-date, with common shares trading at $2.20, reflecting the market's concerns over the REIT's financial health [3][11]. - The REIT has a high debt-to-equity ratio of 2.063, which has moderated slightly due to $39 million generated from property sales in the first quarter [13][15]. Short Interest - OPI is the fourth most shorted REIT, with 17.6% of its float currently shorted, reflecting investor skepticism regarding its financial stability [15].