Office Properties (OPI) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Nov. 10, 2026

CALL PARTICIPANTS

• Manager of Investor Relations - Matt Murphy
• President and Chief Executive Officer - Yael Duffy
• Chief Financial Officer and Treasurer - Brian Donley

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TAKEAWAYS

• Normalized FFO -- $20.5 million, or $0.93 per share, for the third quarter of 2026.
• Same Property Cash Basis NOI -- $51.5 million, representing a 14.8% increase driven by higher cash rents and the expiration of rent abatement periods.
• Portfolio Occupancy -- 80.7% as of Sept. 30, 2026, or 88.8% on a same property basis across 109 wholly owned properties.
• Leasing Volume -- 13 leases totaling 400,000 square feet with a weighted average remaining lease term of 8.7 years, the highest volume since the second quarter of 2025.
• Leasing Costs -- $2.22 per square foot per lease year, a decrease of more than 40% compared to the prior four-quarter average.
• Asset Disposition Phase 1 -- $300 million in projected gross proceeds from 32 properties, an increase from the initial estimate of $275 million due to favorable pricing.
• Asset Disposition Phase 2 -- 26 properties identified for sale totaling 3.5 million square feet, with anticipated proceeds of approximately $360 million in 2027.
• Pro Forma Portfolio Occupancy -- 93% expected upon completion of all 58 planned property sales, involving a reduction to 64 owned properties.
• Class A Building Concentration -- 70% of square footage in the retained portfolio, compared to 63% before the start of the disposition program.
• Washington, D.C. Revenue Exposure -- 17% of annualized revenue pro forma for planned asset sales, declining from 24% prior to the sales.
• Senior Secured Notes Issuance -- $425 million raised in Sept. 2026, which extended weighted average maturities and addressed near-term refinancing needs.
• Debt Repayment -- $325 million credit facility and $100 million term loan fully repaid and terminated using proceeds from the new note issuance.
• 8.375% Senior Secured Notes Redemption -- $78 million of principal repaid, including $58 million from collateral asset sales and $20 million in mandatory payments.
• 10% Senior Secured Notes Redemption -- $32 million redeemed earlier in Nov. 2026 using proceeds from collateral asset sales.
• Interest Expense Run Rate -- $38 million per quarter, consisting of $36 million in cash interest and $2 million in non-cash amortization.
• Full Year 2026 G&A Guidance -- $19 million to $21 million, as projected by management.
• Full Year 2026 CapEx Guidance -- $50 million, comprised of $10 million for building capital and $40 million for leasing capital.
• Lease Expiration Schedule -- 1.3 million square feet scheduled to expire through the end of 2027, representing 11% of annualized revenue.
• Investment Grade and Government Tenant Revenue -- 62% of total revenue as of Sept. 30, 2026, reflecting high credit quality within the tenant base.
• Annualized Rental Income -- $390 million, which includes $291 million in cash rents, $20 million in straight line adjustments, and $79 million in expense reimbursements.

SUMMARY

Office Properties Income Trust (NASDAQ:OPI) reported its third quarter results, highlighting a strategic transition toward a reduced, higher-quality asset base through a multi-phase property disposition program. Management reported the company is prioritizing cash flow maximization and debt reduction by divesting noncore properties and utilizing proceeds to address near-term maturities. The trust successfully refinanced its credit facility and term loan with $425 million in senior secured notes, extending its weighted average debt maturity. The company stated that the execution of its asset sale plan will lead to a portfolio with higher occupancy and increased concentration in Class A office buildings.

• The company's leasing activity was dominated by renewals, which accounted for 97% of the quarterly volume and helped minimize downtime and concessions.
• Management is targeting the full repayment of senior secured notes due Dec. 2029 by selling the 18 properties currently serving as collateral for that debt.
• Yael Duffy stated, "Pricing has met or exceeded our expectations, and total gross proceeds for the 32 properties should exceed $300 million, up from our initial expectations of $275 million."
• The trust expects revenues to become more evenly balanced across its three largest markets of Washington, D.C., Atlanta, and Chicago following the completion of the disposition program.
• Brian Donley noted that the company has no meaningful debt maturities until 2029 following the recent $425 million financing transaction.
• Yael Duffy stated, "Once complete, OPI will own a smaller, higher-quality portfolio that will be better positioned to maximize cash flow."
• Management identified an additional 26 properties for sale in 2027 that currently contribute approximately $87 million in annualized revenue.

INDUSTRY GLOSSARY

• Adjusted EBITDAre: A non-GAAP financial measure used by REITs that adjusts EBITDA for gains or losses from the sale of properties and impairment charges.
• Cash Basis NOI: Net operating income that excludes non-cash items such as straight-line rent adjustments and the amortization of lease intangibles.
• Fresh Start Accounting: An accounting process used after a major restructuring where assets and liabilities are revalued to their current fair values.
• Normalized FFO: A non-GAAP measure that adjusts Funds From Operations to exclude specific items that management believes do not represent the company's core operating performance.
• REIT: Real Estate Investment Trust, a company that owns, operates, or finances income-producing real estate.
• Straight-Line Rent: The practice of averaging total rent payments over the life of a lease, recognizing a constant rental amount each period.
• WALT: Weighted Average Lease Term, a metric used to measure the average remaining life of leases in a portfolio, weighted by square footage or revenue.

Full Conference Call Transcript

Operator: Good day, and welcome to the Office Properties Income Trust third quarter 2026 earnings 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, this event is being recorded. I would now like to hand the call over to Matt Murphy, Manager of Investor Relations. Please go ahead.

Matt Murphy: 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 the third 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. 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, Tuesday, November 10th, 2026, 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 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 recent restructuring 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. Reconciliations of these non-GAAP figures to net income are available in OPI's earnings presentation that we issued last night, which can be found on our website. I will now turn the call over to Yael.

Yael Duffy: Thank you, Matt, and good morning. For the third quarter, OPI reported normalized FFO of $20.5 million, or $0.93 per share. Same property Cash Basis NOI increased 14.8% year over-year to $51.5 million, which Brian will discuss in further detail later on this call. Turning to our portfolio leasing and disposition activity. As of September 30th, 2026, OPI's portfolio consisted of 109 wholly owned properties across 27 states and the District of Columbia, totaling approximately 15.6 million square feet. The portfolio was 80.7% leased, or 88.8% on a same property basis, with a weighted average remaining lease term of 6.2 years. Over 60% of OPI's annualized revenue comes from investment grade rated tenants and government leases.

During our earnings call last quarter, we outlined OPI's priorities, which included maximizing cash flow through leasing, occupancy growth, and proactive asset management, executing on asset sales and applying those proceeds towards liquidity and addressing debt maturities, and driving long-term value by maintaining strong tenant relationships and efficient property operations. OPI signed 13 leases totaling 400,000 sq ft with a weighted average remaining lease term of 8.7 years, its best leasing quarter since Q2 2025. Renewals made up 97% of that volume, which showed leasing costs and concessions down to just $2.22 per square foot per lease year, more than 40% below our prior four-quarter average.

Renewals avoid downtime and lost rent, which reflects continued progress on our third priority, fostering strong tenant relationships. Looking ahead, roughly 1.3 million square feet of leases, representing 11% of annualized revenue, is scheduled to expire between now and the end of 2027. We plan to address these expirations through leasing and asset sales. Of the 1.3 million square feet scheduled to roll, 290,000 sq ft is currently scheduled to vacate or downsize. After adjusting for planned property disposition, that figure declines to just 52,000 sq ft, representing less than 1% of annualized revenue. Today, our leasing pipeline sits at 1.6 million square feet, with 1.1 million square feet, or 70%, related to renewals.

Turning to our second priority, asset sales. In June, we identified 32 properties for sale, totaling approximately 3.7 million square feet and contributing $43 million of annualized revenue. Since then, OPI has sold 14 properties for approximately $156 million. Additionally, 15 properties are currently under purchase and sale agreements for an aggregate sales price of $134 million. The remaining three properties are under letter of intent with estimated proceeds of $22.5 million. Pricing has met or exceeded our expectations, and total gross proceeds for the 32 properties should exceed $300 million, up from our initial expectations of $275 million. The buyer profile for these assets has spanned owner-users, value-add investors, and redevelopment buyers.

As we continue to evaluate OPI's portfolio, upcoming debt repayments, and liquidity needs, we have identified an additional 26 properties for sale, totaling 3.5 million square feet, which contribute annualized revenue of approximately $87 million. 18 of these properties are collateral for our senior secured notes due December 2029, six are collateral for our senior secured notes due June 2031, and two are collateral for our senior secured notes due March 2029. We are in the early stages of bringing these properties to market and expect proceeds of approximately $360 million in 2027.

Once we sell the 18 properties securing the senior secured notes due December 2029, along with the four already held for sale, only four will remain in that collateral pool. In effect, we are selling down these assets to fully repay the December 2029 notes, which now have approximately $307 million of principal outstanding. Once we complete the sale of all 58 properties, OPI will own 64 properties totaling approximately 10 million square feet across 23 states and Washington, D.C. Based on our current projections, the retained portfolio will be 93% occupied, with more than 70% of its square footage in Class A buildings, compared to approximately 63% before we began selling assets.

OPI will also reduce its concentration in Washington, D.C. Pro forma for the planned asset sales, the D.C. Metro will represent approximately 17% of annualized revenue across 10 buildings, compared to 24% of annualized revenue across 24 buildings prior to the asset sales. As a result, revenues will be more evenly balanced across our three largest markets: Washington, D.C., Atlanta, and Chicago. Government lease tenants will remain an important part of the tenant base at approximately 30% of annualized revenue, but a larger share of that revenue will come from agencies outside the D.C. area. Once complete, OPI will own a smaller, higher-quality portfolio that will be better positioned to maximize cash flow.

In summary, we are delivering on the priorities we set last quarter. Renewals made up 97% of our leasing, asset sales are on track to exceed $300 million, and we are using those proceeds to repay debt and enhance liquidity. I will now turn the call over to Brian to discuss our financial results.

Brian Donley: Thank you, Yael, and good morning. For the third quarter, we reported Normalized FFO of $20.5 million, or $0.93 per share, and Adjusted EBITDAre of $59 million. Same property Cash Basis NOI increased 14.8% over the prior year to $51.5 million. This performance was driven by an increase in cash rents as a result of the company's leasing activity and the rent abatement periods ending for certain leases. OPI's annualized rental income as of September 30th was $390 million, which includes straight line rent adjustments as well as estimated expense reimbursements under OPI's leases.

The components of annualized rental income as of September 30th are broken down as follows: cash rents of $291 million, straight line rent adjustments of $20 million, and recurring expense reimbursements due under OPI's leases of $79 million. Property operating expenses for the quarter were $50.7 million, a decline of 2.7% compared to the prior year, largely due to our dispositions. G&A expenses were $4.9 million for the quarter. For the full year 2026, G&A is projected to be $19 million-$21 million. Our current estimated quarterly interest expense run rate, before any further debt repayments, is approximately $38 million, consisting of $36 million of cash interest expense and $2 million of non-cash amortization of financing costs and discounts.

During the quarter, recurring CapEx totaled $10.4 million, comprised of $8.2 million in lease-related costs and $2.2 million in building improvements. For the full year 2026, we expect CapEx to be approximately $50 million, comprised of $10 million of building capital and $40 million of leasing capital. Turning to the balance sheet, we ended the third quarter with approximately $61 million in unrestricted cash and $25 million in restricted cash, which represents operating reserves under our loan agreements. In September, we successfully raised $425 million of senior secured notes and used the proceeds to fully repay and terminate our $325 million credit facility and $100 million term loan due in January 2027.

The new notes are secured by the same 19-property collateral pool that previously secured the credit facility. This transaction addressed our near-term refinancing priorities and extended our weighted average maturities. As a result, we currently have no meaningful debt maturities until 2029. Additionally, since the end of the quarter, we repaid approximately $78 million of our 8.375% senior secured notes due 2029, which included $58 million in connection with collateral asset sales and $20 million of mandatory principal payments. The next scheduled principal payment is due on February 1st, 2027, for $30 million. We expect to make this payment using cash on hand and proceeds from asset sales.

As Yael Duffy discussed, we are moving forward with the sale of 18 of the 22 properties serving as collateral for these notes and intend to fully redeem the outstanding principal upon completion of these sales. Earlier this month, we also redeemed $32 million of our 10% senior secured notes due June 2031, using a portion of proceeds from collateral asset sales. We look forward to providing updates about our progress on future calls. Operator, that concludes our call.

Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

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