Office Properties Income Trust

The outlook on OPI is stable. Although we expect S&P Global Ratings' adjusted debt to EBITDA to increase to the low- to mid-6x area over the next two years, we anticipate relatively stable cash flows, given the company's largely investment-grade tenant profile. We could lower the rating if OPI pursues debt-financed acquisitions that raises debt to EBITDA above 7.5x for a sustained period. We could also lower the rating if the company fails to retain tenants that have upcoming lease expirations, or it fails to lease its vacant properties, resulting in significantly worse occupancy and other operating metrics relative to our current expectations. Although unlikely over the next two years, we would consider raising the rating if OPI materially improves

...A focus on investment-grade rated tenants--along with the company's dual strategies to either own single-tenant buildings strategic to the tenant or those that can be leased to government tenants with high security needs or a mission strategic to their locations--should result in relatively high tenant retention rates and stable cash flows. We favor Office Properties Income Trust's focus on investment-grade rated tenants, which accounted for 62.8% of annualized rental income as of June 30, 2020. The U.S. government (25.2%) is the company's top tenant, providing even greater tenant stability given its high credit quality and prevalence to renew leases. Moreover, we believe cash-flow stability is buttressed by OPI's dual investment focus on owning either single-tenant properties that are strategic to the tenant (including corporate headquarters, build-to-suit properties, and buildings where tenants have invested meaningful capital) and that have at least seven years of remaining lease term;...

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