OPI - Earnings call transcript Q1 2021 | Office Properties Income Trust

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Operator

Good morning and welcome to the Office Properties Income Trust First Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Olivia Snyder, Manager, Investor Relations. Please go ahead.

Olivia Snyder

Thank you and good morning everyone. Thanks for joining us today. call and President Treasurer, Chief the Officer, Chief Matt on Bilotto; Chris Financial me are and OPI's Operating Brown. With Officer and our for a and question-and-answer XXXX, session just moment, analysts. will a details In sell-side they followed by our first the about performance with quarter of provide business

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

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

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

will this basis normalized providing be and call, In cash including on we addition, NOI. FFO guidance

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

turn Chris. call will over I to Now the

Chris Bilotto

quarter Thank you, reported for Olivia, share, and Properties Office good estimates normalized first Trust. as exceeding we $X.XX our well morning. Income to quarter. the of for per FFO earnings call the expectations as consensus Welcome Yesterday

quarter of performance are and well the positioned encouraged our activity shareholders. continue a advance on value strategy strong first to throughout we and heels to our by to XXXX our growth We deliver be

Following and XXXX to our rent our pandemic, our portfolio into industry support we above COVID-XX collections our well, recycling million investment and XX% the active benefit to in development Despite we continue over challenges and strategy perform composition of continues portfolio liquidity acquisition to have continue XXXX, by $XXX activity. the will to us. capital leasing, believe presented and trend

and starting an acquisitions improve in opportunities flow to see disposition meet for that for continues deal activity. to we acquisitions to The Turning are investment and market our increase criteria.

into consideration Alabama, for non-core We advance. handful disciplined of trending have includes sale Missouri a to previously recent Huntsville, $XXX have providing the These downtime drag our in disposition on property two the properties updates as look In for plan anticipated occupancy focused been to with capital for third along X.X on XXXX opportunities various with additional million vacate for foot completed in three in known of sale an we with acquisition are properties the is recycling of transactions significant and sold capital of million aligned the $XX in million. of of million was efforts square re-leasing. Richmond, remain XXXX, specifically $XXX that forward on The competitive and Kansas properties $XXX million, older development that the quarter reshape Huntsville located disposed and we a to investing are capital building, in sale in with eliminated investment intensive, active Virginia, of April and these across million which or a combined $XXX for the potential goal buildings proceeds for value and provide City, geographic of with less diversification select Currently, yield the a $XXX opportunities in enhance help portfolio a continues that million intended through projects. or properties, excess tenant to active stages that environment. sales pipeline newer be what buildings strategic to capital intensive those

for quarter. results the leasing to Turning

utilizing encouraged we of Current plan building the their define over long-term continue pipeline are portfolio We square XX% to office effect fourth we we dialog which are renewal quarters. closely for as XX% utilization estate real will have re-entry building. footage, the tenants remain plans third at on the least continue for consistent anticipate leasing trends they new that momentum their growing is advance re-entry continue with past of tenants our to market into uncertain, of quarter the While accelerate, our as seen will requirements by and to and tenants work and several and activity. leases with and our the

for square Rockville, building mostly We renewal and Massachusetts XX,XXX with first at with new square term XXX,XXX $X.XX of was square with feet, Activities a by five-year the the renewal occupancy per Commonwealth and for roll-up quarter federal Washington X.X leasing and of quarter ended average with XX-year feet with and federal feet state a renewal lease feet. commitments agencies, for XX.X%. in X.X% Maryland the weighted government During consolidated contributed XXX,XXX the our years foot a State square short-term the the for including rent, in quarter, renewal capital of leasing a year. lease square of concessions per we of and a completed XXX,XXX of

are our over While for renewal requirements to year around leasing concentrated been the has new past more see lease activity across mostly vacancies. activity, beginning we

sale quarter At renovated and robust could end, and negotiation the absorption our Reston, square across XXX,XXX in activity mostly since activity pipeline in stages including continue signs metros building XXX,XXX including square industry given than of Northern Boston California, million embody leasing such more square X.X of that current building space, value markets Jose, continue Virginia. of in overall for and higher our believe feet Phoenix, is including our to advanced and renewal with feet DC within Each XXX,XXX demographic portfolio. covering San is education with leasing continued and attainment, time, disclosed uptick by feet new their the tour of advance of square our Our vacant quality in recently space. of for Suburban portfolio. diversification, drivers discussions positioned includes absorb leasing vacant feet, of of and vacates the markets remains considerations that Alabama. well the known technology we which shifts Further, Arizona, supporting are economic to in growth which Potential Huntsville, around make we property many the encouraged Virginia. as progress to we are We of our concentrated previously these of mentioned demand same XXXX, also activity, unique locations, our are MSA roughly activity our

enquired plans building. marketing reflecting November, strong this upto of And efforts tenant will selected the updates activity represents in for for Avenue been are in a annualized and actively GSA as plans the Plantation, X.X% X.X% at holdover We we our continue XXXX. remain, expire vacate property, the tenant previously this sale with of of leasing future for of located Massachusetts the lastly tenant the annualized the is annualized disclosed, property XX upon basis in property March vacating as and users and be on anticipate to however, our XX scheduled update Florida Additional follows: property been having larger anticipate DC, has for we our disclosed representing occupancy has holdover on an California, vacated the has for XX private revenue. exploration, Fresno, advancement to several for into of originally our in however, property. XX available points months continued April on the Washington we through lease Despite redevelopment the our revenue, revenue With building sector tenant to GSA had quarters. and expires are in QX marketing

We and the portfolio exceeded it and we're our through our leasing with trend are activity the square materializes. Overall quarters of three we pipeline continue to X pleased activity forward on updates feet. progress across look as seeing providing where plan to million work consecutive

energy Award. turn This consecutive earned I Year STAR is call achieved the management I Excellence designation we fourth that like the XXXX Partner the year, second to highlight Before over the would received the to we OPI in the and Sustained of excellence Year recognition the have Partner have category. sustained that year of the Matt, ENERGY recently

provide the across call this RMR to turn I of details financial over and effort Brown Matt? proud Matt results. our are to on will commitment initiatives sustainability to our now the organization. We

Matt Brown

Normalized $XX.X quarter of or estimate first CAD $XX.X higher FFO the Thanks, high quarter per the than consensus $X.XX by Chris, end and for morning good was mainly coming was the forecasted. in million $X.XX which to $X.XX our share, and beat NOI due for or first everyone. per million share.

ratio includes $X.X the fees. well G&A quarter million, CAD expense first with incentive of which Our dividend business four XX%. million estimated covered was a for payout rolling quarter is $XX.X management of

estimated return the OPI's from to on relative increase by which performs the incentive over January year for sequentially index. of the over primarily on accordance the XXXX. due total proceeds Incentive with XX three-year was from based final of prior G&A SNL but same when accrual the expense grant a in of XX.X%. quarter and obligation expense The XXXX. of retirement period, capitalization. which the quarter, to recognized facility, of fee used total to $XXX our the incentive decrease third amounts the expense prior-year the million secured are such which cap quarters is incentive were or business fee the of which fee $X.X the discussed remainder of OPI they outperformed fourth payable to quarter are and January included elevated compared of may three in any market We The incentive $XX.X a X.X% in calendar our million, in for the XX% of represents year from as of neither US related first due approximately million revolving after are Office of an notes the equity and commenced last return by the accelerations with GAAP the rent quarter, X, until is This index adjusted offset of that incentive equates was sequentially fee in fee impact each RMR a normalized RMR quarter FFO was income million to determined. million The $X.X decline include is index which costs during our senior fees second REIT unsecured earned, expired to resulted XXXX million, favorable outstanding first quarter, to or applicable. expense. first if the Interest not on in to with due the amount of EBITDAre mainly measurement both lease OPI calculation issuance fee, end estimated in $XXX repayments quarter. $XXX,XXX which $XX.X Excluding credit to the comparison annualized in the share first, the the that depending under flat $X.X estimated management expense $XXX,XXX last on prior how year debt million period on of repay period, and partially incentive agreement the do net in in in accrued officers up

cash of of compared the property level Same to results or first X%. million X% X.X% XXXX, for slightly our property decreased negative the guidance to basis quarter Turning outperforming quarter. $X.X NOI to range

offset reduction mainly the and an of removal a as was by in rental $XXX,XXX most in pandemic of the income million, and decrease $X utility the snow due well parking in a decline million, to $X.X expected, lower notably As as to lease driven costs costs. partially due cleaning restructure Tailored Brands increase of by revenue

property Turning expectations. cash NOI normalized same basis and FFO to

quarter share. be to second expect $X.XX We normalized between $X.XX FFO and per

to the to on dispositions the following; business share highlighted by quarter's Avenue; our Richmond, higher $X.XX to driven discussed; due the due most April other QX January our of last in call, significant XX $X.XX vacancies management known the based Alabama expiration current due we and in expense and fees Massachusetts from Virginia in Huntsville, As declines price. have lease $X.XX property at compensation property on GSA and Trustee the of QX our are and

decline to NOI second basis quarter cash property compared to X.X% same between quarter and second expect We XXXX. as the of X.X%

million. recurring XX, quarter Turning facility. sheet. capital and to million We expect during spent capital $XX year million liquidity, At first million $XXX revolving the credit recurring to $XX.X leverage on for capital we our including full $XX the expenditures March of the be We under balance more expenditures have between availability and full million times. was than X.X our currently $XXX in

from unsecured million pre-payable penalty have we XXXX. pressures covered. the our prepared We the no Operator, questions. February have our become without until vacancies XXXX, concludes senior closing, maturities call of remarks. which mature, in and despite strong when to up expect remains debt well ready In for We're sheet our XXXX to that we balance $XXX notes discussed, that remain dividend open December

Operator

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

Bryan Maher

Couple of quick questions.

it bought, just on is you you XX% to of downtick Is a any down portfolio? that that secondly, in portfolio to occupancy, occupancy that occupancy. expect And or Boston redevelopment there towards move stay we responsible it's We there? Is that? modest opportunity that property for kind weigh total Two the Boston the that. did noticed currently. noticed should we until questions leased increase On

Chris Bilotto

Bryan, this Chris. is

first relatively after assets a while on larger we the I of interim, the evaluate for consolidated certainly, that question, leases the space that together is think so the within goal building go to in the I your of part in think plant put and some Boston turnkey. is we short-term

May. a other I vacated. have of at outs short-term leasing will from renewal part vacated. the for say given vacated respect a down so think won't submarket tenants wouldn't by renewal the to we've occupancy, a really in And I kind downsize, the - change in this long-term move as it's the larger challenging improved mean we expiration the portion close with QX that's to scheduled project. the that part downsize vacated some known building on from that just in weigh balance that, - QX, where natural with expect And basis as Chicago no, I then that One we in driven a So two project then the occupancy, occupancy any of in and a got of of space on to

Bryan Maher

but property on to on are vacated, it? I'm definitively this the thanks Mass if correct that then, four update an case, cost that assuming And I'm for Ave, wrong the with that last changed since big guys forward redevelopment, for properties now updated give year, there? you if thoughts can you on us that's me And on discussed your Has and timing. you moving

Chris Bilotto

X% then Yes, to this an to and about continue looking total we move it's for QX, about to with million upwards to And targeting are construction a XXXX costs forward plan cash now and timing, about right is return. million, $XXX leasing is respect and with the $XXX deliverable. were XX% of

Bryan Maher

pipeline. touched last you acquisition And upon then from your Okay. me,

said to it's cap bidding meaningfully, have basis. downward, And bigger upward going rate $XXX do grow see the And needs rate in all expected there and picture potential is is you you the around competitive regarding space? and opportunity. I that office shifting might on discussion for the the the think the economy million. How what's

Chris Bilotto

other or I credit with assets at, think rates looking of the have continued long-term leases the that competitive. market kind synergies tenants for Yes, we're remain cap those to of mean type I around

not than so just capital lot been type cap similar there's rates, And in chasing other assets. of shift is a there a material

the extremely so I parameters lot type then have it buyers looking becomes assets cap that different larger of competitive, some chasing some some for think say kind very of that deals, so a the have to that. And active I been at of are and rates it's of really we and on that deals, just of the smaller would going but marketing just on be similar, based and around of consistent the

X% in X%. targeted to think rates cap we've I

are and in the well. seeing some of up as Charlotte look in the showed I at acquisition opportunities, as think with rates other X% we're QX we I that But we X% the cap MSA. that mean building of

So and it's are to kind properties at others that we're of of of I really strategy some the think that we're balance get higher the to a multi-tier kind start lower looking to buying range going part where are for.

Operator

from is Bank Rodriguez question Please of with next Elvis ahead. America. The go

Elvis Rodriguez

On included or numbers in your in - had I'm that was percentage yet lease tenant tenant included your not went move-out numbers. the the at end. you curious, down, but just big the quarter

wanted Just sure. make to

Chris Bilotto

When you went say the down. occupancy

Elvis Rodriguez

end it the but to that The should the you make come lease XX is or quarter, included XQ? if but just the in that XXX at numbers see basis about tenant tenant a percentage in out points, sure call we And of went point basis lost, wanted down not.

Chris Bilotto

think the XX we'll I I off see with that that recognize QX. for quarter Yes, we exploration, end, March quarter, mean in so, through that that drop and

Elvis Rodriguez

Great. And are end then, sort ending going Obviously with where it's the occupancy to you that, year. able but dip XQ, at the to happen you occupancy of trajectory. throughout will What share of with in the year? see do

Matt Brown

November so I I said that occupancy year, that have XXX,XXX notably mean that around if end think will transact Fresno, different at. occupancy, assuming they negative we're at some align. of building all XX%, factors But think I a of now, kind on right other is aside, that XX%, a with have impact to that looking at vacate will looking us favorable factors in the of that's going a occupancy. impact for is of of We've about are talked certainly to most couple that dispositions if square the impact kind feet there that and the

Elvis Rodriguez

happy next more queue in then Great, a have I after the couple one. that's to questions, hop And I'm of just but helpful. this

the we on Q, you bid $X.XX any the quarter. you. a helpful. be just in Thank I a highlighted it so it if That call. will you took impairment have here can share on in but maybe know You details, the

Matt Brown

Yes, to classified was the the held at impairment charge in related quarter for sale we quarter had as two properties the that end.

Alabama we of million. property sold that for One was the which Huntsville, April $XX in

Operator

Idoine The Markets. next question is RBC with ahead. from Please go Capital Jason

Jason Idoine

question the acquisition. Boston had just I a on

and acquired last as you quarter that sharing occupancy Boston and the So now properties and to you two guys it this one quarter in guess those was lower. with rate was well quarter like last looks walls I property properties of quarter, this your on existing both the close did

guess I acquisition in the quarter So And guess you are long-term same in this scale what's new from the last I is that assets. there, with area goal? your one if existing building

Chris Bilotto

it's property. So same, the of the the been ongoing acquisition closing delayed is diligence one to with given at respect kind just and some

just the it's I on So buildings and what the mean place I runway are. options about to the evaluate goal see X.X really And have plenty do to goes. gives some adjoining within market is decisions this with us leases combined is same a does parcel, evaluate that gives then what kind them, and acres asset. of of in our the where we that have which term us think

So I leases in-place near in of evaluate term, while benefit we those would we plans. kind the from think

likely opportunity is we going any so see for major pretty next my out. repositioning here updates project big is And be a guess to - that maybe a would far something but on year, are this

Jason Idoine

feet some color quarter. like on It pipeline. about XXX,XXX you sounds since could provide dropped leasing then square last And the Okay. it

just if due all wondering to leasing activity? that's So

Chris Bilotto

Yes, I par we it $XXX,XXX think converted execute mean deals. to is. in I

flow, of quarters kind been three over but think end and with so high of is $X ebb generally it's And for the and above range the as on you left couple which of pipeline when back last the $X.X years. so look I consistently we're noted, I that million million

Operator

next question Malhotra from go Stanley. Morgan with The Please is Vikram ahead.

Vikram Malhotra

CapEx the for Thanks question. plan taking so first just the Maybe morning, much everyone. for Good clarify this you on year. to that

$XX last call you lower million. said where about it's think I modestly the than

in has a if wondering change the there or What's plans. out just a So been push difference? just

Matt Brown

caused million Yes, the out. expected from pushed really down our That's initial really $X is number timing capital to come to projection. $XX the of difference leasing being

Vikram Malhotra

okay. assume does Got that certain of then occupancy sale the And have, you specifically it, target that the assets Fresno?

Chris Bilotto

There much in size. assume that Fresno. does in But assets pipeline albeit are Fresno. smaller the some Not not

help think increase increase. that would So or to Fresno occupancy was I were if - increase that

Vikram Malhotra

okay. Increase,

ones. that two Okay And sense. makes then just quick more

have it's fees fees? know had the incentive overall, Just is I like there calculation if What the next quarter, include every that you an still of the you is post coverage fees the the still kind - dividend quarters, to two quarter, this allocation. but incentive incentive assuming a you

Matt Brown

Sure.

right now, including projection of year-end the fee payout incentive our ratio $XX be So XX%. would million about a

be incentive fee, will that Excluding payout about XX%. the ratio

Vikram Malhotra

a Got it. FAD that's on a or And CAD basis?

Matt Brown

That's right.

Vikram Malhotra

just moving the to last have then just all had quarter And could XX if XX you last like magnitude? the there just outlined last but vacates, one, obviously quarter, the in you pieces over Okay. to been wondering I'm could you next, ones you if the larger clarify, any months like just that clarify the outlined, vacates

Chris Bilotto

as last think, again X% talk four where of about, we that we I where the the we talked to and of target still - XX go And for mean, about known XXXX represent down X.X% quarter. today annualized that are really come the continue the and over total is assets revenue the vacates kicks going that's in I Yes, quarter, next that Massachusetts with number. to

other across smaller pieces than portfolio. just that, So the moving it's

what we that's So expect for XXXX.

Operator

Omotayo with next ahead. Mizuho. question Okusanya from The Please go is

Omotayo Okusanya

you pipeline, potential in could what's renewals? leasing versus that million what's break $X The new to out regards leasing Yes.

Chris Bilotto

So it's probably XX%-XX%.

leasing. So XX% new renewal, XX%

Omotayo Okusanya

reduction a That's And five annualized space of it's Bank in BoA? of America with like the top looks your there It tenants. there a rent. was helpful. the of associated sequential lease, Was then decline Okay. one

Chris Bilotto

the feet to and off was so America vacate, I fell that square December a XX,XXX that XX, of expired Yes. one $XXX,XXX of was close year-end. think was that which at tenants or Bank known

Omotayo Okusanya

space going is Then just forward to less or took happened? clarify - but that renewed what the just

Chris Bilotto

that? repeat you Can

Omotayo Okusanya

particular have space and space out balances portfolio? the of other that the for Was it within just to that they moved remaining

Chris Bilotto

Correct, yes.

that of. of America, was so them have various one and locations we with spaces that they out Bank the of moved So,

Operator

a Elvis Rodriguez The next follow-up of question Please from go America. ahead. is with Bank

Elvis Rodriguez

on more backed incentive you'll done the fees out share what just with FFO. future? the incentive these one historically in Can fees of and Just you how being you've these recognize

Matt Brown

Sure.

FFO So the which for March part that accrual can performance or XX. the in is and of normalized or they the is incentive million EBITDAre be estimates fee recognition at We in depending because include $X.X group. to metrics, just the the are volatile QX adjusted quarter-to-quarter pretty income, any during don't quarters in estimated price on QX, QX our our relative net share peer fees

normalized calculate we and will at when So any EBITDAre our then of end fee year, XX from December final at time. that this adjusted be the deducted fee of FFO

Elvis Rodriguez

So call should our million it, should adjusting in for, see XQ. models Is $XX - that be we correct? so a fee we

Matt Brown

That's right, yes.

Operator

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

Chris Bilotto

our many We on see at look this updating the today. to and progress you you for us events. joining hope year forward of you Thank conferences and to upcoming

Operator

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

You now disconnect. may

Office Properties Income Trust (OPI) 30 Apr 212021 Q1 Earnings call transcript