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Office Properties Income Trust  (NASDAQ:OPI)
Q1 2020 Earnings Call
May. 01, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Office Properties Income Trust First Quarter 2020 Financial Results Conference Call. At this time, for opening remarks and introductions, I would like to turn the call over to Olivia Snyder, Manager of Investor Relations.

Olivia Snyder -- Manager of Investor Relations

Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are OPI's President and Chief Executive Officer, David Blackman; Chief Financial Officer and Treasurer, Matt Brown; and Vice President, Chris Bilotto. In just a moment, they will provide details about our business and our performance for the first quarter of 2020, followed by a question-and-answer session with sell-side analysts.

First, I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on OPI's beliefs and expectations as of today, Friday, May 1, 2020, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from our website, opireit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements.

In addition, we will be discussing non-GAAP numbers during this call, including normalized funds from operations or normalized FFO, cash available for distribution, or CAD, adjusted EBITDA and cash basis net operating income, or cash basis NOI. A reconciliation of these non-GAAP figures to net income are available in our supplemental operating and financial data package, which also can be found on our website.

In addition, we will be providing guidance on this call, including normalized FFO and cash basis NOI. We are not providing a reconciliation of these non-GAAP figures as part of our guidance. Because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate.

Before turning the call over to David, I would like to note that due to the Massachusetts shelter-in-place order, we are unable to conduct today's call from the same location. As a result, there may be some delays during our question-and-answer session, and there is a risk our audio may not be as clear as normal. David?

David Blackman -- President and Chief Executive Officer

Thank you, Olivia, and good morning. Welcome to the first quarter earnings call for Office Properties Income Trust. Like most of you joined today's call, the COVID-19 pandemic has dramatically changed the way we conduct business. The economic disruption brought on by the oil price war and the closing of non-essential businesses across the U.S. has resulted in record unemployment claims not seen since the 1930s and has adversely impacted businesses of all sizes throughout the global economy. As I have worked remotely these past 45 days, focus on the continuity of our businesses, the health and well-being of my family, our stakeholders and tenants, I take comfort in the strength of the RMR organization and how we have positioned OPI to not only survive this economic shock, but to likely thrive coming out of it.

There are several factors that position OPI to perform well in what will eventually be an economic recession. One, OPI has minimal lease expirations for the remainder of the year, equal to only 4.7% of our annualized rents. Two, OPI's leverage is low on a net debt-to-EBITDA basis at only 5.9 times, below our targeted range of 6 times to 6.5 times. Three, OPI has minimal debt maturities until 2022 with only $40 million of debt maturing. Four, OPI has adequate liquidity with almost $400 million of availability under our $750 million unsecured revolving credit facility and our investment-grade ratings have recently been affirmed at BBB-, Baa3 with stable outlooks. Five, OPI has one of the highest percentages of rents paid by investment-grade rated tenants in the office sector at 62.2% of our annualized rent, including more than 38% paid by government tenants. Six, OPI has granted minimal rent assistance to our tenants for the month of April through July equal to approximately 70 basis points of our contractual cash revenue over that period, and all of our Top 20 tenants have paid April rent. Seven, OPI has a well-diversified portfolio of properties both geographically with limited exposure to coastal gateway markets that had been hardest hit by the pandemic and by tenant industry, with approximately 78% of our annualized rent paid by tenants operating in industries deemed essential. Eight, OPI's first quarter CAD payout ratio was 56.1%, which is low for the office sector and below our targeted payout ratio of 75%. Considering annual capital spending will likely be below expectations, we also expect our full-year payout ratio will be low -- will be below our target.

Chris and Matt will provide more detail in their prepared remarks that will further highlight OPI's excellent results for the first quarter. In summary, normalized FFO was $1.40 per share, which beat consensus estimates. We completed almost 600,000 square feet of new and renewal leasing for a 4.1% roll-up in rent. Consolidated occupancy increased almost 200 basis points year-over-year, and same-property cash basis NOI increased 1.2% year-over-year.

As a reminder, OPI's disposition program to reduce leverage was completed at year-end 2019. In addition, we successfully closed on the sale of all the properties we had under agreement when we reported fourth quarter results, completing more than $85 million of asset sales under our capital recycling program. The six properties sold during the first quarter contained approximately 700,000 square feet at an average age of 22 years, and average occupancy of 94%. A weighted average lease term of six years eliminated more than $22 million of budgeted capital over five years and resulted in a five-year average cash contribution yield of 4.1%.

Once liquidity returns to the market, we will reinvigorate our capital recycling program. Likewise, our acquisition program will remain dormant until such time as we see interesting opportunities that are appropriately priced for today's economic risk.

One final note is that 100% of our buildings are operational and available to our tenants, but in most cases are being lightly utilized. Chris will give greater detail in his prepared remarks, but RMR, as our property manager, has implemented numerous protocols to protect the health and safety of our property management staff in order to keep our buildings open. This has been balanced with managing property operating expenses to save costs for our tenants.

With that, I'll turn the call over to Chris to review leasing and operating activity, followed by Matt to review financial results and the balance sheet. Chris?

Christopher Bilotto -- Vice President

Thank you, David, and good morning, everyone. As David highlighted, the strength of our portfolio and balance sheet should benefit us as we manage through the current economic challenges. While it is difficult to determine the duration and implications of the COVID-19 pandemic, our business was largely unaffected during the first quarter. OPI's portfolio has several characteristics, which we believe helps sustain us during times of economic volatility and keeps us largely insulated from events such as COVID-19. As David touched on, 62.2% of our portfolio is made up of investment-grade rated tenants, which includes 38.4% paid by government tenants. Other large industries in our portfolio, which we consider lower risk include technology, communications and legal, while higher-risk co-working tenancy makes up less than 15,000 square feet of our portfolio.

Our properties are geographically diverse and in many cases building attributes such as access to transit and those with enhanced security infrastructure complement the needs of our tenants and their employees, therefore, helping drive retention. Further, tenants involved in essential goods or services make up 78% of our annualized revenue, and roughly 94% of our annualized revenue is considered low risk by industry. As of quarter end, the portfolio's weighted average lease term is 5.6 years with occupancy of 91.5%.

Turning to implications related to COVID-19. As Matt will discuss in more detail, to date, we have granted rental assistance to 18 tenants in the form of rent deferrals. Tenant requests for assistance are reviewed on a case-by-case basis giving consideration to financial statements of business plan for managing through COVID-19 and participation through the CARES Act. In the event we grant rented systems, our general position is to defer rent for one month at a time and reevaluate as needed. Tenants are required to repay the total deferral over a 12-month period beginning this fall. We believe this approach provides greater assurances for collection while also partnering with those tenants who are experiencing a financial hardship to support the long-term success of their business, thus preserving our tenant relationships, retention and portfolio stability.

Nine of the 18 tenants who have been granted assistance are restaurants, ground floor retail or retail amenities. These higher-risk tenants are generally located on the ground floor of our buildings and make up less than 0.5% of our total annualized revenue. Through the RMR Group's credit risk team, we routinely review both industry and tenant risk while considering various factors around financials, industry and geography, to name a few. As noted earlier, roughly 94% of the portfolio by industry is considered low risk, and for those industries identified as high-risk, approximately 28% of the tenants by annualized revenue are investment-grade rated.

As communities across the country have moved to shelter-in-place orders, 100% of our properties remain operable. We have established protocols to ensure the safety of our tenants and employees while also mitigating unnecessary costs given the temporary reduction in usage. Example of these protocols include, first, all RMR employee management and engineering employees were trained on COVID-19 precaution procedures. Second, prioritization of non-emergency tenant work orders to limit RMR employee and tenant interaction. Third, enhanced cleaning protocols to focus on sanitizing high-touch points in common areas and restrooms. Fourth, a focus on reducing operational costs with the implementation of energy reduction protocols for lighting and HVAC systems and the reduction of non-essential building services, such as the frequency of trash removal. And lastly, the shutdown of building amenities such as fitness centers and conference facilities.

In addition to implementing enhanced operating protocols and social distancing guidelines, our management teams at RMR have established business continuity plans to prevent the spread of COVID-19 and to ensure operational stability at our properties. Non-critical travel has been suspended, regional leadership personnel have not been allowed to work in the same location at the same time, and personal protective equipment as required for [Phonetic] employees still working to manage our properties. RMR's platform with more than 30 offices across the country has allowed us to continue quality management of our properties, collect real-time information around evolving changes and to maintain our strong relationships and communications with tenants.

Finally, while continuing to manage protocols to ensure safety of our employees and tenants, we are also evaluating procedures for post-pandemic work environment and reoccupancy of our buildings.

Turning to our leasing results for the quarter. While we have begun to see a slowdown in tenant toward a new leasing activity, renewal leasing discussions are continuing, and we delivered positive results in the first quarter. We completed new leasing for an aggregate of 589,000 square feet for a weighted average roll-up in rent of 4.1%, a weighted average lease term of 4.8 years and leasing concessions and capital commitments of $4.60 per square foot per lease year.

Total portfolio occupancy has increased 190 basis points year-over-year to 91.5%. Our current leasing pipeline of 1.6 million square feet includes 450,000 square feet that could absorb vacant space across the portfolio. We anticipate a near-term conversion of 45% of our pipeline given that roughly 700,000 square feet of current activity that is in advanced stages of the signed proposal or lease documentation review.

Despite an active lease pipeline, we anticipate new lease activity for the second quarter may slow. During our fourth quarter call, we provided guidance on a same-store basis, which included a year-end occupancy target of 92% to 93% with a roll-up in rents of 2% to 3%. We believe the near-term impact from COVID-19 may delay tenants' decisions to lease new space, and therefore, speculate roughly 100 basis points to 200 basis points of our target year-end occupancy is at risk.

Before we move into our financial review, I will highlight that last month we announced that OPI received the 2020 ENERGY STAR Partner of the Year Sustained Excellence Award for its outstanding efforts in energy management. This is the third consecutive year that we have achieved Partner of the Year recognition and the first year earning the sustained excellence designation in the energy management category. Currently, 40 buildings in our portfolio are ENERGY STAR certified. Our manager, the RMR Group, was also honored with a 2020 ENERGY STAR Partner of the Year Award for its outstanding efforts as a service and product provider for the second year in a row.

I will now turn the call over to Matt Brown to provide details on our liquidity and this quarter's financial results. Matt?

Matt Brown -- Chief Financial Officer & Treasurer

Thanks, Chris, and good morning, everyone. As David and Chris both highlighted, we are carefully monitoring the COVID-19 pandemic and possible impact to our results and our liquidity. April rent collections remained strong and consistent with trends over the prior months with 96% of rent obligations collected. Our Top 20 tenants representing 58.6% of our annualized rental income have paid their April rent obligations. As of April 28, we have granted temporary rent deferrals to 18 tenants. Generally, these deferrals include one month of base rent in exchange for 12 increased monthly payments beginning in the fall of 2020. The total amount of rent deferred to date is $1.4 million broken down as follows: $452,000 in April; $809,000 in May and $71,000 in each of June and July. In aggregate, these deferrals represent 0.7% of the contractual cash revenue over that period. As these deferrals are deemed to be payment plans, consistent with the recent accounting guidance related to rent relief requests, we do not expect this rent assistance to impact our revenues; however, it will temporarily reduce our cash flows.

To date, no rent has been forgiven or abated. At March 31, we had $432 million of liquidity, including $30 million of cash and cash equivalents and $402 million of availability on our $750 million unsecured revolving credit facility. At March 31, our net debt to annualized adjusted EBITDAre was 5.9 times, which remains below our target leverage range for the second consecutive quarter. We currently have $395 million of availability on our revolving credit facility and only $40 million of debt maturities until 2022. Our balance sheet remains strong, and we have ample liquidity to weather the current disruptions facing the real estate industry.

Turning to consolidated financial results for the quarter. Normalized FFO for the first quarter was $67.6 million or $1.40 per share, which beat consensus of $1.33 per share. Normalized FFO exceeded our guidance estimate of $1.30 to $1.33 per share for the following reasons: a decrease in property operating expenses of $0.04 per share, mainly due to snow removal costs coming in below our forecast; $550,000 or $0.01 per share of settlement income related to a dispute with a vendor that was not forecasted. Market disruptions as a result of COVID-19 impacted our estimate as follows: a reduction in interest expense on a revolving credit facility of $0.01 per share due to a decline in LIBOR, a reduction in business management fees within G&A expense of $0.01 per share due to a decline in our share price in March.

CAD for the first quarter was $47.4 million or $0.98 per share, which resulted in a CAD payout ratio of 56.1%. In April, we declared a $0.55 per share dividend, maintaining our previous level. Our dividend remains well-covered, and we expect it to remain well-covered for the remainder of 2020. Rental income, property operating expenses and depreciation and amortization all declined as compared to Q1 2019 due to the sale of 64 properties for aggregate proceeds of $934.2 million since January 1, 2019. G&A expense for the first quarter was $7.1 million compared to G&A expense of $8.7 million for the first quarter of 2019. The decline in G&A expense is mainly the result of lower business management fees paid to RMR due to lower debt levels from property dispositions since January 1, 2019, partially offset by an increase in OPI's average share price.

In addition, we incurred higher amounts of share-based compensation in Q1 2019 as a result of increasing the number of trustees on our Board and the acceleration of unvested shares to SIR's former CFO, who retired from RMR in Q1 2019. As a reminder, our business management fee is paid based on the lesser of total market capitalization or assets under management and is currently being paid on total market capitalization. We believe this calculation represents a strong alignment of interest with shareholders built into our management contract with RMR. Interest expense for the first quarter was $27.2 million compared to interest expense of $37.1 million in the first quarter of 2019. The decline in interest expense is mainly the result of $750 million of unsecured senior note repayments since July 1, 2019, and $388 million of term loans repaid since Q1 2019.

Turning to property level results and capital expenditures. For the first quarter of 2020, same-property cash basis NOI increased 1.2% compared to the first quarter of 2019, which beat our guidance range of flat to down 2%. The increase was mainly driven by expense savings, most notably decreases in snow removal costs and utilities, partially offset by increases in property insurance premiums. We spent $16.3 million on recurring capital during the first quarter, including $9.2 million on building improvements and $7.1 million on leasing capital. As of quarter end, we had approximately $57.3 million of unspent leasing-related capital obligations; of which 52% represents tenant improvement allowances managed by our tenants and $15.8 million is leasing capital designated in leases for future years.

Based on our current forecast, we expect 2020 recurring capital expenditures to be approximately $92 million, which is down from our initial forecast of $110 million, mainly due to the timing of capital projects and changes in speculative leasing capital as a result of the COVID-19 pandemic. We expect normalized FFO per share to be between $1.33 and $1.36 for the second quarter of 2020. We currently do not expect the material impact to our results from the COVID-19 pandemic. As a result, this estimate excludes any potential loss revenue that could result from tenant bankruptcies or defaults on lease obligations and excludes any acquisition or disposition activities. We expect our second quarter same-property cash basis NOI growth to be between negative 0.5% and positive 1.5% as compared to the second quarter of 2019.

Operator, that concludes our prepared remarks. We're ready to open the call up for questions.

David Blackman -- President and Chief Executive Officer

Operator? Olivia?

Olivia Snyder -- Manager of Investor Relations

Yes. We're trying to contact them now.

David Blackman -- President and Chief Executive Officer

Have we lost the call?

Olivia Snyder -- Manager of Investor Relations

Let me check. We're still live. They're sending another operator over. She's having technical difficulties. Just hold a moment.

David Blackman -- President and Chief Executive Officer

Okay. Thank you.

Questions and Answers:

Operator

Sorry about that. Our first question is from Bryan Maher from B. Riley FBR. Go ahead.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Good morning everyone. And that was a pretty decent quarter you guys put up, so congrats in this difficult environment. David, can you tell us, are you effectively done now with the disposition process with the assets sold so far this year?

David Blackman -- President and Chief Executive Officer

Bryan, yes, we completed the deleveraging disposition process at the end of the year. We came in to 2020 with the expectation that we would do a capital recycling program, selling somewhere between $100 million and $300 million. Right now, the property sales market is substantially frozen because of the lack of availability of debt capital. So we've elected not to bring anything to the market until such time as we start to see liquidity come back to the market. My hope is that we can recommence with the capital recycling program sometime during the second half of the year. But we don't have to sell anything. So there's really no reason to bring anything to market until we believe we can transact efficiently and at decent pricing.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Okay. And then on the flip side of that, are you getting any early -- any [Technical Issues].

David Blackman -- President and Chief Executive Officer

I'm sorry, Bryan. I lost you.

Operator

Our next question is with Vikram Malhotra from Morgan Stanley.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the questions. And definitely put up a good quarter. I hope everyone is well and safe. Just a couple of questions. So some of your peers have talked about lower expenses or lower opex going forward. Wondering if you can give a bit more color in terms of quantifying kind of how opex could trend over the near term?

David Blackman -- President and Chief Executive Officer

Sure, Vikram. It's a good question. Matt, do you want to take that?

Matt Brown -- Chief Financial Officer & Treasurer

Sure. With the initiatives that our property management team has put in place as a result of lesser people in our buildings, we do expect to see a decline in operating expenses as a result of that. I don't have the exact numbers. It is not overly material, though.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay. And then just a broader question. The whole work-from-home experience, certainly, there's a lot of debate as to whether this could permanently change the demand for office. And given your concentration on the government side, I'm just curious any early thoughts or discussions you may have had instead of thinking about the future space needs from your tenant base.

David Blackman -- President and Chief Executive Officer

Yes, Vikram, another good question. In fact, we had a conversation with Dan Mathews this week, who is Commissioner of GSA, just to kind of check in with us to see how our buildings were operating and how everything was going as a result of pandemic. GSA has a lot of employees that work remotely. And when they redid their building a couple of years ago in Washington D.C., they created a lot of hoteling space so that they could increase the number of employees that work remotely. There are a number of federal agencies that don't have that luxury because they face the public, they deal with a lot of paper. And so I don't think there's going to be a material change as it relates to more remote working with the government tenants. I do think that they are having to rethink the increase in utilization rates that they have taken on over the last couple of years because they have a lot of people that sit certainly much closer than six feet apart. They have a lot of collaborative spaces. And so I think over time, they're going to have to rethink that. I think on the private sector, I think people have been very successful being productive working remotely. But by and large, I think most employees want to get back to the office. They miss the social interaction of being in an office. They miss the opportunity to be mentored and grow. And so while I think you may find more people working remotely going forward, I don't think it's a permanent remote work. I think it's probably maybe one or two days a week. So they'll continue to need space in an office. In all likelihood, you're going to see some tenants actually want to have more space to be able to create a little bit better physical distancing. So we could actually see office usage increase as a result of this. But as you would expect, it's still way too early to know.

Vikram Malhotra -- Morgan Stanley -- Analyst

That's fair enough. Thanks for the color. Just one quick numbers question. The straight-line rent and the rent amortization just been moving around over the last few quarters. Just sort of wondering is there a run rate we can sort of expect or we should be modeling in.

David Blackman -- President and Chief Executive Officer

Matt?

Matt Brown -- Chief Financial Officer & Treasurer

What I'll say on the -- yes, what I'll say on the straight-line rent is that we had some free rent that burned off at the end of 2019, which was favorable to cash NOI this quarter of about $1 million. And as we move forward to Q2, we do expect about another $1.4 million of free rent to burn off in terms of cash starting in Q2.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. Thank you.

Matt Brown -- Chief Financial Officer & Treasurer

On lease amortization, we had a tenant contraction during Q4, and that tenant had a -- was in a below-market lease position, so we had a write-off of that. So the number that's currently in Q1 is a good run rate for that number.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Our next question is from Bryan Maher from B. Riley FBR. Sorry about before.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

No problem. Can you hear me now, David?

David Blackman -- President and Chief Executive Officer

Yes.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Okay. Kind of following up on my thought, post-disposition, I know it's really early innings, but are you seeing or hearing of any stressed owners out there of assets that you might be able to make a run at over the balance of 2020?

David Blackman -- President and Chief Executive Officer

Bryan, I think it's still a tad early. Definitely, there are some distressed owners that are looking to sell assets. There hasn't really been a capitulation in pricing, though. So the properties that we've seen come to market are still being proposed at relatively low cap rates. And so I think we're kind of in that time period right now where buyers have expectation for prices to come down and sellers haven't really capitulated to think that they're willing to do that. But that -- if things continue as they are, that could change in the second half of the year.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

And to the extent that you do make any acquisitions, I suspect that you wouldn't veer from your normal course of type of asset ownership and type of tenant. Is that realistic?

David Blackman -- President and Chief Executive Officer

That is a realistic expectation, Bryan. We don't have any intention of veering from our business plan.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

And then lastly for me. It looks like you guys have done a pretty good job at lowering your interest expense with what's going on both in the market and retiring some debt. But when we look at your capital stack on the debt side, there are a couple of pieces still lingering out there at fairly lofty interest expense levels, two in particular. Is there an opportunity to retire those early as well? Or are you stuck with those?

David Blackman -- President and Chief Executive Officer

Matt?

Matt Brown -- Chief Financial Officer & Treasurer

It's a good question. Our debt generally comes with prepayment penalties. And then you have kind of a window, which is generally about 90 days where you can pay off without penalty. So we haven't kind of run the math of the prepayment penalty on those, make sense to do. We only have $40 million of debt coming due between now and 2022. So we are very comfortable with our debt levels at the moment.

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Okay, thanks. That's all from me.

Operator

[Operator Instructions] Our next question is from Tayo Okusanya from Mizuho [Phonetic]. Go ahead.

Our next question is from Michael Carroll from RBC Capital Markets. Go ahead.

Jason Idoine -- RBC Capital Markets -- Analyst

Hey, this is Jason on for Mike. Just a follow-up to Vikram's question on the operating expense trend. So I know you mentioned that you had the snow removal savings this quarter. So as far as the run rate moving forward, should we expect it to be relatively in line with the quarter-over-quarter values?

Matt Brown -- Chief Financial Officer & Treasurer

It's a good question. I would expect for Q2 expenses to be slightly higher than Q1. We will have kind of seasonal utilities picking up, and then R&M activities are generally higher in Q2 over Q1.

Jason Idoine -- RBC Capital Markets -- Analyst

Okay, great. Thanks.

Operator

Our next question is from Tayo Okusanya from Mizuho. Go ahead.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

Hi, yes. Just a quick question around Tailored Brands. Again, it's listed in your Top 20 tenants. I know you had made some comments earlier overall about your retail exposure. But could you kind of give a sense of -- about what's happening with that particularly given that it's on your top tenant list?

David Blackman -- President and Chief Executive Officer

Sure. Matt, we received a request from them to defer rent, correct? And...

Matt Brown -- Chief Financial Officer & Treasurer

That is correct.

David Blackman -- President and Chief Executive Officer

We agreed to defer rent. Can you remind me how many months we did that for, Matt?

Matt Brown -- Chief Financial Officer & Treasurer

Two months, April and May.

David Blackman -- President and Chief Executive Officer

Okay.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

Okay. So you did it for two months for them specifically. Okay. That's helpful. And then on the acquisition front, again, I appreciate the comments you made about capital recycling. Again, if the disposition side is getting delayed because of lack of debt capital, as you mentioned, does that necessarily mean you're also delaying the acquisition side to match that up? Or do you kind of feel comfortable enough with your liquidity today that you could still go ahead and do attractive transactions even though you may not necessarily be selling assets on the other side to "match it?"

David Blackman -- President and Chief Executive Officer

It's a good question, Tayo. We did sell a little more than $85 million of assets during the first quarter that were part of our capital recycling program. On an after capital basis, the yield was about 4.1%. So we have some capacity that we could make some acquisitions on a leverage-neutral basis right now. We haven't seen any acquisitions that are attractive. We're also below our targeted leverage range. So we do have some room to take leverage higher, although I don't think that we will go out and make dramatic number of new acquisitions unless we're comfortable continuing with our capital recycling program. So we've got some capacity, but I don't think you're going to see it be dramatic until we reenter the disposition market.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

Got you. Okay. And then lastly, in regards to kind of upcoming lease maturities, any tenants out there giving you indications about possibly non-renewals? I know we've kind of talked about the 2021 building, I believe, with the FBI, but is there anything else out there?

David Blackman -- President and Chief Executive Officer

Yes. Through the rest of this year, Tayo, we have a few tenants that represent about 60 basis points of our annualized rent that we know are going to vacate. We have about another 40 basis points where we feel like there are risks based upon current negotiations. So nothing at all material.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

Okay. And is that -- does that -- is that irrespective of the 1% to 2% of occupancy decline you are thinking could happen over the course of the rest of the year, just kind of given the slowdown in leasing?

David Blackman -- President and Chief Executive Officer

I think that's part of it, Tayo.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

That's part of it. Okay.

David Blackman -- President and Chief Executive Officer

Yes. Because we -- what we're not sure at this point is given the lack of showings from brokers and the inability of office users to get out and view space right now, how quickly that's going to pick back up once the various states reopen and the shelter-in-place orders are lifted.

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

Great. Alright. That's helpful. Thank you.

Operator

This concludes our question-and-answer session. I would now like to turn the conference back over to David Blackman for closing remarks.

David Blackman -- President and Chief Executive Officer

Thank you, operator. Before signing off, I'd like to reiterate that our deleveraging efforts over the past two years, combined with the strength of our tenant base, has positioned OPI well to weather this current economic shock. We look forward to updating you on our continued evolution at the virtual May REIT meeting in June. Thank you for joining us. Operator, that concludes the call.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Olivia Snyder -- Manager of Investor Relations

David Blackman -- President and Chief Executive Officer

Christopher Bilotto -- Vice President

Matt Brown -- Chief Financial Officer & Treasurer

Bryan Maher -- B. Riley FBR, Inc. -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Jason Idoine -- RBC Capital Markets -- Analyst

Tayo Okusanya -- Mizuho Securities USA LLC -- Analyst

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