OPI - Earnings call transcript Q4 2021 | Office Properties Income Trust

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Operator

Good morning, and welcome to the Office Properties Income Trust Fourth Quarter 2021 Earnings Conference Call. All participants will be in a 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 Kevin Barry, Director of Investor Relations. ahead. go Please

Kevin Barry

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

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

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

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

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

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

Chris Bilotto

volumes end reported XXX,XXX high at strong Yesterday, the OPI of and review Office represents Kevin, in on before Leasing earnings results, fourth our results business overview are the provide Income today’s our the what we financial quarter. while in core execution $X.XX we call, tenant quarters and Trust. morning, leasing to performance our per XXXX XXXX, capital will quarterly was momentum, general fourth share the our and prior quarter exceeded buildings square more feet market seeing our you, quarter exceeding everyone. recycling beginning across making call Thank headlines consistent Welcome that Properties strategy. over reflect steady good I FFO the with Normalized the to and detail. are begin solid highest remain guidance with for on from for turning a an the strategies discuss results the our on financial Matt to it volume update to On XX%. of since utilization progress

long-term years leases the averaged timing space part plans and remains Despite during signed utilization term, needs reentry consideration to space consider XXXX, to to expect X.X we continue of their continue the through their of into as to willingness We will progress as improve however, plan. work uncertain XXXX working accommodate get tenants of office these considerations, various models. as highlighting tenants to

done X.X up prior rent average new X.X%. the volume with which in core square of our was the Leasing a XX% through real the of team weighted the year roll-up testament the new assets, which work progress and feel feet our leasing, of excellent X estate a at to pandemic. properties by our be over advancements of and in than the XXX,XXX past years of quality back choice. landlord growth to strategies, the more XXXX XXXX with This on more the X.X a included improving million in than to and volume for times to feet term Looking volume our year, lease we experienced relationships portfolio our made double is square tenants of we elevate achieved operations and our is a XXXX

of deleveraging core and primarily these notes two which used the of in our senior and into collectively development of redeployed in $XXX million, we at issuance Seattle, than pre-leased are that $XXX an highly to We further $XXX adding of million. average Google the contained efforts targeted million reducing OPI’s of have proceeds and Chicago, the and X.X increasing projects age square properties to top we properties to ability million XX debt continued we to of to are properties completed of proceeds feet million XX% XXXX, where and D.C., marketing as beginning with XXXX part and and efforts, currently of maximized Atlanta plan, dispose We non-core of approximately our nine accretive acquisition rate more highlighting highlighting in we Since in Complementing cost of maturity will cap XXXX, continue have have debt, identify $X.X confidence average tenants combined feel X.X%. on Proceeds $XXX an execute launched for portfolio. plan. investor be those recycling sold into our capital years a our our for properties plan average these Washington, billion roster of and two Washington, value.

quarter more fourth in the to now Turning detail.

industry investment with an perspective, From six average noted a we XX% As came communication of earlier, was Government up uses. year and transportation strong revenue. activity XX% representing for term grade-rated leasing. of with a We tenants than representing average of and approximately and more with roll renewal annualized of driven This weighted new manufacturing approximately feet momentum quarter. and QX volume leasing tenants, during accounted maintained lease leasing XXX,XXX of activity rent our our years weighted square rental in ended by and X/X X%. technology, industries tenants of the the

fourth basis XX% square last increase occupancy occupancy our ended and represented leasing activity, with the capital total and just QX the XX.X% lease quarter. commitments quarters, per from New our increased and quarter of during under few per with concessions consistent activity points Same of XX a we trend year. were over $X.XX past XX.X%, to consolidated the quarter, property foot

government option for XXX,XXX one-year Virginia, up roll at Turning renewal to square exercised its our fourth feet in quarter rent Reston, federal X%. leasing transactions. In the a of

in engaged XXXX. We longer-term our are discussions this of currently in expiration the following for commitment renewal

in included of contemplated California, the and XXX,XXX roll-up a California As November term vacancy. Sacramento, vacated previously a XX,XXX feet the of rent lease effective overall square XXXX This XX%. and State six communicated, feet, reducing square in renewed years approximately of

in In executed terms feet manufacturer of square consumer Chester, deals, XXX,XXX lease with X.X%. term rent goods leading Virginia, for we roll-up for a a and XX-year of new a a

with XX% we our This of excess feet, pipeline feet X.X discussions is robust covering Based attributable XX% portfolio. new million is of consecutive currently pipeline in leasing of leasing. X% leasing the feet, has our square our end square million than to remains where X.X pipeline, and XXXX to X tenants on highlighting square in sixth the quarter which from roll-up occupancy been a current expect further of across with strong rent characteristics to X%. of million more to Our interest

Washington XXXX. Class vacates for OPI’s to underway, ahead annualized X.X% of upcoming A XXXX, and we are revenue known looking Now X.X% delivery will with of is office in lease redevelopment revenue revenue life our early in annualized our of total X.X% as a FX breakout anticipate in vacate property a representing annualized of and science rolling XXXX. follows: Plans campus in expirations. representing February Seattle,

We have in for the had different quarters. providing upcoming and forward uses look updates activity to good

In representing square its mid-XXXX. which signed is feet XX,XXX of discussions on will tenant for GSA have for variety will to term the in and of are points disclosed portions annualized and tenants feet We Florida, XXXX previously basis the currently a a XXX,XXX estimated XX currently vacate, Plantation, of Our Colorado, looking building. Centennial, with in lease sheet we’ve expiration. following revenue square vacate September located

that new the leasing are square for additional square has square in been pleased XXX% for a these We report vacancies, feet square bringing negotiation and feet the than to portfolio. to XXX,XXX occupancy signed remaining that over subsequent of advanced this lease year-end. feet XXX,XXX XX,XXX stages executed since quarter reflects we across more end, Combined, XXX,XXX to term. XX-year we stages Despite in advanced of have feet, a an

development. to Turning

are on we our addition delivering Washington, XX to QX the update for with to and provided Ave Seattle Mass plans project, in In our D.C. track XXXX. redevelop

square X.X occupancy the concessions A properties but Class Newer million on increased year across the feet roughly Greater of market in net quality, all gains tenants D.C. selected focused with with for classes. experienced

related XX% range calls, legal of prospective continue As to technology, variety is and development currently from and have pre-leased, on we the interest services, discussed a uses. across prior we field including consulting, the of tenants industries,

ENERGY We during portfolio. and and was ended forward with for performance management year. our in X corporate BOMA honors, over to are the Matt our details our In feet as million LEED more we and enhancing of feet year In sustainability growth initiatives we now sustainability financial certified, of over we all on on we continue progress the position in STAR and progress than to the you company certified OPI’s operating Matt? certified on ahead, year our results. milestones continue coverage We work initiatives thrive to execute continue to square drive an Year square the of strategy as increase XXXX, our that X on the we our ahead. to the make and fourth to for square turn call leasing efforts. to will million to will feet expand OPI’s program programs our ENERGY active Brown plan property long-term. of reshape consecutive I financial recognition dedicated year portfolio summary, provide three and updating year and the look X Finally, XXXX results. sustainable properties In to STAR Partner and for industry the advance to including on garnered million

Matt Brown

facility of or everyone. million Chris, and FFO were per of was offerings share used as credit million revolving the our debt maturity CAD million the normalized mainly $X.X bond in compares per QX of a FFO QX nearing $XX.X the quarter XXXX payout full and all fees. to amounts quarter refinancing outstanding our higher result G&A business fourth third for was XXXX. the our $XX.X is share, expense to was basis on $X.X to or of repay or FFO fourth guidance. year a in of ratio that due $XX.X normalized fourth for a for Normalized million, This the incentive share, million which $X.XX of reversal sequential disposition includes exceeded previously which morning, decline interest and per accrued $X.XX activity. on The for good $X.XX CAD management XX%. estimated resulting quarter expense quarter Thanks,

of this quarter period G&A a tracking fees, the last for compared peers group. fourth the total Despite decrease our X% year, return market peer million, year quarter. reversal total expense OPI’s a the with of in on return basis to and was impacted ahead same of of $X.X relative the three-year adversely volatility most Excluding previous the approximately

As payable under was our no business management incentive agreement. fee result, a

However, the over a measurement return OPI XX% generated period.

a range set. coming as XX in of relatively that in the result, property held better forecast and classified compared operating and than to was is NOI expenses quarter. same of for as below went vacant XXXX level the was negative for in cash sale the August Same-property to was improvement our store XXXX a quarter Turning and to fourth guidance negative our The due X%. came levels range December to over guidance at from unchanged that basis results property X% removed

a subsequently to basis cash to per quarter. decrease $X.XX a The expenses offset related million to termination property $XX of in increase made related and planned million first same-property first during Seattle, re-leased G&A have FFO is increase a share between including and $XX expense expense a to California, activity fee $X.XX this FX’s our property building expectations, range user termination $X.XX $X.XX expiration. quarter and the a to we into includes up FFO expect in property $X.XX $X.XX fee we to reported million partially quarter in of following: disposition takes the be the net account their related a to normalized and from $X.XX NOI forecasted our by to Turning normalized a and per increase This share. at guidance February full from lower million where QX. of $X.X $X.XX of $X.X of operating interest our

cash NOI same-property be to plus to minus XXX expect basis XXXX. basis points first of the compared as We or flat quarter

to We recurring quarter, the capital recurring our fourth spent balance $XX.X sheet. Turning total expenditures forecasted capital the million during XXXX capital levels. in expenditures less million, which was than on bringing to $XX

spent Ave the million quarter driven project. for XX fourth mainly also on by $XX.X We $XX.X the during and capital Mass million redevelopment our year,

that elevated value as will XXXX our year compared full a to OPI. of activity XXXX, long-term create strong result the For we expect leasing capital as to for level recurring be

XX see expenditures capital increased and to Mass redevelopment at Ave to expect also as Seattle projects continue our We progress.

XXXX strengthened on used senior rate and reduced In we $XXX the revolving higher total debt. $X term during our to year billion quarter with total, facility. proceeds repay of average on front. XXXX, activity and mentioned, weighted our balance of refinancing average increased our notes raised This weighted liquidity. of remaining Chris credit busy a cost than more amounts finance refinance over strategic all sheet, was our rate debt the the As outstanding our and helped debt fixed ended acquisitions million We the of

and properties strengthen to XXXX, further to balance we to our our composition as bring mentioned, enhance sheet. ahead portfolio will Looking to market Chris non-core continue

July. to dispose of manage program that recycling plan our mortgage this repay utilize million $XX recycling and of notes repay under to properties our expect liquidity million program senior our debt and from current in to leverage capital the levels. We of non-core We to mature proceeds $XXX debt capital and

senior that maturing Beyond our prepared until our July no concludes Operator, notes, have notes XXXX. we May remarks.

the open to for questions. ready We’re up call

Operator

you. Thank

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

Bryan Maher

in part A questions. of you to to morning, scheduled million? you Good of $XX you Apparently, to dispositions guys. said I it And that Brookhaven going were maybe was $XXX $XXX terminated. think be Georgia, that share I that down the transaction – is Can think sold couple why? that properties The was in for XXXX, million. be million acquisitions

Chris Bilotto

Sure, This is Bryan. Yes. Chris.

as offer campus we recycling properties business offer went path at and focus not their of pivot end, asset, at another like capital an foremost, program. I a and was they direct that of through We first the they the I – for market as circumstances. their they Brookhaven, wanted think, offer determined the with ultimately And to down a felt – the got of those kind in for think that disposition. or going plan, what that was work started that the least and direction. evaluating And good contemplated for originally kind under our off which portfolio, was to

win I that think can And occupied look that now. that, in campus kind we so long-term and think, sense asset. is Atlanta to like for either And what government the of I that us, do the XXX% with it’s to forward way seeing overall, we a

Bryan Maher

them? And And when potentially XXXX, Okay. of in of maybe what some are big of you kind to $XXX those about who the think million $XXX asset characteristics the give locations, general we occupies can properties sales us million some picture? for

Chris Bilotto

geography. first of on – asset it’s would kind focus This of as far I necessarily as mean a specific I really isn’t program. Yes. the it by kind caveat certain

the may there are our owning on of kind where asset cycle be kind the asset. we of clusters. based on and that life solely of in While It’s view

want And of transition have within then mean, Greater touch to kind kind it think of area, MSA, we Phoenix of there, maximized of kind into branches think more have a kind of the are including markets, a I locations within of evaluated or out I we we direction. your notably handful being in questions, value in assets, on assets of Maryland. properties so kind from various Virginia D.C. the where of just kind and other kind to And kind one-offs some more of couple another that then really and of just we’ve or

So…

Bryan Maher

for Okay. on scope think lay on that purposes how some but about year? D.C. didn’t – us the give maybe gave touched Can And specificity, modeling more flows and Matt numbers how CapEx, you think with through out upon color this any really XXXX, especially I in and Seattle. it us to quarters, you

Matt Brown

Sure.

million. think ended $XX say $XX to gave on year, at So that, capital were $XXX will guidance beginning at or for be we sit to at I XXXX we $XX we around million, the the thought million, capital CapEx side, is today, recurring to going up when minus the and we What probably we we where million. plus add recurring of

of of leases and lot updates go that’s timing the that the a we’ll capital provide we throughout So where recurring on are as today is dependent and we year. materializing, on but kind

redevelopment the start our On continue Mass on starting in seeing to will side, project XX we spend March. Ave and really capital Seattle progress,

So we’re XXXX about probably in in at combined. two looking those total projects for million $XXX

Bryan Maher

just me. Okay. last And Great. for

even seeing it I we going in lot the be you’re in be should mortgage, think of and over that You is that the I leaves $XXX And there business? you notes, million this at selling factoring is putting how are about mean, there thinking rates of front? cap out acquisition What attractive assets. actually on component decent that stuff on? the offers have to to $XX $XXX you’re $XXX off plus pay the million the million year. some And you’re a million liquidity, going

Chris Bilotto

types. mean, out varying and of at I kind there, activity levels product think that I there’s say of that’s interest would with looking we’re all – I

given coming of I for XXXX XXXX, has in the think going last part year, Atlanta sellers of kind what find been acquisitions think to off focus our with as and Chicago potentially being of that. course the I of ourselves net just and acquisition we’re some

so disposition we’ve going then of to be momentum results And year the around them part plan largely our XXXX. focused kind and there. leasing. It’s be the about QX to of certainly and going the some highlighted bringing And this as around of deleveraging. positive and talked And in redevelopments is think these on focus online I

Bryan Maher

for Thank you. me. Great. That’s all

Operator

Morgan question with next comes Stanley. go Ronald Kamdem The Instructions] [Operator from ahead. Please

Ronald Kamdem

Hey.

well? going up of on the about XX% opening do question XX, trends number how comments And think Maybe Just What Thanks. about, side. What how – as office second of the you you’re expect sort when What then utilization the are what Or to XX, how are we to think up that you about higher? to saying? should up expenses getting we that from any, the constraints, they their timelines? from one, we as was, that? think about utilization sort the to should tenants? tick back get expenses, we can talk if XX, XX, hearing are about those

Chris Bilotto

on So I’ll the touch utilization.

consistent current around I of what of the think holidays, And kind that unknowns the I quarter. talked I into of that, that of the given variant is kind were expectations and reentry. fact for last it really about kind with with think driver the XX% kind tempered we and we is that the of say would

then is a kind reentry I be of tick to probably our would thought towards more that, And summer the today. we’ve say that end kind kind that’s of year. view scenario into continue of would of the of likely and elevated kind the think I that up

are amenable tenants reentry. to I think

be was catalyst open. around seeing think I little as and flexibility we’re such might And employees of in variables that of the lifted then for they other another bit ways, a have there’s requirement reentry. the mass kind office. office more many in mandates It to that others for a be

movement think And But sides. see people in tight so with market it’s would kind the of to reasonable where in some expectations reentry say I there’s a to of trying assume that and driving kind both are think few a on labor we’ll to nonetheless, certain balance quarters. I variables I upcoming addition

Matt Brown

talking expense side, that. three the are was One drivers an Chris forecasting in about. in increase expenses on really And as and we there’s just Yes. associated with major is XXXX, utilization,

quarter impact in previously. the lease net inflation then will is management third, was pressure previous And on that Utah a we of lease where Second a there. restructure on And taken that. call, triple we on property about now a some at talked see we’ve a

we’re to So that. increase for see going expenses

that However, third we will get piece. some recovery of those for expenses

Ronald Kamdem

Great. That’s my Thank you. questions. all

Operator

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

Jason Idoine

the Yes. spend. I back capital to wanted to get

million XXXX. I’m recurring you be about schedule. tie So the that together CapEx trying $XXX with will in lease said expiration to

It maybe of So that’s could looks increasing versus you why XXXX. there’s a higher XXXX? like percentage expiring just touch in on leases

should in also, think those So tie how really and the kind because up? together. just going of two things expiration XXXX, then And about forward XXXX ticks we it schedule

Matt Brown

Yes.

into million having is driven I think could early the we’re as renewals us XXXX level by $XXX well of expiring this certain push in conversations about leases of as with year tenants the X.X% XXXX. that for

see So the then probably million in driving look as to using levels. expirations continue the XXXX, really predict I future that’s for and those the say, really given to years would it’s reasonable and XXXX. And XXXX or to vacancies now But we we $XXX early in what’s that. for is XXXX additionally, increase XXXX

Jason Idoine

that the quarter. did Okay. now. during pipeline sign a of leasing you Understand the ticked lower then guys higher number leases And slightly

demand leases So should and back signed? XXXX about that are they could higher, schedule to with potentially part leases of pipeline leases these that expiration how of we that signed just be at falling? looking when or that from in the just not that obviously the also some But up pipeline just were Is in being enough XXXX more it. ticking think

Chris Bilotto

No.

it’s conversion, wasn’t that pipeline, a when I about think right? from it QX. And really to drop QX material just think talking I we’re

square specifically, that to flow. leases I we we kind convert new feet of XXX,XXX of bit ebb and But of think a about it’s of kind I pipeline. continue as more would absorption and potential these have of that think

new of bit that the our pipeline portion dip that would materialize a is to little more as continues across in have to on ways and leasing. XXXX into around But – side. a elevated might there, bit the more renewal we to imagine kind it as portfolio specifically of it progress the with occupancy start tick role the be get little up, given so kind year, I we in some And of kind of we a

So been – of of feet And million of come for play. we’ve north quarters bit coalesce X and a is it’s with that, now, but kind into that little been where of kind ebb kind square kind of transacted. I really and the six the think flow you’re results that starting as of seeing, we to conversion

Jason Idoine

Yes.

Thanks, Okay. Chris.

Operator

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

Chris Bilotto

you joining and Thank today, us look forward speaking again soon. you with we for to

Operator

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

You may now disconnect.

Office Properties Income Trust (OPI) 17 Feb 222021 Q4 Earnings call transcript