Office Properties Income Trust Announces Second Quarter 2021 Results

July 29, 2021 4:15 PM EDT

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Second Quarter Net Loss of $66.7 Million, or $1.38 Per Share

Second Quarter Normalized FFO of $55.4 Million, or $1.15 Per Share

Second Quarter CAD of $33.8 Million, or $0.70 Per Share

Leased 548,000 Square Feet with a 17.1% Roll-up in Rents

Acquired Two Class A Urban Core Office Properties for $550.0 Million

NEWTON, Mass.--(BUSINESS WIRE)-- Office Properties Income Trust (Nasdaq: OPI) today announced its financial results for the quarter ended June 30, 2021.

Christopher Bilotto, President and Chief Operating Officer of OPI, made the following statement:

"During the second quarter, we further advanced OPI's capital recycling program with the acquisition of two newly constructed, long-term leased office properties in strong urban core locations for $550 million. These Class A properties are majority leased to high credit quality tenants, including Google as its Midwest headquarters in Chicago and Insight Global as its corporate headquarters in Atlanta. During the second quarter and subsequent to quarter end, we sold three properties for a total of $46 million, addressing two of our known major vacates for 2021 and bringing total proceeds from our capital recycling efforts since 2020 to $287 million.

In May, we completed a successful bond offering in which we issued $300 million of 2.65% senior unsecured notes and applied the net proceeds to the redemption of $310 million of 5.875% senior unsecured notes, resulting in approximately $10 million of annual interest expense savings.

Our leasing activity also remained strong during the quarter as we completed 548,000 square feet of new and renewal leasing, with a weighted average lease term of 16.6 years and weighted average roll up in rents of 17.1%. New leasing activity absorbed 269,000 square feet of vacant space, inclusive of a long-term lease with Sonesta International Hotels Corporation at our 20 Massachusetts Avenue redevelopment in Washington, D.C., which represents approximately 54% of the total square feet upon its estimated completion in the first quarter of 2023.

The continued execution of our capital recycling program, our ability to efficiently raise capital and our strong leasing volume all contributed to enhance and diversify the quality of our office portfolio."

Quarterly Results:

 

Three Months Ended June 30,

 

2021

 

2020

 

 

 

 

Financial

(dollars in thousands, except per share data)

Net income (loss)

($66,697)

 

$1,299

Net income (loss) per share

($1.38)

 

$0.03

Normalized FFO per share

$1.15

 

$1.40

CAD per share

$0.70

 

$0.95

Same Property Cash Basis NOI

$84,399

 

$87,064

  • Net loss for the quarter ended June 30, 2021 was $66.7 million, or $1.38 per diluted share, compared to net income of $1.3 million, or $0.03 per diluted share, for the quarter ended June 30, 2020. Net loss for the quarter ended June 30, 2021 includes a $48.2 million, or $1.00 per diluted share, loss on impairment of real estate, a $11.8 million, or $0.24 per diluted share, loss on early extinguishment of debt and $5.9 million, or $0.12 per diluted share, of estimated business management incentive fee expense. Net income for the quarter ended June 30, 2020 includes a $0.6 million, or $0.01 per diluted share, loss on early extinguishment of debt.

    The $48.2 million loss on impairment of real estate for the quarter ended June 30, 2021 includes a $33.9 million loss on impairment of real estate related to a property located in Fresno, CA containing approximately 532,000 rentable square feet that was sold in July 2021, as well as losses on impairment of real estate totaling $14.3 million related to four properties with approximately 546,000 rentable square feet that were classified as held for sale as of June 30, 2021.

    The $5.9 million of estimated business management incentive fee expense recognized for the quarter ended June 30, 2021 is the result of OPI's common share total return, as defined in OPI's business management agreement, exceeding the returns for the SNL U.S. REIT Office index by 15.1% over the applicable measurement period. The estimated business management incentive fee for the six months ended June 30, 2021 is $11.1 million, which equates to a $22.2 million fee on an annual basis. The actual amount of annual incentive fees for 2021, if any, will be based on OPI's common share total return for the three-year period ending December 31, 2021, and will be payable in January 2022.
  • Normalized funds from operations, or Normalized FFO, and cash available for distribution, or CAD, for the quarter ended June 30, 2021 were $55.4 million, or $1.15 per diluted share, and $33.8 million, or $0.70 per diluted share, respectively, compared to Normalized FFO and CAD for the quarter ended June 30, 2020 of $67.2 million, or $1.40 per diluted share, and $45.5 million, or $0.95 per diluted share, respectively.
  • Same Property cash basis net operating income, or Cash Basis NOI, decreased 3.1% for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020. The decrease in Same Property Cash Basis NOI is primarily due to a decrease in cash revenues of $2.0 million primarily resulting from reductions in occupied space at certain of OPI's properties. Operating expenses also increased by $0.7 million, primarily driven by an increase in real estate taxes primarily due to refunds received in the 2020 period at certain of OPI's properties as a result of successful real estate tax appeals, as well as the effect of higher valuation assessments at certain of OPI's properties in 2021.
  • Leasing activity for the quarter ended June 30, 2021 was as follows:

 

Three Months Ended
June 30, 2021

Leasing activity for new and renewal leases (rentable square feet)

548,000

Weighted average rental rate change (by rentable square feet)

17.1%

Weighted average lease term (by rentable square feet)

16.6 years

Leasing concessions and capital commitments (per square foot per lease year) (1)

$8.42

(1)

Includes commitments totaling approximately $66,000 in connection with the lease OPI entered with Sonesta International Hotels Corporation in June 2021 related to the redevelopment of a property in Washington, D.C. These costs represent the estimated costs related to the planned hotel component of the property.

 

As of

Percent Leased

June 30, 2021

 

March 31, 2021

 

June 30, 2020

All properties

89.5%

 

90.8%

 

91.7%

Same properties

91.8%

 

93.0%

 

94.0%

Reconciliations of net income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, Normalized FFO, CAD, net operating income (loss), or NOI, and Cash Basis NOI, and a reconciliation of NOI to Same Property NOI and Same Property Cash Basis NOI, for the quarters ended June 30, 2021 and 2020 appear later in this press release.

Acquisition Activities:

  • In June 2021, OPI acquired a property in Chicago, IL containing approximately 531,000 rentable square feet for a purchase price of $355.0 million, excluding purchase price adjustments and acquisition related costs. This property is 99% leased with a weighted average lease term of 6.6 years.
  • Also in June 2021, OPI acquired a property in Atlanta, GA containing approximately 346,000 rentable square feet for a purchase price of $195.0 million, excluding purchase price adjustments and acquisition related costs. This property is 98% leased with a weighted average lease term of 14.2 years.
  • As previously reported, OPI has entered into an agreement to acquire a property adjacent to a property it owns in Boston, MA containing approximately 49,000 rentable square feet for a purchase price of $27.0 million, excluding acquisition related costs. This property is 59% leased with a weighted average lease term of 2.1 years. This acquisition is expected to occur before the end of the third quarter.

Disposition Activities:

  • As previously reported, in April 2021, OPI sold a property located in Huntsville, AL containing approximately 1,371,000 rentable square feet for a sales price of $39.0 million, excluding closing costs.
  • In July 2021, OPI sold a property located in Fresno, CA containing approximately 532,000 rentable square feet for a sales price of $6.0 million, excluding closing costs.
  • Also in July 2021, OPI sold a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $0.7 million, excluding closing costs.
  • In addition, OPI entered into an agreement in May 2021 to sell a property located in Memphis, TN containing approximately 205,000 rentable square feet for a sales price of $15.3 million, excluding closing costs. This sale is expected to occur before the end of the third quarter.

Liquidity and Financing Activities:

  • As of June 30, 2021, OPI had $18.7 million of cash and cash equivalents and $365.0 million available to borrow under its $750.0 million unsecured revolving credit facility.
  • In May 2021, OPI issued $300.0 million of 2.650% senior unsecured notes due 2026 in an underwritten public offering raising net proceeds of $296.8 million, after deducting underwriters' discounts and offering expenses.
  • In June 2021, OPI redeemed, at par plus accrued interest, all $310.0 million of its 5.875% senior unsecured notes due 2046 using cash on hand and the net proceeds from the issuance of its 2.650% senior unsecured notes due 2026.
  • Also in June 2021, OPI prepaid, at a premium plus accrued interest, a mortgage note secured by three properties with an outstanding principal balance of $71.0 million, an annual interest rate of 3.55% and a maturity date in May 2023 using cash on hand and borrowings under its revolving credit facility.

Conference Call:

On Friday, July 30, 2021 at 10:00 a.m. Eastern Time, President and Chief Operating Officer, Christopher Bilotto, and Chief Financial Officer and Treasurer, Matthew Brown, will host a conference call to discuss OPI’s second quarter 2021 financial results.

The conference call telephone number is (877) 328-1172. Participants calling from outside the United States and Canada should dial (412) 317-5418. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. on Friday, August 6, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10157583.

A live audio webcast of the conference call will also be available in a listen only mode on OPI’s website, at www.opireit.com. Participants wanting to access the webcast should visit OPI’s website about five minutes before the call. The archived webcast will be available for replay on OPI’s website following the call for about one week. The transcription, recording and retransmission in any way of OPI’s second quarter conference call are strictly prohibited without the prior written consent of OPI.

Supplemental Data:

A copy of OPI’s Second Quarter 2021 Supplemental Operating and Financial Data is available for download at OPI’s website, www.opireit.com. OPI’s website is not incorporated as part of this press release.

Non-GAAP Financial Measures:

OPI presents certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including FFO, Normalized FFO, CAD, NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of OPI’s operating performance or as measures of OPI’s liquidity. These measures should be considered in conjunction with net income (loss) as presented in OPI's condensed consolidated statements of income (loss). OPI considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a real estate investment trust, or REIT, along with net income (loss). OPI believes these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of OPI’s operating performance between periods and with other REITs and, in the case of NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of OPI's properties.

Please see the pages attached hereto for a more detailed statement of OPI’s operating results and financial condition and for an explanation of OPI’s calculation of FFO, Normalized FFO, CAD, NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI and a reconciliation of those amounts to amounts determined in accordance with GAAP.

OPI is a REIT focused on owning, operating and leasing properties primarily leased to single tenants and those with high credit quality characteristics such as government entities. OPI is managed by the majority owned operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.

 

 

Office Properties Income Trust

Condensed Consolidated Statements of Income (Loss)

(amounts in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Rental income

 

$

137,099

 

 

 

$

145,603

 

 

 

$

281,623

 

 

 

$

295,488

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Real estate taxes

 

15,912

 

 

 

15,781

 

 

 

32,066

 

 

 

32,588

 

 

Utility expenses

 

5,310

 

 

 

5,201

 

 

 

11,742

 

 

 

12,213

 

 

Other operating expenses

 

24,898

 

 

 

25,787

 

 

 

50,337

 

 

 

51,667

 

 

Depreciation and amortization

 

55,371

 

 

 

64,170

 

 

 

119,458

 

 

 

127,113

 

 

Loss on impairment of real estate (1)

 

48,197

 

 

 

 

 

 

55,857

 

 

 

 

 

General and administrative (2)

 

12,970

 

 

 

7,204

 

 

 

24,242

 

 

 

14,313

 

 

Total expenses

 

162,658

 

 

 

118,143

 

 

 

293,702

 

 

 

237,894

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate (3)

 

114

 

 

 

66

 

 

 

54,118

 

 

 

10,822

 

 

Interest and other income

 

2

 

 

 

30

 

 

 

7

 

 

 

736

 

 

Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,492, $2,402, $4,924 and $4,685, respectively)

 

(29,001

)

 

 

(25,205

)

 

 

(57,799

)

 

 

(52,364

)

 

Loss on early extinguishment of debt (4)

 

(11,794

)

 

 

(557

)

 

 

(11,794

)

 

 

(3,839

)

 

Income (loss) before income tax (expense) benefit and equity in net losses of investees

 

(66,238

)

 

 

1,794

 

 

 

(27,547

)

 

 

12,949

 

 

Income tax (expense) benefit

 

121

 

 

 

(235

)

 

 

(314

)

 

 

(274

)

 

Equity in net losses of investees

 

(580

)

 

 

(260

)

 

 

(976

)

 

 

(536

)

 

Net income (loss)

 

$

(66,697

)

 

 

$

1,299

 

 

 

$

(28,837

)

 

 

$

12,139

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

48,165

 

 

 

48,106

 

 

 

48,163

 

 

 

48,101

 

 

 

 

 

 

 

 

 

 

 

Per common share amounts (basic and diluted):

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1.38

)

 

 

$

0.03

 

 

 

$

(0.60

)

 

 

$

0.25

 

 

See Notes on pages 7 and 8.

 

 

Office Properties Income Trust

Funds from Operations, Normalized Funds from Operations and Cash Available for Distribution

(amounts in thousands, except per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Calculation of FFO, Normalized FFO and CAD (5)(6):

 

 

 

 

 

 

Net income (loss)

 

$

(66,697

)

 

 

$

1,299

 

 

 

$

(28,837

)

 

 

$

12,139

 

 

Add (less): Depreciation and amortization:

 

 

 

 

 

 

 

 

Consolidated properties

 

55,371

 

 

 

64,170

 

 

 

119,458

 

 

 

127,113

 

 

Unconsolidated joint venture properties

 

923

 

 

 

1,237

 

 

 

1,929

 

 

 

2,478

 

 

Loss on impairment of real estate (1)

 

48,197

 

 

 

 

 

 

55,857

 

 

 

 

 

Gain on sale of real estate (3)

 

(114

)

 

 

(66

)

 

 

(54,118

)

 

 

(10,822

)

 

FFO

 

37,680

 

 

 

66,640

 

 

 

94,289

 

 

 

130,908

 

 

Loss on early extinguishment of debt (4)

 

11,794

 

 

 

557

 

 

 

11,794

 

 

 

3,839

 

 

Estimated business management incentive fees (2)

 

5,911

 

 

 

 

 

 

11,111

 

 

 

 

 

Normalized FFO

 

55,385

 

 

 

67,197

 

 

 

117,194

 

 

 

134,747

 

 

Add (less): Non-cash expenses (7)

 

804

 

 

 

808

 

 

 

803

 

 

 

887

 

 

Distributions from unconsolidated joint ventures

 

153

 

 

 

102

 

 

 

306

 

 

 

153

 

 

Depreciation and amortization - unconsolidated joint ventures

 

(923

)

 

 

(1,237

)

 

 

(1,929

)

 

 

(2,478

)

 

Equity in net losses of investees

 

580

 

 

 

260

 

 

 

976

 

 

 

536

 

 

Loss on early extinguishment of debt settled in cash

 

(2,500

)

 

 

 

 

 

(2,500

)

 

 

(1,138

)

 

Non-cash straight line rent adjustments included in rental income

 

(3,847

)

 

 

(3,468

)

 

 

(9,204

)

 

 

(9,051

)

 

Lease value amortization included in rental income

 

667

 

 

 

1,405

 

 

 

1,389

 

 

 

2,837

 

 

Net amortization of debt premiums, discounts and issuance costs

 

2,492

 

 

 

2,402

 

 

 

4,924

 

 

 

4,685

 

 

Recurring capital expenditures

 

(18,980

)

 

 

(21,926

)

 

 

(30,476

)

 

 

(38,269

)

 

CAD (6)

 

$

33,831

 

 

 

$

45,543

 

 

 

$

81,483

 

 

 

$

92,909

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic and diluted)

 

48,165

 

 

48,106

 

 

48,163

 

 

48,101

 

 

 

 

 

 

 

 

 

 

Per common share amounts (basic and diluted):

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1.38

)

 

 

$

0.03

 

 

 

$

(0.60

)

 

 

$

0.25

 

 

FFO

 

$

0.78

 

 

 

$

1.39

 

 

 

$

1.96

 

 

 

$

2.72

 

 

Normalized FFO

 

$

1.15

 

 

 

$

1.40

 

 

 

$

2.43

 

 

 

$

2.80

 

 

CAD

 

$

0.70

 

 

 

$

0.95

 

 

 

$

1.69

 

 

 

$

1.93

 

 

Distributions declared per share

 

$

0.55

 

 

 

$

0.55

 

 

 

$

1.10

 

 

 

$

1.10

 

 

(1)

Loss on impairment of real estate for the three months ended June 30, 2021 represents an adjustment of $48,197 to reduce the carrying value of five properties to their estimated fair values less costs to sell, which includes $33,917 related to a property located in Fresno, CA containing approximately 532,000 rentable square feet that was sold in July 2021, as well as $14,280 related to four properties containing approximately 546,000 rentable square feet that were classified as held for sale as of June 30, 2021. Loss on impairment of real estate for the six months ended June 30, 2021 also includes an adjustment of $7,660 to reduce the carrying value of two properties to their estimated fair values less costs to sell recorded during the three months ended March 31, 2021.

 

(2)

Incentive fees under OPI's business management agreement with The RMR Group LLC are payable after the end of each calendar year, are calculated based on common share total return, as defined, and are included in general and administrative expense in OPI’s condensed consolidated statements of income (loss). In calculating net income (loss) in accordance with GAAP, OPI recognizes estimated business management incentive fee expense, if any, in the first, second and third quarters. Although OPI recognizes this expense, if any, in the first, second and third quarters for purposes of calculating net income (loss), OPI does not include such expense in the calculation of Normalized FFO until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. Net income (loss) includes $5,911 and $11,111 of estimated business management incentive fee expense for the three and six months ended June 30, 2021, respectively. No estimated business management incentive fee expense was included in net income for the three and six months ended June 30, 2020.

 

(3)

Gain on sale of real estate for the six months ended June 30, 2021 represents a $54,118 net gain on the sale of two properties. Gain on sale of real estate for the six months ended June 30, 2020 represents a $10,822 net gain on the sale of six properties.

 

(4)

Loss on early extinguishment of debt for the three and six months ended June 30, 2021 includes prepayment fees related to the repayment of one mortgage note, as well as write offs of the unamortized portion of certain discounts and issuance costs resulting from the early repayment of debt. Loss on early extinguishment of debt for the three and six months ended June 30, 2020 includes prepayment fees related to the repayment of two mortgage notes, write offs of the unamortized portion of certain discounts and issuance costs resulting from the early repayment of debt and a loss related to the settlement of a mortgage note receivable in connection with a property OPI sold in 2016.

 

(5)

OPI calculates FFO and Normalized FFO as shown above. FFO is calculated on the basis defined by The National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, plus real estate depreciation and amortization of consolidated properties and its proportionate share of the real estate depreciation and amortization of unconsolidated joint venture properties, but excluding impairment charges on real estate assets and any gain or loss on sale of real estate, as well as certain other adjustments currently not applicable to OPI. In calculating Normalized FFO, OPI adjusts for the other items shown above and includes business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of OPI’s core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by OPI’s Board of Trustees when determining the amount of distributions to OPI’s shareholders. Other factors include, but are not limited to, requirements to maintain OPI's qualification for taxation as a REIT, limitations in OPI’s credit agreement and public debt covenants, the availability to OPI of debt and equity capital, OPI’s expectation of its future capital requirements and operating performance and OPI’s expected needs for and availability of cash to pay its obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than OPI does.

 

(6)

OPI calculates CAD as shown above. OPI defines CAD as Normalized FFO minus recurring real estate related capital expenditures and adjusted for other non-cash and non-recurring items plus certain amounts excluded from Normalized FFO but settled in cash. CAD is among the factors considered by OPI's Board of Trustees when determining the amount of distributions to its shareholders. Other real estate companies and REITs may calculate CAD differently than OPI does.

 

 

(7)

Non-cash expenses include equity based compensation, adjustments recorded to capitalize interest expense and amortization of the liability for the amount by which the estimated fair value for accounting purposes exceeded the price OPI paid for its former investment in The RMR Group Inc., or RMR Inc., common stock in June 2015. This liability is being amortized on a straight line basis through December 31, 2035 as an allocated reduction to business management fee expense and property management fee expense, which are included in general and administrative and other operating expenses, respectively.

 

Office Properties Income Trust

Calculation and Reconciliation of NOI, Cash Basis NOI, Same Property NOI and

Same Property Cash Basis NOI (1)

(amounts in thousands)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Calculation of NOI and Cash Basis NOI:

 

 

 

 

Rental income

 

$

137,099

 

 

 

$

145,603

 

 

 

$

281,623

 

 

 

$

295,488

 

 

Property operating expenses

 

(46,120

)

 

 

(46,769

)

 

 

(94,145

)

 

 

(96,468

)

 

NOI

 

90,979

 

 

 

98,834

 

 

 

187,478

 

 

 

199,020

 

 

Non-cash straight line rent adjustments included in rental income

 

(3,847

)

 

 

(3,468

)

 

 

(9,204

)

 

 

(9,051

)

 

Lease value amortization included in rental income

 

667

 

 

 

1,405

 

 

 

1,389

 

 

 

2,837

 

 

Lease termination fees included in rental income

 

 

 

 

(3

)

 

 

 

 

 

(6

)

 

Non-cash amortization included in property operating expenses (2)

 

(121

)

 

 

(121

)

 

 

(242

)

 

 

(242

)

 

Cash Basis NOI

 

$

87,678

 

 

 

$

96,647

 

 

 

$

179,421

 

 

 

$

192,558

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Net Income (Loss) to NOI and Cash Basis NOI:

Net income (loss)

 

$

(66,697

)

 

 

$

1,299

 

 

 

$

(28,837

)

 

 

$

12,139

 

 

Equity in net losses of investees

 

580

 

 

 

260

 

 

 

976

 

 

 

536

 

 

Income tax expense (benefit)

 

(121

)

 

 

235

 

 

 

314

 

 

 

274

 

 

Income (loss) before income tax expense (benefit) and equity in net losses of investees

 

(66,238

)

 

 

1,794

 

 

 

(27,547

)

 

 

12,949

 

 

Loss on early extinguishment of debt

 

11,794

 

 

 

557

 

 

 

11,794

 

 

 

3,839

 

 

Interest expense

 

29,001

 

 

 

25,205

 

 

 

57,799

 

 

 

52,364

 

 

Interest and other income

 

(2

)

 

 

(30

)

 

 

(7

)

 

 

(736

)

 

Gain on sale of real estate

 

(114

)

 

 

(66

)

 

 

(54,118

)

 

 

(10,822

)

 

General and administrative

 

12,970

 

 

 

7,204

 

 

 

24,242

 

 

 

14,313

 

 

Loss on impairment of real estate

 

48,197

 

 

 

 

 

 

55,857

 

 

 

 

 

Depreciation and amortization

 

55,371

 

 

 

64,170

 

 

 

119,458

 

 

 

127,113

 

 

NOI

 

90,979

 

 

 

98,834

 

 

 

187,478

 

 

 

199,020

 

 

Non-cash amortization included in property operating expenses (2)

 

(121

)

 

 

(121

)

 

 

(242

)

 

 

(242

)

 

Lease termination fees included in rental income

 

 

 

 

(3

)

 

 

 

 

 

(6

)

 

Lease value amortization included in rental income

 

667

 

 

 

1,405

 

 

 

1,389

 

 

 

2,837

 

 

Non-cash straight line rent adjustments included in rental income

 

(3,847

)

 

 

(3,468

)

 

 

(9,204

)

 

 

(9,051

)

 

Cash Basis NOI

 

$

87,678

 

 

 

$

96,647

 

 

 

$

179,421

 

 

 

$

192,558

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of NOI to Same Property NOI (3) (4):

 

 

 

 

 

 

 

 

Rental income

 

$

137,099

 

 

 

$

145,603

 

 

 

$

281,623

 

 

 

$

295,488

 

 

Property operating expenses

 

(46,120

)

 

 

(46,769

)

 

 

(94,145

)

 

 

(96,468

)

 

NOI

 

90,979

 

 

 

98,834

 

 

 

187,478

 

 

 

199,020

 

 

Less: NOI of properties not included in same property results

 

(3,319

)

 

 

(9,388

)

 

 

(10,781

)

 

 

(20,260

)

 

Same Property NOI

 

$

87,660

 

 

 

$

89,446

 

 

 

$

176,697

 

 

 

$

178,760

 

 

 

 

 

 

 

 

 

 

 

Calculation of Same Property Cash Basis NOI (3) (4):

 

 

 

 

 

 

 

 

Same Property NOI

 

$

87,660

 

 

 

$

89,446

 

 

 

$

176,697

 

 

 

$

178,760

 

 

Add: Lease value amortization included in rental income

 

679

 

 

 

814

 

 

 

1,401

 

 

 

1,653

 

 

Less: Non-cash straight line rent adjustments included in rental income

 

(3,841

)

 

 

(3,099

)

 

 

(9,656

)

 

 

(7,629

)

 

Non-cash amortization included in property operating expenses (2)

 

(99

)

 

 

(97

)

 

 

(198

)

 

 

(194

)

 

Same Property Cash Basis NOI

 

$

84,399

 

 

 

$

87,064

 

 

 

$

168,244

 

 

 

$

172,590

 

 

See Notes on page 10.

(1)

The calculations of NOI and Cash Basis NOI exclude certain components of net income (loss) in order to provide results that are more closely related to OPI’s property level results of operations. OPI calculates NOI and Cash Basis NOI as shown above. OPI defines NOI as income from its rental of real estate less its property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that OPI records as depreciation and amortization expense. OPI defines Cash Basis NOI as NOI excluding non-cash straight line rent adjustments, lease value amortization, lease termination fees, if any, and non-cash amortization included in other operating expenses. OPI calculates Same Property NOI and Same Property Cash Basis NOI in the same manner that it calculates the corresponding NOI and Cash Basis NOI amounts, except that it only includes same properties in calculating Same Property NOI and Same Property Cash Basis NOI. OPI uses NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI differently than OPI does.

 

(2)

OPI recorded a liability for the amount by which the estimated fair value for accounting purposes exceeded the price OPI paid for its former investment in RMR Inc. common stock in June 2015. A portion of this liability is being amortized on a straight line basis through December 31, 2035 as a reduction to property management fee expense, which is included in property operating expenses.

 

(3)

For the three months ended June 30, 2021 and 2020, Same Property NOI and Same Property Cash Basis NOI are based on properties OPI owned continuously since April 1, 2020, and exclude properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which OPI owns 51% and 50% interests.

 

(4)

For the six months ended June 30, 2021 and 2020, Same Property NOI and Same Property Cash Basis NOI are based on properties OPI owned continuously since January 1, 2020, and exclude properties classified as held for sale and properties undergoing significant redevelopment, if any, and three properties owned by two unconsolidated joint ventures in which OPI owns 51% and 50% interests.

 

 

Office Properties Income Trust

Condensed Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

June 30,

 

December 31,

 

 

2021

 

 

2020

 

ASSETS

 

 

 

 

Real estate properties:

 

 

 

 

Land

 

$

865,218

 

 

 

$

830,884

 

 

Buildings and improvements

 

2,982,746

 

 

 

2,691,259

 

 

Total real estate properties, gross

 

3,847,964

 

 

 

3,522,143

 

 

Accumulated depreciation

 

(455,135

)

 

 

(451,914

)

 

Total real estate properties, net

 

3,392,829

 

 

 

3,070,229

 

 

Assets of properties held for sale

 

47,698

 

 

 

75,177

 

 

Investments in unconsolidated joint ventures

 

36,669

 

 

 

37,951

 

 

Acquired real estate leases, net

 

570,449

 

 

 

548,943

 

 

Cash and cash equivalents

 

18,667

 

 

 

42,045

 

 

Restricted cash

 

1,414

 

 

 

14,810

 

 

Rents receivable

 

90,985

 

 

 

101,766

 

 

Deferred leasing costs, net

 

46,185

 

 

 

42,626

 

 

Other assets, net

 

6,317

 

 

 

12,889

 

 

Total assets

 

$

4,211,213

 

 

 

$

3,946,436

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Unsecured revolving credit facility

 

$

385,000

 

 

 

$

 

 

Senior unsecured notes, net

 

2,032,764

 

 

 

2,033,242

 

 

Mortgage notes payable, net

 

98,739

 

 

 

169,729

 

 

Liabilities of properties held for sale

 

2,427

 

 

 

891

 

 

Accounts payable and other liabilities

 

127,359

 

 

 

116,480

 

 

Due to related persons

 

17,882

 

 

 

6,114

 

 

Assumed real estate lease obligations, net

 

18,492

 

 

 

10,588

 

 

Total liabilities

 

2,682,663

 

 

 

2,337,044

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

Common shares of beneficial interest, $.01 par value: 200,000,000 shares authorized, 48,334,357 and 48,318,366 shares issued and outstanding, respectively

 

483

 

 

 

483

 

 

Additional paid in capital

 

2,616,450

 

 

 

2,615,305

 

 

Cumulative net income

 

155,058

 

 

 

183,895

 

 

Cumulative common distributions

 

(1,243,441

)

 

 

(1,190,291

)

 

Total shareholders’ equity

 

1,528,550

 

 

 

1,609,392

 

 

Total liabilities and shareholders’ equity

 

$

4,211,213

 

 

 

$

3,946,436

 

 

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever OPI uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, OPI is making forward-looking statements. These forward-looking statements are based upon OPI’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by OPI’s forward-looking statements as a result of various factors. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond OPI's control. For example:

  • Mr. Bilotto's statement that OPI advanced its capital recycling program during the quarter may imply that OPI will continue to advance its capital recycling program in the future and execute on its investment strategies. However, OPI may not be able to identify and successfully negotiate and complete acquisitions or sales and it may not realize its target returns on investments it may make or its target proceeds on properties it elects to sell,
  • Mr. Bilotto states that OPI's bond offering of $300 million of 2.65% senior unsecured notes resulted in annual interest expense savings of approximately $10 million as a result of applying the net proceeds from that offering to repay other debt that had a higher interest rate. This may imply that OPI will have similar demand in capital markets in the future, that future offerings will be accretive to OPI's operating results and that OPI's interest expense will be lower in future periods. However, OPI may not have similar demand for future bond offerings or be able to access capital and the resulting interest expense of any future offerings may not be lower than the interest rates on OPI's existing debt. Further, OPI expects to borrow additional amounts in the future to grow its business and for other needs and its interest expense will likely increase in future periods as a result from time-to-time,
  • Mr. Bilotto's statements about OPI's leasing activity and roll-ups in rents may imply that OPI will continue to have similar and better leasing activity in future periods. However, OPI's ability to realize positive leasing activity and roll-ups in rents depend on various factors, including market conditions, the impact of the COVID-19 pandemic, the financial strength of OPI's tenants, tenants' demand for OPI's properties, the timing of lease expirations and OPI's ability to successfully compete for tenants, among other factors. As a result, OPI may not realize positive leasing activity and rent roll-ups in the future and OPI's leasing activity and occupancy could decline and OPI may realize rent roll-downs and decreased rental income in the future,
  • Mr. Bilotto's statements regarding OPI's redevelopment of 20 Massachusetts Avenue in Washington, D.C., its leasing at the property and the expected delivery date of the redeveloped property may imply that OPI will be able to complete this redevelopment project within the expected timeline, that there will be demand to lease the redeveloped property and that the resulting leases will be accretive to OPI's operating results. However, this redevelopment will require significant capital and time to complete and could be delayed, there may not be demand to lease the redeveloped property upon its completion and as a result, OPI's operating results could decline, and
  • OPI has entered into an agreement to acquire a property for a purchase price of $27.0 million, excluding acquisition related costs, and an agreement to sell a property for a sales price of $15.3 million, excluding closing costs. These transactions are subject to conditions. Those conditions may not be satisfied and these transactions may not occur, may be delayed or the terms may change.

The information contained in OPI’s filings with the SEC, including under “Risk Factors” in OPI’s periodic reports, or incorporated therein, identifies other important factors that could cause OPI’s actual results to differ materially from those stated in or implied by OPI’s forward-looking statements. OPI’s filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, OPI does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

Olivia Snyder, Manager, Investor Relations
(617) 219-1410

Source: Office Properties Income Trust



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