NASDAQ:OPI Office Properties Income Trust Q3 2023 Earnings Report $0.38 0.00 (-0.39%) Closing price 04/28/2025 04:00 PM EasternExtended Trading$0.40 +0.01 (+3.30%) As of 04/28/2025 07:46 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Office Properties Income Trust EPS ResultsActual EPS-$0.41Consensus EPS $0.99Beat/MissMissed by -$1.40One Year Ago EPSN/AOffice Properties Income Trust Revenue ResultsActual Revenue$133.36 millionExpected Revenue$133.31 millionBeat/MissBeat by +$50.00 thousandYoY Revenue GrowthN/AOffice Properties Income Trust Announcement DetailsQuarterQ3 2023Date10/30/2023TimeN/AConference Call DateTuesday, October 31, 2023Conference Call Time10:00AM ETUpcoming EarningsOffice Properties Income Trust's Q1 2025 earnings is scheduled for Wednesday, April 30, 2025, with a conference call scheduled on Thursday, May 1, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Office Properties Income Trust Q3 2023 Earnings Call TranscriptProvided by QuartrOctober 31, 2023 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Morning, everyone, and welcome to the Office Properties Income Trust Third Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Operator00:00:34Please go ahead, sir. Speaker 100:00:36Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are OPI's President and Chief Executive Officer, Chris Bellotto and Chief Financial Officer and Treasurer, Brian Donnelly. In just a moment, they will provide details about our business and our performance for the Q3 of 2023, followed by a question and answer session with sell side analysts. First, 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. Speaker 100:01:03Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act 1995 and other securities laws. These forward looking statements are based on OPI's beliefs and expectations as of today, Tuesday, October 31, 2023, 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 or SEC, which can be accessed from our website, opireit.com with the SEC's website. Investors are cautioned not to place undue reliance upon any forward looking statements. Speaker 100:01:49In addition, we will be discussing non GAAP numbers during this call, including normalized funds from operations or normalized FFO, cash available for distribution or CAD 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 reconciliation of these non GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts Such as gains and losses or impairment charges related to the disposition of real estate. I will now turn the call over to Chris. Speaker 200:02:36Thank you, Kevin, and good morning, everyone. Thank you for joining us today for OPI's Q3 2023 earnings call. I would like to start by welcoming Brian Donnelly, who joined OPI as our Chief Financial Officer and Treasurer on October 1st and brings more than 25 years of accounting and finance experience in the commercial real estate industry. On our call today, we will cover various Within the office sector and our portfolio provide an overview of OPI's initiatives as a standalone company following the termination of the proposed merger with DHC and provide a summary of our Q3 operating and financial results before we open the call to questions. Turning to highlights, Normalized FFO came in at $1.02 per share, beating the high end of our guidance range. Speaker 200:03:21We executed 586,000 square feet of new and renewal leasing, primarily with state government tenants and tenants in real estate, financial and energy services industries. Portfolio was approximately 89.9 percent at quarter end, a 70 basis point decrease compared to the prior quarter And largely due to a known downsize of our primary tenant located at 841st Street in the DCMSA. We sold one property for $10,500,000 bringing total asset sales to $23,600,000 for the year. As we approach the end of the year And look ahead to 2024, we remain focused on OPI's upcoming lease expirations and existing vacancies along with our maturing credit facility and other debt maturities. Supporting this, we have an active leasing pipeline of close to 2,800,000 Square Feet, 650,000 square feet or approximately 25 percent of which is associated with 20 24 renewals and close to 735,000 potential absorption in early stages of negotiation. Speaker 200:04:28Collectively, pipeline deals include weighted average lease terms ranging from 5 to 10 years and an overall rent roll up. More broadly, leasing across the sector remains challenged with elevated vacancy and sublease levels. However, we remain encouraged with efforts supporting return to office mandates across industries and at OPI, we continue to With plans to continue evaluating similar financing opportunities, which Brian will expand on in more detail. Lastly, While the investment sales market has been slow this year following the steep increase in interest rates and more specifically credit on office assets has been especially tight, We are evaluating properties with fundamentals that we believe may have a high probability of execution to ramp up on our capital recycling program. Currently, we are under agreement to sell 2 buildings reflecting 177,000 square feet and proceeds of $21,300,000 We have a couple of properties where we are in active conversations with prospective buyers and have plans to bring additional properties to market in the coming months. Speaker 200:05:40Turning now to more detail on our Q3 leasing results. We completed 29 deals for 586,000 square feet of new and renewal leasing With an average lease term of 7.4 years and a rent roll down of 2.7%. Our total volume for the quarter came in above our Average rate during the preceding 4 quarters. New leasing represented 104,000 square feet and a roll up of 1.9% And a weighted average lease term of 9.5 years and increasing total activity for the year to more than 390,000 square feet. Concessions and capital commitments declined year over year to $5.89 per square foot per lease year and slightly below our quarterly average over the past year. Speaker 200:06:26Overall, our portfolio remains well diversified by industry and geography With a weighted average lease term of approximately 6.5 years and investment grade rated tenants representing 64% of annualized rental income. Turning to Q3 leasing transactions. In the Sacramento MSA, we executed 3 lease renewals Across 3 separate properties occupied by the State of California for a combined 260,000 square feet with a weighted average lease term of close to 8 years. In Rockville, Maryland, we renewed and upsized the lease with a private sector energy company for a combined 74,000 square feet for a lease term of 5.5 years. We also completed a short term extension and downsize with our tenant in Washington DC Previously communicated as a known vacate, this downsized decreased the tenant's annualized revenue contribution from 2.1% to 70 basis points. Speaker 200:07:20We are actively marketing the space and have several proposals out to tenants ranging from 50,000 square feet to 250,000 square feet, all of which are in early stages of discussion. In July, we received notice from Tyson Foods that it exercised its lease termination option at 400 South Jefferson Street in Chicago, Illinois. The effective termination date is January 2025 and the tenant will pay a fee of Approximately $8,600,000 The property underwent a complete redevelopment in 2012 and is within blocks of all major transportation hubs. It offers an abundance of amenities, including training and conference centers, a rooftop terrace, fitness facility and is LEED certified. We are currently evaluating a range of options for the property, including leasing or a potential sale. Speaker 200:08:10Looking ahead to OPI's upcoming lease expirations, We are actively engaging with our tenants to renew leases and convert prospects in our pipeline to fill vacancy. Lease gestation periods remains compared to a few years ago. Although we are increasingly seeing tenants with large space requirements come to the table well in advance of lease expirations to engage in conversation. During 2023, lease expirations for the remainder of the year represents 5.6% of annualized rental income, of which 3.8% are known vacates excluding those considered for sale, most of which are with tenants previously communicated within our 2023 retention statistics. Larger known vacates for Q4 include a state lease in the Boston MSA representing 90 basis points of annualized revenue And the GSA vacating 3 buildings in the Atlanta MSA, reflecting 130 basis points of annualized revenue. Speaker 200:09:06We are actively marketing each of the properties for lease with varying levels of activity. Approximately 12% of annualized rental income. Currently, we have just over 2% in advanced stages of renewal and are in active conversations with several other expiring tenants. However, we anticipate continued pressure on retention as tenants evaluate their space needs. Turning to our development projects. Speaker 200:09:32During the quarter, we completed and delivered to Sonesta the hotel portion of our Class A mixed use development at 20 Mass Ave in Washington DC. This project is 55% leased and we continue to work through varying levels of tour and proposal activity. Earlier this month, we were pleased to have Best renovation by the NAAP DC Maryland chapter for this project. At our life science redevelopment in Seattle, we continue to advance construction and plan for delivery in phases of final completion anticipated for Q1 2024. The project is 28% pre leased to Sonoma Biotherapeutics We plan to deliver the project with 4 move in ready spec lab suites serving as a differentiator as tenants evaluate options and timing for move in. Speaker 200:10:18Collectively for the 2 projects, we have roughly $88,000,000 in remaining capital spend. We estimate $25,000,000 to $30,000,000 will be spent by the end of Q1 2024 and the balance will be spent as leases are executed through stabilization over the next few years. I will now turn the call over to Brian Treason to review our financial results. Speaker 100:10:38Thanks, Chris, and good Speaker 300:10:39morning, everyone. We reported normalized FFO of $49,400,000 or $1.02 per share for the quarter, exceeding the high end of our guidance by a $0.01 per share. This compares to normalized FFO of $53,700,000 or $1.11 per share for the Q2 of 2023. The decrease on a sequential quarter basis was primarily driven by higher interest expense And lower NOI is due primarily to a seasonal increase in utility expense. Same property cash basis NOI decreased 9 point 2% compared to the Q3 of 2022 and was in line with our guidance range of down 8% to 10%. Speaker 300:11:19The decrease was mainly driven by tenant expirations and downsizes, elevated free rent levels on new leases and higher operating costs. We generated CAD of $0.36 per share during the Q3 and $1.54 per share in a row in 4 quarter basis. Earlier this month, we declared our regular quarterly distribution of $0.25 per share, which represents a trailing 4 quarter CAB payout ratio of 65% based on our annual dividend rate of $1 per share. Turning to our outlook for normalized FFO and same property cash basis NOI expectations in the 4th quarter. We expect normalized FFO to be between $0.96 $0.98 per share. Speaker 300:12:01The decrease from Q3 is made up of several items, most notably increased interest expense and projected increases in operating expenses. We expect same property Cash basis NOI to be down 11% to 13% as compared to the Q4 of 2022, mainly driven by elevated free rent in the current year period And certain tenant vacancies and downsizes. Turning to the balance sheet, our total outstanding debt at quarter end had a weighted average interest rate of 4.4% at a weighted average maturity of 4.5 years. Our upcoming debt maturities include our $750,000,000 revolving credit which matures at the end of January 2024 $350,000,000 of unsecured senior notes due in May 2024. Regarding the revolving credit facility, we ended the quarter with $200,000,000 outstanding and we are currently in active discussions with our banking group regarding entering into a new credit With an aggregate principal balance of $69,200,000 The net proceeds from these mortgage loans were used to repay amounts outstanding under OPI's revolving credit facility. Speaker 300:13:15With challenging capital market conditions and limited financing options available for office properties, we have demonstrated our ability to efficiently execute CMBS financing. To date, we've closed more than $177,000,000 in interest only mortgage financings at a weighted average interest rate of 7.8% in a weighted average term of 6.4 years. These mortgages reflect an implied capitalization rate based on aggregate appraised value below 7% and a loan to value of As we look to address the $350,000,000 of senior notes due in May 24, We're exploring additional property level secured financing options, including additional CMBS, and as Chris mentioned, asset sale opportunities to raise cash. Over 90% of our $4,000,000,000 portfolio by gross book value are unencumbered assets that we can look to for possible strategies to manage our debt maturities. Turning to our investing activities. Speaker 300:14:11During the quarter, we sold 1 property for $10,500,000 and have raised position proceeds of $23,600,000 year to date. We spent $24,200,000 on recurring capital and $28,300,000 on redevelopment capital during the Q3. For the Q4, we expect recurring capital of $25,000,000 to $35,000,000 redevelopment capital of approximately $15,000,000 to $20,000,000 That concludes our prepared remarks. Operator, we're ready to open up the call for questions. Operator00:15:19Our first question comes from Bryan Maher with B. Riley Securities. Please go ahead. Speaker 400:15:26Thank you and good morning and I apologize in advance if you already said some of these things. You had a little bit of technical difficulties here. On the property taxes, we noticed it was noticeably lower than prior quarter in our estimate. I think it was somewhere in the 14. Is there anything particular going on there? Speaker 400:15:46Is it related to asset sales? Can you give us any color on that for our modeling purposes? Speaker 300:15:52Sure, Brian. Good morning. Thanks for the question. Yes, there is a one time item in Q3 Related to 20 Mass Ave, there was a multiyear tax appeal that was successful that was recorded this quarter. So that really won't Recur in Q4, so this is really isolated to Q3. Speaker 400:16:14Okay. That's helpful. And then on asset sales, Are you in the market actively marketing with brokers assets to sell? How many is that? Is it just Couple, is it a half dozen, dozen? Speaker 400:16:30And what do you think the prospects are over the next kind of, let's say, 3 to 9 months? Speaker 200:16:36Yes, Brian, we're not actively in the market. We do have, as I mentioned in the prepared remarks, a few buildings That we're in dialogue with, but as far as a broader campaign, it's something we're evaluating now. And so I think that there's a strong likelihood that will be out in the market in Q4 with additional assets. And the profile of those assets are going to range. I think we've seen some success with selling assets that Have some level of vacancies or are vacant. Speaker 200:17:11And I can see some of those being candidates of what could transact. And then we're going to look at other assets that are more Stabilize in nature and kind of test out the market to kind of see where the opportunities reside. And We're working through that and we'll have kind of a more distinct list of assets to consider and discuss as we get into Q4. Speaker 400:17:36Okay. And then shifting to your financing, I know you've done $177,000,000 over the past few months. It It seemed like when I looked at the assets online that those were kind of down the fairway type of properties of yours, Nothing high end, nothing low end, just kind of down the fairway. What's the thought process now for the next 3, 6, 12 months To address the maturities, is it just to kind of chip away at that type of debt similar to what you've just done? And how Deep do you think you can do on a quarterly basis? Speaker 400:18:10Is it $100,000,000 $150,000,000 $200,000,000 Speaker 200:18:17It's a great question. Speaker 300:18:18And part of our prepared remarks is that we're looking at a couple of different options, including asset sales and additional secured financings. We're going to solve for the $350,000,000 combination of those items. So it's tough to really pinpoint since we're not really in the market of how much that could be asset sales Versus secured financing, you have secured financing property level debt really depends on the asset and how much you could raise Yes, some of the larger and nicer stuff that we would have put financing on could raise bigger swaps than some of the smaller ones. So we're looking at a couple of different things here and We're looking to address those May maturities and obviously the revolving credit facility all in the coming months. Speaker 400:19:01And to that comment, I suspect you could probably take down a decent slug if you were to put the Incyte Global headquarters perimeter in Atlanta or the Google's Midwest headquarters in Chicago. Anta or the Google's Midwest headquarters in Chicago out for lending to the tune of Couple of few $100,000,000 right there. Would that be reasonable to expect? Speaker 200:19:26Yes. I think those are all candidates and profile of buildings where we have optionality. And I think the bench is Obviously deeper than that, but yes, I mean, I think that kind of just highlights to some of the nicer assets we have across the portfolio and kind of show Operator00:20:02Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead. Speaker 500:20:08Hey, good morning guys. This is Timim on for Ronald. Speaker 400:20:11Just a question on the CapEx remaining for the 2 development projects you guys have, I think it's about 90,000,000 Maybe just a further breakdown there in terms of what percentage of that $90,000,000 relates to TIs and depending on getting those billings leased up versus What percentage of the $90,000,000 actually relates to building the building out? Speaker 200:20:34Yes. So a couple of things. So we have through, I would say, Q1 'twenty four, we're estimating $25,000,000 to $30,000,000 of remaining capital And across the 2 projects with the lion's share for Seattle, given the fact that that's still being completed. And within that number includes the TI allowance for the Sonoma Biotherapeutics. So really that $25,000,000 to $30,000,000 is a combination of construction capital and TI allowance. Speaker 200:21:09And so once you get through that, Kind of the delta remaining from the $90,000,000 that will be spent primarily for all as leasing capital over the next few years As we stabilize the asset. Speaker 500:21:26Got it. Yes. So not all related to building up some Speaker 400:21:30of it's Not discretionary, but it's not all it doesn't all have to kind of come in at once. Is that kind of fair? Yes. Speaker 200:21:40It is. The $25,000,000 to $30,000,000 is committed capital. And then through Q1 'twenty four and the balance is Kind of variable based on getting leases done. Speaker 400:21:55Got it. Okay. And then congrats, Brian, Speaker 500:21:57on the new position, maybe just one for you. I appreciate you're not going to go further into plans of the revolver, but just As you think about modeling from here on out, if that does become a secured revolver, just where does that from an unencumbered asset to unsecured debt covenant position. And then maybe just talk about further room for encumbering assets as Speaker 400:22:24we head into 'twenty four, if that Speaker 500:22:26does become a secured revolver? Speaker 300:22:30Yes, it's a great question. I mean, the secured revolver is definitely something that could be on the table as we look forward. Our unencumbered Asset ratio is over 200% today and the minimum is 150% under our bond indentures. Yes, if we do put collateral against the new facility, again, that's one possible outcome. Obviously, that will Put a little bit pressure on that, but we have plenty of cushion to deal with it and size they've evolved appropriately. Speaker 300:23:01So again, I can't really get into specifics Given where we are in discussions, so I'm just going to leave it at that for now. Speaker 400:23:10Got it. Thank you, guys. Speaker 300:23:13Thank Speaker 100:23:16you. Operator00:23:20As we have no further questions, This concludes our question and answer session. I would now like to turn the conference back over to Chris Bellotto for any closing remarks. Speaker 200:23:31Yes. Thank you for joining the call today. We look forward to seeing many of you at NAREIT in the upcoming weeks. Operator00:23:44The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOffice Properties Income Trust Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Office Properties Income Trust Earnings HeadlinesOffice Properties Income Trust (NASDAQ:OPI) Coverage Initiated by Analysts at StockNews.comApril 21, 2025 | americanbankingnews.comOffice Properties Income Trust First Quarter 2025 Conference Call Scheduled for Thursday, May 1stApril 2, 2025 | businesswire.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. The reason why is a new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... but could soon have an enormous impact on your wealth.April 29, 2025 | Stansberry Research (Ad)Office Properties Income Trust Expands Share AuthorizationMarch 16, 2025 | investing.comOffice Properties files to sell 5.7M shares of common stock for holdersFebruary 20, 2025 | markets.businessinsider.comOffice Properties Income Trust (OPI) Q4 2024 Earnings Call TranscriptFebruary 14, 2025 | seekingalpha.comSee More Office Properties Income Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Office Properties Income Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Office Properties Income Trust and other key companies, straight to your email. Email Address About Office Properties Income TrustOffice 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. 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There are 6 speakers on the call. Operator00:00:00Morning, everyone, and welcome to the Office Properties Income Trust Third Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Operator00:00:34Please go ahead, sir. Speaker 100:00:36Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are OPI's President and Chief Executive Officer, Chris Bellotto and Chief Financial Officer and Treasurer, Brian Donnelly. In just a moment, they will provide details about our business and our performance for the Q3 of 2023, followed by a question and answer session with sell side analysts. First, 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. Speaker 100:01:03Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act 1995 and other securities laws. These forward looking statements are based on OPI's beliefs and expectations as of today, Tuesday, October 31, 2023, 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 or SEC, which can be accessed from our website, opireit.com with the SEC's website. Investors are cautioned not to place undue reliance upon any forward looking statements. Speaker 100:01:49In addition, we will be discussing non GAAP numbers during this call, including normalized funds from operations or normalized FFO, cash available for distribution or CAD 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 reconciliation of these non GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts Such as gains and losses or impairment charges related to the disposition of real estate. I will now turn the call over to Chris. Speaker 200:02:36Thank you, Kevin, and good morning, everyone. Thank you for joining us today for OPI's Q3 2023 earnings call. I would like to start by welcoming Brian Donnelly, who joined OPI as our Chief Financial Officer and Treasurer on October 1st and brings more than 25 years of accounting and finance experience in the commercial real estate industry. On our call today, we will cover various Within the office sector and our portfolio provide an overview of OPI's initiatives as a standalone company following the termination of the proposed merger with DHC and provide a summary of our Q3 operating and financial results before we open the call to questions. Turning to highlights, Normalized FFO came in at $1.02 per share, beating the high end of our guidance range. Speaker 200:03:21We executed 586,000 square feet of new and renewal leasing, primarily with state government tenants and tenants in real estate, financial and energy services industries. Portfolio was approximately 89.9 percent at quarter end, a 70 basis point decrease compared to the prior quarter And largely due to a known downsize of our primary tenant located at 841st Street in the DCMSA. We sold one property for $10,500,000 bringing total asset sales to $23,600,000 for the year. As we approach the end of the year And look ahead to 2024, we remain focused on OPI's upcoming lease expirations and existing vacancies along with our maturing credit facility and other debt maturities. Supporting this, we have an active leasing pipeline of close to 2,800,000 Square Feet, 650,000 square feet or approximately 25 percent of which is associated with 20 24 renewals and close to 735,000 potential absorption in early stages of negotiation. Speaker 200:04:28Collectively, pipeline deals include weighted average lease terms ranging from 5 to 10 years and an overall rent roll up. More broadly, leasing across the sector remains challenged with elevated vacancy and sublease levels. However, we remain encouraged with efforts supporting return to office mandates across industries and at OPI, we continue to With plans to continue evaluating similar financing opportunities, which Brian will expand on in more detail. Lastly, While the investment sales market has been slow this year following the steep increase in interest rates and more specifically credit on office assets has been especially tight, We are evaluating properties with fundamentals that we believe may have a high probability of execution to ramp up on our capital recycling program. Currently, we are under agreement to sell 2 buildings reflecting 177,000 square feet and proceeds of $21,300,000 We have a couple of properties where we are in active conversations with prospective buyers and have plans to bring additional properties to market in the coming months. Speaker 200:05:40Turning now to more detail on our Q3 leasing results. We completed 29 deals for 586,000 square feet of new and renewal leasing With an average lease term of 7.4 years and a rent roll down of 2.7%. Our total volume for the quarter came in above our Average rate during the preceding 4 quarters. New leasing represented 104,000 square feet and a roll up of 1.9% And a weighted average lease term of 9.5 years and increasing total activity for the year to more than 390,000 square feet. Concessions and capital commitments declined year over year to $5.89 per square foot per lease year and slightly below our quarterly average over the past year. Speaker 200:06:26Overall, our portfolio remains well diversified by industry and geography With a weighted average lease term of approximately 6.5 years and investment grade rated tenants representing 64% of annualized rental income. Turning to Q3 leasing transactions. In the Sacramento MSA, we executed 3 lease renewals Across 3 separate properties occupied by the State of California for a combined 260,000 square feet with a weighted average lease term of close to 8 years. In Rockville, Maryland, we renewed and upsized the lease with a private sector energy company for a combined 74,000 square feet for a lease term of 5.5 years. We also completed a short term extension and downsize with our tenant in Washington DC Previously communicated as a known vacate, this downsized decreased the tenant's annualized revenue contribution from 2.1% to 70 basis points. Speaker 200:07:20We are actively marketing the space and have several proposals out to tenants ranging from 50,000 square feet to 250,000 square feet, all of which are in early stages of discussion. In July, we received notice from Tyson Foods that it exercised its lease termination option at 400 South Jefferson Street in Chicago, Illinois. The effective termination date is January 2025 and the tenant will pay a fee of Approximately $8,600,000 The property underwent a complete redevelopment in 2012 and is within blocks of all major transportation hubs. It offers an abundance of amenities, including training and conference centers, a rooftop terrace, fitness facility and is LEED certified. We are currently evaluating a range of options for the property, including leasing or a potential sale. Speaker 200:08:10Looking ahead to OPI's upcoming lease expirations, We are actively engaging with our tenants to renew leases and convert prospects in our pipeline to fill vacancy. Lease gestation periods remains compared to a few years ago. Although we are increasingly seeing tenants with large space requirements come to the table well in advance of lease expirations to engage in conversation. During 2023, lease expirations for the remainder of the year represents 5.6% of annualized rental income, of which 3.8% are known vacates excluding those considered for sale, most of which are with tenants previously communicated within our 2023 retention statistics. Larger known vacates for Q4 include a state lease in the Boston MSA representing 90 basis points of annualized revenue And the GSA vacating 3 buildings in the Atlanta MSA, reflecting 130 basis points of annualized revenue. Speaker 200:09:06We are actively marketing each of the properties for lease with varying levels of activity. Approximately 12% of annualized rental income. Currently, we have just over 2% in advanced stages of renewal and are in active conversations with several other expiring tenants. However, we anticipate continued pressure on retention as tenants evaluate their space needs. Turning to our development projects. Speaker 200:09:32During the quarter, we completed and delivered to Sonesta the hotel portion of our Class A mixed use development at 20 Mass Ave in Washington DC. This project is 55% leased and we continue to work through varying levels of tour and proposal activity. Earlier this month, we were pleased to have Best renovation by the NAAP DC Maryland chapter for this project. At our life science redevelopment in Seattle, we continue to advance construction and plan for delivery in phases of final completion anticipated for Q1 2024. The project is 28% pre leased to Sonoma Biotherapeutics We plan to deliver the project with 4 move in ready spec lab suites serving as a differentiator as tenants evaluate options and timing for move in. Speaker 200:10:18Collectively for the 2 projects, we have roughly $88,000,000 in remaining capital spend. We estimate $25,000,000 to $30,000,000 will be spent by the end of Q1 2024 and the balance will be spent as leases are executed through stabilization over the next few years. I will now turn the call over to Brian Treason to review our financial results. Speaker 100:10:38Thanks, Chris, and good Speaker 300:10:39morning, everyone. We reported normalized FFO of $49,400,000 or $1.02 per share for the quarter, exceeding the high end of our guidance by a $0.01 per share. This compares to normalized FFO of $53,700,000 or $1.11 per share for the Q2 of 2023. The decrease on a sequential quarter basis was primarily driven by higher interest expense And lower NOI is due primarily to a seasonal increase in utility expense. Same property cash basis NOI decreased 9 point 2% compared to the Q3 of 2022 and was in line with our guidance range of down 8% to 10%. Speaker 300:11:19The decrease was mainly driven by tenant expirations and downsizes, elevated free rent levels on new leases and higher operating costs. We generated CAD of $0.36 per share during the Q3 and $1.54 per share in a row in 4 quarter basis. Earlier this month, we declared our regular quarterly distribution of $0.25 per share, which represents a trailing 4 quarter CAB payout ratio of 65% based on our annual dividend rate of $1 per share. Turning to our outlook for normalized FFO and same property cash basis NOI expectations in the 4th quarter. We expect normalized FFO to be between $0.96 $0.98 per share. Speaker 300:12:01The decrease from Q3 is made up of several items, most notably increased interest expense and projected increases in operating expenses. We expect same property Cash basis NOI to be down 11% to 13% as compared to the Q4 of 2022, mainly driven by elevated free rent in the current year period And certain tenant vacancies and downsizes. Turning to the balance sheet, our total outstanding debt at quarter end had a weighted average interest rate of 4.4% at a weighted average maturity of 4.5 years. Our upcoming debt maturities include our $750,000,000 revolving credit which matures at the end of January 2024 $350,000,000 of unsecured senior notes due in May 2024. Regarding the revolving credit facility, we ended the quarter with $200,000,000 outstanding and we are currently in active discussions with our banking group regarding entering into a new credit With an aggregate principal balance of $69,200,000 The net proceeds from these mortgage loans were used to repay amounts outstanding under OPI's revolving credit facility. Speaker 300:13:15With challenging capital market conditions and limited financing options available for office properties, we have demonstrated our ability to efficiently execute CMBS financing. To date, we've closed more than $177,000,000 in interest only mortgage financings at a weighted average interest rate of 7.8% in a weighted average term of 6.4 years. These mortgages reflect an implied capitalization rate based on aggregate appraised value below 7% and a loan to value of As we look to address the $350,000,000 of senior notes due in May 24, We're exploring additional property level secured financing options, including additional CMBS, and as Chris mentioned, asset sale opportunities to raise cash. Over 90% of our $4,000,000,000 portfolio by gross book value are unencumbered assets that we can look to for possible strategies to manage our debt maturities. Turning to our investing activities. Speaker 300:14:11During the quarter, we sold 1 property for $10,500,000 and have raised position proceeds of $23,600,000 year to date. We spent $24,200,000 on recurring capital and $28,300,000 on redevelopment capital during the Q3. For the Q4, we expect recurring capital of $25,000,000 to $35,000,000 redevelopment capital of approximately $15,000,000 to $20,000,000 That concludes our prepared remarks. Operator, we're ready to open up the call for questions. Operator00:15:19Our first question comes from Bryan Maher with B. Riley Securities. Please go ahead. Speaker 400:15:26Thank you and good morning and I apologize in advance if you already said some of these things. You had a little bit of technical difficulties here. On the property taxes, we noticed it was noticeably lower than prior quarter in our estimate. I think it was somewhere in the 14. Is there anything particular going on there? Speaker 400:15:46Is it related to asset sales? Can you give us any color on that for our modeling purposes? Speaker 300:15:52Sure, Brian. Good morning. Thanks for the question. Yes, there is a one time item in Q3 Related to 20 Mass Ave, there was a multiyear tax appeal that was successful that was recorded this quarter. So that really won't Recur in Q4, so this is really isolated to Q3. Speaker 400:16:14Okay. That's helpful. And then on asset sales, Are you in the market actively marketing with brokers assets to sell? How many is that? Is it just Couple, is it a half dozen, dozen? Speaker 400:16:30And what do you think the prospects are over the next kind of, let's say, 3 to 9 months? Speaker 200:16:36Yes, Brian, we're not actively in the market. We do have, as I mentioned in the prepared remarks, a few buildings That we're in dialogue with, but as far as a broader campaign, it's something we're evaluating now. And so I think that there's a strong likelihood that will be out in the market in Q4 with additional assets. And the profile of those assets are going to range. I think we've seen some success with selling assets that Have some level of vacancies or are vacant. Speaker 200:17:11And I can see some of those being candidates of what could transact. And then we're going to look at other assets that are more Stabilize in nature and kind of test out the market to kind of see where the opportunities reside. And We're working through that and we'll have kind of a more distinct list of assets to consider and discuss as we get into Q4. Speaker 400:17:36Okay. And then shifting to your financing, I know you've done $177,000,000 over the past few months. It It seemed like when I looked at the assets online that those were kind of down the fairway type of properties of yours, Nothing high end, nothing low end, just kind of down the fairway. What's the thought process now for the next 3, 6, 12 months To address the maturities, is it just to kind of chip away at that type of debt similar to what you've just done? And how Deep do you think you can do on a quarterly basis? Speaker 400:18:10Is it $100,000,000 $150,000,000 $200,000,000 Speaker 200:18:17It's a great question. Speaker 300:18:18And part of our prepared remarks is that we're looking at a couple of different options, including asset sales and additional secured financings. We're going to solve for the $350,000,000 combination of those items. So it's tough to really pinpoint since we're not really in the market of how much that could be asset sales Versus secured financing, you have secured financing property level debt really depends on the asset and how much you could raise Yes, some of the larger and nicer stuff that we would have put financing on could raise bigger swaps than some of the smaller ones. So we're looking at a couple of different things here and We're looking to address those May maturities and obviously the revolving credit facility all in the coming months. Speaker 400:19:01And to that comment, I suspect you could probably take down a decent slug if you were to put the Incyte Global headquarters perimeter in Atlanta or the Google's Midwest headquarters in Chicago. Anta or the Google's Midwest headquarters in Chicago out for lending to the tune of Couple of few $100,000,000 right there. Would that be reasonable to expect? Speaker 200:19:26Yes. I think those are all candidates and profile of buildings where we have optionality. And I think the bench is Obviously deeper than that, but yes, I mean, I think that kind of just highlights to some of the nicer assets we have across the portfolio and kind of show Operator00:20:02Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead. Speaker 500:20:08Hey, good morning guys. This is Timim on for Ronald. Speaker 400:20:11Just a question on the CapEx remaining for the 2 development projects you guys have, I think it's about 90,000,000 Maybe just a further breakdown there in terms of what percentage of that $90,000,000 relates to TIs and depending on getting those billings leased up versus What percentage of the $90,000,000 actually relates to building the building out? Speaker 200:20:34Yes. So a couple of things. So we have through, I would say, Q1 'twenty four, we're estimating $25,000,000 to $30,000,000 of remaining capital And across the 2 projects with the lion's share for Seattle, given the fact that that's still being completed. And within that number includes the TI allowance for the Sonoma Biotherapeutics. So really that $25,000,000 to $30,000,000 is a combination of construction capital and TI allowance. Speaker 200:21:09And so once you get through that, Kind of the delta remaining from the $90,000,000 that will be spent primarily for all as leasing capital over the next few years As we stabilize the asset. Speaker 500:21:26Got it. Yes. So not all related to building up some Speaker 400:21:30of it's Not discretionary, but it's not all it doesn't all have to kind of come in at once. Is that kind of fair? Yes. Speaker 200:21:40It is. The $25,000,000 to $30,000,000 is committed capital. And then through Q1 'twenty four and the balance is Kind of variable based on getting leases done. Speaker 400:21:55Got it. Okay. And then congrats, Brian, Speaker 500:21:57on the new position, maybe just one for you. I appreciate you're not going to go further into plans of the revolver, but just As you think about modeling from here on out, if that does become a secured revolver, just where does that from an unencumbered asset to unsecured debt covenant position. And then maybe just talk about further room for encumbering assets as Speaker 400:22:24we head into 'twenty four, if that Speaker 500:22:26does become a secured revolver? Speaker 300:22:30Yes, it's a great question. I mean, the secured revolver is definitely something that could be on the table as we look forward. Our unencumbered Asset ratio is over 200% today and the minimum is 150% under our bond indentures. Yes, if we do put collateral against the new facility, again, that's one possible outcome. Obviously, that will Put a little bit pressure on that, but we have plenty of cushion to deal with it and size they've evolved appropriately. Speaker 300:23:01So again, I can't really get into specifics Given where we are in discussions, so I'm just going to leave it at that for now. Speaker 400:23:10Got it. Thank you, guys. Speaker 300:23:13Thank Speaker 100:23:16you. Operator00:23:20As we have no further questions, This concludes our question and answer session. I would now like to turn the conference back over to Chris Bellotto for any closing remarks. Speaker 200:23:31Yes. Thank you for joining the call today. We look forward to seeing many of you at NAREIT in the upcoming weeks. Operator00:23:44The conference has now concluded. Thank you for attending today's presentation. You may all now disconnect.Read morePowered by