Office Properties Income Trust Announces Second Quarter 2021 Results

Second Quarter Net Loss of $66.7 Million, or $1.38 Per Share

Second Quarter Normalized FFO of $55.4 Million, or $1.15 Per Share

Second Quarter CAD of $33.8 Million, or $0.70 Per Share

Leased 548,000 Square Feet with a 17.1% Roll-up in Rents

Acquired Two Class A Urban Core Office Properties for $550.0 Million

Office Properties Income Trust (Nasdaq: OPI) today announced its financial results for the quarter ended June 30, 2021.

Christopher Bilotto, President and Chief Operating Officer of OPI, made the following statement:

"During the second quarter, we further advanced OPI's capital recycling program with the acquisition of two newly constructed, long-term leased office properties in strong urban core locations for $550 million. These Class A properties are majority leased to high credit quality tenants, including Google as its Midwest headquarters in Chicago and Insight Global as its corporate headquarters in Atlanta. During the second quarter and subsequent to quarter end, we sold three properties for a total of $46 million, addressing two of our known major vacates for 2021 and bringing total proceeds from our capital recycling efforts since 2020 to $287 million.

In May, we completed a successful bond offering in which we issued $300 million of 2.65% senior unsecured notes and applied the net proceeds to the redemption of $310 million of 5.875% senior unsecured notes, resulting in approximately $10 million of annual interest expense savings.

Our leasing activity also remained strong during the quarter as we completed 548,000 square feet of new and renewal leasing, with a weighted average lease term of 16.6 years and weighted average roll up in rents of 17.1%. New leasing activity absorbed 269,000 square feet of vacant space, inclusive of a long-term lease with Sonesta International Hotels Corporation at our 20 Massachusetts Avenue redevelopment in Washington, D.C., which represents approximately 54% of the total square feet upon its estimated completion in the first quarter of 2023.

The continued execution of our capital recycling program, our ability to efficiently raise capital and our strong leasing volume all contributed to enhance and diversify the quality of our office portfolio."

Quarterly Results:

• Net loss for the quarter ended June 30, 2021 was $66.7 million, or $1.38 per diluted share, compared to net income of $1.3 million, or $0.03 per diluted share, for the quarter ended June 30, 2020. Net loss for the quarter ended June 30, 2021 includes a $48.2 million, or $1.00 per diluted share, loss on impairment of real estate, a $11.8 million, or $0.24 per diluted share, loss on early extinguishment of debt and $5.9 million, or $0.12 per diluted share, of estimated business management incentive fee expense. Net income for the quarter ended June 30, 2020 includes a $0.6 million, or $0.01 per diluted share, loss on early extinguishment of debt.
  
  
  
  The $48.2 million loss on impairment of real estate for the quarter ended June 30, 2021 includes a $33.9 million loss on impairment of real estate related to a property located in Fresno, CA containing approximately 532,000 rentable square feet that was sold in July 2021, as well as losses on impairment of real estate totaling $14.3 million related to four properties with approximately 546,000 rentable square feet that were classified as held for sale as of June 30, 2021.
  
  
  
  The $5.9 million of estimated business management incentive fee expense recognized for the quarter ended June 30, 2021 is the result of OPI's common share total return, as defined in OPI's business management agreement, exceeding the returns for the SNL U.S. REIT Office index by 15.1% over the applicable measurement period. The estimated business management incentive fee for the six months ended June 30, 2021 is $11.1 million, which equates to a $22.2 million fee on an annual basis. The actual amount of annual incentive fees for 2021, if any, will be based on OPI's common share total return for the three-year period ending December 31, 2021, and will be payable in January 2022.

• Normalized funds from operations, or Normalized FFO, and cash available for distribution, or CAD, for the quarter ended June 30, 2021 were $55.4 million, or $1.15 per diluted share, and $33.8 million, or $0.70 per diluted share, respectively, compared to Normalized FFO and CAD for the quarter ended June 30, 2020 of $67.2 million, or $1.40 per diluted share, and $45.5 million, or $0.95 per diluted share, respectively.

• Same Property cash basis net operating income, or Cash Basis NOI, decreased 3.1% for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020. The decrease in Same Property Cash Basis NOI is primarily due to a decrease in cash revenues of $2.0 million primarily resulting from reductions in occupied space at certain of OPI's properties. Operating expenses also increased by $0.7 million, primarily driven by an increase in real estate taxes primarily due to refunds received in the 2020 period at certain of OPI's properties as a result of successful real estate tax appeals, as well as the effect of higher valuation assessments at certain of OPI's properties in 2021.

• Leasing activity for the quarter ended June 30, 2021 was as follows:

Reconciliations of net income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, Normalized FFO, CAD, net operating income (loss), or NOI, and Cash Basis NOI, and a reconciliation of NOI to Same Property NOI and Same Property Cash Basis NOI, for the quarters ended June 30, 2021 and 2020 appear later in this press release.

Acquisition Activities:

• In June 2021, OPI acquired a property in Chicago, IL containing approximately 531,000 rentable square feet for a purchase price of $355.0 million, excluding purchase price adjustments and acquisition related costs. This property is 99% leased with a weighted average lease term of 6.6 years.

• Also in June 2021, OPI acquired a property in Atlanta, GA containing approximately 346,000 rentable square feet for a purchase price of $195.0 million, excluding purchase price adjustments and acquisition related costs. This property is 98% leased with a weighted average lease term of 14.2 years.

• As previously reported, OPI has entered into an agreement to acquire a property adjacent to a property it owns in Boston, MA containing approximately 49,000 rentable square feet for a purchase price of $27.0 million, excluding acquisition related costs. This property is 59% leased with a weighted average lease term of 2.1 years. This acquisition is expected to occur before the end of the third quarter.

Disposition Activities:

• As previously reported, in April 2021, OPI sold a property located in Huntsville, AL containing approximately 1,371,000 rentable square feet for a sales price of $39.0 million, excluding closing costs.

• In July 2021, OPI sold a property located in Fresno, CA containing approximately 532,000 rentable square feet for a sales price of $6.0 million, excluding closing costs.

• Also in July 2021, OPI sold a property located in Liverpool, NY containing approximately 38,000 rentable square feet for a sales price of $0.7 million, excluding closing costs.

• In addition, OPI entered into an agreement in May 2021 to sell a property located in Memphis, TN containing approximately 205,000 rentable square feet for a sales price of $15.3 million, excluding closing costs. This sale is expected to occur before the end of the third quarter.

Liquidity and Financing Activities:

• As of June 30, 2021, OPI had $18.7 million of cash and cash equivalents and $365.0 million available to borrow under its $750.0 million unsecured revolving credit facility.

• In May 2021, OPI issued $300.0 million of 2.650% senior unsecured notes due 2026 in an underwritten public offering raising net proceeds of $296.8 million, after deducting underwriters' discounts and offering expenses.

• In June 2021, OPI redeemed, at par plus accrued interest, all $310.0 million of its 5.875% senior unsecured notes due 2046 using cash on hand and the net proceeds from the issuance of its 2.650% senior unsecured notes due 2026.

• Also in June 2021, OPI prepaid, at a premium plus accrued interest, a mortgage note secured by three properties with an outstanding principal balance of $71.0 million, an annual interest rate of 3.55% and a maturity date in May 2023 using cash on hand and borrowings under its revolving credit facility.

Conference Call:

On Friday, July 30, 2021 at 10:00 a.m. Eastern Time, President and Chief Operating Officer, Christopher Bilotto, and Chief Financial Officer and Treasurer, Matthew Brown, will host a conference call to discuss OPI’s second quarter 2021 financial results.

The conference call telephone number is (877) 328-1172. Participants calling from outside the United States and Canada should dial (412) 317-5418. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. on Friday, August 6, 2021. To access the replay, dial (412) 317-0088. The replay pass code is 10157583.

A live audio webcast of the conference call will also be available in a listen only mode on OPI’s website, at www.opireit.com. Participants wanting to access the webcast should visit OPI’s website about five minutes before the call. The archived webcast will be available for replay on OPI’s website following the call for about one week. The transcription, recording and retransmission in any way of OPI’s second quarter conference call are strictly prohibited without the prior written consent of OPI.

Supplemental Data:

A copy of OPI’s Second Quarter 2021 Supplemental Operating and Financial Data is available for download at OPI’s website, www.opireit.com. OPI’s website is not incorporated as part of this press release.

Non-GAAP Financial Measures:

OPI presents certain “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC, including FFO, Normalized FFO, CAD, NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of OPI’s operating performance or as measures of OPI’s liquidity. These measures should be considered in conjunction with net income (loss) as presented in OPI's condensed consolidated statements of income (loss). OPI considers these non-GAAP measures to be appropriate supplemental measures of operating performance for a real estate investment trust, or REIT, along with net income (loss). OPI believes these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of OPI’s operating performance between periods and with other REITs and, in the case of NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of OPI's properties.

Please see the pages attached hereto for a more detailed statement of OPI’s operating results and financial condition and for an explanation of OPI’s calculation of FFO, Normalized FFO, CAD, NOI, Cash Basis NOI, Same Property NOI and Same Property Cash Basis NOI and a reconciliation of those amounts to amounts determined in accordance with GAAP.

OPI is a REIT focused on owning, operating and leasing properties primarily leased to single tenants and those with high credit quality characteristics such as government entities. OPI is managed by the majority owned operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.

See Notes on pages 7 and 8.

See Notes on page 10.

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever OPI uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, OPI is making forward-looking statements. These forward-looking statements are based upon OPI’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by OPI’s forward-looking statements as a result of various factors. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond OPI's control. For example:

• Mr. Bilotto's statement that OPI advanced its capital recycling program during the quarter may imply that OPI will continue to advance its capital recycling program in the future and execute on its investment strategies. However, OPI may not be able to identify and successfully negotiate and complete acquisitions or sales and it may not realize its target returns on investments it may make or its target proceeds on properties it elects to sell,
• Mr. Bilotto states that OPI's bond offering of $300 million of 2.65% senior unsecured notes resulted in annual interest expense savings of approximately $10 million as a result of applying the net proceeds from that offering to repay other debt that had a higher interest rate. This may imply that OPI will have similar demand in capital markets in the future, that future offerings will be accretive to OPI's operating results and that OPI's interest expense will be lower in future periods. However, OPI may not have similar demand for future bond offerings or be able to access capital and the resulting interest expense of any future offerings may not be lower than the interest rates on OPI's existing debt. Further, OPI expects to borrow additional amounts in the future to grow its business and for other needs and its interest expense will likely increase in future periods as a result from time-to-time,
• Mr. Bilotto's statements about OPI's leasing activity and roll-ups in rents may imply that OPI will continue to have similar and better leasing activity in future periods. However, OPI's ability to realize positive leasing activity and roll-ups in rents depend on various factors, including market conditions, the impact of the COVID-19 pandemic, the financial strength of OPI's tenants, tenants' demand for OPI's properties, the timing of lease expirations and OPI's ability to successfully compete for tenants, among other factors. As a result, OPI may not realize positive leasing activity and rent roll-ups in the future and OPI's leasing activity and occupancy could decline and OPI may realize rent roll-downs and decreased rental income in the future,
• Mr. Bilotto's statements regarding OPI's redevelopment of 20 Massachusetts Avenue in Washington, D.C., its leasing at the property and the expected delivery date of the redeveloped property may imply that OPI will be able to complete this redevelopment project within the expected timeline, that there will be demand to lease the redeveloped property and that the resulting leases will be accretive to OPI's operating results. However, this redevelopment will require significant capital and time to complete and could be delayed, there may not be demand to lease the redeveloped property upon its completion and as a result, OPI's operating results could decline, and
• OPI has entered into an agreement to acquire a property for a purchase price of $27.0 million, excluding acquisition related costs, and an agreement to sell a property for a sales price of $15.3 million, excluding closing costs. These transactions are subject to conditions. Those conditions may not be satisfied and these transactions may not occur, may be delayed or the terms may change.

The information contained in OPI’s filings with the SEC, including under “Risk Factors” in OPI’s periodic reports, or incorporated therein, identifies other important factors that could cause OPI’s actual results to differ materially from those stated in or implied by OPI’s forward-looking statements. OPI’s filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, OPI does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.

No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

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