Q2 2025 Office Properties Income Trust Earnings Call

Good morning and welcome to the office properties income. Trust second quarter 2025 earnings conference call. All participants will be in listen-only mode. So, do you need assistance? Please signal a conference specialist by pressing the star key followed by zero. 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.

Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website. OPI reef.com investors are cautioned not to place. Undue Reliance upon any forward-looking statements

In addition we will be discussing non-gaap numbers during this call including normalized ffo and cash basis, net operating income or cash basis. Noi

Our 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, ffo, and cash, basis, and online,

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, over at all, such as gains and losses, or impairment charges related to the disposition of real estate.

I want to alter the call over to the item.

Thank you, Kevin, and good morning on today's call, I will begin with an overview of our portfolio before. Discussing opi's, second quarter, Leasing and disposition activity.

From their Brian will review our financial results and Outlook.

As of June 30th, 2025 OPI portfolio included, 125 properties totaling 17.3, million square feet with a weighted average remaining lease terms of 6.8 years.

We ended the quarter with same-property occupancy of 85.2%.

Approximately 59% of our revenues come from investment grade rated tenants or their subsidiaries.

And it representing 17.1% of our annualized Revenue.

As we have long telegraphed, opi's financial performance has materially declined as leasing challenges in the office sector have persisted.

Specifically, annualized revenue of $398 million is down $85 million, or nearly 18%, compared to a year ago.

Interest expense in the second quarter of 53 million, is up 14 million or 37% year-over-year.

We have little room under our deck covenants, which restrict us from refinancing or issuing new debt.

Nearly 280 million in debt. Principal payments are due in 2026.

And our total liquidity is $90 million in cash.

Despite these ongoing challenges, we continue to lease an operate our properties. While simultaneously exploring options, to address our financial commitments, and reduce costs.

To that end earlier, this month opi's Board of Trustees, made the decision to suspend the quarterly dividend allowing us to preserve approximately $3 million of cash annually.

Returning to leasing activity.

In the second quarter, we executed 15 leases totaling 416,000 square feet. At a weighted average lease term of 5.4 years. And at rental rates that were 6.4% higher than prior, rental rates for the same space.

Renewals accounted for 2/3 of our activity and secures over 7 million dollars in annualized Revenue.

concessions and capital commitments of 3503 per square foot per year declined 24%, quarter over quarter,

We have 1.3 million square feet of leases, scheduled to expire through 2026, representing 30 million or 7.6% of opi's annualized rental income.

The majority of these expirations are related to single tenant properties and we expect 742,000 square feet or 11.2 million of annualized Revenue, will not renew.

Today, our leasing pipeline, totals 2 million square feet of which over 60% is attributable to Renewal discussions.

Any leasing that results in positive net absorption will likely come from our multi-tenant properties, where the infrastructure and building amenities to attract new tenants already exist.

Turning to dispositions earlier this month, we sold one property totaling 56,000 square feet via auction for $2.2 million, excluding closing costs.

As property valuations, continue to decline in the potential buyer pool targeting office Acquisitions is limited.

Dispositions remain challenging.

We have found that transaction timelines have significantly lengthened and often require a relaunching of marketing efforts as buyers are unable to transact.

Despite these Dynamics, we continue to evaluate disposition opportunities. That may mitigate occupancy risk and reduce the carrying costs associated with vacant properties. I will now turn the call over to Brian

Thank you. Yeah, and good morning.

For the second quarter, we reported a normalized, ffo 9.4 million or 13 cents per share, which came in 2 cents above the high end of our guidance range as a result of lower than anticipated seasonal operating expenses.

This compares to normalized FFL, 4.4 million or 6 cents per share for the first quarter of 2025.

The increase on a sequential quarter. Basis was driven by higher noi as a result of lower operating expenses and stronger performance from our hotel at 20, mesob in Washington DC.

turning to our outlook for the third quarter of 2025, we expect normalized ffo to be between 7 cents and 9 cents per share for Q3

the decrease sequentially from Q2 is primarily driven by lower and wide related to lower rental income, higher operating expenses and the seasonally weak, a quarter expected from our hotel at 20 massive

we project, recurring, G&A expense to be approximately 5 million dollars for Q3 in our current estimated quarterly interest expense run rate is approximately 52 million

consisting of 41 million dollars of cash, interest expense and 11 million of non-cash, amortization of finance and costs.

Include any potential changes to our same store portfolio.

Year to date, we have invested nearly $28 million in capital expenditures for the second half of 2025. We anticipate approximately $43 million in capital expenditures, comprised of $10 million for building capital and $33 million for leasing capital.

A quarter end. We had 3 properties with a carrying value of 8 million classified as held for sale.

In July, we sold 1 of these properties which was encumbered by a 2027 senior security notes for 2.2 million dollars, excluding closing costs and use the net proceeds to pay down the principal balance of that debt.

Today we have 3 properties under agreement to sell for 28.9 million, excluding closing costs. We currently expect 2 of the 3 properties to sell in September 2025 for 10.7 million and the third property to close in 2027.

Returning to the balance sheet, our total liquidity today is $0 million of cash.

We're currently projecting cash from operations, to be a use of 45 to 55 million during the balance of 2025 including Capital expenditures.

Given our liquidity position Financial Covenant, constraints under our debt agreement and debt. Principal payments coming due in 2026. We continue to evaluate options to address these maturities with our financial advisor.

That concludes our prepared remarks, thank you for joining us today. Operator, you may now end the call.

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