NEWTON, Mass.--(BUSINESS WIRE)--Office Properties Income Trust (Nasdaq: OPI) today announced its financial results for the quarter and six months ended June 30, 2020.

David Blackman, President and Chief Executive Officer of OPI, made the following statement:

“OPI delivered solid results for the 2020 second quarter, exceeding consensus estimates and our expectations. Highlights include completing 642,000 square feet of leasing with a 3.9% roll-up in rents for a weighted average lease term of more than six years, a year over year increase in same property cash basis NOI of 2.5%, a CAD dividend payout ratio of 57.9% and continued strong collection of cash rents. To date, we have granted only $2.5 million of deferrals to 23 tenants for the months of April through September, which represents only 88 basis points of contractual rents over that period. We also issued an aggregate of $162 million of 30 year senior unsecured notes in June and July and, in July, we entered an agreement to sell a four property business park for $25.4 million and an agreement to purchase an office property for $38.1 million under our capital recycling program. All of this is against the back drop of a strained economy from the COVID-19 pandemic. However, the successful completion of OPI’s $1 billion disposition program in 2019, our relatively low leveraged balance sheet and diverse portfolio of high quality tenants better positions OPI to weather these difficult economic conditions.

As a result, we remain optimistic that our business will continue to perform well throughout the remainder of 2020."

Results for the Quarter Ended June 30, 2020:

Net income for the quarter ended June 30, 2020 was $1.3 million, or $0.03 per diluted share, compared to a net loss of $64.8 million, or $1.35 per diluted share, for the quarter ended June 30, 2019. 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. Net loss for the quarter ended June 30, 2019 includes a $66.1 million, or $1.38 per diluted share, unrealized loss on equity securities related to OPI's former investment in The RMR Group Inc., or RMR Inc., which OPI sold on July 1, 2019, and a $2.4 million, or $0.05 per diluted share, loss on impairment of real estate, partially offset by certain net revenue events recorded during the quarter ended June 30, 2019 totaling $8.2 million, or $0.17 per diluted share, including a $7.4 million early termination fee related to a single tenant property located in San Jose, CA. The weighted average number of diluted common shares outstanding was 48.1 million for the quarter ended June 30, 2020 and 48.0 million for the quarter ended June 30, 2019.

Normalized funds from operations, or Normalized FFO, and cash available for distribution, or CAD, for the quarter ended June 30, 2020 were $67.2 million, or $1.40 per diluted share, and $45.5 million, or $0.95 per diluted share, respectively, compared to Normalized FFO and CAD for the quarter ended June 30, 2019 of $79.3 million, or $1.65 per diluted share, and $56.7 million, or $1.18 per diluted share, respectively.

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 and CAD for the quarters ended June 30, 2020 and 2019 appear later in this press release.

Results for the Six Months Ended June 30, 2020:

Net income for the six months ended June 30, 2020 was $12.1 million, or $0.25 per diluted share, compared to a net loss of $30.8 million, or $0.64 per diluted share, for the six months ended June 30, 2019. Net income for the six months ended June 30, 2020 includes a $10.8 million, or $0.22 per diluted share, gain on sale of real estate, partially offset by a $3.8 million, or $0.08 per diluted share, loss on early extinguishment of debt. Net loss for the six months ended June 30, 2019 includes a $44.0 million, or $0.92 per diluted share, unrealized loss on equity securities related to OPI's former investment in RMR Inc., which OPI sold on July 1, 2019, and a $5.6 million, or $0.12 per diluted share, loss on impairment of real estate, partially offset by a $22.1 million, or $0.46 per diluted share, net gain on sale of real estate and certain net revenue events totaling $8.2 million, or $0.17 per diluted share, including a $7.4 million early termination fee related to a single tenant property located in San Jose, CA. The weighted average number of diluted common shares outstanding was 48.1 million for the six months ended June 30, 2020 and 48.0 million for the six months ended June 30, 2019.

Normalized FFO and CAD for the six months ended June 30, 2020 were $134.7 million, or $2.80 per diluted share, and $92.9 million, or $1.93 per diluted share, respectively, compared to Normalized FFO and CAD for the six months ended June 30, 2019 of $152.5 million, or $3.17 per diluted share, and $110.2 million, or $2.29 per diluted share, respectively.

Reconciliations of net income (loss) determined in accordance with GAAP to FFO, Normalized FFO and CAD for the six months ended June 30, 2020 and 2019 appear later in this press release.

Leasing, Occupancy and Same Property Results:

During the quarter ended June 30, 2020, OPI entered new and renewal leases for an aggregate of 642,000 rentable square feet at weighted (by rentable square feet) average rents that were 3.9% above prior rents for the same space. The weighted (by rentable square feet) average lease term for these leases was approximately 6.1 years and leasing concessions and capital commitments were $16.5 million, or $4.25 per square foot, per lease year.

As of June 30, 2020, 91.7% of OPI’s total rentable square feet was leased, compared to 91.5% as of March 31, 2020 and 91.6% as of June 30, 2019. Occupancy for properties owned continuously since April 1, 2019, or same properties, was 92.8% as of June 30, 2020, compared to 92.6% as of March 31, 2020 and 93.4% as of June 30, 2019. Same property cash basis net operating income, or Cash Basis NOI, increased 2.5% for the quarter ended June 30, 2020 compared to the quarter ended June 30, 2019. The increase in same property Cash Basis NOI is due to an increase in cash received from contractual rents of $1.1 million, which is primarily the result of free rent expiring and decreases in operating expenses, including approximately $1.7 million of expense savings as a result of cost savings initiatives in response to the COVID-19 pandemic.

Reconciliations of net income (loss) determined in accordance with GAAP to net operating income, 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, 2020 and 2019, appear later in this press release.

For the quarter ended June 30, 2020, OPI collected approximately 98% of contractual rent obligations and 99% of contractual rent obligations after giving effect to such rent deferrals.

While it is still early to assess the full impact the COVID-19 pandemic will have on OPI's business, OPI believes it will benefit from the approximately 62.8% of annualized rental income paid by investment grade tenants, the majority of which is made up of government tenants, and the diversity of its tenant base, both geographically and by industry, which OPI believes may help mitigate the economic impact caused by the COVID-19 pandemic.

Recent Acquisition Activities:

In July 2020, OPI entered into an agreement to acquire an office property located in Denver, CO containing approximately 68,000 rentable square feet for a purchase price of $38.1 million, excluding acquisition related costs. This property is 100% leased to a single tenant and has a remaining lease term of 11.5 years. This acquisition is expected to occur before the end of the third quarter.

Recent Disposition Activities:

In July 2020, OPI entered into an agreement to sell a four property business park located in Fairfax, VA containing approximately 171,000 rentable square feet for a sales price of $25.4 million, excluding closing costs. This sale is expected to occur before the end of the third quarter.

Recent Financing Activities:

As previously announced, in April 2020, OPI prepaid, at par plus accrued interest, a mortgage note secured by one property with an outstanding principal balance of $32.7 million, an annual interest rate of 5.7% and a maturity date in July 2020 using cash on hand and borrowings under its revolving credit facility.

In June 2020, OPI issued $150.0 million of 6.375% senior unsecured notes due 2050 in an underwritten public offering, raising net proceeds of $144.8 million, after deducting underwriters’ discounts and estimated offering expenses. In connection with this offering, OPI granted the underwriters a 30 day option to purchase up to an additional $22.5 million aggregate principal amount of these notes. In July 2020, the underwriters partially exercised this option for an additional $12.0 million of these notes. OPI used the aggregate net proceeds of this offering to repay amounts outstanding under OPI's revolving credit facility and for general business purposes

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 operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.