Office Properties Income Trust (NASDAQ:OPI), a Newton, Massachusetts based office REIT, has seen its share price rebound in recent months after terminating a controversial merger proposal with Diversified Healthcare Trust (NASDAQ:DHC).
Though the company still faces challenges like high debt and a bloated dividend payout, new management and leasing activity provide optimism for OPI’s future.
Brief Background on Office Properties Income Trust
Office Properties Income Trust owns 154 office properties totaling 20.7 million square feet across the United States. As of Q3 2022, the REIT had an occupancy rate of 89.9%.
OPI is externally managed by RMR Group Inc. (NASDAQ:RMR), which also manages DHC. This relationship with RMR sparked the proposed merger between OPI and DHC, which shareholders vehemently opposed.
In September 2023, after months of criticism, OPI agreed to terminate the merger with DHC. This news catalyzed a rally in OPI’s stock price.
Share Price Rebound Since Canceled Merger
On December 12, 2023, the day before a pivotal Fed meeting, OPI closed at $5.91 per share. After the merger cancellation, OPI’s stock rose substantially. Its most recent close was $6.88, representing a 16.4% gain.
Over the past month alone, OPI has surged 37.32%. Investors welcomed the failed DHC merger, which was expected to be highly dilutive for OPI shareholders.
Bloated Dividend Remains a Concern
Despite the share price rebound, OPI still pays an elevated dividend yield of 14.53%. This is down from an astronomical yield above 23% in late September.
The payout ratio now sits at 23.8%, but OPI’s high debt load and weak cash flows point to dividend trouble ahead.
In April 2023, OPI cut its dividend from $0.55 to $0.25 per share quarterly. It maintained the reduced $0.25 dividend in October. However, with $2.57 billion in debt and operating cash flow of only $109 million last quarter, further dividend cuts could still materialize.
New Management Provides Hope
On November 17, OPI announced leadership changes taking effect January 1, 2023. Christopher Bilotto will shift from OPI President to become President and CEO of DHC.
Replacing Bilotto as OPI President is Yael Duffy, promoted from her previous role as OPI’s Chief Operating Officer. Investors hope new management will chart a stronger path forward for the office REIT.
More Read
Signs of Leasing Momentum
Despite headwinds in the office market, OPI is making leasing progress. As of November 7, the company had leased or renewed over 1 million square feet of office space in 2023.
OPI is capitalizing on its diverse tenant base of government, medical, financial, legal, and other professional firms. These recession-resistant tenants should support occupancy ahead.
New leadership, leasing momentum, and separation from DHC paint an improving picture for Office Properties Income Trust. While risks like debt and dividends linger, OPI appears to be turning a corner after a tough 2023. Investors will watch closely for continued signs of operational improvement in 2024.