Office Properties Income Trust - Case Summary

Business Description Headquartered in Newton, Massachusetts, OPI is a real estate investment trust (REIT) formed in 2009 under Maryland law that owns and lea...

Business Description

Headquartered in Newton, Massachusetts, OPI is a real estate investment trust (REIT) formed in 2009 under Maryland law that owns and leases high-quality office and mixed-use properties in select, growth-oriented U.S. markets. The Company, which has elected to be taxed as a REIT since 2009, maintains a diversified revenue base with properties in central business district, urban infill, and suburban locations.

The Company’s portfolio consists of 124 wholly owned properties located in 29 states and the District of Columbia, containing approximately 17.2 million rentable square feet. The Debtor entities wholly own 117 of these properties, which comprise approximately 15.9 million rentable square feet.
The U.S. government is the Company's largest tenant, representing approximately 17.1% of its annualized rental income.

OPI has no employees and is externally managed by The RMR Group LLC (“RMR”), an alternative asset management company, which provides the personnel and services required to operate its properties pursuant to management agreements.

As a REIT, OPI is required to distribute at least 90% of its annual taxable income, which limits its ability to retain cash to fund operations, repay debt, or finance investments.
Consequently, the Company has historically funded these activities through borrowings under its credit facilities, debt or equity issuances, asset sale proceeds, and any operating cash flow in excess of required distributions.

Corporate History

OPI was formed in 2009 as Government Properties Income Trust, initially as a wholly owned subsidiary of HRPT Properties Trust (later known as CommonWealth REIT). With an initial portfolio of 29 majority-government-leased properties, OPI completed its initial public offering in June 2009, becoming a separate, publicly owned company. CommonWealth REIT remained OPI’s largest shareholder until it sold its entire stake in a public offering in March 2013.

Growth Through Strategic Acquisitions

The Company has historically grown its portfolio through strategic acquisitions, including a significant investment in July 2014 when it acquired approximately 35.9% of the common shares of Select Income REIT (“SIR”) from HRPT.
In October 2017, OPI acquired First Potomac Realty Trust (“FPO”) in a transaction valued at approximately $1.4 billion. This acquisition added 72 properties totaling approximately 6.5 million square feet to OPI’s portfolio.
Subsequently, in December 2018, OPI acquired SIR by merger in an approximately $2.4 billion transaction, adding SIR’s portfolio of 99 properties with approximately 16.5 million square feet of office space.

Following the SIR acquisition, the Company implemented a “capital recycling” program focused on repositioning its investment portfolio through the selective sale of certain properties, using the proceeds to acquire higher-yielding assets or reduce leverage.

Operations Overview

OPI is the ultimate parent of all Debtor entities and certain non-Debtor subsidiaries, which include special purpose entities whose mortgage debt has been securitized in the commercial mortgage-backed securities (“CMBS”) markets. The Company also holds a 51% noncontrolling interest in an unconsolidated joint venture that owns two properties. OPI operates in a single business segment: the ownership of real estate properties.

Management and Governance

The Company has no employees and is managed by RMR under business and property management agreements. OPI’s executive officers and its two Managing Trustees are also employees of RMR.
OPI is governed by a nine-member Board of Trustees, consisting of two Managing Trustees and seven Independent Trustees. The Board’s three standing committees—Audit, Compensation, and Nominating and Governance—are composed solely of Independent Trustees.

Property Portfolio and Tenant Base

As of the Petition Date, the Debtors’ 117 properties were approximately 75.7% leased, while the Company's overall portfolio of 124 properties was approximately 77.5% leased.
The Company’s portfolio is geographically concentrated in the metropolitan Washington, D.C. market, which accounts for approximately 24.2% of its annualized rental income. Other significant markets include Virginia (14.1%), California (12.1%), Illinois (10.9%), Georgia (10.5%), and Texas (9.4%).
The portfolio is leased to 220 different tenants with a weighted average remaining lease term of approximately 6.8 years.
- Government tenants (federal, state, and other) represent approximately 25.4% of annualized rental income, with the U.S. government being the single largest tenant at 17.1%.
- A majority of the Company's rental income is derived from tenants that are investment-grade rated or whose obligations are guaranteed by an investment-grade parent.
The Company faces significant lease expirations, with tenants in approximately 682,000 and 60,000 rentable square feet expected not to renew or to downsize their space during 2025 and 2026, respectively.

Key Management Agreements

RMR Management Agreements: RMR provides comprehensive business and property management services.
- Under the Business Management Agreement, RMR performs all corporate office functions, including investment analysis, legal and regulatory compliance, and accounting.
- Under the Property Management Agreement, RMR handles property-level operations, including leasing, rent collection, repairs, and expense payments. RMR receives a management fee of 3% of gross collected rents and a construction supervision fee of 5% of certain construction costs.
Sonesta Management Agreement: To comply with REIT regulations prohibiting active business operations, Debtor Government Properties Income Trust LLC leases its mixed-use property at 20 Massachusetts Ave NW in Washington, D.C., which includes the Royal Sonesta Capitol Hill hotel, to a taxable REIT subsidiary (“TRS”). The TRS, in turn, has a management agreement with Sonesta DC Hotel LLC to operate the hotel.

Prepetition Obligations

As of the Petition Date, the Company’s principal debt obligations consisted of approximately $1.9 billion in secured debt and $491.1 million in senior unsecured notes. A summary of the Debtors’ funded debt is below:

Secured Debt

Credit Facility: Approximately $425 million is outstanding, consisting of a $325 million revolving credit facility and a $100 million term loan. Wilmington Savings Fund Society, FSB serves as administrative agent.
- The facility is secured by first-priority mortgage liens on 19 properties and pledges of the equity interests in the subsidiaries that own them.
9.000% Senior Secured Notes due March 2029: Approximately $300 million in principal amount is outstanding.
- The notes are secured by first-priority mortgage liens on 17 properties and pledges of the equity interests in the subsidiaries that own them. The indenture includes a make-whole provision.
9.000% Senior Secured Notes due September 2029: Approximately $610 million in principal amount is outstanding across two series.
- The notes are secured by first-priority mortgage liens on 19 properties and second-priority liens on the 19 properties securing the Credit Facility. The indentures include a make-whole provision.
3.250% Senior Secured Notes due March 2027: Approximately $418 million in principal amount is outstanding.
- The notes are secured by a complex collateral package that includes first-priority liens on 35 properties and second-priority liens on the 19 properties securing the September 2029 Notes. The notes require quarterly principal amortization and a mandatory principal payment of approximately $117.5 million on March 1, 2026.

Unsecured Debt

Senior Unsecured Notes: Approximately $491.1 million in aggregate principal amount is outstanding across five tranches of notes.

Non-Debtor Mortgage Notes

Approximately $177.3 million in aggregate principal is outstanding under various mortgage notes at non-Debtor subsidiaries. While these notes are non-recourse to the Debtors, OPI provides a limited guaranty, creating a potential default as a result of the bankruptcy filing.

Trade Debt

The Debtors estimate approximately $554,000 in outstanding trade claims.

Events Leading to Bankruptcy

Macroeconomic Headwinds and Operational Pressures

The Company’s financial distress is primarily attributable to broad macroeconomic shifts in the office real estate sector, which were accelerated by the COVID-19 pandemic. Increased remote work arrangements and tenants consolidating their real estate footprints have reduced demand for office space, particularly for older, single-tenant suburban properties that are a significant part of OPI’s portfolio. These factors, combined with a challenging financing market, rising interest rates, and inflationary pressures, have led to declining rental income and a significant negative impact on the Company's financial performance, including a 96% increase in its net loss in 2024 compared to 2023.

Prepetition Liability Management and Dwindling Liquidity

Since 2023, OPI has engaged in a series of capital structure transactions—including debt exchanges and new issuances—to extend maturities and manage liquidity. While these transactions addressed near-term maturities, they required the Company to encumber its highest-quality, previously unencumbered properties, thereby increasing its secured debt load and severely limiting its financial flexibility. With its revolving credit facility fully drawn and facing approximately $1.1 billion in debt maturities over the next 24 months, the Company’s access to additional capital became severely restricted.

Restructuring Negotiations and RSA

In early 2025, after determining that out-of-court alternatives were limited, the Company engaged financial and legal advisors to evaluate an in-court restructuring. In June 2025, OPI began negotiations with several ad hoc creditor groups, including holders of its March 2027 and September 2029 secured notes. After evaluating various proposals, the Company determined that a transaction proposed by an ad hoc group of September 2029 noteholders offered the most viable path forward.

On Oct. 30, 2025, the Debtors entered into a Restructuring Support Agreement (“RSA”) with holders of approximately 80% of the September 2029 Notes.
The RSA outlines a comprehensive restructuring that will reduce the Company’s total funded debt by approximately $1.1 billion, from roughly $2.4 billion to $1.3 billion upon emergence.

Chapter 11 Filing and Proposed Plan

To implement the transactions contemplated in the RSA, the Debtors commenced their Chapter 11 cases. The proposed restructuring is supported by key stakeholders and includes several critical components:

DIP Financing: The September 2029 noteholder group has committed to provide $125 million in new-money, non-priming debtor-in-possession financing to fund operations during the Chapter 11 cases.
Asset Sales: The plan includes a global process for the sale of certain properties designated for disposition.
RMR Agreements: The existing management agreements with RMR will be amended and restated upon emergence.
Creditor Treatment: The restructuring contemplates the payment in full of most trade creditors, vendors, and suppliers in the ordinary course of business.