Q2 2026 Office Properties Income Trust Earnings Call

August 6, 2026

Speaker #1: Good morning, and welcome to the OFFICE PROPERTIES INCOME TRUST Q2 2026 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Good morning, and welcome to the Office Properties Income Trust's Q2 2026 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note that this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Speaker #1: Please note that this call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Kevin Barry, Senior Director of Investor Relations.

Speaker #1: Please go ahead.

Speaker #2: Good morning. Thank you for joining us today. With me on the call are OPI's President and Chief Executive Officer Yael Duffy and Chief Financial Officer and Treasurer Brian Donnelly.

Kevin Barry: Good morning. Thank you for joining us today. With me on the call are OPI's President and Chief Executive Officer, Yael Duffy, and Chief Financial Officer and Treasurer, Brian Donley. In just a moment, they will provide details about OPI's business and performance for Q2 2026. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. 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, Thursday, 6 August 2026. 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.

Speaker #2: In just a moment, they will provide details about OPI's business and performance for the second quarter of 2026. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company.

Speaker #2: 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.

Speaker #2: These forward-looking statements are based on OPI's beliefs and expectations as of today, Thursday, August 6, 2026, and actual results may differ materially from those that we project.

Speaker #2: 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 OPI's filings, with the securities and exchange commission, which can be accessed from the company's website.

Kevin Barry: Additional information concerning factors that could cause those differences is contained in OPI's filings with the Securities and Exchange Commission, which can be accessed from the company's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, as a result of OPI's emergence from Chapter 11 and the application of fresh start accounting, financial statement amounts and operating metrics are not comparable to prior periods. Please refer to our earnings materials and SEC filings for additional information regarding the impact of fresh start accounting on our reported results. We will also be discussing non-GAAP financial measures during this call, including normalized FFO 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 announced last night, which can be found on our website.

Speaker #2: Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, as a result of OPI's emergence from Chapter 11 and the application of fresh start accounting, financial statements amounts and operating metrics are not comparable to prior periods.

Speaker #2: Please refer to our earnings materials and SEC filings for additional information regarding the impact of fresh start accounting on our reported results. We will also be discussing non-GAAP financial measures during this call, including normalized FFO 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 announced last night, which can be found on our website.

Speaker #2: I will now turn the call over to Yael.

Kevin Barry: I will now turn the call over to Yael.

Speaker #3: Thank you, Kevin, and good morning. On June 17, OPI successfully emerged from Chapter 11 and the newly issued common shares began trading on the NASDAQ under the ticker OPI the following day.

Yael Duffy: Thank you, Kevin, and good morning. On 17 June, OPI successfully emerged from Chapter 11, and the newly issued common shares began trading on the Nasdaq under the ticker OPI the following day. I want to thank OPI's creditors, advisors, board, and the team at RMR, whose work over many months made this outcome possible. Through the plan of reorganization, we reduced total debt by approximately $714 million. Just as importantly, OPI extended and reshaped its debt maturity profile, providing a runway that did not exist a year ago. A significant portion of the equity is now held by long-term institutional investors who understand the real estate, chose to invest in OPI's future, and believe in the underlying quality of the portfolio and the path ahead.

Speaker #3: I want to thank OPI's creditors advisors board and the team at RMR, whose work over many months made this outcome possible. Through the plan of reorganization, we reduced total debt by approximately $714 million.

Speaker #3: Just as importantly, OPI extended and reshaped its debt maturity profile, providing a runway that did not exist a year ago. A significant portion of the equity is now held by long-term institutional investors who understand the real estate chose to invest in OPI's future and believe in the underlying quality of the portfolio and the path ahead.

Speaker #3: Additionally, OPI emerged with a refreshed board of trustees, chaired by Jonathan Heller, of Helix Partners, and composed of executives with deep real estate investing and operating experience.

Yael Duffy: Additionally, OPI emerged with a refreshed board of trustees, chaired by Jonathan Heller of Helix Partners and composed of executives with deep real estate investing and operating experience. The RMR Group will continue to manage OPI under new five-year business and property management agreements. With RMR remaining in place, OPI retains the same operating platform, leasing relationships, and institutional real estate expertise that have long supported the company. Turning to the portfolio and leasing activity. As of 30 June 2026, OPI consisted of 122 wholly owned properties across 29 states in the District of Columbia, totaling approximately 17.1 million square feet, with a weighted average remaining lease term of 6.2 years. Over 60% of OPI's annual revenue comes from tenants with strong credit profiles, including investment grade rated and government leases that have long been a hallmark of the portfolio.

Speaker #3: The RMR Group will continue to manage OPI under new five-year business and property management agreements. With RMR remaining in place, OPI retains the same operating platform, leasing relationships, and institutional real estate expertise that have long supported the company.

Speaker #3: Turning to the portfolio and leasing activity. As of June 30, 2026, OPI consisted of 122 wholly owned properties across 29 states in the District of Columbia, totaling approximately 17.1 million square feet, with a weighted average remaining lease term of 6.2 years.

Speaker #3: Over 60 percent of OPI's annual revenue comes from tenants with strong credit profiles, including investment-grade rated and government leases that have long been a hallmark of the portfolio.

Speaker #3: During the second quarter, we signed 176,000 square feet of leasing at a weighted average term of more than 7 years, comprised predominantly of lease renewals.

Yael Duffy: During the Q2, we signed 176,000 square feet of leasing at a weighted average term of more than seven years, comprised predominantly of lease renewals. Looking ahead, approximately 2 million square feet of leases, representing 14% of annualized revenue, is scheduled to expire through the end of 2027. We plan to address these expirations through leasing efforts and asset sales. Of the 2 million square feet scheduled to roll, 660,000 square feet is currently expected to vacate or downsize. After adjusting for planned property dispositions, that figure declines to just over 200,000 square feet, representing less than 2% of annualized revenue. Additionally, our current leasing pipeline exceeds 2.4 million square feet, including 1.4 million square feet, or 58%, related to lease renewals. Year to date, OPI has invested $21 million in capital expenditures, including $17 million to support leasing activity and $4 million for routine building maintenance.

Speaker #3: Looking ahead, approximately 2 million square feet of leases representing 14 percent of annualized revenue is scheduled to expire through the end of 2027. We plan to address these expirations through leasing efforts and asset sales.

Speaker #3: Of the 2 million square feet scheduled to roll, 660,000 square feet is currently expected to vacate or downsize. After adjusting for planned property dispositions, that figure declines to just over 200,000 square feet, representing less than 2 percent of annualized revenue.

Speaker #3: Additionally, our current leasing pipeline exceeds 2.4 million square feet, including 1.4 million square feet or 58 percent related to lease renewals. Year-to-date, OPI has invested $21 million in capital expenditures, including $17 million to support leasing activity and $4 million for routine building maintenance.

Speaker #3: For the full year 2026, OPI expects total projected spend of approximately $55 to $65 million comprised of 9 to 11 million dollars of building capital and 46 to 54 million dollars of leasing capital.

Yael Duffy: For the full year 2026, OPI expects total projected spend of approximately $55 to 65 million, comprised of $9 to 11 million of building capital and $46 to 54 million of leasing capital. Turning to dispositions. Coming out of reorganization, OPI evaluated its 122-property portfolio and identified 32 properties that it intends to sell in the coming quarters. The properties total 3.7 million square feet and generate $43 million of annualized revenue. In aggregate, OPI estimates these assets will generate in excess of $275 million in gross proceeds, which will be used to enhance liquidity and address debt maturities. The 32 dispositions fall into four distinct categories. First, there are 14 properties where value has been maximized through leasing efforts or the entitlement process. These are well-located assets with strong tenancy and where current market conditions are expected to yield attractive pricing.

Speaker #3: Turning to dispositions. Coming out of reorganization, OPI evaluated its 122 property portfolio and identified 32 properties that it intends to sell in the coming quarters.

Speaker #3: The properties total 3.7 million square feet and generate 43 million dollars of annualized revenue. In aggregate, OPI estimates these assets will generate in excess of $275 million in gross proceeds, which will be used to enhance liquidity and address debt maturities.

Speaker #3: The 32 dispositions fall into four distinct categories. First, there are 14 properties were value has been maximized through leasing efforts or the entitlement process.

Speaker #3: These are well-located assets with strong tendency and were current market conditions are expected to yield attractive pricing. Second, there are 8 assets we have identified to reduce our exposure to specific markets, such as Washington, D.C., and Seattle.

Yael Duffy: Second, there are eight assets we have identified to reduce our exposure to specific markets, such as Washington, DC, and Seattle. While we are reducing our concentration in Washington, DC, it will remain our largest market. In Seattle, we are exiting the market entirely, allowing us to focus on locations where we have higher conviction. Third, we are addressing tenant and lease-related risk in six buildings with shorter remaining lease terms. Selling these assets enables OPI to realize value now rather than carry future renewal and re-leasing risk. Finally, we are exiting four vacant or soon-to-be vacant buildings that are a drag on cash flow, eliminating annual carry costs of $5 million. Importantly, we are approaching these sales as a value-maximizing process. Each asset is being marketed through a competitive broker process or, where appropriate, an auction format designed to generate competitive tension among buyers.

Speaker #3: While we are reducing our concentration in Washington, D.C., it will remain our largest market. In Seattle, we are exiting the market entirely, allowing us to focus on locations where we have higher conviction.

Speaker #3: Third, we are addressing tenant and lease-related risk in 6 buildings with shorter remaining lease terms. Selling these assets enables OPI to realize value now rather than carry future renewal and releasing risk.

Speaker #3: And finally, we are exiting 4 vacant or soon-to-be-vacant buildings that are a drag-on cash flow, eliminating annual carry costs of $5 million. Importantly, we are approaching these sales as a value-maximizing process.

Speaker #3: Each asset is being marketed through a competitive broker process for where appropriate and auction format designed to generate competitive tension among buyers. We have made significant progress.

Yael Duffy: We have made significant progress. In July, OPI sold two properties for approximately $59 million. Additionally, nine properties are under purchase and sale agreement to sell for $50 million, and 12 assets are under letter of intent for $148 million. The remaining nine properties are in various stages of the marketing process. In many cases, pricing is at or above our internal estimates and third-party appraisals, with buyer interest spanning owner users, value-add investors, and redevelopment buyers. Looking ahead, we are committed to maximizing shareholder value through three areas of focus, including increasing free cash flow through leasing, occupancy growth, and proactive asset management, optimizing the composition of OPI's office portfolio by continuing to evaluate asset sales and applying any proceeds towards increasing liquidity and reducing leverage, and creating franchise value by maintaining strong tenant relationships and operating OPI's portfolio efficiency.

Speaker #3: In July, OPI sold 2 properties for approximately $59 million. Additionally, 9 properties are under purchase and sale agreement to sell for $50 million, and 12 assets are under letter of intent for $148 million.

Speaker #3: The remaining 9 properties are in various stages of the marketing process. In many cases, pricing is at or above our internal estimates and third-party appraisals, with buyer interests spanning owner-users, value-add investors, and redevelopment buyers.

Speaker #3: Looking ahead, we are committed to maximizing shareholder value through three areas of focus: including increasing free cash flow through leasing, occupancy growth, and proactive asset management; optimizing the composition of OPI's office portfolio by continuing to evaluate asset sales and applying any proceeds towards increasing liquidity and reducing leverage; and creating franchise value by maintaining strong tenant relationships and operating OPI's portfolio efficiency.

Speaker #3: While significant work remains, OPI is in a much stronger position today than it was a year ago, with substantially less debt, greater financial flexibility, and a clear path forward to growing cash flows and creating long-term value for its stakeholders.

Yael Duffy: While significant work remains, OPI is in a much stronger position today than it was a year ago, with substantially less debt, greater financial flexibility, and a clear path forward to growing cash flows and creating long-term value for its stakeholders. I will now turn the call over to Brian.

Speaker #3: I will now turn the call over to Brian.

Speaker #4: Thank you, Yale. Good morning. During the quarter, we completed our restructuring and incorporated Fresh h Start Accounting under GAAP upon emergence. For additional details, including the presentation and reconciliation of our GAAP and non-GAAP measures for the second quarter of 2026, please refer to our earnings presentation and 10-Q filed last evening.

Brian Donley: Thank you, Yael, and good morning. During the quarter, we completed our restructuring and incorporated fresh start accounting under GAAP upon emergence. For additional details, including the presentation and reconciliation of our GAAP and non-GAAP measures for Q2 2026, please refer to our earnings presentation and 10-Q filed last evening. For Q2, normalized FFO was $19 million and Adjusted EBITDAre was $65 million. Same-property Cash Basis NOI increased 11.9% over the prior year to $55 million, driven by an increase in cash rents as a result of the company's leasing activity and rent abatement periods ending for certain leases. OPI's annualized rental income as of 30 June was $413 million, which includes straight-line rent adjustments recalculated under fresh start accounting, as well as estimated expense reimbursements under OPI's leases.

Speaker #4: For the second quarter, normalized FFO was $19 million, and adjusted EBIT to RE was $65 million. Same property cash-basis NOI increased 11.9 percent over the prior year to $55 million.

Speaker #4: Driven by an increase in cash rents as a result of the company's leasing activity and rent abatement periods ending for certain leases. OPI's annualized rental income as of June 30 was $413 million, which includes straight-line rent adjustments recalculated under Fresh Start Accounting, as well as estimated expense reimbursements under OPI's leases.

Speaker #4: The components of annualized rental income as of June 30 is broken down as follows: cash rents of $307 million, straight-line rent adjustments of $23 million, and recurring expense reimbursements due under OPI's leases of $83 million.

Brian Donley: The components of annualized rental income as of 30 June is broken down as follows: cash rents of $307 million, straight-line rent adjustments of $23 million, and recurring expense reimbursements due under OPI's leases of $83 million. Property operating expenses for the quarter were $48.8 million, a decline of 40 basis points compared to the prior year. For the trailing 12 months ended 30 June, property operating expenses were $197.4 million. G&A expenses were $5.5 million for the quarter. For the full year 2026, G&A is projected to be $20 to $22 million. Turning to the balance sheet. As of 30 June 2026, OPI had approximately $51 million of unrestricted cash and approximately $53 million of restricted cash. Restricted cash includes $35 million of reserves for professional fees relating to OPI's restructuring, with the remainder related to operating reserves under OPI's various debt agreements.

Speaker #4: Property operating expenses for the quarter were $48.8 million, a decline of 40 basis points compared to the prior year. For the trailing 12 months ended June 30, property operating expenses were $197.4 million, G&A expenses were $5.5 million for the quarter.

Speaker #4: For the full year 2026, G&A is projected to be $20 to $22 million. Turning to the balance sheet, as of June 30, 2026, OPI had approximately $51 million of unrestricted cash and approximately $53 million of restricted cash.

Speaker #4: Restricted cash includes $35 million of reserves for professional fees relating to OPI's restructuring, with the remainder related to operating reserves under OPI's various debt agreements.

Speaker #4: OPI's restructuring eliminated $714 million of debt, and the maturity profile of the company was extended, enhancing our financial flexibility. OPI's capital structure is comprised of approximately $22 million common shares outstanding, and $1.7 billion of debt, with a weighted average interest rate of 9 percent and a weighted average maturity of 3 years.

Brian Donley: OPI's restructuring eliminated $714 million of debt, and the maturity profile of the company was extended, enhancing our financial flexibility. OPI's capital structure is comprised of approximately 22 million common shares outstanding and $1.7 billion of debt, with a weighted average interest rate of 9% and weighted average maturity of three years. The debt stack includes a $425 million fully drawn credit facility bearing interest at 9.15%, maturing in January 2027, $300 million of 9% senior secured notes due March 2029, $385 million of 8.38% senior secured notes due December 2029, $420 million of 10% senior secured notes due June 2031, and approximately $177 million of CMBS mortgage debt with various maturities between 2028 and 2033. On an annualized basis, cash interest expense is $154 million before any principal paydown scheduled subsequent to 30 June or resulting from asset sales.

Speaker #4: The debt stack includes a $425 million fully drawn credit facility bearing interest at 9.15 percent maturing in January 2027, $300 million of 9 percent senior secured notes due March 2029, $385 million of 8.38 percent senior secured notes due December 2029, $420 million of 10 percent senior secured notes due June 2031, and approximately $177 million of CMBS mortgage debt with various maturities between 2028 and 2033.

Speaker #4: On an annualized basis, cash interest expense is $154 million, before any principal paydown scheduled subsequent to June 30 or resulting from asset sales. In addition, non-cash amortization of interest on an annualized basis is currently projected to be $6.1 million.

Brian Donley: In addition, non-cash amortization of interest on an annualized basis is currently projected to be $6.1 million. With regards to OPI's $425 million credit facility that matures in January 2027, we are actively working with a bank on options to refinance this debt. The credit facility is currently secured by a high-quality collateral pool of 19 properties with occupancy of 92% and strong cash flows. OPI's 8.38 senior secured notes require scheduled principal payments. The first $5 million principal repayment was made on 31 July. The next payment of $15 million is due 1 November, followed by another $30 million on 1 February 2027. We currently expect to make these payments using cash on hand and proceeds from asset sales. In closing, our focus now is on addressing near-term maturities, improving OPI's cash flows and cost of capital, while continuing to serve tenants and creating value for OPI stakeholders.

Speaker #4: With regards to OPI's $425 million credit facility that matures in January 2027, we are actively working with the bank on options to refinance this debt.

Speaker #4: The credit facility is currently secured by a high-quality collateral pool of 19 properties with occupancy of 92 percent and strong cash flows. OPI's 8.38 senior secured notes require a scheduled principal payment.

Speaker #4: The first $5 million principal repayment was made on July 31. The next payment of $15 million is due November 1, followed by another $30 million on February 1, 2027.

Speaker #4: We currently expect to make these payments using cash on hand and proceeds from asset sales. In closing, our focus now is on addressing near-term maturities, improving OPI's cash flows and cost of capital, while continuing to serve tenants and creating value for OPI stakeholders.

Speaker #4: That concludes our prepared remarks. Operating may now end the call.

Brian Donley: That concludes our prepared remarks. Operator, you may now end the call.

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

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