OPI - Earnings call transcript Q3 2019 | Office Properties Income Trust

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Operator

Good morning, and welcome to the Office Properties Income Trust Third Quarter Financial Results Conference Call. [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. Please go ahead.

Olivia Snyder

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

We question-and-answer with the sell-side analysts. a open will to then call session

the Litigation that us First, today's conference of of conference today, materially I that we beliefs and Reform and Private actual our written forward-looking November other Securities the OPI's recording prior retransmission statements statements would note like from those of meaning the as to and Act company. differ Friday, consent securities contains forward-looking laws. call of of may These expectations is on project. X, today's note and prohibited based Also are that XXXX, within call the XXXX results

or revision in the call. no company release results to made statements publicly forward-looking any revise of today's the The obligation undertakes conference to

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

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

to call the turn will I over David. now And

David Blackman

Properties to good for and quarter Trust. morning. Olivia, Income third call the you, Thank Welcome earnings Office

of in discuss consensus which beat share. share by $X.XX, Matt we As per greater $X.XX detail, per normalized estimates morning, FFO announced this will

per XX quarter an with years, square lease term leasing announced almost leases almost for year. feet of leasing We lease roll rent capital foot up average and in new activity only renewal per third and XXX,XXX square a $X.XX also X% solid of of

occupancy operations. addition, In to we our greater these he basis when XX.X%. reviews provide the results XXX detail second by of increased on points XXXX Chris consolidated quarter will from

metrics A major leverage. our for have X.X% agreements or Year-to-date, been sell portfolio. for have of an metrics that key term average lease years for These age at average XXXX rate XX has years. of favorable an occupancy of are XX% average XX focus strategic rightsizing a portfolio of consolidated and entered of we X.X OPI's buildings $XXX.X million the portfolio to less cap and than buildings sold remaining

OPI We million of the also costs at these eliminated years than $XXX by X over capital selling more next assets.

the a of today, sales to end the more million. XX million. leverage number million. shares our quarter, reduced only targeted range. we asset of for agreements our million, in common The second increases $XXX.X July, In for of buildings At as have we Group XX the buildings proceeds of $XXX.X of which for sold net And $XXX sold we sell also of RMR all X.Xx, of second Not these to asset midpoint the improved our $XXX property below than since is OPI, have end sales to proceeds aggregate which for key metrics the ratio quarter our

Xx, our range. our Assuming which forma pro declines of buildings targeted agreement is $XXX.X we the XX end million, the sell for low under leverage approximately to

is with we selling. growth create than to flow with The by acquiring our core of from the properties deleveraging we leverage As proceeds properties strategic capital as to achieving sales, are of our capital third properties dividend acquiring costs after recycling our program. transitioning a result which we quarter, asset to from cash principal our program goal refer higher capital during are long-term focus target recycling

of our additional our portfolio. capital extend across leases, and average and tenant weighted the we of of the As age diversification prospects us geographic reduce recycling our tenants expect average improve the term properties, program the renewing will our help benefit, shape

team single-tenant first-generation XX in acquisition average or is buildings with that are encumbered are terms X less grow or that for of ages rent can leases busy believe we Our and longer over identifying with where markets years located years time. we

has transition continue to buildings, which on tenants, to single-tenant for but to you tenant multi-tenant recycling expect most government renewing agency also requirements, We we updating importantly, we and company, and prospects the of believe which future our capital leases. progress during be forward is look calls. improves an acquiring occupant both exciting leased high can security where the buildings This our

to I call review Bilotto statistics. leasing over OPI's Chris? the turn operating and will Chris to activity now

Christopher Bilotto

David, and morning, you, good everyone. Thank

As years. of weighted September buildings portfolio OPI's XX.X of lease a of square X.X consisted XXX with term XX, million containing average feet

of rent occupancy annualized our grade-rated During sales. the grade-rated of quarter, as The by highest and no is our X% rent the result from second of than from increased for accounts tenants percentages quarter annualized points is we of revenue of U.S. primarily office tenant, government for XX.X% XX.X% XXX sector. the a more the accounting to tenants, investment remains which property REIT annualized rent. in investment our XX.X%, other of largest tenant believe basis one paid

for Turning to operating our quarter. the and results leasing

we feet growth strong XX.X capital weighted of and renewal average quarter, X.X% only per activity a of X.X of a lease average and our term entering leasing has years, lease Year-to-date, rent activity, weighted foot square internal weighted year X%. and weighted advance continued $X.XX lease years, leasing average a term. new helping to third with goals and of average the term commitments of driving in into rollup of generated XXX,XXX a leasing concessions our consolidated During and for rent average in per leases our weighted rollup extending our lease square

in rent, year of instead remaining the rollup result third flat anticipate XXXX As of a our a leasing for we activity, quarter rents full year.

discussions across the as active more portfolio. X.X pipeline in would a including square for than space to vacant XXX,XXX that robust with of feet continue We million square absorb feet tenants space, have we are leasing

leasing to transactions Intelligence a renewals drive entered XXX,XXX a transaction we foot building. third the large into a for government a X single-tenant in Defense We had new quarter with Now results. tenants, -- roll XX-year few helped on of rent one entered highlight into Agency that is XX.X% up square

for business The other we renewals weighted and Coast term. In lengthening X.X retention is our feet XX,XXX a of renewed X in Security with for up Homeland a square buildings, lease years. a years. of for nongovernment square complement term high tenant for plan consolidated having transaction a West weighted and OPI's average feet average XX% with Department roll of the XXX,XXX our one and approximately rent believe We these lease tenant

distinct having market leasing our the local continue and more management buildings, than asset U.S. and and trends demand will presence continue believe our teams. efforts, strong tracking We in building on relationships drivers and we leveraging RMR's of XX advantage deleveraging our the and tenants our tenant RMR focus Group's a operations for experience property As both retention offices we and The combination brokers. competitive through across provide with

operations. to Turning

data sustainability. measurable that reduction in expense and approximately and Phase has costs of efficiency in new sustainability OPI's of increasing energy savings program this portfolio. million efforts year-to-date payback than in hours this the X data these to its footprint harnessing to to of environmental manage X of performance energy operating consumption OPI's a An Implementation is of real-time to in X resulted portfolio's are has energy be example analysis in our operating kilowatt technologies drive market XX% $XXX,XXX use has a less monitoring of limits to and We resulted of initiative year-to-date, OPI's analytics of and reduce carbon supports a leader energy effort efforts. through year. exposure

both This In awards Estate and of addition the Excellence and RMR Leadership recognition in ENERGY high-quality these initiatives a help environmental Award. Real for to Group the earned testament RMR receive the recruitment, RMR the the a of RMR RMR's we Summit and benefits believe employees Development Group Global retain Institute year, programs Real and recognizes also attract XXXX its -- retention Partner onboarding, Award award from of development. Year at Employee the We are number programs of won distinguished breadth property-level Management Management Estate and STAR and The OPI September. to strength from and receiving The this professional shared for platform. and of services

balance I and sheet to overview Matt? to results, will capital now Matt over our turn the needs. provide financial of Brown call an

Matthew Brown

December Chris, and Select ended merger which months September closed third OPI's Income good the XX, XXXX impact Thanks, results quarter the the with SIR, and on for of XX, X XXXX. include or morning, REIT, everyone.

ended changes months OPI's OPI has the driven these during The the of third events including $XXX September million XXXX, to year. of period million in financial X sold during $XXX compared quarter. majority the In XX, the of the previous as the in same results impact properties has consolidated addition,

our quarter second as of result, XXXX. a results the consolidated discussion focus As to will on compared on changes

diluted by certain a result approximately property quarter, $X.XX FFO, decline reported of we net million million share. call. quarter's from or normalized dispositions second increased during FFO $X.XX the of items $XX.X today, of second share operations, last per This the a Earlier our third were that XXXX. FFO normalized to share in sequential quarter discussed the quarter or and funds for per The normalized basis of is million revenue third normalized $X.XX $XX.X compares or or $X.X diluted the for on that in on diluted quarter per

favorably reduction mainly partially to OPI we market G&A business The quarter disposition G&A share paid the price. by total to expense expense compares of in with the RMR for result offset a of the debt reduction to in of due fee $X.X in management the proceeds, million, the expense third our for is our capitalization appreciation from paid $X which in decline G&A was quarter million XXXX. second

incentive September As fees. accrue not management did business any XX, of OPI estimated

million result expense the for the expense XXXX. including third credit ended third million to our debt of expense the repaid a of repayments borrowings second on XXXX, revolving the of in months Interest in $XX.X facility. $XXX of decline quarter compared million X quarter, as during quarter $XX.X September interest of decline XX, is interest in $XXX the of million, X.X% mainly net The was

quarter. property the to results for turning Now level

information in same-property same-property and forma quarter We pro third third if property basis our XXXX. XXX On have the from NOI, the September XXXX quarter merger as cash at declined XX.X% a million recorded XX.X% tenant pro of income, in for on XX, compared mainly of XXXX, operating closed XXXX. January of a The basis driven quarterly the had decline in X, earnings XXXX, previously SIR of to settlement. third supplemental at net decline X.X% by to XXXX, debts same-store and XX, a collection of the included the was points to quarter or basis of occupancy release bad due September forma $X.X

incurred the the efforts RMR's increases utilities repairs that sustainability and offset operating expense insurance real engineering On due of in mentioned. mainly approximately to estate front, and Chris by $XXX,XXX, property maintenance we a in and previously team reduction costs, of corporate taxes,

I'd its take which through moment benefit companies efforts like estate pricing to program aggressive of the highlight RMR's managed to to of the from a managed the real RMR size companies due tax platform. abatement

this all reduced program by in program in in and X $XX billion aggregate excess for and estate Over the of million. X savings past tax the excess real past has $XX years, $XXX reductions from savings estate generated years real value of assessed assessed over tax $X million. successfully has approximately OPI's million this is value benefit companies

discuss efforts. recurring on ongoing switch capital and leasing the improvements now and deleveraging million to third capital improvements on We spent will costs. million on $XX million I building quarter, $XX including during and $XX tenant focus

This timing capital. ratio target is our XX%. payout Our estimate, the recurring payout in cushion due ratio our below capital has created to than our of mainly current greater CAD XXXX of leasing

managed which obligations, cannot As $XX until of represents end, future spent TIs tenant million quarter of we leasing-related capital unspent million XX% had be and of $XX.X approximately years.

note million capital the capital it to of is properties relates have $XX it approximately as XXXX. during future that important sold we we Lastly, X years have to eliminated expenditures, from next over

$XXX July, we RMR As million mentioned was of $XXX term million of million, OPI XX, to shares proceeds and facility. approximately million which loan. net received outstanding The used pay quarter's call, credit had in our X.X down our on $XXX September our sold At revolving Group on last

revolving asset During $XXX credit under remaining facility. loan notes sales the XXXX, on term our $XXX million borrowings our were and quarter, due proceeds repaid from million and we repaid with unsecured our in the August that senior

$XXX As plan our proceeds outstanding ended EBITDARe currently to target debt agreement range to credit quarter the currently sell. have David on announce previously stated, X.Xx. with we long-term are reduce within We OPI's revolving to the at adjusted and pleased under facility, we net property is our annualized from which to the million

Operator, our for up remarks. call open the concludes to that prepared We're questions. ready

Operator

[Operator Instructions].

The with Germain first JMP Mitch question will Securities. be from

Mitchell Germain

You of you've for How expirations previously year-end got plays I amount the how couple like about traditional know about in a out the just that a it occupancy course I had next fourth elevated think year's I the more guess area. of mid-XX% talked next think level, of quarter over a pretty quarter. number. than do months? we was

Christopher Bilotto

is This Chris.

Roughly of vacancy. revenue at $X.X the of that expire I is X XXXX. over that we to X.X% revenue have is quarters, million due think want the to tenant about in that'll next way we look

noted tenants that of discussions XXX,XXX in about million so absorption our feet earlier, And remarks X.X with with as active square represent square in we're potential feet.

kind as drive see measure to we of help occupancy. that a So

David Blackman

Yes.

So of some Mitch, out XXX could XXX, tenants points occupancy as have basis year on year, another XXXX. then move absorption, in pressure we to at expect we assuming new end. finish And about that no we and have we're the XXX points basis maybe going

Mitchell Germain

That's color the helpful. on sales. all appreciate David, asset I really

you of some deleveraging of sales the had that were plan. that were think completed the I FPO original mentioned part

SIR-GOV million changed? and guess I'm what stands. last that Or sales targeted said quarter, were kind is, merger, to million So you've about got as for that million the trying where has of $XXX I just curious of you out figure $XXX that $XXX I'm of

David Blackman

from So $XXX Mitch, the deleveraging SIR. $XXX with with acquisition. Potomac in million, the completed is First million the balance number I quoted, deleveraging associated the roughly the The merger of that from

where X under anywhere from, that million, addition agreement are $XXX.X have, call we also that few we the those properties of it, we identified buildings their marketing, million plans our of other are with to $XX have and be sell part sell for to we decide $XXX talking assets. to we to might another which properties would have actively program, We trying hire who recycling a want as million. targeted We've would brokers, evaluating marketing in XX capital to to have proceeds

Mitchell Germain

I what are coupon. I'm color. That's question My due $XXX in great think at that. Excellent. for February it's that last coming is is million the plan -- X.X% XXXX, about your notes curious

Matthew Brown

Matt. is This

have $XXX million on we today, line our credit. of outstanding So

have We agreement about properties of $XXX under million to sell.

our million due So $XXX we of have to line those plenty credit down of coming notes in capacity of on February. pay

Mitchell Germain

So pay the goal to rather is reissue to something? than them off

Matthew Brown

current yes. moment, the At

Operator

comes Michael question Carroll Capital Markets. next RBC The with from

Unidentified Analyst

you still on expectations year-end? to additional Jason are dispositions? some XXXX? these going are having of just will I'm And Mike. agreement, under what is those properties push the of by This closing wondering, closed that are for the into planning those on for Or

David Blackman

good Yes, questions.

right diligence various So of stages we are have that agreement under the now. in all properties

close think or But close completes they we the would marketing. year-end, a diligence expect hard February. have have to on could earnings by our closed in It's we're expected, the time that all quarter be by that say I but assuming stuff fourth January vast the couple majority call. that we will I as would

real takeaway achieved the leverage. have our think target is we I that

we more now as are replacing focused assets. assets sell We on

available and properties actively to distribution. looking a our do So way to buy we for in that increases are cash it

Unidentified Analyst

Got you.

few once? to opportunistic are the might be So big not all quarters we the a in over necessarily then, little additional being been expect more doing properties and at like chunk you've that that shouldn't marketed come a those last

David Blackman

Yes.

what that's marketing right mean I have think consider is would now not what we correct. material. I generally I

assuming identifying So FFO on have us a going that FFO successful are begin And see or impact to will big not to it's we you CAD. and in assets buy, CAD. replace to

Unidentified Analyst

type acquisition specifically opportunities last towards the then specific of recycling that seeing It's there's just market? in on turning eye? eye your are markets And your catching capital And you're if front. kind Okay. the that question. your What not any deployment, plan wondering what's you're of

David Blackman

there's where grow a tend southeast and markets be believe time. markets, predominantly population -- drive ability like over that employment growth will to focused Those we like help to are rents on our We live-work-play Carolina, because we the Those of that North Austin. like we now, the important. markets can are we is think types think of rents some mostly grow find right Texas markets -- attractive we which time, over markets

Operator

question with next Our Gabalski Morgan from comes Stanley. Adam

Adam Gabalski

you your to in above? asset below? in roughly what plan, come a bit a gotten as the Just line A into little of sort with can Did you Or relative pricing bit talk little about were as little it initial disposition you're as you've what a seeing expectations? just little far deeper expecting?

David Blackman

talking average rate. think our first year-to-date we Well, X.X% at at disposition selling and between talked we X% cap when I an program, what had assets rate of about sold cap about X.X% a started we and have

So with sold. think we've reasonably the we've I the assets pricing for been pleased

Adam Gabalski

little know then talked portfolio? for they're over next known at the Are Great. to major the communicated XXXX. that any bit going the the already about there are more. you in to into moving planning hold occupancy just to And I tenant's and a months, move-outs become XX potential one you that pieces vacate where year-end

David Blackman

Yes.

that talked expiring think rents X.X% balance the be quarter in Chris would the that being XX over X.X% tenants are of of vacate. would Approximately about fourth XXXX. we with in I the months that approximately be with think next will

Operator

B. from next The Riley comes with question Bryan Maher [Operator Instructions]. FBR.

Bryan Maher

A lot of there. information helpful

you a contract, also different? X.X% at something rate or they are dispositions have the under similar, cap On roughly, that

Matthew Brown

currently. agreement sale under that rate X.X% cap and The includes properties those are purchase

Bryan Maher

the now headed, that then seems your Great. it I'm And secures on around to closer Xx. with assuming X.X, on investment-grade sheet rating Okay. REIT? your leverage down balance

Matthew Brown

our published last reaffirming outlook. with report on rating investment-grade a week, us Yes. a stable S&P

We in we go Moody's that's to And or expect the to are next currently. month committee where so.

Bryan Maher

little the rent to for Okay. and XXXX? And talk then are increases about a XXXX as we completed, are potential the can dispositions on out you look what bit portfolio once the

Christopher Bilotto

X%, X% mean we're think about. I looking that number we've that to which I that at Yes. talk to the still continued is

rent consistent of that up being roll just that's the think overall what seeing leases with in completed. are we're I kind with with

David Blackman

GDP if expecting If lot economist that to how a as business perform. contraction quicker plays pressure of us a see I mean on piece and help that where X next they've committee to will you To like that of cycle circle continues clear growth with that, the continued the that not on in true Bryan, of investment-grade I to X rating, We morning continue obviously But us kind to in expect do. they is back on done the years. than depends is the to go. we've feel been read out has rents. a how Moody's Yes, to this economy asked have us will an over drive rents. way, that what

Our growth. our we're turning well to leverage our and eyes online, is

So rate. to our decides optimistic, we're obviously do what with -- control we Moody's we still relatively but don't

Bryan Maher

over to And the your kind of key then opportunities two in do occupancy see where drive And Okay. is lastly the for to biggest looking months question. What the higher? like next a you XX part XX outlook supply markets? me,

David Blackman

there's us market Well, exposure the X say a being really negative supply. we it, a call of I have country built buildings growth downtown. with on X there where next, market years, that's that have is only Sacramento, over impact to couple would supply the increasing could that in the That's where there's and

that's why think ability comments, rents. our Chris's grow we're to bullish in on relatively So I

Operator

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

David Blackman

would When assets REIT, our we leverage Select to between Thank have we done sell you, exactly X.Xx, with merger we operator. Income reduce and our and we to that. ratio announced said X

joining space growth attention successfully to leasing is portfolio. concludes positively across that renewing in long-term to Thank us We leases, today. portfolio. This vacant Operator, our our recycling you for that the reshape our growing and program expect rents create transitioning commitment will addition properties, are our continued now and operating we call. to dividend capital our a

Operator

call attending And today's concluded. thank The you sir. you, for now has Thank presentation.

may You now disconnect.

Office Properties Income Trust (OPI) 1 Nov 192019 Q3 Earnings call transcript