Q4 2023 Office Properties Income Trust Earnings Call

Operator: Good day, and welcome to the Office Properties Income Trust fourth quarter 2023 earnings conference. All participants will be in listen-only mode.

Good day and welcome to the office properties income Trust fourth quarter 2023 earnings Conference call.

All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

Operator: To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Withdraw your question. Please press Star then two please note. This event is being recorded.

I'd now like to turn the conference over to Kevin Berry Senior Director of Investor Relations. Please go ahead.

Kevin Barry: Thank you and good morning, everyone. Thanks for joining us today. With me on the call are OPI's President and Chief Operating Officer, Eyal Duffy, and Chief Financial Officer and Treasurer, Brian Donley. In just a moment, they will provide details about our business and our performance for the fourth quarter of 2023, followed by a question and answer session with self-led analysts. First, I would like to note that the recording and retransmission of today's conference call are prohibited without the prior written consent of the company.

Thank you and good morning, everyone. Thanks for joining us today with me on the call are Opi's, President and Chief operating Officer, who I'll, Duffy and Chief Financial Officer, and Treasurer, Brian dominance in just a moment they will provide details about our business and our performance for the fourth quarter of 2023, followed by a question and answer session with sell side analysts first.

I would like to note that the recording and retransmission of today's conference call is prohibited without prior written consent of the company also note that todays conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and under Securities laws.

Kevin Barry: Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on OPI's beliefs and expectations as of today, Friday, February 16, 2024, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, opireep.com, or the SEC's website. Investors are cautioned not to place any reliance upon these forward-looking statements.

These forward looking statements are based on Opi's beliefs and expectations as of today Friday February 16, 2024, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call.

Additional information concerning factors that could cause those differences is contained in our filings with the securities and Exchange Commission, where FCC, which can be accessed from our website <unk> dot com or the Sec's website investors are cautioned not to place undue reliance upon any forward looking statements.

Kevin Barry: In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations, or normalized FFO, cash available for distribution, or CAD, and cash basis net operating income, or cash basis NOI. A reconciliation of these non-GAAP figures to net income is available in OPI's earnings release presentation that we issued last night, which can be found on our website. And finally, we will be providing guidance on this call, including normalized FFO and cash basis NOI. However, we are not providing reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate. I will now turn the call over to Yael. Thank you, Kevin, and good morning.

In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations or normalized <unk>.

Cash available for distribution or <unk>.

And cash basis, net operating income or cash basis NOI. A reconciliation of these non-GAAP figures to net income are available in Opi's earnings release presentation that we issued last night, which can be found on our website.

And finally, we will be providing guidance on this call, including normalized <unk> and cash basis NOI. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all such as gains and losses or impairment charges related to the disposition.

Real estate.

I will now turn the call over to Yahoo.

Thank you Kevin and good morning, before we begin I would like to start by discussing the announcement last month regarding Oh, yeah quarterly cash dividend.

Eyal Duffy: Before we begin, I would like to start by discussing the announcement last month regarding OPI's quarterly cash dividend. As market conditions in the office sector remain challenging, we felt it was prudent to reduce the dividend to increase our liquidity and financial flexibility. This will help us address future leasing costs, capital expenditures, and our upcoming debt maturities. We recognize the value of the dividend to our investors, and this decision was not made lightly.

As market conditions in the office sector remain challenging we felt it was prudent to it.

Is the dividend increased our liquidity and financial flexibility.

This will help us address future leasing part capital expenditures and our upcoming debt maturities.

Recognize the value of the dividend to our investors.

Was not made lightly.

Eyal Duffy: On today's call, I will review OPI's operating and leasing performance before providing an update on our goals heading into 2024. From there, I will turn the call over to Brian to review our financial results. OPI's portfolio consists of 152 properties totaling approximately 20 million square feet, with a weighted average remaining lease term of six and a half years. Our portfolio is well diversified by industry and geography, with 64% of our revenues coming from investment grade rated tenants. During the fourth quarter, we executed 196,000 square feet of new and renewal leasing with an average lease term of seven years and a roll-up in rent of 60 basis points. We ended the quarter with same property occupancy of 89.5%. Renewals drove most of our leasing activity this quarter, including an eight-year renewal with an insurance company for 100,000 square feet in San Antonio, Texas, and a six-year renewal with an aerospace government contractor for 80,000 square feet in Chantilly, Virginia. Concessions and capital commitments declined 12% quarter over quarter and were 21% lower than our average for the year.

On today's call I will review Opi's operating and leasing performance before providing an update on our thoughts heading into 2024.

From there I will turn the call over to Brian to review our financial results.

Opi's portfolio consisted of 152 property totaling approximately 20 million square feet with a weighted average remaining lease term of six and a half years.

Our portfolio is well diversified by industry and geography was 64% of our revenue coming from investment grade rated tenants.

During the fourth quarter, we executed 196000 square feet of new and renewal leasing with an average lease time of that in here and a roll off of it right 60 basis points.

We ended the quarter with same property occupancy of 89, 5%.

Renewals drove most of our leasing activity this quarter, including an eight year renewal with an insurance company for 100000 square feet in San Antonio, Texas, and a six year renewal with an aerospace government contractor for 80000 square feet in Chantilly, Virginia.

Our discussions and capital commitments declined 12% quarter over quarter and were 21% lower than our average for the year.

Eyal Duffy: We hope to see these trends continue as we head into 2024. In total, we signed 75 leases in 2023 for nearly 1.7 million square feet at a weighted average lease term of eight and a half years. New leasing accounted for 402,000 square feet or 24% of the activity. Looking ahead to 2024 and OPI's upcoming lease expiration, While we see evidence of large companies across corporate America urging workers to return to the office, including in-person mandates, the office sector faces subdued demand driven by headwinds associated with macroeconomic uncertainty and the impacts of work from home. Most markets experienced declines in asking rents and occupancy levels in 2023, and we expect this trend to continue into 2024. Additionally, competition among landlords has put further pressure on net effective rent.

We hope to see these trends continue as we head into 2024.

In total we signed 75 leases in 2023, and nearly one 7 million square feet at a weighted average lease term of eight and a half years.

New leasing accounting for 482000 square feet or 24% of the activity.

Looking ahead to 2024 and opi's upcoming lease expirations.

While we see evidence of large companies across corporate America urging workers to return to the office, including in person mandate.

Office sector faces some good demand driven by headwinds associated with macroeconomic uncertainty and the impact of work from home.

Most markets experienced declines in asking rents and occupancy levels in 2023, and we expect this trend to continue into 2024. Additionally.

Additionally competition among the landlord put further pressure on net effective rent.

In 2024, 3 million square feet or 15.5% of OPI is annualized rental income is set to expire or.

Eyal Duffy: In 2024, 3 million square feet, or 15.5% of OPI's annualized rental income, is set to expire. Our leasing and asset management teams are proactively engaging in renewal discussions with our tenants to understand their safety needs. Through these conversations, we have learned that approximately 1.9 million square feet, representing $53.8 million of annualized rental income, will not renew. Accordingly, we have engaged leasing brokers and have launched marketing campaigns to address these vacancies. Our current leasing pipeline totals 2.8 million square feet, of which 40% is attributable to new tenants. Turning to our recent development projects, our 427,000 square foot mixed-use development at 20 Mass Ave. in Washington, D.C. is 55% leased to Finesta International Hotels, and we are actively marketing the remaining vacancy. To date, we have toured over 20 tenants ranging in size from 15,000 to 150,000 square feet.

Our leasing and asset management teams are proactively engaging in renewal discussions with our tenants to understand their space needs.

Through these conversations we have learned that approximately one 9 million square feet, representing $53 $8 million of annualized rental income well not right now.

Accordingly, we have engage leasing brokers and have launched marketing campaigns to address these vacancies.

Our current leasing pipeline totaled $2 8 million square feet.

That's 40% is attributable to new tenants.

Turning to our recent development projects are 427000 square foot mixed use development in 'twenty knocked out in Washington D C.

Two 5% leased at Sonesta International hotels, and we are actively marketing the remaining vacancy.

Today, we have toured over 20 tenants ranging in size from 15000 to 150000 square feet. However, as many of these tenants have required instead of 2025 and beyond feedback has been as well.

In the first quarter of 2024, we expect to deliver the three property, Kansas redevelopment located in Seattle, Washington.

Eyal Duffy: However, as many of these tenants have requirements in 2025 and beyond, feedback has been slow. In the first quarter of 2024, we expect to deliver a three property campus redevelopment located in Seattle, Washington, totaling approximately 300,000 square feet. The project includes the repositioning of two properties from office to life science and maintaining the third property for office use.

Totaling approximately 300000 square feet.

The project includes the repositioning of two property from office to life science and maintaining the third property for office.

The project is 28% pre leased.

Biotherapeutics and we are actively marketing the remaining vacancy with good activity.

The project will be delivered with foreign move in radio back last week, which we believe is a differentiator as tenants evaluate options in the market.

Turning to financing activities to begin the year, we have made significant progress in addressing our upcoming debt maturity at the end of last month, we recast our revolving credit facility that was scheduled to mature on January 31st with a new three year $425 million, but I'd agree.

Eyal Duffy: The project is 28% pre-leased to Sonoma Biotherapeutics, and we are actively marketing the remaining vacancy with good activity. The project will be delivered with four move-in ready spec lab suites, which we believe serves as a differentiator as tenants evaluate options in the market. Turning to financing activities, to begin the year, we have made significant progress addressing our upcoming debt maturities. At the end of last month, we recast our revolving credit facility that was scheduled to mature on January 31st with a new three-year, $425 million credit agreement. Additionally, last week, we completed a five-year, $300 million secured bond offering with a 9% coupon and announced the redemption of our $350 million senior notes maturing in May 2024. OPI has $650 million of unsecured senior notes due in February of 2025, and we are assessing a range of options to address this maturity, including additional secured financing and asset sales. To assist us in evaluating our potential financing strategies, we have engaged Mullis & Company as a financial advisor.

Matt.

Additionally, last week, we completed a five year $300 million secured bond offering and a 9% coupon and announced the redemption of our $350 million of senior notes maturing in May 2024.

Okay, I have $650 million of unsecured senior notes due in February of 2025, and we are assessing a range of options to address this maturity, including additional secured financings and asset sale too.

This has been evaluating our potential financing strategy, we have engaged moelis and company as a financial adviser.

It needs a property disposition.

In 2023, we sold a noncore property, which generated $45 million in gross proceeds.

Surely we have a 248000 square foot property in Chicago, which Tyson foods is vacating in January 2025 under agreement for sale.

We anticipate this property will transact in the first quarter of 2024.

Furthermore, we have identified and are in various stages of bringing additional properties to market.

Eyal Duffy: Turning to Property Disposition, In 2023, we sold eight non-core properties, which generated $45 million in gross proceeds. Additionally, we have a 248,000 square foot property in Chicago, which Tyson Booth is vacating in January 2025 under an agreement for sale. We anticipate this property will transact in the first quarter of 2024. Furthermore, we have identified and are in various stages of bringing additional properties to market. As we evaluate future sales, we will need to consider the impact that potential dispositions will have on our operating metrics and debt covenants. Before I turn it over to Brian, I would like to acknowledge that OPI, despite challenges facing the office sector, accomplished many of its objectives in 2023 and to start the new year. We executed nearly 1.7 million square feet of leasing, substantially completed two major development projects in Washington, D.C., and Seattle, sold non-core assets, and successfully executed new financings in both the CNVS and bond markets. Our progress was greatly supported by the efforts and reach of our manager, the RMR Group, with its deep bench of experienced real estate professionals and its banking relationships.

As we evaluate future sale, we will need to consider the impact of potential disposition will have on our operating metrics and debt covenants.

Before I turn it over to Brian I would like to acknowledge that OPI. Despite challenges facing the office sector accomplish many of its objectives in 2023 and to start the new year.

We executed one 7 million square feet of leasing.

Essentially completed two major development projects in Washington, D C and Seattle.

Old noncore assets and successfully executed a new financings in both the C. M. P S and bond markets are.

Our progress was greatly supported by the efforts and reach of our manager the RMR group with its deep bench of experienced real estate professionals and the banking relationship.

Looking ahead, we hope to continue to build on this momentum and further execute on our operational and financial priorities in 2024, I will now turn the call over to Brian to review our financial results.

Thank you al and good morning.

We reported normalized <unk>.

$45 $9 million or <unk> 95 per share for the quarter, which came in a penny below our guidance range due to higher operating expenses.

This compares to normalized <unk> of $49 $4 million or $1 <unk> per share for the third quarter of 2023.

Increase on a sequential quarter basis was driven by higher interest expense and lower NOI as a result of Q4 tenant vacates and operating cost increases.

Brian E. Donley: Looking ahead, we hope to continue to build on this momentum and further execute on our operational and financial priorities in 2024. I will now turn the call over to Brian to review our financial results. Thank you, and good morning, everyone.

Same property cash basis, NOI decreased 12, 5% compared to the fourth quarter of 2022 and was in line with our guidance range, which was a decline of 11% to 13%.

The decrease was mainly driven by elevated free rent concessions vacancies and higher operating costs.

Brian E. Donley: We reported normalized FFO of $45.9 million, or 95 cents per share for the quarter, which came in a penny below our guidance range due to higher operating expenses. This compares to normalized FFO of $49.4 million, or $1.02 per share for the third quarter of 2023. The decrease on a sequential quarter basis was driven by higher interest expense and lower NOI as a result of Q4 tenant vacates and operating cost increases. Same property cash basis NOI decreased 12.5% compared to the fourth quarter of 2022 and was in line with our guidance range, which was a decline of 11 to 13%. This decrease is mainly driven by elevated free rent concessions, vacancies, and higher operating costs. We generated CAD of $0.18 per share during the fourth quarter and $1.51 per share on a rolling four-quarter basis.

We generated C E D F 18 cents per share for the fourth quarter and $1 51 per share on a rolling four quarter basis.

Imagine based on the deterioration in market conditions combined with opioids near term cash priorities last month, we reduced our quarterly dividend to a penny per share. This equates to approximately $47 million of annual liquidity to support leasing capital and our refinancing initiatives.

Turning to our outlook for normalized <unk> and same property cash basis NOI expectations in the first quarter of 2024.

We expect normalized <unk> to be between 79, and 81 cents per share.

Decreased sequentially from Q4 is made up of several items, most notably the increased interest expense related to our financing activities and lower rental income.

We expect same property cash basis, NOI to be down 14% to 16% as compared to the first quarter of 2023, driven by elevated free rent and tenant vacancies.

Turning to our investing activities during the fourth quarter, we sold two properties for $21 $3 million and have one property under agreement for sale of $39 million that we expect will close in the first quarter.

Brian E. Donley: As Yael mentioned, based on the deterioration in market conditions, combined with OPI's near-term cash priorities, last month we reduced our quarterly dividend to a penny per share. This equates to approximately $47 million of annual liquidity to support leasing capital and our refinancing initiative. Turning to our outlook for normalized FFO and same property cash basis NOI expectations for the first quarter of 2024, we expect normalized FFO to be between $0.79 and $0.81 per share. The decrease sequentially from Q4 is made up of several items, most notably increased interest expense related to our financing activity and lower rental income.

We spent $29 $4 million on recurring capital and $19 $4 million of redevelopment capital during the fourth quarter.

In 2024, we expect our recurring capital spend to be approximately $100 million.

Comprised of $25 million of building capital and $75 million of leasing capital.

Also expect $20 million of redevelopment capital this year, which includes the remaining project cost to deliver our Seattle redevelopment and related tenant improvement dollars.

Turning to financing activities in January we recast our revolving credit facility with a new $425 million credit agreement, consisting of a $325 million secured revolving credit facility and a $100 million secure turmoil.

Brian E. Donley: We expect same property cash basis NOI to be down 14 to 16% as compared to the first quarter of 2023, driven by elevated free rent and tenant vacancies. Turning to our investing activities during the fourth quarter, we sold two properties for $21.3 million and have one property under agreement for sale for $39 million that we expect will close in the first quarter. We spent $29.4 million on recurring capital and $19.4 million on redevelopment capital during the fourth quarter.

The credit agreement is a three year term and interest rate of sulfur plus a spread of 350 basis points.

We have a one year extension option for the $325 million credit facility.

The agreement is secured by 19 office properties with a gross book value of $942 million.

All of the 19 banks that providing lending commitments under our previous revolver supported this new agreement.

We currently have $193 million of Undrawn capacity on our credit facility.

Last week, we issued $300 million of 9% senior secured notes, which are backed by 17 and office properties with a gross book value of $574 million.

Brian E. Donley: In 2024, we expect our recurring capital spend to be approximately $100 million, comprised of $25 million of building capital and $75 million of leasing capital. We also expect $20 million of redevelopment capital this year, which includes the remaining project cost to deliver our Seattle redevelopment and related tenant improvement dollars. Turning to financing activities, in January, we recast our revolving credit facility with a new $425 million credit agreement, consisting of a $325 million secured revolving credit facility and a $100 million secured term loan. The credit agreement has a three-year term and an interest rate of SOFR plus a spread of 350 basis points. Additionally, we have a one-year extension option for the $325 million credit facility. The agreement is secured by 19 office properties with a gross book value of $942 million. All of the 19 banks that provided lending commitments under our previous revolve are supportive of this new agreement.

Proceeds of this offering and borrowings under our credit facility will be used next month to pay off our $350 million senior unsecured notes that are scheduled to mature in may.

For Q1, 2020 for projected interest expense of $36 $4 million or <unk> 75 per share based on our recent financing activity.

Pro forma for the full impact of the new credit agreement the secured notes issuance and a redemption of the May 24 notes are estimated quarterly interest expense run rate is projected to be $38 $3 million or 79 cents per share.

We were very pleased with the outcome of our recent financings given the challenges facing the office sector. We believe they demonstrate the quality of our assets as well as the values of support from the RMR platform that helps facilitate these transactions. However, I'll work on the balance sheet is not finished and challenges remain.

Our next debt maturity is $650 million of four 5% senior notes maturing in February of 2025.

We have over 3 billion of unencumbered assets based on book value that we could potentially utilize to raise features that capital for asset dispositions to raise cash. We've also engaged moelis and company to assist in evaluating various strategies as we navigate our upcoming debt maturities and beyond we look forward to updating you on our progress.

Brian E. Donley: We currently have $193 million of undrawn capacity on our credit facility. Last week, we issued $300 million of new 9% senior secured notes, which are backed by 17 office properties with a gross book value of $574 million. Proceeds of this offering and borrowings under our credit facility will be used next month to pay off our $350 million senior unsecured notes that are scheduled to mature in May. For Q1 2024, we project interest expense of $36.4 million, or $0.75 per share, based on our recent financing activity. Pro forma, for the full impact of the new credit agreement, the secured notes issuance, and our redemption of the May 24 notes, our estimated quarterly interest expense run rate is projected to be $38.3 million, or 79 cents per share.

Our prepared remarks, operator, we're ready to open up the call for questions.

We will now begin the question and answer session.

I ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And our first question today comes from the line of Bryan Maher with B Riley Securities. Please go ahead.

Great. Thank you, maybe just starting off with the <unk>.

Commentary on the known Vacates for 'twenty 'twenty four I think you said, one 9 million square feet.

But when we think about it I mean, it seems like a big number for sure but when we think about the fact that in 2023, you did $1 7 million of new and renewal leasing activity.

Brian E. Donley: We were very pleased with the outcome of our recent finances, given the challenges facing the office sector. We believe they demonstrate the quality of our assets, as well as the value of the support from the RMR platform that helped facilitate these transactions. However, our work on the balance sheet is not finished, and challenges remain.

What did you say that.

You know that one nine is going to end up being significantly less and you know actual vacates and you'll be able to re occupy a lot of that space. Yeah. When we sit here a year from now.

Operator: Our next debt maturity is $650 million of four and a half percent senior notes maturing in February 2025. We have over $3 billion of unencumbered assets based on book value that we can potentially utilize to raise future debt capital or for asset dispositions to raise cash. We have also engaged Molison Company to assist in evaluating various strategies as we navigate our upcoming debt maturities and beyond. We look forward to updating you on our progress. That concludes our prepared remarks. Operator, we're ready to open up the call for questions. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key.

Good morning, Brian. It's a good question I think some of the challenges we have with these vacancies is that these are generally single tenant properties and so it is hard to find a single tenant or a large block in this environment.

You know I think that is our hope as I mentioned, we are actively marketing these properties for lease, but we're also evaluating disposition.

The known Vacates on our potential disposition less and also you know evaluating if there is other purpose other best highest and best use for these properties. So.

I don't I.

Obviously, our goal is to lease, but I I just want to set expectations that I think it will take off.

Long time in some cases totally C properties.

Brian Maher: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question today comes from the line of Brian Maher with B. Reilly Securities. Please go ahead.

And is there any particular common denominator among the known Vacates that you can share that type of business et cetera.

Yeah. So we have a few of them are.

Previously leased to the GSA and I think the common theme that we've been seeing at least in the properties that are vacating is that they've been moving to really own properties.

Eyal Duffy: Great. Thank you. Maybe just starting off with the commentary on the known vacant spaces for 2024, I think you said 1.9 million square feet. But when we think about it, I mean, it seems like a big number, for sure, but when we think about the fact that, in 2023, you did 1.7 million of new and renewal leasing activity. Wouldn't you say that 1.9 is going to end up being significantly less than the actual vacant units, and you'll be able to reoccupy a lot of that space when we sit here a year from now? Good morning, Brian.

And then a couple others are corporate headquarters were what they were doing at those facilities has.

Yeah. The times have changed so we have an instance, where they were processing chess at the property and now we all know we're not really using checks as much anymore. So I think it's just become you know someone they sign a lease to today technology has changed in <unk>.

And if they don't meet the traditional space.

Okay can you kind of moving on I've been getting a lot of questions from the buy side regarding the collateral assets backing in your credit facility in the $300 million of notes maybe for Brian do you know you know when and if that is assets will be.

Eyal Duffy: It's a good question. I think some of the challenges we have with these vacancies are that these are generally single-tenant properties, and so it is hard to find, you know, a single tenant or a large block in this environment. So, you know, I think that is our hope. As I mentioned, we are actively marketing these properties for lease, but we're also evaluating dispositions. Several of the known vacants are on our potential disposition list and also, you know, evaluating if there's another purpose, another best, highest, and best use for these properties. So, I don't.

Made known to investors.

That's a great question Brian.

We don't typically just list out every asset that's part of our financings I would just describe it a portfolio in each instance, under the revolver as you know high quality.

Properties with long term walls.

And instead of a sticky if you will.

Utilization of the properties.

As you can imagine to finance an office asset in this environment the credit metrics out there I'll be there.

But we haven't really disclosed the list per se of every address.

Eyal Duffy: Obviously, our goal is to lease, but I just want to set expectations that it will take us a long time, in some cases, to lease these properties. And is there any particular common denominator among the known vacants that you can share as to the type of business, et cetera? Yeah, so we have a few of them that are more previously leased to the GSA. And I think the common theme that we've been seeing, at least in the properties that are vacating, is that they've been moving to federally owned properties. And then a couple others are corporate headquarters where what they were doing at those facilities has changed. You know, the times have changed. So we have an instance where they were processing checks at the property. And, you know, we all know, we're not really using checks as much anymore.

Okay, and then maybe one more for me and I'll hop back in the queue. You know when you think and maybe for both of you. When you think about how 2024 plays out between the asset sales that you're contemplating a potential C N b S financings, etc.

Is that just kind of a quarterly slow drip until we get to the back half of this year, where you start to think about something more holistic to deal with the $650 million. Just just kind of how are you thinking about 'twenty 'twenty four as it relates to next year's maturity.

Yeah, I mean, we've been laser focused on this the balance sheet. Obviously, the revolver was our first step dealing with the main maturities, which are now behind us and we're looking at the six ft, but also what the impact will be beyond you know as we continue to look at secured debt as a.

Brian E. Donley: So I think it's just become, you know, from when they signed the lease to today, technology has changed, and they found that they don't need this additional space. Moving on, I've been getting a lot of questions from the buy side regarding the collateral assets back in the new credit facility and the $300 million in notes. Maybe for Brian, do you know when and if those assets will be made known to investors? That's a great question, Brian.

As an option for us today.

You know we have to be mindful of various debt covenants, our liquidity position and our operating metrics, what we know about our properties and what could be happening as you all talked about with with leases essentially tenants vacating.

Yes.

Hire more as an advisor to help us sort through all of this the 650, yeah. We have a large portfolio of unencumbered assets, we're going to utilize it.

Brian E. Donley: We don't typically just list out every asset that's part of our financings. I will just describe the portfolio in each instance under the revolver as high-quality properties with long-term walls, tenants that are sticky, if you will, and have utilization of the properties. As you can imagine, to finance an office asset in this environment, the credit metrics have to all be there, but we haven't really disclosed the list, per se, of every address. And maybe one more for me, and then I'll hop back in the queue.

Yeah, just to get something done, but holistically, we have to also look beyond that and figure out how to deal with maturities behind the six that would be at the same time to keep our metrics in check.

Yeah. So I think you know over the summer I think you'll you'll climbs.

Before.

Further along in our plans and evaluating different different options we might have.

Okay. Thanks, I'll hop back in the queue.

Yeah.

Again, if you have a question. Please press Star then one.

Yeah.

Our next question comes from Ronald Camden with Morgan Stanley. Please go ahead.

Brian E. Donley: You know, when you think, and maybe for both of you, when you think about how 2024 plays out between the asset sales, you know, that you're contemplating, potential CNBS financing, etc., is that just kind of a quarterly slow drift until we get to the back half of this year where you start to think about something more holistic to deal with this $650 million? Just kind of how are you thinking about 2024 as it relates to next year's maturity? Yeah, I mean, we've been laser focused on the balance sheet.

Hey, just a couple quick ones I guess I E number one is I'm just if you could talk a little bit more about sort of the occupancy cadence.

That you're sort of expecting for next year I know you sort of mentioned.

The known expirations are the known move out the known move outs I should say in the exploration, but how do you guys sort of putting it all together how do you expect occupancy to trend.

Throughout sort of 'twenty, 'twenty, four and where where do you think we're like where do you see that sort of a bottoming.

Brian E. Donley: Obviously, the revolver was our first step dealing with the main maturities, which are now behind us. And we're looking at the 650, but also what the impact will be beyond, you know, as we continue to look at, you know, secured debt as an option for us today. You know, we have to be mindful of, you know, various debt covenants, our liquidity position, our operating metrics, what we know about our properties, and what could be happening, as you talked about with leases, potentially tenants vacating. We've hired MOLUS as an advisor to help us sort through all this. You know, with the 650, we have a large portfolio of unencumbered assets; we're going to utilize it, you know, to get something done.

So I mean, I think the good news of the one 9 million square feet that we know is going to vacate it is pretty equal across each quarter. So you know I don't it's around 400000 give or take them each quarter. So that's about assuming we don't do any other new leasing which I.

I don't anticipate it would be about you know somewhere around 2% a quarter of decline in occupancy.

But again as I mentioned, we are several of the properties that are already known vacate last are also properties were considering for disposition.

We're able to exercise on those dispositions on our occupancy well it would be better.

Got it and then just sort of on the right you know the moab them wireless higher as you guys have obviously been contemplating sort of this maturity schedule was there ever an opportunity to just refinance everything in 'twenty four and 'twenty five.

Brian E. Donley: But, you know, holistically, we have to also look beyond that and figure out how to deal with maturities behind the 650 at the same time to keep our metrics in check. Yeah, so I think, you know, over the summer, you'll find yourself more further along in our plans and evaluating different options we might have. Okay, thanks. I'll hop back in the queue. Again, if you have a question, please press star then one.

Just curious if if in fact, there was ever a scenario where.

You could take care of the 24 and 25 at the same time and if not you know what what sort of the thinking and morale is in and what sort of value kind of strategies, you know would they explore thanks.

That's a great question and you answered the first part of the question, Yes, we did contemplate a much bigger deal to check out the 'twenty four and 'twenty fives.

Ronald Camden: Our next question comes from Ronald Camden with Morgan Stanley. Please go ahead. Hey, just a couple quick ones, I guess. Number one is, If you could talk a little bit more about sort of the occupancy cadence that you're sort of expecting for next year. I know you sort of.

We were evaluating whether that could've been similar execution in the secured senior note market.

Yeah. So we had to look at our options on the table as far as getting any revolver, which you know it gives us liquidity and more flexibility and that's where we ended up leaving the revolver versus not doing revolver and potentially do a bigger bond deal goes those were sort of the two biggest things in front of US. We're also looking at <unk>.

Eyal Duffy: The NOAA Next Ratio is the no move outs, I should say on the expirations, but how do you guys, sort of putting it all together, how do you expect occupancy to trend throughout? For more information, visit www.fema.gov. So, I mean, I think the good news about the 1.9 million square feet that we know are going to vacate is pretty equal across each quarter. So, you know, I don't know. It's around 400,000, give or take each quarter.

Even jewel assets, a mortgage financing to see MBS market cooling properties. So we've been lucky and got a lot of different options. The bolus, we've actually we actually engage them.

The early part of the fourth quarter and that helped us along the way as far as sifting through our options. We're.

Eyal Duffy: So that's about assuming we don't do any other new leasing, which I don't anticipate it would be about, you know, somewhere around 2% a quarter of decline in occupancy. But again, as I mentioned, several of the properties that are on the known vacate list are also properties we're considering for disposition. So, if we're able to exercise those dispositions, then our occupancy will obviously be better. Got it. And then just sort of on the, you know, the Moelis hire, as you guys have obviously been contemplating. With this maturity schedule, was there ever an opportunity to just refinance everything in 2024 and 2025? Just curious if there was ever a scenario where...

Bringing new ideas, bringing different capital alternatives to the table. So they've been very helpful. Guiding us in helping us navigate some of this stuff and they will continue to do that in the future.

Great. That's it for me thanks, so much.

This concludes our question and answer session I would like to turn the conference back over to you idled Duffy for any closing remarks.

Thank you for joining us on the call today.

This weekend.

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

[music].

Brian E. Donley: I mean, you could take care of the 24 and 25s at the same time, and if not, you know, what sort of thinking in Moella's... what sort of values, what kind of strategies would they explore? That's a great question. And to answer the first part of the question, yes, we did contemplate a much bigger deal to take out the 24s and 25s. You know, we were evaluating whether that could have been, you know, similar execution in the security keynote market, you know, so we had to look at our options on the table as far as getting a new revolver, which, you know, it gives us liquidity and more flexibility, and that's where we ended up Those were sort of the two biggest things in front of us. We're also looking at individual assets, mortgage financing, the CMBS market, and pooling properties.

Yeah.

[music].

Okay.

[music].

Brian E. Donley: So we've been looking at a lot of different options. And more or less, we engaged them in the early part of the fourth quarter, and they've helped us along the way as far as sifting through our options, you know, bringing new ideas, and different capital alternatives to the table. So they've been very helpful in guiding us and helping us navigate some of this stuff, and they'll continue to do that in the future. Great. That's it for me.

Yes.

[music].

Eyal Duffy: Thanks so much. This concludes our question and answer session. I would like to turn the conference back over to Yael Duffy for any closing remarks. Thank you for joining us on the call today. Have a nice weekend.

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

Error Segment: © BF-WATCH TV 2021, www.governmentproperties.gov.au For more information, visit www.fema.gov, www.governmentproperties.gov.au www.gov.nz Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent. If states seive criminal cases of officials are not present to hear them put to account, let that be the case that is set aigence for officers outdated by law against them. Accordingly, I ent??? that states should be prepared to comply with specific warning rules if incidents and tragedies arise. Copyright © 2020 Mooji Media Ltd. All Rights Reserved. No part of this recording may be reproduced without Mooji Media Ltd.'s express consent, www.governmentproperties.gov.au www.government.gov.au www.gov.nz Copyright © 2020, New Thinking Allowed Foundation www.governmentproperties.gov.au © BF-WATCH TV 2021, www.gov.nz Copyright © 2020, New Thinking Allowed Foundation www.government.gov.au www.governmentproperties.gov.au www.gov.nz Copyright © 2020, New Thinking Allowed Foundation © BF-WATCH TV 2021, © BF-WATCH TV 2021 © BF-WATCH TV 2021, © BF-WATCH TV 2021

Yes.

[music].

Yeah.

[music].