OPI

Good morning and welcome to the Office Properties Income Trust second quarter 2025 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 turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

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 Donley. In just a moment, they will provide details about our business and our performance for the second quarter of 2025. 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, Thursday, July 31st, 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. 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 is available in OPI's earnings release presentation that we issued last night, which can be found on our website. 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 a 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 Yael Duffy.

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 June 30th, 2025, OPI's portfolio included 125 properties totaling 17.3 million sq. ft., with a weighted average remaining lease term of 6.8 years. We ended the quarter with same property occupancy of 85.2%. 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. Specifically, annualized revenue of $398 million is down $85 million, or nearly 18% compared to a year ago.

Interest expense in the second quarter of $53 million is up $14 million, or 37% year-over-year. We have little room under our debt covenants, which restricts us from refinancing or issuing new debt. Nearly $280 million in debt principal payments are due in 2026, and our total liquidity is $90 million 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. To that end, earlier this month, OPI's Board of Trustees made the decision to suspend the quarterly dividend, allowing us to preserve approximately $3 million of cash annually. Turning to leasing activity, in the second quarter, we executed 15 leases totaling 416,000 sq. ft. at a weighted average lease term of 5.4 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 secured over $7 million in annualized revenue. Concessions and capital commitments of $3.53 per sq. ft. per year declined 24% quarter over quarter. We have 1.3 sq. ft. of leases scheduled to expire through 2026, representing $30 million, or 7.6% of OPI's annualized rental income. The majority of these expirations are related to single-tenant properties, and we expect sq. ft., or $11.2 million of annualized revenue will not renew. Today, our leasing pipeline totals 2 sq. ft., 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, earlier this month, we sold one property totaling sq. ft. via auction for $2.2 million, 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 to evaluate disposition opportunities that may mitigate occupancy risk and reduce the carrying costs associated with vacant properties. I will now turn the call over to Brian.

Thank you, Yael, and good morning. For the second quarter, we reported normalized FFO of $9.4 million or $0.13 per share, which came in $0.02 above the high end of our guidance range as a result of lower than anticipated seasonal operating expenses. This compares to normalized FFO of $4.4 million or $0.06 per share for the first quarter of 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, D.C. Turning to our outlook for the third quarter of 2025, we expect normalized FFO to be between $0.07 and $0.09 per share for Q3. 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&A expense to be approximately $5 million for Q3, and our current estimated quarterly interest expense run rate is approximately $52 million, consisting of $41 million of cash interest expense and $11 million of non-cash amortization of financing costs. We expect same property cash basis NOI to decrease 7%-9% as compared to the third quarter of 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 million in capital expenditures. For the second half of 2025, we anticipate approximately $43 million in CapEx, comprised of $10 million of building capital and $33 million of leasing capital. At quarter end, we had three properties with a carrying value of $8 million classified as held for sale.

In July, we sold one of these properties, which was encumbered by our 2027 senior security notes for $2.2 million, excluding closing costs, and used the net proceeds to pay down the principal balance of that debt. Today, we have three properties under agreement to sell for $28.9 million, excluding closing costs. We currently expect two of the three properties to sell in September 2025 for $10.7 million and the third property to close in 2027. Turning to the balance sheet, our total liquidity today is $90 million of cash. We're currently projecting cash from operations to be a use of $45 million-$55 million 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. Thank you for joining us today. Operator, you may now end the call.

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

Good morning, and welcome to the Office Properties Income Trust First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry of Senior Director of Investor Relations. Please go ahead.

Good morning, and 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 Donley. In just a moment, they will provide details about our business and our performance for the first quarter of 2025. 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, Thursday, May 01, 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, or SEC, which can be accessed from our website, opireit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP numbers during this call, including 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 Yael.

Thank you, Kevin, and good morning. On today's call, I will provide an overview of our portfolio and review trends we are seeing in the office market before outlining OPI's first quarter leasing and disposition activity. From there, I will turn the call over to Brian to discuss our financial results. As of March 31, 2025, OPI's portfolio consisted of 125 properties totaling 17.3 million square feet with a weighted average remaining lease term of 7 years. We ended the quarter with same property occupancy of 85.4%. Approximately 60% of our revenues come from investment-grade rated tenants or their subsidiaries. The U.S. Government is our largest tenant, representing 16.8% of our annualized revenue. The office sector continues to face headwinds associated with the impacts of work-from-home as well as macro-economic and political uncertainty. Throughout the country, we face pressure in our re-leasing efforts with minimal tenants in the market to absorb large blocks of vacant space. In instances where activity exists, leasing demand has been concentrated towards trophy assets as tenants seek amenity-rich buildings that will entice employees back to the office. Given OPI's portfolio is predominantly comprised of older properties and the capital required to reposition assets is often cost prohibitive, new leasing interest has been minimal. Accordingly, we have experienced negative net absorption, declining asking rents and heightened competition. In Washington DC, where OPI has its largest concentration, the market vacancy rate is over 23% and conditions have worsened due to federal leasing uncertainty. Despite our leasing efforts, strategies to preserve cash flow and manage our debt maturity schedule, OPI's financial performance has declined in this difficult operating environment. Annualized revenue was down $93 million or 19% to $405 million compared to a year ago. Interest expense increased $17.9 million to $53.4 million representing a 50% increase year-over-year. We have little room under our debt covenants, which restricts us from refinancing or issuing new debt. $280 million in debt principal payments are due in 2026 and our liquidity is currently limited to $73 million of cash. In response to these challenges, we are exploring all options to address our financial commitments, while simultaneously operating and leasing our properties. Turning to our leasing results. In the first quarter, we executed 11 leases totaling 223,000 square feet at a weighted average lease term of 10.3 years and a 13.5% roll up in rent. Concessions and capital commitments of $4.62 per square foot per year declined 22% quarter-over-quarter. Notable leasing activity included a new 11-year lease for 45,000 square feet in Omaha, Nebraska, a 12-year lease renewal for 101,000 square feet in Fremont, California and an 8- year renewal for 100,000 square feet in Irving, Texas. We are closely monitoring the Department of Government Efficiency's measures to reduce the government's office square footage as part of its efforts to optimize its real estate. While the ultimate impact on OPI's portfolio remains uncertain, we have not yet received any lease termination notices related to these efficiency measures. Today, the GSA represents 2.4 million square feet or approximately $68 million of OPI's annualized revenue. Of this, approximately 432,000 square feet or $14.9 million in annualized revenue is within their soft term, which gives the GSA a right to terminate the lease in whole or in part without penalty. Turning to OPI's upcoming lease expirations. Lease expirations through 2026 totaled 1.6 million square feet, representing $45 million or 11% of OPI's annualized rental income. As we have discussed on prior calls, single tenant properties will drive most of our expirations and we expect 780,000 square feet or $19.4 million of annualized revenue will not renew. Our current leasing pipeline totaled nearly 2 million square feet, of which 1/3rd could result in positive net absorption. Turning to dispositions. During the quarter, we sold three properties consisting of 249,000 square feet for $26.9 million. Additionally, we are under agreement to sell another three vacant properties consisting of 376,000 square feet for a total sales price of $28.9 million. We do not have any other properties being marketed for sale. However, we continue to evaluate disposition opportunities that will allow OPI to mitigate occupancy risk and carry costs associated with vacant properties. As we consider future sales, we must balance the impact of potential dispositions on our liquidity, debt covenants and operating metrics. Before I turn the call over to Brian, I would like to highlight the recent publication of the Aramark Group's Annual Sustainability Report, which offers a comprehensive overview of our managers' commitment and progress in addressing sustainability. As we continue to work through challenges in the office market, we remain committed to enhancing OPI's corporate sustainability practices and advancing initiatives that benefit our tenants and communities. Links to the report and the supplemental report specific to OPI's highlights are available on our website at opireit.com. Brian?

Thank you, Yael, and good morning. For the first quarter, we recorded normalized FFO of $4.4 million or $0.06 per share, which came in $0.02 below our guidance range as a result of non-cash amortization included in interest expense related to our debt exchanges. This compares to normalized FFO of $20.9 million or $0.36 per share for the fourth quarter of 2024. The decrease on a sequential quarter basis was driven by lower NOI as a result of asset sales, tenant vacancies and higher interest expense. Turning to our outlook for the second quarter of 2025, we expect normalized FFO to be between $0.09 and $0.11 per share for Q2. The increase sequentially from Q1 is primarily driven by higher NOI as a result of lower seasonal operating expenses and the seasonally stronger performance expected from our hotel in Washington D. C. We project recurring G&A expense to be $5 million for Q2. Our current estimated quarterly interest expense run rate is $53 million consisting of $41 million of cash interest expense and $12 million of non-cash amortization of financing costs. We expect same property cash basis NOI to decrease 10% to 12% as compared to the second quarter of 2024 driven by tenant vacancies and an increase of free rent from recent leasing activity. This NOI guidance does not include any potential changes to our same-store portfolio. Turning to our investing activities, we spent $13.8 million on capital expenditures during the first quarter. We are reducing our 2025 full year CapEx guidance from a total projected spend of $80 million to approximately $75 million comprised of $17 million of building capital and $58 million of leasing capital. During the first quarter, we sold three properties with 249,000 square feet for proceeds of $26.9 million. One of the properties sold was encumbered by our 2027 senior notes and the proceeds of $5 million were used to pay down debt principal. At quarter end, we had three properties with a carrying value of $10.4 million classified as held for sale. As of today, we have three properties under agreement for sale for $29 million. Turning to the balance sheet, in mid-March we completed the private debt exchange of $21 million dollars of our outstanding senior unsecured notes due 2026, 2027 and 2031 with a weighted average interest rate of 3.1% or $14 million of new 8% senior priority guaranteed notes due 2030. Our total liquidity today is $73 million of cash. We are currently projecting cash from operations be a use of $50 million to $55 million during the balance of 2025 including capital expenditures. OPI's upcoming maturities consist of approximately $120 million due in March 2026 under our senior secured notes due 2027 and $134 million of senior unsecured notes due June 2026. Given our liquidity position, financial covenant constraints under our debt agreements and debt principal repayments coming due in 2026, we continue to evaluate options to address these maturities with our financial advisor. Operator, that concludes our call.

[Operator Closing Remarks].

Good day, and welcome to the OPI Fourth Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Kevin Barry of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thanks 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 Donley. In just a moment, they will provide details about our business and our performance for the fourth quarter of 2024. 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, Friday, February 14, 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, or SEC, which can be accessed from our website, opireit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations or 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. 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. And finally, last week, OPI announced that it has commenced offers to exchange certain of its outstanding unsecured senior notes. Because the operating period is open, management will not be taking questions on today's conference call. I will now turn the call over to Yael.

Thank you, Kevin, and good morning. Before we begin, I would like to highlight the steps we have taken in 2024 to address our debt maturities and liquidity constraints. Through a series of transactions, we completed $1.8 billion in secured financings, including exchanging $488 million of new notes during the fourth quarter for $378 million of our outstanding 2025 senior unsecured notes that were coming due in February 2025. We paid the balance of these notes off last month with $113 million of cash using the proceeds from the sale of 24 properties totaling approximately 2.8 million square feet for nearly $200 million in 2024. As a result of the exchanges and repayment, OPI's 2025 debt maturity was satisfied in this entirety, and OPI's total debt principal was reduced by nearly $200 million as compared to the prior year. As we look ahead, our net debt maturity is $140 million of senior unsecured notes due in June 2026. To address this maturity and reduce debt coming due in 2027 and 2031, last week OPI announced that it has commenced additional offers to exchange certain of its outstanding unsecured senior notes for up to $175 million of new senior guaranteed unsecured notes. Now turning to the quarter. I will start with an overview of our portfolio and market fundamentals, summarize leasing activity for 2024 as well as the fourth quarter and provide an update on OPI's upcoming lease expirations. I will then turn the call over to Brian to review our financial results. As of December 31, 2024, OPI's portfolio consisted of 128 properties totaling 17.8 million square feet with a weighted average remaining lease term of 7.4 years. The portfolio generates $428 million of annualized revenue, down from $513 million a year ago. Our portfolio is diversified by industry and geography with approximately 58% of our revenues coming from investment-grade rated tenants or their subsidiaries. Single-tenant properties represent 61% of our square footage and nearly 80% of our properties are in suburban locations. Recent research and news publications have begun to highlight green shoots within the office sector. The economy remains strong, employers in both the private sector and the federal government are actively promoting return to office mandates and there is minimal new supply hitting the market. However, these positive trends have not yet materialized in our portfolio. In Washington, D.C., our largest MSA, OPI's vacancy is nearly 33% and leasing conditions remain challenging as competition among landlords continues to put further pressure on net effective rents. As the new presidential administration begins to implement efficiency measures, the impact on OPI's largest tenant, the GSA, may be a headwind for our portfolio. Today, the GSA represents 2.4 million square feet or approximately $70 million of annualized revenue. Of this, approximately 413,000 square feet or $10.5 million in annualized revenue is within their soft term, which gives the GSA a right to terminate the lease in whole or in part without penalty. We anticipate and have forecasted that at least one agency, the Department of Safety and Environmental Enforcement that leases 110,000 square feet representing $856,000 in annual revenue may terminate its lease in the second quarter of 2025. The balance of the leases and soft term are leased to what we believe but cannot be certain are mission-critical agencies with low risk of vacating, such as the Secret Service, Veterans Affairs, Social Security and the Department of Justice. The essential nature of the work these agencies do and their need to physically occupy our properties has historically provided OPI with stable cash flows, although the Department of Government Efficiency efforts are broad-based and unpredictable. Turning to our leasing results. In 2024, our total leasing volume increased more than 20% year-over-year, driven by renewal activity. We signed 52 leases for more than 2 million square feet at a weighted average lease term of nearly nine years and a rental rate increase of 6.3%. The impact of this activity is an increase of $2.9 million in annualized rental revenue, of which 59% has not yet been realized and will take effect in 2025 or beyond. However, despite these efforts, OPI's lease square footage decreased 2.8 million square feet during 2024, and we finished the year with total portfolio occupancy of 85% and same property occupancy of 89.4%. In the fourth quarter, we executed 13 leases totaling 359,000 square feet at a weighted average lease term of 7.1 years and a 24.3% roll-up in rent, representing the strongest quarterly growth in over four years. Leasing activity included a six-year renewal with the AT&T for 191,000 square feet in Plano, Texas at a 25% roll-up in rent; a 13-year expansion and early renewal for 74,000 square feet with a residential services company in Naperville, Illinois at a 36% roll-up in rent; and a 14-year renewal with the GSA for 60,000 square feet in Sacramento, California at a 20% roll-up in rent. Concessions and capital commitments of $5.92 per square foot per year declined 10% quarter-over-quarter. Almost a year ago, we completed the redevelopment of Unison Elliott Bay, a 30,000 square foot life science and office project in Seattle, Washington. The Seattle market has been burdened by oversupply and minimal demand with vacancy rates of 30% for lab space and 22% for office space. Though the property was 28% preleased prior to its completion, we have seen no tour or proposal activity in recent months. As such, we are not optimistic about the leasing prospects of this project in 2025 or in the first half of 2026. Looking ahead, 2 million square feet, representing $42 million or nearly 10% of OPI's annualized rental income is set to expire in 2025. As we have long telegraphed, 1.5 million square feet or $29.3 million of annualized revenue are known vacates. Many of these pending vacancies represent large single-tenant properties, which face challenging market conditions and low tenant demand. Additionally, significant downtime, declining market rents and increased tenant improvement and concession packages, plus the cost to multi-tenant these properties are likely to put further pressure on OPI's liquidity. As of December 31, 2024, 522,000 square feet or $18.1 million of annualized revenue is scheduled to expire in 2026, down from 1.4 million square feet or $41 million of annualized revenue compared to a year ago. Additionally, our current leasing pipeline totals 1.3 million square feet, of which approximately half could result in a mid-single-digit roll-up in rent. Turning to dispositions. We are under agreement to sell six properties totaling 581,000 square feet for an aggregate sales price of $55 million. These properties are either vacant or soon to become vacant and located in markets with weak leasing fundamentals. Five of these assets held for sale are unencumbered properties and one is collateral for our senior secured notes due in 2027. We expect to complete the majority of these sales by the end of the second quarter. Last month, we launched a marketing campaign to sell our 427,000 square foot mixed-use development at 20 Mass Ave in Washington, D.C. Sonesta International Hotels operates a 274 key hotel on floors two through six of the property or 56% of the square footage. We anticipate the likely buyer of this project to be a hotel investor. Effective January 1, 2025, we restructured our agreement with Sonesta to convert the existing lease to a hotel management agreement. Under this agreement, any earnings OPI may receive from the hotel will now be tied to the revenue and expenses of the hotel's operations. We believe the change from a lease to a more customary hotel management agreement enhances the marketability of the property to hotel investors and improves the valuation compared to having the previous lease agreement in place. Today, no additional properties are being marketed for sale, but we continue to evaluate additional disposition opportunities that could further mitigate occupancy risk and the associated carry cost of vacant properties. However, as we consider any future sales, we must balance the impact the potential dispositions would have on our liquidity, debt covenants and operating metrics. I will now turn the call over to Brian.

Thank you, Yael, and good morning. For the fourth quarter, we reported normalized FFO of $20.9 million or $0.36 per share for the quarter, which came in $0.01 above our guidance range as a result of the impact and timing of our dispositions. This compares to normalized FFO of $22.1 million or $0.43 per share for the third quarter of 2024. Decrease on a sequential quarter basis was driven by higher interest expense, partially offset by an increase in NOI. Same property cash basis NOI was $60.9 million, representing an increase of 4.9% compared to the fourth quarter of 2023, beating our expectations for the quarter due to lower operating expenses at our comparable properties and the sale of certain vacant properties. Turning to our outlook for the first quarter of 2025. We expect normalized FFO to be between $0.08 and $0.10 per share for Q1. The decrease sequentially from Q4 is primarily driven by lower NOI as a result of asset sales, tenant vacancies and increased interest expense. Our current estimated quarterly interest expense run rate is approximately $52 million, consisting of $41 million of cash interest expense and $11 million of noncash amortization of financing costs, discounts and premiums. This guidance does not include any potential impact from the debt exchange offer we launched last week. We expect same property cash basis NOI to decrease 8% to 10% as compared to the first quarter of 2024, driven by tenant vacancies and an increase of free rent from recent leasing activity. This NOI guidance does not include any potential changes to our same-store portfolio. Turning to our investing activities. We spent $36.1 million on capital expenditures during the fourth quarter, and our 2025 full year CapEx guidance is expected to be a total spend of approximately $80 million, comprised of $18 million of building capital and $62 million of leasing capital. During the fourth quarter, we sold 17 properties with 1.8 million square feet for proceeds of $114.5 million. At quarter end, we had five properties with a carrying value of $32 million classified as held for sale. We took an $8 million impairment charge during the quarter to write down the carrying value of one of these properties. As of today, we have six properties under agreement for sale for $55 million, including five of the properties classified as held for sale. Turning to the balance sheet. In mid-December, we completed the private debt exchange of $340 million of outstanding 4.5% senior unsecured notes due in 2025 for $445 million of new 3.25% senior secured notes due 2027 and 11.5 million common shares. In January, we used the proceeds from asset dispositions to repay our remaining unsecured notes due in 2025. I would also like to highlight that we have enhanced our disclosures and provided additional visibility into our properties securing our various debt transactions with our earnings -- within our earnings presentation posted to our website. Our total liquidity today is $113 million of cash. We are currently projecting to burn $60 million to $70 million of cash from operations in 2025, including capital expenditures. Given our liquidity position, financial covenant constraints under our debt agreements and debt principal repayments coming due in 2026, we have limited options to address our upcoming debt maturities, and we do not believe that those options include cash repayments or debt-for-equity exchanges. OPI's next maturity consists of approximately $140 million of senior unsecured notes due June 2026, which we are looking to address with the debt exchange offer we announced last week of up to $175 million of new 8% senior priority guaranteed unsecured notes. Under the offer, priority will be given to holders of OPI's 2.65% senior notes due in 2026. The offer is subject to a number of conditions, including at a minimum of 75% or $105 million of our existing 2026 notes participate in the exchange. Under the debt exchange we completed in the fourth quarter, our new $445 million of 3.25% senior secured notes due in 2027 required quarterly principal amortization of $6.5 million and a principal payment of $125 million by March 2026. We're currently projecting asset sales, including the potential sale of 20 Mass Ave in Washington, D.C. which serves as collateral to the 2027 notes will be our source of liquidity to make this payment. We look forward to providing updates about our progress in the future. As Kevin highlighted earlier, now that OPI's debt exchange offer period is open, we will not be taking any questions on our call today. Thank you for joining us. This concludes our conference call.

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

Good morning and welcome to the Office Properties Income Trust Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference call over to Kevin Berry, Senior Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thanks 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 Donley. In just a moment, they will provide details about our business and our performance for the third quarter of 2024, followed by a question-and-answer session with sell-side analysts. 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 meeting 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, October 31st, 2024, 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 or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we'll be discussing non-GAAP numbers during this call, including normalized funds from operations or normalized FFO and cash basis net operating income or cash basis NOI. Our reconciliation of these non-GAAP figures to net income are available on OPI's earnings release presentation that we issued last night, which can be found on our website. And finally, we'll 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 Yael.

Thank you, Kevin, and good morning. Before we begin, I would like to provide an update on the progress we have made to navigate our upcoming debt maturities. In the first half of the year, we completed $1.3 billion in secured financings and reduced OPI's total debt by nearly $300 million. Since last quarter, we exchanged $42.5 million of our outstanding unsecured senior notes for new secured senior notes and common shares. These strategic actions have allowed us to reduce our 2025 debt maturity by over $192 million from $650 million to approximately $457 million. Additionally, we are focused on enhancing our liquidity. We sold six properties for $46 million in the third quarter and drew the remaining $125 million of capacity under our credit facility earlier this month. We have been negotiating a potential debt exchange transaction with a group of our 2025 noteholders. However, we cannot say with certainty whether we will be able to execute on a refinancing transaction and satisfy the debt prior to the February 1st, 2025 maturity date. Now turning to the quarter. I will start with an overview of our portfolio, review third quarter leasing results and upcoming lease expirations before providing an update on our property dispositions. From there, I will turn the call over to Brian to review our financial results. OPI's portfolio consists of 145 properties totaling more than 19 million square feet with a weighted average remaining lease term of approximately seven years. We ended this quarter with total portfolio occupancy of 82.8% and same property occupancy of 89.3%. Our portfolio generates $453 million of annualized revenue and is diversified by both industry and geography with nearly 60% of our revenues coming from investment grade rated tenants or subsidiaries. As of today, 62 properties totaling 10 million square feet that account for nearly $287 million of annualized revenue or 63% of our total portfolio revenue serve as collateral under our existing debt agreements. OPI continues to face challenges due to shifts in office space utilization, such as increased remote work and tenants consolidating their real estate footprint. Within our portfolio, these challenges have had a disproportionately negative impact on our unencumbered portfolio, where the majority of OPI's known vacates in 2024 and 2025 are concentrated. Accordingly, we are focused on retaining tenants at our properties. During the third quarter, we executed 14 leases totaling 987,000 square feet with a weighted average lease term of 10.2 years. Renewals drove the majority or 96% of our leasing, including a 554,000 square foot lease with Bank of America at a 2% roll up in rent and a 235,000 square foot lease with AT&T at an 11% roll up in rent. Both were for single-tenant leased properties that serve as collateral to our $567 million senior secured notes due 2029 and were previously forecasted to occur. As we have long telegraphed 3.1 million square feet is scheduled to expire through December of 2025. Known vacates during this period account for $53.2 million of annualized revenue or 11.7% of OPI's total annualized revenue. While our desired outcome would be to re-lease these vacancies, many are large single-tenant properties, which face challenging market conditions as tenants vacate. Additionally, significant downtime, decreasing market rents and increased tenant improvement and concession packages would put further burden on OPI's liquidity. We plan to mitigate the impact to occupancy and associated carry costs through property dispositions. OPI's multi-tenant properties, which represent 38% of our portfolio are experiencing greater tenant demand, especially at properties where common area and amenity upgrades have recently been completed. In the third quarter, all seven of the new leases we executed were at multi-tenant properties and 65% of our new leasing pipeline is within multi-tenant properties. Turning to our disposition activity. We remain focused on selling properties that will increase our liquidity as well as reduce the carrying costs associated with vacant properties. However, sales remain challenging in this market as valuations within the office sector remain depressed and financing is not readily available to buyers. Additionally, the pool of potential buyers for vacant or soon to be vacant properties is generally limited to opportunistic value add buyers or developers. In addition to the fixed properties we sold in the third quarter for $46 million we are under agreement to sell an additional 17 properties totaling 1.6 million square feet for an aggregate sales price of $119 million. However, based on our own experience, we cannot be certain that these properties will sell at the prices currently projected or at all. Before I turn the call over to Brian to discuss our financial results, I would like to reiterate that we are equally focused on evaluating strategies to navigate OPI's upcoming debt maturities, while simultaneously operating and leasing our properties. Brian?

Thank you, Yael, and good morning. For the third quarter, we reported normalized FFO of $22.1 million or $0.43 per share for the quarter. Below the low end of our guidance range by $0.03 as a result of a $0.02 miss in rental income related to an increase in reserve for uncollectible rents and a $0.01 miss on higher operating expenses. This compared to normalized FFO of $33.2 million or $0.68 per share for the second quarter of 2024. The decrease on a sequential quarter basis was driven by higher interest expense and lower NOI. Same property cash basis NOI was $59.3 million representing a decline of 4% compared to the third quarter of 2023, beating our expectations for the quarter due to certain properties being classified as held for sale as of September 30th. Turning to our outlook for normalized FFO and same property cash basis NOI expectations for the fourth quarter of 2024. We expect normalized FFO to be between $0.33 and $0.35 per share. The decrease sequentially from Q3 is primarily driven by lower NOI and increased interest expense. Our current estimated quarterly interest expense run rate is approximately $45 million consisting of $43 million of cash interest expense and $2 million of non-cash amortization of financing costs. We expect same property cash basis NOI to be down 2% to 4% as compared to the fourth quarter of 2023 driven by tenant vacancies, elevated free rent, partially offset by lower operating expenses. This NOI guidance does not include any potential changes to our same-store portfolio. Turning to our investing activities. We spent $34.4 million on recurring capital and our 2024 full year CapEx guidance is expected to be a spend of approximately $110 million comprised of $20 million of building capital and $90 million of leasing capital. At quarter-end, we had 17 properties with a carrying value of $124 million classified as held for sale. We took a $42 million impairment charge during the quarter to write down the carrying value of nine of these properties and one additional property. As of today, we have 17 properties under agreement for sale for $119 million, including 13 of the properties classified as held for sale. We expect these transactions to close by the end of Q1 2025. Turning to the balance sheet. In October, we drew down the remaining $125 million of capacity under our revolving credit facility to preserve our financial flexibility. Our total liquidity today is $146 million of cash. Since the second quarter, we have exchanged $42.5 million of our outstanding unsecured senior notes due 2025 for $42.6 million of new 9% senior secured notes due 2029 and 5.1 million common shares. The new 9% senior notes exchange represented the remaining capacity that was available for issuance under OPI senior secured notes due September 2029 from our June debt exchange. We ended this quarter with $2.3 billion of outstanding debt with a weighted average interest rate of 7.1% and a weighted average maturity of 4.9 years. We also currently have $100 million of committed leasing-related obligations. As Yael noted, we are focused on addressing the remaining $457 million of notes maturing on February 1st, 2025. We cannot be sure that we can execute on a refinancing transaction to satisfy this debt maturity. As a result, there is a substantial doubt about our ability to continue as a going concern. At the same time, we continue to work with our third-party adviser, Moelis & Company, on a possible debt exchange with certain of our 2025 note holders and to explore other capital management transactions. Our conversations with these investors are ongoing and we'll provide updates as circumstances warrant. That concludes our prepared remarks. Operator, we're ready to open up the call for questions.

We'll now begin the question-and-answer session. [Operator Instructions] The first question is from Bryan Maher with B. Riley Securities. Please go ahead.

Thank you, and good morning, Yael and Brian. Just a couple from me today. When I look at the 10-Q, specifically Page 11, and I look at the assets that you've sold and the assets to be sold and I kind of do a little bit of rough math between what they're being sold at and the impairment charges, is it safe to say that you're basically selling these at kind of 56% to 60% of carrying value? Am I thinking about that right?

Good morning, Brian. These properties that we're selling are generally vacant or soon to be vacant. So the carrying value is really irrelevant considering that there's no leases in place. So again it's -- I would say probably even less than the carrying value, a third of the carrying value.

Okay. And okay -- what percentage would you say are currently vacant? Or how soon are these properties to be vacant? I get it that you're kind of selling them by the pound. But what I'm trying to get at is when I look at your gross book value of your remaining available assets, unencumbered assets, whatever they are, 80 something assets, north of $2 billion. I'm just trying to kind of get to what they're really worth. I don't know if you really want to share that or if you're using that unencumbered pool, I'm sure, to discuss the debt exchange. Any color there, I think, would be helpful to investors in the common.

Yes. So of the 17 properties under agreement, 12 of them are vacant or soon to be -- or will be vacant by the end of the year. And then there's another one that will be vacant in early Q2 of '25. And so the remaining have -- are low occupancy. I mean, I would say, 50% or less and a short WALT. So those are -- I guess I would say those are not the performing assets within our portfolio.

Right. I'm just trying to draw some correlation between the more challenged assets of the portfolio and their value versus the not challenged assets in the portfolio and their value, which the vast bulk, I think we would all agree, make up the collateral pools for the tranches of debt that you've discussed. Kind of moving on to the Sonesta in DC at 20 Mass Ave. When does that property stop being in a free rent period? Isn't that coming up fairly soon?

In January of '25.

Okay. And then can you give a little bit of color on who the buyers are? You talked about it in your prepared comments I know a little bit. But when the buyers are coming to table to buy your assets that are out there, the unencumbered, are they teardowns, redevelopments? What are they thinking? And what is their ability to close and close how fast?

So it really is a mix depending on the property. We have some properties under agreement that really are based just on a land value and will likely be torn down and redevelopment -- redeveloped. And then we have other properties that the buyers are owner users, and those are garnering a premium. So really the sales prices can range anywhere from $20 a square foot to $170 a square foot.

Okay. And maybe last for me. We were impressed and I know that you had some outlook on this, the leasing activity in the third quarter, nearly 1 million square feet. Can you give us a little bit more color on what the leasing pipeline looks like and your optimism on the ability to close on that leasing pipeline?

So our pipeline is just under 2 million square feet about just over 60 deals. We don't have -- most of it is in early stages proposals or tour activity. I would say less than 20% is in advanced stages. And as I said in my prepared remarks, we really aren't seeing the activity at the single-tenant buildings where the tenants -- the existing tenants are leaving and we have seen, at least, increased activity at the multi-tenant properties.

Okay. Well, just maybe one last one for me. In negotiating with these 2025 noteholders. Do you feel like and I saw your deck that went out, whatever it was, a week or two ago and the commentary along with that, that I guess, one of the noteholders had pulled out and so you guys moved to disclose that information. But do you get the sense that the remaining noteholder negotiations are going along in good faith that they want to make something happen for 2025?

Yes. The conversations have been very constructive. So that's all I can really say.

Okay. Thank you. That's all for me.

[Operator Instructions] The next question is from Ronald Kamdem with Morgan Stanley. Please go ahead.

Hey, guys, thanks for the time this morning. Just a quick one for me. Could you sort of just quickly walk me through just the thinking behind the debt exchange done in the quarter with both notes due in 2029 and equity?

Sure. We've been trying to utilize the tools in our toolbox to chip away at the maturities. At the same time, we're talking with, as we mentioned, the certain of the 2025 investors. So we had some capacity left from the exchange we did in June to issue further notes under that deal, which we utilized and closed on in October. We've also been doing some small one-off debt for equity exchanges, not overly material amount, but every bit is helping chip away at the size of the maturity that we have left, which is now down to $457 million.

Thanks.

This concludes our question-and-answer session. I would like to turn the conference back over to Yael Duffy, President and Chief Operating Officer for any closing remarks.

Thank you for joining us. Have a good day.