Office REIT on the Brink as Debt Deadlines Close In

Office Properties Income Trust is running out of time.

The Massachusetts-based REIT tapped a restructuring veteran as it stares down hundreds of millions in maturing debt, dwindling cash reserves and rising vacancies across its Class-B office portfolio.

The board this month appointed AlixPartners’ John Castellano as chief restructuring officer, a move that follows the firm’s own warning this summer that bankruptcy could be on the table if it can’t refinance or sell off assets, Bisnow reported.

The REIT, managed by the RMR Group, counts $277 million in debt coming due next year and nearly $800 million in 2027, but there’s limited lender appetite for refinancing. S&P Global cut OPI’s rating to CCC- this May, signaling default risk within six months.

Liquidity is evaporating. Cash reserves fell from $275 million at the start of the year to $90 million by midyear and management expects another $50 million to be drained by year’s end. Funds from operations in the second quarter collapsed to $5.6 million, compared with $259 million a year prior, as occupancy slipped to 85 percent.

OPI’s portfolio totals 17 million square feet, concentrated in Washington, D.C., with the U.S. government and Alphabet among its largest tenants. Even federal leases, once a bulwark, are less reliable as space cutbacks loom.

OPI tried to chip away at the problem through small-bore asset sales and an equity program that raised barely $1 million in the first half of the year, far short of the $100 million authorization. It listed a vacant 183,000-square-foot office and attached hotel in D.C. earlier this year. But outside trophy assets, investor appetite for second-tier offices remains muted.

The REIT’s stock tells the story: once near $30 a share in 2021, it now trades at about 34 cents. A failed merger with sister health care REIT Diversified Healthcare Trust last year only underscored investor skepticism about RMR’s strategy.

Unless Castellano can pull off a last-minute restructuring, OPI’s options are narrowing to asset fire sales or a trip to bankruptcy court.

— Holden Walter-Warner