Office Properties Income Trust Q2 2025 Earnings Report

Office Properties Income Trust EPS Results

• Actual EPS: $0.13
• Consensus EPS: -$0.51
• Beat/Miss: Beat by +$0.64
• One Year Ago EPS: N/A

Office Properties Income Trust Revenue Results

• Actual Revenue: $114.50 million
• Expected Revenue: $110.44 million
• Beat/Miss: Beat by +$4.06 million
• YoY Revenue Growth: N/A

Office Properties Income Trust Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 10:00AM ET

Office Properties Income Trust (NASDAQ:OPI) is a real estate investment trust. It owns, operates, and leases office buildings to single tenants and multi-tenant buildings. The company was founded on February 17, 2009 and is headquartered in Newton, MA.

Office Properties Income Trust Q2 2025 Earnings Call Transcript

Key Takeaways

• Negative Sentiment: Portfolio revenue declined by 18% year-over-year to $398 million, reflecting persistent leasing challenges and lower same-property occupancy of 85.2%.
• Negative Sentiment: Interest expense rose 37% to $53 million, and with $280 million of debt maturing in 2026 and just $90 million in liquidity, the company faces tight covenant constraints.
• Negative Sentiment: The board has suspended the quarterly dividend, preserving approximately $3 million in annual cash, as part of efforts to address its strained liquidity position.
• Positive Sentiment: In Q2, OPI executed 15 leases totaling 416,000 sq ft at rental rates 6.4% above prior levels while concessions fell 24% quarter-over-quarter.
• Neutral Sentiment: Q2 normalized FFO beat guidance at $0.13 per share, though Q3 FFO is forecast at $0.07–$0.09 amid seasonally weaker hotel performance and lower NOI.

Presentation

[Operator]

Good morning, and welcome to the Office Properties Income Trust Second Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. 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.

[Kevin Barry, Senior Director of Investor Relations at Office Properties Income Trust]

Good morning. Thank you for joining us today. With me on the call are OPI's President and Chief Operating Officer, Yael Duffy and Chief Financial Officer and Treasurer, Brian Donnelly. In just a moment, they will provide details about our business and our performance for the second quarter of twenty twenty five. 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.

[Kevin Barry, Senior Director of Investor Relations at Office Properties Income Trust]

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, 07/31/2025, 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, which can be accessed from our website, opireit.com. Investors are cautioned not to place undue reliance upon any forward looking statements.

[Kevin Barry, Senior Director of Investor Relations at Office Properties Income Trust]

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. 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 FFO 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 of real estate. I will now turn the call over to Yada.

[Yael Duffy, President & COO at Office Properties Income Trust]

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 there, Brian will review our financial results and outlook. As of 06/30/2025, OPI's portfolio included 125 properties totaling 17,300,000 square feet with a weighted average remaining lease term of six point eight years. We ended the quarter with same property occupancy of 85.2%.

[Yael Duffy, President & COO at Office Properties Income Trust]

Approximately 59% of our revenues come from investment grade rated tenants or their subsidiaries. The U. S. Government is our largest tenant 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.

[Yael Duffy, President & COO at Office Properties Income Trust]

Specifically, annualized revenue of $398,000,000 is down $85,000,000 or nearly 18% compared to a year ago. Interest expense in the second quarter of $53,000,000 is up $14,000,000 or 37% year over year. We have little room under our debt covenants, which restricts us from refinancing or issuing new debt. Nearly $280,000,000 in debt principal payments are due in 2026 and our total liquidity is $90,000,000 of cash. Despite these ongoing challenges, we continue to lease and operate our properties while simultaneously exploring options to address our financial commitments and reduce costs.

[Yael Duffy, President & COO at Office Properties Income Trust]

To that end, earlier this month, OPI's Board of Trustees made the decision to suspend the quarterly dividend, us to preserve approximately $3,000,000 of cash annually. Turning to leasing activity. In the second quarter, we executed 15 leases totaling 416,000 square feet at a weighted average lease term of five point four years and at rental rates that were 6.4% higher than prior rental rates for the same space. Renewals accounted for two thirds of our activity and secures over $7,000,000 in annualized revenue. Concessions and capital commitments of $3.53 per square foot per year declined 24% quarter over quarter.

[Yael Duffy, President & COO at Office Properties Income Trust]

We have 1,300,000 square feet of leases scheduled to expire through 2026, representing $30,000,000 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 $11,200,000 of annualized revenue will not renew. Today, our leasing pipeline totaled 2,000,000 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.

[Yael Duffy, President & COO at Office Properties Income Trust]

Earlier this month, we sold one property totaling 56,000 square feet via auction for $2,200,000 excluding closing costs. As property valuations continue to decline and 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 opportunities that may mitigate occupancy risk and reduce the carrying costs associated with vacant properties. I will now turn the call over to Brian.

[Brian Donley, CFO & Treasurer at Office Properties Income Trust]

Thank you, Yael, good morning. For the second quarter, we reported normalized FFO of $9,400,000 or $0.13 per share, which came in $02 above the high end of our guidance range as a result of lower than anticipated seasonal operating expenses. This compares to normalized FFO of $4,400,000 or $06 per share for the 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 Mass Ave in Washington DC. Turning to our outlook for the 2025, we expect normalized FFO to be between $07 and $09 per share for Q3.

[Brian Donley, CFO & Treasurer at Office Properties Income Trust]

The decrease sequentially from Q2 is primarily driven by lower NOI related to lower rental income, higher operating expenses and a seasonally weaker quarter expected from our hotel at 20 Mass Ave. We project recurring G and A expense to be approximately $5,000,000 for Q3 and our current estimated quarterly interest expense run rate is approximately $52,000,000 consisting of $41,000,000 of cash interest expense and $11,000,000 of non cash amortization of financing costs. We expect same property cash basis NOI to decrease 7% to 9% as compared to the 2024 driven by tenant vacancies. This NOI guidance does not include any potential changes to our same store portfolio. Year to date, we have invested nearly $28,000,000 in capital expenditures.

[Brian Donley, CFO & Treasurer at Office Properties Income Trust]

The 2025, we anticipate approximately 43,000,000 in CapEx comprised of $10,000,000 of building capital and $33,000,000 of leasing capital. At quarter end, we had three properties with a carrying value of $8,000,000 classified as held for sale. In July, we sold one of these properties, which was encumbered by our twenty twenty seven senior secured notes for $2,200,000 excluding closing costs and used the net proceeds to pay down the principal balance of that debt. Today, have three properties under agreement to sell for $28,900,000 excluding closing costs. We currently expect two of the three properties to sell in September 2025 for $10,700,000 and the third property to close in 2027.

[Brian Donley, CFO & Treasurer at Office Properties Income Trust]

Turning to the balance sheet. Our total liquidity today is $90,000,000 of cash. We're currently projecting cash from operations to be a use of $45,000,000 to $55,000,000 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.

[Brian Donley, CFO & Treasurer at Office Properties Income Trust]

Thank you for joining us today. Operator, you may now end the call.

[Operator]

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

Participants

Executives

• Kevin Barry, Senior Director of Investor Relations
• Yael Duffy, President & COO
• Brian Donley, CFO & Treasurer