Office Properties me Trust(OPI) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Normalized FFO for Q1 2022 was $62.7 million or $1.30 per share, exceeding the high end of guidance by $0.01, compared to $58.1 million or $1.20 per share in Q4 2021 [29] - CAD increased by 20% sequentially to $51 million or $1.06 per share for Q1 2022, with a rolling four-quarter CAD payout ratio of 67% [31] - Same property cash basis NOI was essentially flat compared to Q1 2021, in line with guidance [32] Business Line Data and Key Metrics Changes - OPI signed 21 deals for 572,000 square feet of new and renewal leasing with a weighted average rent roll-up of 5.1% and a lease term of over 10 years [12] - Government agencies accounted for approximately 40% of total leasing volume, with investment-grade rated tenants representing about 64% of annualized rent revenues [17] Market Data and Key Metrics Changes - Same property occupancy was flat at 91% compared to the prior quarter, with a nominal decrease of 50 basis points year-over-year [13] - The leasing pipeline includes over 3.6 million square feet of activity, with nearly 1 million square feet in advanced negotiation stages [24] Company Strategy and Development Direction - The company is focused on capital recycling to enhance the portfolio, targeting growing markets with sustained NOI growth and newer buildings [14] - OPI plans to maintain its disposition guidance for 2022 at approximately $400 million to $500 million in total proceeds [15] - The company is actively engaging with tenants to evaluate early renewals and maintain positive tenant retention trends [22] Management Comments on Operating Environment and Future Outlook - Management noted gradual improvement in office fundamentals, supported by growing utilization and improved leasing volumes [9] - The company is well-positioned for stability and growth during transitionary periods due to its strengthened balance sheet and portfolio reshaping [10] - Management expects year-end 2022 occupancy of 89% to 90% and rent roll-ups of 5% to 7% [24] Other Important Information - The company is making progress on redevelopment projects in Washington, DC, and Seattle, with both projects expected to deliver in early 2023 [25] - The company welcomed a new board member with extensive experience in commercial real estate [28] Q&A Session Summary Question: Characteristics of properties planned for sale in 2022 - Management indicated the focus is on properties with near lease term expirations, higher CapEx needs, and occupancy challenges, typically around 80% [41][42] Question: Redeployment of proceeds from asset sales - Proceeds will be used for paying off $300 million in notes due in July, focusing on redevelopment projects while considering acquisitions [44] Question: Impact of F5 termination on occupancy - The F5 termination represented 2% of annualized revenue, but the net impact on occupancy was nominal due to new leasing activity [45] Question: Full year CapEx estimate - The full year CapEx estimate is around $100 million, plus or minus $10 million [46] Question: Update on return to office trends - Utilization has improved to over 40%, with expectations for continued progress in tenant re-entry [50][51] Question: Future development opportunities - The company is exploring redevelopment opportunities within its existing portfolio and considering potential conversions to life science or other uses [54]