Office Properties Income Trust Reduces Quarterly Dividend to Increase Liquidity and Financial Flexibility Going Forward

Rhea-AI Summary

Office Properties Income Trust (OPI) has announced a reduction in its regular quarterly cash distribution on its common shares to $0.01 per common share, expected to immediately increase liquidity by approximately $47 million per year. This decision was made in response to deteriorating market conditions and is aimed at increasing financial flexibility for future leasing costs, capital expenditures, and debt maturities.

Positive

• None.

Negative

• The reduction in dividend rate may signal a lack of confidence in the company's ability to generate consistent profits or maintain financial stability, potentially impacting investor confidence and stock performance.

Insights

Financial Analyst

The reduction in dividend distribution by Office Properties Income Trust (OPI) from $0.25 to $0.01 per common share quarterly represents a significant shift in the company's capital allocation strategy. This decision, primarily aimed at increasing liquidity, will bolster OPI's cash reserves by around $47 million annually. This strategic move suggests that OPI is prioritizing financial flexibility over shareholder returns in the short term, likely in response to challenging market conditions or anticipated capital needs such as debt obligations or property investments.

For shareholders, this may signal a shift in risk profile, as the company is retaining more cash at the expense of current income. This could impact the stock's attractiveness to income-focused investors and potentially lead to a reallocation of funds by these investors to higher-yielding assets. However, for the company, this could be a prudent move to ensure it can navigate through potential market volatility or economic downturns without needing to raise capital at unfavorable terms.

Longer-term, if the conserved cash is effectively used to enhance the company's portfolio or reduce debt, it could lead to a stronger financial position, potentially resulting in capital appreciation. However, this strategy could also be seen as a red flag if the market interprets it as a sign of underlying business issues or a lack of viable growth opportunities warranting investment.

Real Estate Investment Trust (REIT) Analyst

As a Real Estate Investment Trust (REIT), OPI is required to distribute at least 90% of its taxable income to shareholders in the form of dividends. The drastic dividend cut raises questions about OPI's underlying property portfolio performance and its ability to generate sufficient rental income. The reference to 'future leasing costs, capital expenditures and debt maturities' indicates that OPI could be facing higher-than-anticipated expenses or lower rental income, which may have prompted a conservative approach towards cash preservation.

Investors typically value REITs for their stable income streams derived from property rents. A dividend cut of this magnitude could suggest that OPI's properties are not performing as expected, which might be due to higher vacancy rates, declining rental prices, or tenants' inability to meet lease obligations. The increased liquidity could be earmarked for property improvements to attract new tenants or renegotiate existing leases, which could ultimately enhance the value of OPI's real estate assets.

Analysts and investors will be closely monitoring OPI's subsequent financial reports and occupancy rates to assess the effectiveness of this liquidity strategy and its impact on the company's long-term revenue generation capabilities.

Debt Analyst

The mention of 'debt maturities' by OPI's President and COO suggests that the company is preparing to address upcoming obligations without resorting to refinancing or issuing new debt, which could be more costly in a rising interest rate environment. By reducing the dividend payout, OPI is essentially redirecting cash flow from shareholders to bolster its balance sheet, which could improve its creditworthiness and debt servicing capabilities.

From a credit risk perspective, this move could be interpreted as a proactive measure to enhance the company's financial stability. It may also be indicative of management's conservative approach to leverage and debt management. For bondholders and credit rating agencies, the increased liquidity could be seen as a positive step towards ensuring the company meets its financial obligations, which might support or improve OPI's credit ratings.

However, this strategy must be balanced against the potential negative sentiment from equity investors, who may view the dividend cut as a lack of confidence in the company's near-term profitability. The company's future debt issuance terms could be influenced by how the market perceives this trade-off between short-term liquidity and long-term growth prospects.

New Dividend Rate is $0.01 Per Share Per Quarter

Expected to Immediately Increase Liquidity by Approximately $47 Million Per Year

NEWTON, Mass.--(BUSINESS WIRE)-- Office Properties Income Trust (Nasdaq: OPI) today announced that OPI’s Board of Trustees has reduced OPI’s regular quarterly cash distribution on its common shares to $0.01 per common share ($0.04 per share per year). OPI’s cash distribution on its common shares last quarter was $0.25 per common share ($1.00 per share per year) and the cash distribution on its common shares in Q1 2023 was $0.55 per common share ($2.20 per share per year).

Yael Duffy, President and Chief Operating Officer of OPI, made the following statement:

“Given the deterioration in market conditions since we last addressed our dividend rate in the first half of 2023, we believe it is prudent to further reduce the dividend to increase our liquidity and financial flexibility when addressing future leasing costs, capital expenditures and debt maturities. This new dividend rate will immediately increase OPI’s liquidity by approximately $47 million per year as well as increase liquidity by approximately $105 million per year as compared to the dividend rate paid in Q1 2023.”

The $0.01 per share distribution will be paid to OPI’s common shareholders of record as of the close of business on January 22, 2024 and distributed on or about February 15, 2024.

About Office Properties Income Trust

OPI is a national REIT focused on owning and leasing high quality office and mixed-use properties in select growth-oriented U.S. markets. As of September 30, 2023, approximately 64% of OPI's revenues were from investment grade rated tenants. OPI owned and leased 154 properties as of September 30, 2023, with approximately 20.7 million square feet located in 30 states and Washington, D.C. In 2023, OPI was named as an Energy Star® Partner of the Year for the sixth consecutive year. OPI is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with approximately $36 billion in assets under management as of September 30, 2023, and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. OPI is headquartered in Newton, MA. For more information, visit opireit.com.

WARNING CONCERNING FORWARD-LOOKING STATEMENTS

This press release 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 upon OPI’s present intent, beliefs and expectations, but these statements and the implications of these statements are not guaranteed to occur and may not occur for various reasons, some of which are beyond OPI’s control. For example:

• In this press release, OPI states that it is reducing its regular quarterly distribution to increase liquidity and financial flexibility when addressing future leasing costs, capital expenditures and debt maturities. However, reducing OPI’s dividend may not meaningfully increase OPI’s financial flexibility when addressing these activities in the future.
• In this press release, OPI states that its regular quarterly cash distribution rate is $0.01 per share per quarter or $0.04 per share per year. OPI’s Board of Trustees considers many factors when setting or resetting OPI’s distribution rate, including OPI’s historical and projected income, normalized funds from operations, cash available for distribution, the then current and expected needs and availability of cash to pay OPI’s obligations and fund its investments, distributions which may be required to be paid to maintain OPI’s qualification for taxation as a REIT and other factors deemed relevant by OPI’s Board of Trustees. Accordingly, future distributions to OPI’s shareholders may be increased or decreased and OPI cannot be sure as to the rate at which future distributions will be paid.

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240110881462/en/

Kevin Barry, Senior Director, Investor Relations

(617) 219-1410

Source: Office Properties Income Trust

FAQ

What is the new dividend rate announced by Office Properties Income Trust (OPI)?

The new dividend rate announced by OPI is $0.01 per common share per quarter, which amounts to $0.04 per share per year.

Why did OPI decide to reduce its dividend rate?

OPI decided to reduce its dividend rate due to deteriorating market conditions, aiming to increase liquidity and financial flexibility for future leasing costs, capital expenditures, and debt maturities.

When will the $0.01 per share distribution be paid to OPI's common shareholders?

The $0.01 per share distribution will be paid to OPI's common shareholders of record as of the close of business on January 22, 2024, and distributed on or after February 23, 2024.