OPI - Earnings call transcript Q1 2019 | Office Properties Income Trust

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Operator

Good morning, and welcome to the Office Properties Income Trust First Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Olivia Snyder, Manager of Investor Relations. ahead. go Please

Olivia Snyder

and good business With and and Thanks joining first provide XXXX. Financial for Executive a of In Thank they quarter our moment, on morning, performance the today. will Officer Chief and me David about President Jeff call us Leer. Officer, just our you, details Blackman; everyone. Treasurer, and are Chief the OPI's for

your to We will session analysts. the then question-and-answer with call open

beliefs of undertakes are note those retransmission conference note expectations revise obligation May consent forward-looking that laws. conference in may of the based prohibited Reform today, Friday, Securities meaning actual I the OPI's statements forward-looking call call Company the the First, XXXX, from like or without Litigation securities today's and differ revision release materially is results statements These made Act conference The would to of no on of X, recording call. the that project. of as and contains any results today's the to to prior XXXX written of the other Private within publicly Company. we statements Also and that today's and forward-looking

undue our the SEC's website. cause Investors could differences information factors upon website, the or can our forward-looking reliance concerning place opireit.com, any SEC, Additional that be are Securities Commission, which not is filings contained or those statements. Exchange in with and accessed to from cautioned

data our these net and basis I will for can cash NOI. operations, CAD, David. distribution, calculate on In are income, cash net turn normalized our financial reconciliation available cash-based addition, call, of FFO, operating to now, supplemental, during in which or this call including the to normalized And we found be be or components over also website. non-GAAP funds available operating package, the income from numbers will discussing to non-GAAP or and figures A and

David Blackman

first quarter our for quarter turning disposition Properties Leer earnings of sheet. today's Welcome an update will activity our to an Trust. the Olivia, provide On I good and results the call, over the Income Office and provide overview call and before call to leasing balance financial to Jeff you, Thank morning. program on for our discuss

or XX, one As years. XXX feet annualized with that for our the million no sector. March of our investment-grade tenants, OPI's percentages of XX.X% rent. of paid portfolio of more the renewal accounting new XXX,XXX a XX.X%, in weighted longer. term our We of leasing feet concessions feet of more average were a for seven capital XX% executed square lease annualized lease average for weighted in results square square Almost leases for containing accounts REIT tenants which XX.X% term the leases generated during for a XX.X per quarter of rated years and annualized approximately X.X of by our or XXX,XXX strong XX.X% largest in office $X.XX per buildings tenant, and rent, average consisted of foot is were is lease commitments government rent than X.X% of square U.S. rated leasing we weighted believe rollup investment-grade tenant and X.X of year. of highest terms than is occupied, of and rent The other years

capital on $XX Street, and the and disposition and of suburban of re-lease includes in we XXXst located eliminated million Street D.C. sale renovate for selling budgeted Now a XX-building during the opportunistic quarter, $XXX.X $XXX.X This our in of more is of program which the $XX of square in foot. By Washington, million, than XXXX per our building. approximately D.C. for XXXX sale advanced the $XXX to We XXXst sales. first let's closed million property dispositions. gross million review Metro having proceeds portfolio

We a on to years we could up stabilize three estimated it also the to property. earnings eliminated drag as take

the at used while our properties campaign through was XX sale $XX proceeds will we of removed with One building be a property and valued approximately the quarter, to marketing managing our million tenant. negotiated this reduce continue from expansion lease We where potential long-term leverage target. extension to

remaining agreement. had expect offers, purchase and property disposition least for the we to XX For buyers one at of round buyers. have are XX days the an within aggregate. under we Under million relatively being the have circumstances, to sell six normal properties XX to selecting executing properties negotiated of either awarded properties in close are $XX.X program, are or in been and agreement agreements

and a includes interest completion recycling offers weeks, that scheduled are typical call. property selected the two requirements sales round properties are process before to reenter earnings the sale expect capital within Our Five capital of the for on we first program of bidders top we a the our and next positioned properties, complete sales these interviewing May. market Once our growth. metrics in and XX key portfolio roll two next ongoing of be discuss offers of by should we manage have buyers a well into acquisition number shape the we encouraged market accretive believe to rounds selecting the and to to disposition end the Overall, properties by buyer. of our

higher an Jeff financial results long-term over our to maintaining to will sheet. the first-generation buildings cash which is contribute positive This provide believe on our a we we We will tenants expected balance to Jeff? of buildings requirements I probability be believe in capital our and and focus and occupancy of dividend. have a call well-covered lower. impact on turn overview to accretion, leases have expect acquisitions to renewing will our these because now

Jeffrey Leer

first December or for SIR, with results impact the quarter OPI's the REIT, merger full the David. closed of XXXX. XXXX Thanks, quarter Select on XX, which Income represent of

impact of discussed, results financial majority changes to on as these The the As quarter. previous in $XXX.X period events with the in merger year. the SIR, in the million also has during David the compared sales driven OPI asset overall with the same previously the in conjunction of closed

a focus will regarding basis. Our comparisons presentation towards same-property on geared this for trends be

pro forma In have as same-property SIR on merger XXXX. we the included had addition, our closed in if disclosures January information X, quarterly

were property income turning XXXX, or declines a results to ended March $X.X for basis XX, by million million, of in or on basis. same-property a decreased comparisons NOI Both rental quarter occupancy. basis, quarter. year-over-year the decline pro the same-property On cash overall year-over-year was these level for $XXX Now forma a driven X.X% X.X% and

under RMR the quarter $XX.X Washington, million a million in for by $XX.X previous base in year primarily our because calculated $XX.X diluted it period business funds first fees of Inc., the to non-cash by in normalized financial Turning results. currently Street $X.XX unrealized overall attributable sale first quarter for Group was gain the G&A a assets. to from historical management in results than non-cash of than cost being are of OPI's million which per or the positively investment lower FFO the under impacted of on consolidated for is the the were March, The undepreciated gain XXXst in one expense charge, the share. million offset Normalized was our buildings impairment D.C. to sale. a of reduction due agreement related $X.X same quarter lower market capitalization or operations, that to

base fees. million would market XXXX. XXXX. not basis share switch business a improvements on spent to I $X.X G&A the in now management quarterly on calculated being and management deleveraging of and tenant Based discuss OPI a range on XX, of to XXXX, improvements for costs any remainder million March $X of $XX.X recurring be and we would ongoing of expense estimated on OPI's leasing quarter current $X building price accrue incentive expect first capital and fees to capitalization, efforts. business We the did million As on focus million within

reducing adjusted quarter in XX% floating-rate debt, million our $XXX leasing-related we was of million from OPI's million to As credit million. and had debt unsecured at assets $XX.X down received annualized we EBITDA OPI's $XXX We of million to outstanding of by our $XX end. unspent quarter obligations. outstanding pay March debt facility. capital used an sales approximately to on property of XX, principal which balance XX.X% revolving end, proceeds to ratio was At $XXX X.Xx gross debt included QX had of

As we've call leverage to we debt-to-EBITDA our our achieve X.Xx. to Xx with program stated, questions. disposition We're property intend the Operator remarks. reduce during target our to previously to our prepared the XXXX, up for open concludes proceeds of from that ready

Operator

from [Operator The Instructions] now question FBR. comes Maher Riley question-and-answer first ahead. We Please of begin go B. Bryan session. will the

Bryan Maher

morning excellent Yes. and Good quarter.

end XXs with saying asset occupancy all recall On in dipping the the I think XX%, of you're so ultimately the David, the I but be Do that we'll improvement, see still sales, the year-end? that you we below expecting, and case you last occupancy should that an quarter that think seeing or front, up could into along by vagaries that's some the way. we nicely

David Blackman

Bryan, agree that. I Yes. with definitely

XX%. think be properties I average on the occupancy below mean the is we'll I disposition XX%. above

that we assets, a occupancy. will have positive as continue sell to So on impact

think leasing right now. various help that that, We've leases absorb million our square stages we've in that and now. over improve square We also right are pipeline I have a occupancy. feet over could pretty well X Of square vacant strong of got got XXX,XXX feet feet

start turning positioned to we're So actually well think I pretty right now occupancy around

Bryan Maher

year, sales above the are the of in first rates as currently what on sold then or of what kind of you're the And entered we process selling and cap in thought or year? Great. below kind you half this as through you in the process of working line

David Blackman

in line. Bryan, I generally they're think

look there the core I space. in think high at I I some broader market, what as consider softening that acquisition is

we're tenants, look our have That chasing that what NOI, to together the tends sales and So quarter have agreements on a today. achieve long-term credit below we or selling. I will under where not at deals capital aggregate cap If and quality less we we be I third likely those there's X%. rate received what lease, offers, at look

right pretty encouraged pretty that now. and I'm positioned like feel So we're by well

Bryan Maher

with Do in with when like the things coming better to a than been bit and is a would've more All maybe been rates low? you to December of with as economy, the How it much, employment right. you on which has more impacting feel you're fire, then, pretty lack bit your that buyers? table for potential And little little uncertain? relates discussions a word, were strength

David Blackman

good would point. question, It's don't know this at I say Bryan, a different I it's that materially particular and

think years that's thing cycle. XX I think in the into time everybody's the is mind of and business I back into the cycle, long a we're one a

economy about looks continued and the long-term continues everybody are strong we're somewhat think very be So to numbers I while seeing the encouraging, skeptical that growth.

Bryan Maher

know that you be think, there, in these might with any amount sales, but the in on I And this, with and that of of involved a I vacates expiring XX%? be do wrong of I of there's Okay. annualized XX% you I and income some asset then about think have the the lot XXXX? rental parts thoughts moving have might

David Blackman

encouraged will that we think pipeline pretty now, XXXX the have Bryan. we represents rent. one - have I'm tenant sometime than don't we by X% we have more leasing right active And that I think vacate during of

So a I be to year in a to good continue stand. tenant going pretty have we're for that market think leader retention and

Bryan Maher

RMR last then And range. would you're wouldn't I that your levels assumption But down Would clarify X%, a the to the I that me. be you not RMR just current include you'd that that think On sell just the X.X% for seller want to delevering for shares? RMR. at shares,

David Blackman

now, leverage we without target achieve our selling we low long-term Right the RMR of on shares. the that end believe can

Bryan Maher

David. me. That's for all Thanks

David Blackman

you. Thank Great.

Operator

The go next Mitch JMP question Please of comes Germain Securities. ahead. from

Mitchell Germain

morning. Good

strategy, the targeted right? confirming was XX right? D.C. sales, just to around that FPO assets $XXX going So David, equal deleveraging part that of you portfolio the are So the million basically on the

David Blackman

correct. is That

Mitchell Germain

Okay, great. or selling you are portfolios, asset Are individual these sales? any

David Blackman

well. say few book but anywhere individual small broker, a are they together properties I with on but are properties may have those When entertaining in single to two be marketing two properties, between We and small, a one circumstances, portfolios, bids as four we in all we assets Mitch. four

Mitchell Germain

assets some portfolio? seems you of did ones how retain Is it are in of needs. leasing are did the - versus assets and use to needs that selling you're you criteria that like - what some And which with capital for to identify sort the characterize sale kind

David Blackman

that with handful a Mitch, a And I well weighted-average remaining we selected assets term. are bit very with leased, good a those properties little good lease core. more pretty that some tenants are consider three needed to older. capital to And then over next occupied, spend there little some be also that in maybe the five we've got here are a They're bit may well that lot years. but of of

- So vacant pretty got five six we're consider we've I four I we then it's good properties middle-tier What a or and that selling. have assets, mix. guess, upper-tier assets

Mitchell Germain

Got with higher. some in Federal in about looking along reducing of much government that factor what of thought obviously you you. Is some exposure? is you're for Or the tenant XX% mix? of when state, terms there the lines the government a

David Blackman

reduced government substantially our combining kind exposure level. down current exposure We went our XX% U.S. of and we Well, SIR. by GOV government from to

So pretty gotten diversification. I decent we've think

I our may more think focused that less we younger have higher be buildings so spend going they're of meaning that likelihood we they of from requirements, and a are we we type on buildings perspective, acquire the higher have government security forward, renewal. capital

XX%. to than we focus So exposure trying more to I think our maintain government U.S. XX% say above that's our

Mitchell Germain

Got it. Thank you.

David Blackman

you. Thank

Operator

ahead. Malhotra from comes go question next of Please Morgan Stanley. The Vikram

Adam Gabalski

wanted here recycling the your talk in prepared guys. This Adam remarks. is I for little a Vikram. comments about Hey, just to on capital

you're to Is be said as this that of benefiting where the start and in to active program XXXX? end even going we more the see wraps into year that thing the towards of FFO that have of maybe of roll sort kind type You start to of could disposition kind up.

David Blackman

Yes.

Adam Gabalski

follow-up, so to how the down you target, acquisitions, the any any comfortable sales do deals you be quickly after bringing in up leverage accretive - the you'd market? And if have taking of planning to relating if on it just with fund to you'd - see just your sort be asset debt and idea incremental

David Blackman

duration CAD capital selling a there's idea have less create older that that during longer the into accretion think Xx. third - and have may to probability program The a capital of lease, the below that the excuse higher the have down capital reasonable X%. of assets leverage we'll I are assets needs, younger be And by bit needs. recycling and is capital some program idea little quarter, recycling may Adam, me,

not may that capital assets, make Does our the grow total that So expect while would we we we program. through ultimately grow our CAD sense? substantially recycling

Adam Gabalski

absolutely. Yes,

Jeffrey Leer

Yes. It's to age. a different repositioning a the asset of portfolio

David Blackman

Correct.

Adam Gabalski

Can this you've of of sort forma Got about GOV sort looks have pro it. and And portfolios operating talk that put then It one forward you quarter's seen? part more. see the the sort integrated of of expenses. things SIR put you came lower you property how that supplemental, what like and quarter from the last just then this in the just kind now shook just trending way beat variances of moving and of kind and reconcile you of in quarter numbers that out sort any that you've

Jeffrey Leer

if forma is X, October were provided Jeff. SIR This Yes. and pro numbers quarter on we merged last as XXXX. The OPI

it's our two think how at to So try utility about operating maintain we and to and level. ability of our property costs to two, pro about type to talked back our staffing levels forma continue and our kind the I our matter and And combination pass expenses. it's expenses a of of certain tenants; one, a certain lease things: we

Adam Gabalski

it. Got Thank you.

Operator

comes Michael next RBC Capital from The Markets. Please ahead. Carroll of question go

Michael Carroll

wanted guess, at? are I David, about they we the the What if acquisition I'm of rates And that types at maybe you're for end year, this on, deals the looking assume touch of the targets in that in? targeted what's towards cap to beginning deals? markets type looking first-generation you're what I thinking at. currently buildings of those you next, of are the looking capital should deploying assuming you're marketplace, Yes.

David Blackman

would years at looking We're that I multi-tenant to be old basis. be to ultimately of going And have mid-seven and to. the it. could they're a three single-tenant looking tenants would say, governments remaining first-generation have to to I to mid-six will get at, terms. what lease that are at that five from, be we be would buildings to say, the and both is It's to U.S. tend lot XX-year seven to tend accretion and think buildings. an some Mike. state that buildings also sticking capital in think don't through and say, building They looking to question, going good believe on call we what cap be a recycling rates, needs they're upon a the leverage it, we capital is where the a we that we're program buildings I create we we material ongoing going are depend where anywhere

Michael Carroll

markets, country? lot the you're that much at Okay. you're having today, exposure of looking you're there or kind top-tier at, in around looking and are throughout a And pretty type the area markets of D.C. or where

David Blackman

markets. in gateway markets. looking are not and primary in looking We secondary would we're I generally say, more

look looking will we're in exposure market, a not - aren't of D.C. Metro time. and the the grow market stuff market fair really at this in Metro substantially D.C. have to that amount but We in we at

Michael Carroll

Okay. the And into mean said, about in be already you've little leases I deployed bit million have guess, and the TI - your it expect been you I then is signed committed, commenced? can $XX prepared you capital to talk the was I capital a believe when to that that related And side? on already portfolio? actually that we should that remarks.

Jeffrey Leer

will to actually but answer those with of it's be our they'll so we've It a tenant gauge try request to little is, tenant spent. to We that's to. is hard fairly a the monitor bit that predict directed, capital committed challenge it's base, to yes, when Hi, funds. closely it when

Michael Carroll

are that paying are rents today? currently your are those in tenants and And the portfolio

Jeffrey Leer

Correct.

Michael Carroll

you. thank Great, Okay.

Operator

ahead. Petersen from of Please go Jefferies. next The comes question Jon

Jonathan Petersen

thanks. Great,

the of, kind Just with curious, guys ratio back number there. an into SIR, about know the merger of guys kind of talked now payout when that you which announced dividend, a you we XX%, AFFO

ratio you that you're we what about CapEx kind is kind I if of and the worse, trending you $XX should if then of to are talked $XX along comfortable better of last year. lines, payout guys still for or same those curious with and quarter think Just million million expect

Just that that that guess to in $XX also And Does curious, included include all if is are leasing or what million tracking. $XX million? lines I not? commissions

Jeffrey Leer

Yes.

$XX think ratio can XX% I And at we as target an believe on ratio And a So payout our payout basis. the well range look to commission, was a I second improvements we for improvements, type where question believe it today was annualized certain we - as million, million CAD as we mostly is, achieve $XX your on then building an capital, building said, gave that in related and CAD activity. to included of that of basis. annualized - lease

Jonathan Petersen

Okay. million of today. that, through $XXX sellable get you And once will a then - that the I'm lot of be dispositions. that's so curious, stuff

future. mentioned you early that out require some in sell think to I the be are of that sense a properties out David, still years and may few had make investment there there

So much be you a put can maybe your you I maybe value of or on us help program? hope get of $XXX of “non-core” once through portfolio portfolio a the million will still dollar this kind percentage how

David Blackman

don't That's I likelihood what think renewing will as that capital insight in time tenants a non-core. portion to change we that into place and significant of the better would be had that going have a requirements know would Jon. we I question good And necessarily the are be. portfolio the over of

would that it million over change $XXX I is I the it's look percentage because we've the $XXX program way a year to at So going on I to recycling that's the percentage targeted a million capital per that in range. time. difficult think to put I think guess

way think better that's to so probably about And it. the

Jonathan Petersen

very Thank all helpful. right. All right. That's Okay, you much.

David Blackman

you. Thank Okay.

Operator

David remarks. would to Blackman conference over concludes This any session. like turn back our the I for closing to question-and-answer

David Blackman

progress company our We look to Thank earnings forward you concludes the on you today. joining call. us our updating on in for quarterly call. That next reshaping continued today's

Operator

concluded. now Thank has today's presentation. for conference attending The you

may now You disconnect.

Office Properties Income Trust (OPI) 3 May 192019 Q1 Earnings call transcript