Office Properties Income Trust Provides Update on Asset Sales and Redemption of Remaining 2025 Senior Notes Outstanding

Rhea-AI Summary

Office Properties Income Trust (OPI) has announced significant asset sales and debt management initiatives. The company completed the sale of 17 unencumbered properties for $114.5 million during Q4 2024. These properties, totaling approximately 1.79 million square feet with a gross book value of $255.6 million, were 44% occupied with a 2.3-year weighted average remaining lease term.

The sold properties generated trailing twelve months net operating income of $17.8 million and cash basis net operating income of $19.4 million. Additionally, OPI has agreements to sell six more properties (581,000 square feet) for $54.8 million.

The company also announced plans to redeem its remaining $113.1 million of 4.50% Senior Notes due 2025, expected to occur around January 22, 2025, using cash on hand.

Positive

• Asset sales of $114.5 million improving liquidity position
• Additional pending sales of $54.8 million
• Early debt redemption of $113.1 million reducing interest expenses

Negative

• Sold properties at significant discount to book value ($114.5M vs $255.6M book value)
• Low occupancy rate of 44% in sold properties
• Short remaining lease term of 2.3 years in disposed properties

Insights

Financial Analyst

The strategic disposition of underperforming assets coupled with debt reduction marks a significant balance sheet restructuring for OPI. The sale of 17 properties at $114.5 million represents a substantial discount to their $255.6 million book value, reflecting the challenging office real estate market conditions. The 44% occupancy rate of the sold properties indicates these were significantly distressed assets dragging down portfolio performance.

The simultaneous announcement of redeeming $113.1 million in senior notes demonstrates prudent capital management, using asset sale proceeds to reduce debt obligations. This debt reduction will save approximately $5.1 million in annual interest expenses (at 4.50%). The additional $54.8 million in pending sales should further strengthen the company's financial position.

In simple terms: OPI is selling poorly performing office buildings at a loss to pay off debt early, which will save money on interest payments. While taking a loss on the sales isn't ideal, removing these struggling properties and reducing debt makes the company financially healthier overall.

Real Estate Market Analyst

The transaction metrics reveal concerning trends in the office market. The 55% discount to book value on the sold properties (selling for $114.5 million versus $255.6 million book value) indicates severe market deterioration for older, poorly occupied office assets. The low 44% occupancy rate and short 2.3-year weighted average lease term of the disposed portfolio suggests these properties would require significant capital investment to remain competitive.

The annual NOI of $17.8 million from these properties implies a capitalization rate of approximately 15.5% on the sale price, an unusually high figure that reflects the significant risk premium buyers are demanding for challenged office assets. This transaction provides a stark market comparable for similar office properties and suggests continued pressure on valuations in the sector.

Sold 17 Properties for $114.5 Million During the Fourth Quarter 2024

Announces Early Redemption of its Remaining $113 million of Outstanding 4.50% Senior Notes Due 2025

NEWTON, Mass.--(BUSINESS WIRE)-- Office Properties Income Trust (Nasdaq: OPI) today announced that it closed a series of property sales for an aggregate sales price of $114.5 million, excluding closing costs, in the fourth quarter of 2024. The sold properties include 17 unencumbered properties consisting of approximately 1,791,000 square feet and a gross book value of $255.6 million as of September 30, 2024. On a combined basis, these properties were 44% occupied with a weighted average remaining lease term of 2.3 years and generated trailing twelve months net operating income of approximately $17.8 million and cash basis net operating income of approximately $19.4 million. As of December 31, 2024, OPI is under agreement to sell six additional properties consisting of approximately 581,000 square feet for an aggregate sales price of $54.8 million, excluding closing costs.

OPI also announced the early redemption of its outstanding 4.50% Senior Notes due 2025 at a redemption price equal to the principal amount of $113.1 million, plus accrued and unpaid interest to, but excluding, the date of redemption. The redemption is expected to occur on or about January 22, 2025. OPI currently expects to fund this redemption by using cash on hand.

About Office Properties Income Trust

OPI is a national REIT focused on owning and leasing office properties to high credit quality tenants in markets throughout the United States. As of September 30, 2024, approximately 59% of OPI’s revenues were from investment grade rated tenants. OPI owned 145 properties as of September 30, 2024, with approximately 19.5 million square feet located in 30 states and Washington, D.C. In 2024, OPI was named as an Energy Star® Partner of the Year for the seventh consecutive year. OPI is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with nearly $41 billion in assets under management as of September 30, 2024, and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. 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, this press release states that OPI is under agreements to sell five additional properties. However, these sales are subject to closing conditions and may not close on the contemplated terms or at all.

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/20250105141552/en/

Kevin Barry, Senior Director, Investor Relations

(617) 219-1410

Source: Office Properties Income Trust

FAQ

How much did OPI receive from property sales in Q4 2024?

OPI received $114.5 million from the sale of 17 properties during Q4 2024, excluding closing costs.

What is the occupancy rate of the properties OPI sold in Q4 2024?

The 17 properties sold by OPI in Q4 2024 had a combined occupancy rate of 44%.

When will OPI redeem its 4.50% Senior Notes due 2025?

OPI plans to redeem the Senior Notes on or about January 22, 2025, using cash on hand.

How many additional properties is OPI planning to sell?

OPI is under agreement to sell six additional properties, totaling approximately 581,000 square feet, for $54.8 million.

What was the book value of the properties OPI sold in Q4 2024?

The sold properties had a gross book value of $255.6 million as of September 30, 2024.