The office market might finally be on the upswing, but the recovery came too late for a publicly traded landlord that has struggled to keep up with mounting debts amid dwindling cash flow.
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Office Properties Income Trust, which is managed by Massachusetts-based The RMR Group, filed for Chapter 11 restructuring protection in the U.S. Bankruptcy Court for the Southern District of Texas on Thursday.
The REIT, which controls a 17M SF portfolio of largely Class-B office buildings, has already struck a deal with lenders it hopes will allow it to emerge from the restructuring with less debt, according to its bankruptcy petition and a press release from the company.
OPI and a group of its senior lenders are seeking court approval to convert $1B of debt into equity. Those lenders also agreed to extend a new $125M credit line via debtor-in-possession financing to allow OPI to keep operating during the bankruptcy process.
The agreement will allow for OPI to reduce its leverage, reduce debt service obligations and simplify its capital structure, OPI President and Chief Operating Officer Yael Duffy said in a statement.
“We expect no disruptions to our business or properties during the pendency of the proceedings and expect OPI to emerge as a more stable and financially flexible company, well positioned to advance its strategic initiatives,” Duffy said.
OPI retained Latham & Watkins LLP and Hunton Andrews Kurth LLP as legal counsel. Moelis & Co. is OPI's investment banker, and AlixPartners subsidiary AP Services is serving as the restructuring adviser.
The REIT has between $1B and $10B in both assets and liabilities, according to its filing. It disclosed more than $1.9B in secured debt and more than $491M in unsecured debt.
The restructuring support agreement includes new business and property management agreements with RMR, which would take effect once the bankruptcy plan is approved, according to a Thursday filing with the Securities and Exchange Commission.
The new management agreement would net RMR $14M a year in fees for the first two years of the five-year period, in addition to current fees under the existing property management agreement.
OPI’s bankruptcy filing follows a year of mounting difficulties for the company. One year ago Thursday, OPI flagged “substantial doubt about our ability to continue” in a quarterly filing with the SEC.
The company was already drawing scrutiny for its exposure to U.S. government leases, which comprise 17% of its portfolio, at the time of the October 2024 filing. That uncertainty has carried through into this year, as the Trump administration sought to pull back aggressively on leases for government agencies.
Occupancy has been dropping this year as OPI’s cash reserves dwindled from $275M at the beginning of the year to $90M at the end of June.
Its funds from operations dropped from $259M in Q2 2024 to $5.6M a year later. By February, S&P Global Ratings had downgraded OPI to a junk bond rating of CCC, signaling a belief that the REIT may default in the near future.
The REIT appointed AlixPartners' John Castellano as chief restructuring officer in September and missed a $30M debt service payment a few days later, signaling bankruptcy was likely coming.
RMR had tried to rescue OPI by merging it with a better-performing REIT it manages, Diversified Healthcare Trust, in 2023, but that deal was rejected by Diversified's shareholders.
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