OPI - Earnings call transcript Q4 2019 | Office Properties Income Trust

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Operator

Good day, and welcome to the Office Properties Income Trust Fourth Quarter 2019 Financial Results Conference Call. All participants will be in listen-only mode. [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 XXXX analysts. performance quarter followed moment, a a fourth just provide about session and the December our ended year question-and-answer details and by our business XX, sell-side In with

of the today's Private actual to Company. are consent and First, the based of of XXXX meaning may those is that that from results Securities February like project. as other note statements statements conference the beliefs OPI's These retransmission note contains conference Thursday, I prior prohibited and today's without differ would expectations and recording materially forward-looking call Act Litigation the we forward-looking written on Reform that of the Also and call securities XXXX, of today, within laws. XX,

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

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

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

be providing including on In normalized FFO. addition, call, we this will guidance

related losses without to part all charges guidance real of and is such as available of We estate. these gains providing certain measures for required reconciliation reconciliation of because not or efforts our such or unreasonable information a as the non-GAAP impairment disposition are not at

will to the I call now over And turn David.

David Blackman

quarter shortly the Trust. This to morning, Thank Properties provide you, results morning. guidance the quarter. for in fourth Olivia, for hope detail the call consensus will financial our will and in $X.XX Office OPI's per for We beat also review of Welcome first financial more this XXXX normalized helpful. earnings we FFO reported will share, which disclosure and estimates time good Matt history. be Income additional

to We also appreciate forward the feedback continued further look and engagement.

cases, Heading expected And for REIT. specific spreads. target we into to full-year these with merger expectations. rightsize our OPI's goal principal sales, leasing in expectations we asset all set Income XXXX, following occupancy Select outperformed and leverage, year-end the leverage was

to sell of net assets targeted plans X.Xx. announced We range to $XXX a reduce Xx leverage of debt-to-EBITDA million to approximately to

opportunistically common plus of proceeds, in the we $XXX.X we properties, shares For $XXX.X sold more million the all million full-year, $XXX our RMR aggregate in asset in Group resulting in than sales. net for of sold million

XX% X.X% X.X and an remaining properties we term properties of XX of and average average XXXX, sold average years age For an for was of the rate cap XX with years. occupancy the in average lease

metrics these of market. we reduced acquisition our have the ratings to reaffirmed with been investment-grade reenter asset result a As key range, stable targeted sales, leverage our to improved below have portfolio positioned are we outlooks, well and

XX.X% expectations set the relates full-year. new leasing flat occupancy to XXXX for to be and and renewal it to As and leasing at end occupancy with for spreads spreads, we

shortly. detail and than at is with occupancy of in will We ended provide feet we a Chris XXXX X.X year to which for basis new are on total our higher square rent more for XX.X%, X.X%. than XX points the our and that leases more happy activity leasing roll-up expected, with leasing report renewal million included

sales, of result believe our fund to leverage will range, with a allow us range. a that asset our have strategy to maintaining leverage achieving acquisitions we asset pivoted capital we while target recycling sales within As targeted

also improve portfolio average average and prospects as and for us lease such further capital term, improve key We CAD. strategy property position to age recycling grow to metrics, tenant will believe or position our distribution OPI cash for available retention weighted our

on strategy be requirements capital average contribution, spending cash properties the acquire minus selling which is uneven, will will low Our NOI capital our capital acquisitions. capital to with expenditures ongoing principally investment high can and sales both Since focus with on needs. and analysis properties focus for asset five-year

sell have term XXXX, of sold So we to the for years of age weighted average around quarter of in X% XX approximately and and that properties contribution have a lease higher agreements or low properties This OPI cash of well acquire X%. five-year an rates at yield entered first approximately six to with average needs six far average of positions a CAD. years, million competitive capital quality cap $XX grow

and FFO, and dividend to shareholders. asset maybe focus believe Although for normalized is we company for will dilutive right the the OPI its it positioning net this value-accretive, be growth

actively potential our while investment properties require and our criteria will been opportunities underwriting meet executing have acquisition capital recycling discipline. that We acquiring believe program that

located believe an seven average and earlier time once believe calls, markets we of are lease have prospects and years years can that least age is of high. or or terms renewing on are stated our we also for tenants longer where properties grow our As in effective acquisition earnings rents we where less for criteria at XX over with

fundamentals of upon our evolve will real our also and markets estate We geographic expect demographic we enter markets economic as trends. new diversification and exit and on view existing based

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

Christopher Bilotto

everyone. good you, morning, Thank and David,

XXXX lease leasing and weighted a commitments X.X concessions million and per As per term square property in with our years the of leasing year. a closed lease capital David reshape X.X%, roll and activity We an X.X management the average year feet leasing and for results. was covering $X.XX average for we to of up operating rent best foot square active weighted work as mentioned, achieve of portfolio year

to Through buildings an few now exited portfolio of our improvement geographic our overall and an years. we with overall to for an our age diversification improvement average an for years XX with average XX.X age deleveraging sold plan, a of markets

X%. we occupancy roll-up our As into XXXX, further focus at we will improve to of to year-end, to XX% a ahead in basis, X% continue On targeting same-store look key with portfolio. XX%, we metrics are our rents to the of

Turning to the quarter.

weighted new consisted XX, totaling we quarter, million of XXXX, renewal leases for December In years. OPI's a term per X.X into feet of feet As fourth that of average capital X.X% with rents X.X XXX foot were lease year. prior above XX.X leasing with of $X.XX a of square average and lease at weighted commitments square per weighted square and the XXX,XXX years average properties, concessions portfolio and rents, lease term entered

increased XXX to year-over-year has by occupancy points XX.X%. basis portfolio Total

million pipeline leasing feet square current feet that across absorb X.X of portfolio. to Our square XXX,XXX continue can space includes the vacant

nearby call, line, As prominent submarket play in on represented amenities. its vacated work, total was quarter, last a access discussed Virginia property silver the Virginia benefits fourth revenue. located growing which during property Reston, from in the and X.X% quarter's live, is The and the our Northern International our annualized Airport and Dulles rental to of

roll-up created improve is leasing. capital of with the efforts broader the required updates This for due growth a in leasing strong expanding to submarket defense minor rent opportunity on to expected The to reposition for outperform us vacancy Northern has We and for property a progress in budget strategic specializing Virginia companies in an computing building the property to from market to providing the cybersecurity. and cloud forward technology XXXX. look

transactions. XXX,XXX square full GSA, of highlight few agencies was foot $X.XX two To the In Idaho, the upon in lease. which on request included we the capital feet The several its we Lakewood, renewed under in only per fourth downsize feet. to expiration from total to a XXXX building five-year buildings one GSA square the due a extension occupying initial In extension executed primary with short-term lease GSA quarter of the lease lease of Colorado, square with XXX,XXX per a year. leasing Boise, a

the with the whose relationships maintain the Our leasing asset an of in turn a buildings. extension the The platform, GSA. XX-year an RMR of highlights problem lease prepared proactive employees both more GSA benefit approach management experience This expertise look strong transaction commitment. of who team utilization with potential GSA objection the building. GSA an and to into a includes XXX% process team team's former This helped asset successful completion a unsolicited resulted provide management for and holistic plan long-term and at GSA the

are which Causeway for for our near square agreement the to acquired Turning foot existing for in $XX.X million X,XXX land a Boston. we at XX,XXX $X.X quarter, parcel XXX square building acquisitions. adjacent or foot both and property are million, of under In a to fourth located

million near entertainment newly submarket main and is a facility. lively area This X transportation sports neighborhood the the development, square core, within feet and downtown thriving indoor the of the TD delivered city's station the hub, major north northern mixed-use Garden, Boston

or building and strategic in and through These existing for growth the and as are down future acquisitions our XXXX a either upgrading by building, beginning provide as flexibility rebuild NOI XXXX. early creation value repositioning through tear

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

Matthew Brown

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

sold efforts, fourth properties including with In properties OPI's deleveraging in of we million of quarter. $XXX addition, in $XXX.X connection million the XXXX, during

in these previous period the of events The results OPI's in as impact driven financial the to changes of majority year. consolidated the has compared the same

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

$XX.X of million property share, for The on This FFO basis to disposition decline million the result our the the a third activity. sequential $X.XX mainly $X.XX FFO XXXX. of normalized is or beat per quarter Normalized consensus. FFO compares normalized $XX.X in was for of quarter per or which share

due gain $XX.X of $XX on million, G&A to our expense quarter. compensation fourth The compared opportunistic Texas During G&A the in December. quarter, third million a share-based the the quarter in to quarter of of third was net result the G&A of XXXX. of issuance expense the million $X million, of for is in we on expense the gain a property in Houston, primarily property a for sale sales recognized mainly $X.X decline

Our debt share appreciation business on OPI remained expense the price. flat offset was relatively repaid a quarter basis, proceeds sequential with management disposition fee in by as

on interest the management alignment management contract with or indicative market our shareholders on with the As of paid a this lesser and management paid fee market capitalization currently being reminder, capitalization. is the total our of of calculation RMR into total is based under is believe business built We assets Group.

third the our decline Interest expense quarter mainly credit of million compared expense fourth $XX XXXX. of since borrowings July interest was of interest in The expense the result net revolving is of facility. X, repayments of the $XXX million quarter to on million for debt $XX.X XXXX, in

results for Turning to the quarter. property level

executed through quarter in free receiving fourth December XXXX, related $XXX,XXX XXXX For XXXX, mainly XXXX, through of X.X% of driven the one the property fourth lease quarter XX.X% renewals, basis fourth from rent the rent the receiving free in million per for of of pro primarily NOI, the free of and month forma decline to the compared of per SIR month March XXXX other occupancy $X.X a to merger rent quarter XXXX. declined by following: to cash XX.X%; $XXX,XXX same- two,

restructure by and repairs labor, more free savings lease $X a and XXXX, rent in in taxes, settlement and due October our of costs, the to fee, estate management primarily default the in on mentioned XXXX, partially incurred insurance above. related million maintenance fourth of significant quarter offset recognized and income property increases and to real tenant

sheet capital. during leasing capital million expenditures million on metrics. $XX.X $XX.X building recurring and quarter, to on spent improvements including million Turning the fourth balance and We $XX.X capital on

dividend target of XXXX, the recurring to spend the compared estimate, compared CAD Despite below in pear our mainly at of of XXXX due resulted yield X.X%. payout capital capital our timing being a ratio payout conservative remains at high to our was XX% deferred ratio, year-end X.X% of ratio leasing to payout XX%. which Our to group a in

$XX we range our Based these to XX%. million leasing includes on capital. will Based which targeted capital on our be recurring $XXX expect our current of dividend be XXXX projections, projections, of speculative expenditures within approximately million,

tenants and unspent As of of improvement managed XX% is of which leases leasing represents for $XX leasing-related million end, approximately allowances future capital our million quarter years. designated in had tenant obligations, by we $XX.X capital

our adjusted XX, EBITDAre net December target on no At is leverage outstanding annualized unsecured had facility, million our was we revolving which amounts range. $XXX below to X.Xx, and debt credit our

As with David quarter were mentioned, our reaffirmed during investment-grade outlooks. the ratings stable

$XXX plan in currently we notes to million of from reduce for and sales including quarter unsecured end, which proceeds with senior our property sale revolving the our property. due borrowings January credit of revolving will our from price quarter properties, on and sell million the fourth three have facility, under February sales with proceeds credit property aggregate $XXX We one secured to Subsequent repaid facility. we currently that of an of be the with under debt the in agreement $XX.X million upon to $XX.X repaid million, amount outstanding

and the mainly is first from share our property QX currently expectations we XXXX. driven the The of between $XXX,XXX to be of from quarter from under the reduction FFO FFO timing by million properties for sell, $X current NOI and on share expect dispositions per and QX of in XXXX agreement decline Based the another our per of QX portfolio $X.XX sold sales. the $X.XX normalized to of normalized $X.XX

basis for quarter our the down to fourth quarter we from X.X% the XXXX. to an We of of is reported expect decline the be as same-property cash compared improvement first which X% NOI flat XXXX, to

our same-property XXXX. the mentioned, normalized Chris XXXX XX%. next for and our NOI and the between is be during cash to guidance same-property As expect quarter of XX% basis for occupancy in to earnings at FFO provide end calls It we intent

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

Operator

ahead. Instructions] Morgan comes Adam will question-and-answer go We Please Our Stanley. begin question now session. with the Gabalski first [Operator from

Adam Gabalski

walking pieces? the talk throughout just the Hey of just taking just that just appreciate as given guys. of some question. drivers you some and towards sort for XXXX. the biggest you're XQ? same-store the guidance XQ Can about for some of Definitely color of easier you comps moving the And year, of and kind look also Thanks lapping through guidance

Matthew Brown

Yes.

of QX performance couple that as talked flat one to our in about X%, $X was of X.X% of there's major which that our we to included drivers income down XXXX QX was remarks, in forward, settlement revenue, expectation where of reported of we the roll I think QX, for same-store of was decline I prepared non-recurring. that the million from a a XXXX

The other rent. item was free

the December of leases of expired One XXXX. two rent executed per we in XXXX had that major in $XXX,XXX that free month

in the that which of cash QX is we'll the see of So benefit rent, helping same-store performance XXXX.

Adam Gabalski

just on Got it. of And then mark-to-market. sort

to see kind of sort Or of there think you're number you sort how kind range. of reasonable how targeting are of expect you sort sort Is any just in XXXX, low you of back-to-back years that? that move-outs kind are of Or one-time that single-digit For large a a it that longer sort skewing for that tracking? of renewals term? run track rate of or

David Blackman

least in near Yes. future. over rate When at we I look to run where just the for X% looking we XXXX, mean, see then back, is at X% XXXX I back think, indicative of year-end, and the X% foreseeable

Adam Gabalski

then And one more quick me. it. just for one Got

and broader of recycling capital plan. the acquisitions rotation and the sort market on Just

how that expect the dispositions As Can as looking like as sort quarter, deal of you that pipeline pipeline this seem would broader the call acquisition to asset? was a far does XXXX? this you because of it just that unique is that volume part kind of opportunity far for are of to plan? at? a you of does What the close look that match one-off of Or capital another of And at like? rotation, sort as sort point? what sort sort And

David Blackman

an that's of That's acquisitions were XXX a Sure. to in property, lot Adam, the epicenter building about Boston, a area growth. the downtown, talked getting located of strategic that Causeway. Chris our

to into opportunity for that have we a rent significant XXXX, as We an look XXXX, growth. reposition

property substantially owning in So what that those in give two we greater the flexibility assets us do future. with

not So it capital program. would recycling the I of consider part

to we relates it As pipeline a decent recycling, opportunities. potential capital of have

asset is but allocation asset thoughtful for for how buy as we in only positioning sales, very opportunities, with of to associated distribution. being, We understand metrics our what the are and our sales improving going capital so around and are our fund growth we that ourselves not available we are portfolio process, capital I think, we those in sure that with cost making potential are we cash those

we've I'll X%. And or of six an that sold under $XX of you of got a give properties as agreement quarter yield at first cash either example. contribution We've have XXXX, roughly the million

free approximately million those flow up selling giving of to by a So pay $X.X assets, dividend. we're cash

upon will depending capital those million If can in we buildings. of the million of $X.XXX CAD cash a $X.X a associated level share grow $X.X acquire additional to of picking is $XX up X% million dividend. That flow, we use the we at cap, assets free with be that

try CAD So create make as reposition sense? we real our focus that accretion. the value us that asset net for portfolio, is and to accretion Does

Adam Gabalski

Yes. Absolutely. That’s very helpful. Thanks.

Operator

comes Bryan Riley Our Instructions] go from B. [Operator Maher FBR. Please ahead. next with question

Bryan Maher

the up expect Can Yes, you saying be recycling volume might in see good previously would that I being you kind case? of a is following recall the you And correct? think of still on Adam's question. you year, I Kind capital $XXX anticipated about discuss that do that morning. million XXXX?

David Blackman

Yes, that's currently We've process. $XX good Bryan. the it's got a in million question,

potential an are are right Northern recycling lot lot going to perform. we how our year. upon the meet assets to depend acquire markets a it's it's And investment hit of very ability million easily marketing could XX that think depend we upon properties evaluating continue criteria. this to of XX the to upon A Virginia going our frankly, properties, of now those asset $XXX disposition. what We capital for outcome in and in Depending additional is

Bryan Maher

to shrunk? assets Has it Is XX you're properties, is looking that deep of it how And it kind grown? point, market that it currently XX is at? the Has properties? of

David Blackman

XX as Bryan. right not closer to It's It's consistent properties. and XX XXXX. XXXX into relatively we move been properties probably now, of out It's

remain And we – so optimistic. we're

real how we the we're to a I'd XXXX. going disciplined. off we're thing also we're our like very and And no, to think I is start acquisition on we're what optimistic those we're focused good is optimistic, that to expect pay But very to while highlight be for acquisitions. criteria for

Bryan Maher

then just for And last Okay. me.

billion around years? basically of large-scale the into an that is with recycling, higher? of see to REIT of OPI when to to and the Or done billion, you've over $X of the $X.X you capital moved kind next kind that so, two stays three Given do dispositions it the opportunity safe we're say and size And kind how? REIT if take

David Blackman

Bryan, I we think depends demonstrate the discipline we as capital execute allocation. capital year price on show this share an to how program it the and ability in a lot the performs on recycling

are fund issue growth. not today at equity could We We common prepared obviously ventures. to certainly look joint to

and think increase CAD the But level, have we grow frankly, to reposition without our of while distribution, ability company, capital and we we will really dividend. for the shareholders having from recycle worry maintaining about the same growing can available portfolio to opportunity to benefit plenty the if asset grow cash because

Bryan Maher

Thanks David.

David Blackman

Yes. Thank you, Bryan.

Operator

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

David Blackman

evolved scale, deliver goals. started It investment with a a OPI on plan our and for new to to the as and a market, XXXX operating business greater and fresh increased year present was importantly stated strategy. to company OPI an diversification

successfully portfolio repositioned with and financial quality our for strong profile, have growth. enhancing managing properties rent a our the We while occupancy and company healthy

to shareholders key narrow we the considering focus of focus believe discount. CAD. group to proposition as trading recycling our metrics strategic and enhancing grow We that discount is capital this In will our and portfolio plan business work our to to peer we meaningful continue value to OPI's on executing important XXXX,

that management to value. dedicated strategy shareholder commitment are We involves our and thoughtful long-term creating a proving to

Thank you Operator, today. for joining that the concludes us call.

Operator

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

now disconnect. may You

Office Properties Income Trust (OPI) 20 Feb 202019 Q4 Earnings call transcript