OPI - Earnings call transcript Q1 2022 | Office Properties Income Trust

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Operator

Good morning, and welcome to the Office Properties Income Trust First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. ahead. go Please

Kevin Barry

and good business With and sell-side a and Thanks joining first 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 April 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 Friday, 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 I as and to such turn is measures the gains now these efforts Chris. over information not as losses reconciliation part to unreasonable charges not estate. available such guidance are non-GAAP impairment providing reconciliation all, of real without will related required of or We of for at call disposition the or

Chris Bilotto

are to has also transitionary better extending our positions our interest our overall interest we Welcome this rising earnings Office to Kevin, general Evolving Trust. XXXX, first leasing and the reducing events we by periods. notes $X.X to good call believe the current inflation the past reengage rate senior environment and to improvement fundamentals, expense. around us that to of and issued maturity for beginning and quarter in Since in growing on the Properties reshape across few the over debt improved morning, growth years our needs. supported Thank everyone. space, strengthen balance sublease OPI tenant, continue and the utilization, Income Specific billion focus see gradual are stability around portfolio office and of and starting during volumes, moderation office you, sheet, sediment for overall of made progress XXXX,

our market past reducing our the Georgia, two on both four focus in Atlanta the than operating footprint leasing Our capital Fulton of particular execution the geography purchase cap and improving on of Chicago activity quarters core exposure square CBD million continued properties and fundamentals. the over one with portfolio more recycling new feet program and and

at guidance. prior XX%, of the square over increase for We deals basis decreased OPI compared quarter, business. results to Normalized XX continued reported new of of yesterday, in first of FFO to nominally X.X% XXXX signed the over average of that across term Turning high the a occupancy years. and and came XX and essentially property rent reflect more lease up end average of roll above points same XXX,XXX weighted quarter Currently parts many was by in feet year. and quarter quarter with leasing momentum renewal the the than our first a flat weighted prior XX our

a pipeline leasing mark-to-market of deals mix of current to and remains healthy Our strong new renewal with close potential and X%. growth

the indicate manage to the the active to sustained a consider to growth, to tenant of appetite our across development pace part a re-entry with of focus enhance space with and markets remain requirements national strengthen growing While we are newer by portfolio to long tenants portfolio plan. continue NOI our portfolio We use for conversations on office to our plans program encouraged evolve, projects. capital as leverage with proceeds levels recycling of with our committed capital and growing that buildings term less a through

During at of agreed X%. feet square the proceeds to sell rate non-core average aggregated of for that average quarter, six an contain sold properties or million an $XX.X XX years of and cap over XXX,XXX we age

our we for ranges million in $XXX to maintaining full the proceeds. XXXX, total $XXX guidance to the dispositions approximately year in For be to of are million

detail. first Turning quarter more to now the

sectors. excess of rated highlighted by our in activity representing in agencies total fourth close activity one an square approximately quarters during revenues. rent a XX% prior lease the and million to with our square real feet, transportation approximately points term average with completed of and new We feet new and to industry, X% weighted of capital XX.X square over in accounted annualized investment-grade of a of of XXX,XXX This marks the followed well of ended four XX% tenants, Government new excess consecutive volume quarter total and for earlier, XXX we the manufacturing or as leasing tenants the estate quarter leasing occupancy. basis XXX,XXX As financial we quarter feet as rent. years the bringing activity renewal with leasing

of rollout average years first Turning to transactions. the X.X%. a quarter XX.X term XXX,XXX from a for four completed renewals lease with approximately rent a GSA We leasing feet lease few highlights and for square weighted of

fully square for a sign our XX,XXX reflective manager's XX-year that GSA backfill two new we In for Jose, building to to space for the team. building combined included vacate the able XXX,XXX the executed Plantation, San from as tenant single is in leased feet full which X.X estate in lease up fully mid-XXXX. and feet, a to combined a real term the a term. year will in were and leases XX% now a pace communicated at property we creativity roll This of previously California, of As Florida, square which rent

lease revenue ahead looking upcoming annualized expirations, Now in scheduled opioid's to X% is expire. our total to of XXXX,

represent number annualized revenue. a through managing vacates X% are our We limited of of that known

remains The located Colorado, vacate for recipient, an walking Our including the within its distance award basis is greater BOMA our XXX feet largest well annualized rail light to the heavily within XXXX Denver, access expiration. public amenitized submarket, XX square of station. and representing and year is August, a property with in points a revenue XXX,XXX tenant and positioned

We of property intent moving the booked is are healthy who collaborative XX% have of space, areas letters excess have a fielding interest XX%. offer building. or which amenities, and a square lease variety investing in the additional properties Currently prospects, rollups the from of ready to in of portions of feet at rent we XX,XXX signed to onsite looking

in scheduled on coming of portfolio in expirations to XXXX in and approximately focused also XXXX. each of We remain the roll years as lease is XX% OPI's

from real inflation proactively maintain to At environment. same inflationary with protect the early our or trends. us an tied opportunity broad current management escalations renewals to the either our an services of expiration positive asset lease attractive view during rank in contains rents OPIs XX% retention we discipline, teams time, Our risk. OPI's engaging active to size are right mechanisms tenant management annual tenants With estate asset inflation evaluate Approximately and embedded as we index. and schedule leases to bumps have

our of Looking advanced million includes at which more leasing. pipeline, expectations well of yearend an to square along absorption. to roll is size feet at of X%. our occupancy X.X stage positive as feet net leasing over we X.X one feet square for to X% XXX,XXX tenants, current of interest office million reaffirming improving, continued feet across with is for are of as our XX% rent Based the tracking fundamentals XX% are ups are at of attributable portfolio, activity expectation which nationwide than negotiation, our our Nearly pipeline square million on we from our that XXXX square strong

XXXX Turning and with are to our Washington, positive. Both are early development, dialogue in redevelopment to making we our steady on efforts progress prelease Washington. DC has Seattle in deliver schedule been tennis prospective off a and projects

science redevelopment in Sonesta in during within to growing close XX%. of prior sector, XX of pre-leased lab The development in for market and our increases advanced we QX construction our continues including year-over-year in This discussions begin tenants spring Seattle, of to calls, of show Hotels are the XX% property. strong is spring development of XX% for we growth anticipated the discussed has As XXXX. guests DC pipeline delivery in our rent International Mass currently XXXX. the momentum a At life leasing Ave have market with strong to activity asking the the and supported to of which signs expects approximately Corporation, on welcoming commenced project at

We'll with to to on look opioid create on more our Talley than we make shareholders. Brown our member progress estate. as Earlier his continued as board governance. Finally, work the call estate corporate Matt Mark this are value results. industry to now drawing month, to welcomed Matt? office of XX years over perspective trustees. an opioids forward in newest provide of the Mark real financial experience extensive strengthen turn to details background of to proud of continue has extremely our we we We commercial real for the we

Matt Brown

to highlighted Chris million $XX.X the of range everyone. share a sequential $XX a the to was due guidance normalized quarter. mainly million $XX.X of the XX% factors exceeded full $X.XX. enabled which our received franchise quarter or of quarter's first Thanks in sequential of primarily end in million a $X.XX call The quarter lower earnings fourth or This was strategic was recognized per to compares FFO or on consisting for building last XXXX. the morning, the increase the Normalized which our in quarter share, per a by tax we quarter, per commencement project increase to basis attributable basis expense, G&A first also CAD driven and a first for for the redevelopment that The quarter. and termination $X.XX increased Jose, a on state San share $X.XX by FFO high good on of the Seattle California. refund a lease fees

rolling quarter XX%. well four is with Our CAD dividend covered a of ratio payout

line in NOI with our quarter, the for first level cash the compared of flat which property Turning same to results to property basis was range. quarter guidance was XXXX, essentially

positively were utilities utilization cost results cash off pressures increases Our in increasing on rates and free for by XXXX related rent and in expenses to rolled related increases that during rents building impacted by offset cleaning. to levels

Looking G&A FX quarter compensation $XX $X.X $X.XX income $X.XX quarter. and and our includes ahead on expectations account expect mainly of This normalized February the and $X.X and to range activity, QX million lease property between into million expiration $XX during normalize trustee of disposition QX. increased following; expense our the interest of to to be FFO attributable $X.XX a due key expense the share. million during same cash and second $X.XX to second G&A, our drivers million we are and quarter, basis to due compared FFO to guidance the NOI first the plan fee a of to The a expense results per takes termination to in

annual in occur G&A trustee in share-based expense Meeting Annual compensation our June. forecast includes Board conjunction that the in expected second Our with quarter

resulting be to by We utilization second expect basis driven levels to compared improving NOI cash to down and increases quarter of same from X% as XXXX, property mainly cost the increases. X% expense

we result a this Ave as perspective, capital strong our increase our Consistent actions our largely and refinance call, year year to capital on redevelopment expenditures were spent weighted and activity strengthened and XXX% to expect fixed last refinancings elevated rate average of These great $X.X fixed of our July as continue at to believe we quarter's recurring fund to to to to our capital today. ahead debt quarter. million X%. reduced with $X.X The we be favorable leasing during our XX less with million higher Seattle capital provides rate financing spend in and million sheet, of and first of we projects. and Turning redevelopment is balance year-over-year. outstanding interest to sheet, took principle development support From interest plans XXXX $XX.X a us balance senior $XX.X capital compared expense spend in our we meaningfully resulted last shape. Mass the drive ample the recurring XXXX $XXX on to of of are notes a that liquidity conditions below cost pay average market balance billion million approximately in in maturing of debt or decrease rate X% weighted off a

rising facility, X% total nearly limited debt with liquidity. we which our hand to quarter environment cash million the XX repaid credit is secured. debt ended $XXX exposure rate interest at of our first and on we of Our million less of being was resulting to April, In $XX the undrawn than mortgage revolving with in March

in notes our Operator senior We're to ready this positioned May Beyond our for leaving remarks. well maturing call prepared questions. have until up July no us open concludes environment. XXXX, that notes, we the

Operator

now will [Operator session instructions] Please ahead. And Maher question Bryan B. come first Riley go begin will FBR. the from of our question-and-answer We

Bryan Maher

and Good common properties total CapEx those lease or and to XXXX, Chris stuff but on we comments. any characteristic sell it's be that there near very or expirations That's higher on when needs, you we denominator morning, questions I Matt, there and/or that guess the should might that helpful. would in I at thinking thanks assets about plan comprehensive the Couple anything those look is else? prepared is with for term portfolio?

Chris Bilotto

of what No? That's focus kind is. really the

NOI to for program, our like don't kind to it's going grow those markets feel As kind larger get various of of burden capital out really disposition circumstances. can we about that where have or talked of are we we've for

well of kind at at the think these also at. we're kind the lease those occupancy that look I you we the so, has things most out looking where factors all range think, we're and so of, kind really something selling, look building we're we of kind what are some in of age occupancy the as kind that is challenges seeing and term of or of average and And as occupancy so, those weighted focused. as And XX%-ish sell properties, primary or are of too, I other average

Bryan Maher

combination recycling be projects mostly it about Got it. Or comes to de-levering those redeployment? it the new it those and of properties? Mass And, Seattle Ave. Is we then receiving towards be think and should we how capital about in proceeds, as proceeds, to into of a to How geared is going should redevelopment thinking going be

Chris Bilotto

a had Bryan, it's it's little and a that question of bit good highlighted. everything just it you

asset on but and focus become And more redevelopment. the to penalty did As to when off liquidity use continued coming I due on in in mention additional remarks, million is have due we without June. our notes July. our in projects in We'll continue then sales redevelopment those they at position in $XXX we look acquisitions pay it's the do prepared focus really

Bryan Maher

just occupancy move much in an more and to how quarter? redevelopment in quick And two of Seattle the did FX impact me, impact termination Nice. ones the for

Chris Bilotto

at think time, and from it was Well, that square of leasing have why look standpoint, think an our and which was it same really new that we occupancy occupancy quarter XXX,XXX of sense that quarter. a of really square just if net an at it kind impact X% revenue impact much is to was the burned I to if of did feet building and to same was trends of look as from it nominal, you the nominal XXX,XXX kind over you so didn't testament I at really feet annualized that, the in off you it, occupancy

Bryan Maher

last little estimate. just talked I for a full can think bit a the XXXX And you Matt, that, you you don't think me, about have I I share? CapEx caught number. mentioned you you mentioned, CapEx guess Okay. Do that year I

Matt Brown

or full minus Yeah, it's it's say year consistent around quarter. plus with for last the million $XXX I a $XX million. would

Bryan Maher

much. you Thank very

Operator

And Morgan Kamdem go our Ronald of instructions] from Stanley. will ahead. Please question come [Operator next

Ronald Kamdem

taking for thanks the Hey, questioning.

picture office. First question return a to it's just big the on

What of, what from you that us hearing if hearing terms can of process? clients? sort you are tenants from Thanks. in update Just you there, are

Chris Bilotto

Yeah.

is thanks This it's so, Ron Chris. And Chris.

kind I think to just in continues being utilization and, improve. talked of first, the we've that last high quarter, about we thirties

of of with feel, quarter. we over of kind months think really XX% and I and the additional now we're to north that since kind even office occurring next several utilization next return the

out where what And a portfolio, in a there at the and with of level, And telling progress, at evolve. lot are agencies see of across us. maybe to office, lot tenants guidance so we'll in continue trend our even of kind portion of full, whether I government given kind of you consistent that or really when more seeing think kind to look GSA to starts you're return these that's

of kind kind that for trend we're so, making starting into I and we're and March, seeing the say April, and just with re-entry. progresses what national Let's consistent, its way average overall think, and of mid-summer

Ronald Kamdem

I projects then, development obviously of redevelopment on. the sort there's think And and Right. two going

Just, sense you the are thinking development about about sort How thinking can opportunity future a you for as of redevelopment what's us that? portfolio? you're after give guys new

Chris Bilotto

to development redevelopment something think portfolio. we'll is the I So, something continue do and across is

can portfolio focus and on As evolve really our today. these time take our you is, some know what of existing to opportunities is projects within

we there. You've across to potential and queue. think are all we of portfolio life a tenant the makeup active if the of can of geographies, a of uses. kind retain diversity favorable, conversions alternative of kind those cross science discussions prior them of whether it levels of kind looks for We And and done term. have tend and we've is prospects, opportunity think given long to repositioning term renew We've kind Ideally in be plus ours. for Boston. portfolio at a it markets lot focus other of opportunities which the the the the I and But looked good heard Downtown over or on over a last of calls in there's that's good of kind think of development, other assemblies medium year varying for about kind our long or opportunity we

Ronald Kamdem

Thank Great. my questions. That's on you.

Operator

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

Chris Bilotto

and at thank Well, us look for you of forward you many REIT and to everybody joining meetings. we upcoming the seeing other

Operator

The you you disconnect. today's attending conference now for now is presentation and may Thank concluded.

Office Properties Income Trust (OPI) 29 Apr 222022 Q1 Earnings call transcript