Good morning, and welcome to the Office Properties Income Trust Q1 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead.
Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are OPI's President and Chief Operating Officer, Chris Bilotto, and Chief Financial Officer and Treasurer, Matt Brown. In just a moment, they will provide details about our business and our performance for the Q1 of 2022, 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, April 29, 2022, 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 measures 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. I will now turn the call over to Chris.
Thank you, Kevin, and good morning, everyone. Welcome to the Q1 earnings call for Office Properties Income Trust. Since the beginning of 2021, we continue to see gradual improvements across office fundamentals supported by growing utilization, improved leasing volumes, moderation of subleased space, and the general sentiment around tenants starting to reengage on overall office needs. Evolving events around rising inflation and the current interest rate environment are also in focus, and we believe that progress OPI has made over the past few years to reshape our portfolio and strengthen our balance sheet better positions us for stability and growth during transitional periods. Specific to this are the $1.1 billion of senior notes issued in 2021, extending our overall debt maturity and reducing our interest expense.
Our purchase of two core properties in both the Chicago CBD Fulton Market and Atlanta, Georgia, the more than 1 million sq ft of new leasing activity over the past four quarters and continued execution on our capital recycling program, with a particular focus on reducing capital exposure and improving our portfolio geographic footprint and operating fundamentals. Turning to the quarter. Yesterday, OPI reported Q1 results that reflect continued momentum across many parts of our business. Normalized FFO increased compared to the Q1 of 2021 and came in above the high end of our guidance. We signed 21 deals for 572,000 sq ft of new and renewal leasing, with a weighted average roll-up in rent of 5.1% and a weighted average lease term of more than 10 years.
Currently, at 91%, same property occupancy was essentially flat over the prior quarter and decreased nominally by 50 basis points over the prior year. Our current leasing pipeline remains strong with a healthy mix of new and renewal deals and mark-to-market growth potential of close to 8%. While the pace of tenant reentry plans continues to evolve, we are encouraged by conversations with tenants across our national portfolio that indicate a growing appetite to consider office space as part of a long-term plan. We remain committed to our capital recycling program to enhance the portfolio with a focus on growing markets with sustained NOI growth, newer buildings with less capital requirements, and for the use of proceeds to manage leverage levels and to strengthen our portfolio through our active development projects.
During the quarter, we sold or agreed to sell six non-core properties for aggregated proceeds of $67.8 million that contain over 800,000 sq ft at an average age of 20 years and an average cap rate of 6%. For the full year to 2022, we are maintaining our guidance for dispositions to be in the range of approximately $400 million-$500 million in total proceeds. Turning now to the Q1 in more detail. As we highlighted earlier, we completed 572,000 sq ft of new and renewal leasing activity during the quarter, with a weighted average lease term of 10.7 years and a 5% capital open rent.
This marks the fourth consecutive quarter with new leasing activity in excess of 230,000 sq ft, bringing total new activity over the prior four quarters to an excess of 1,000,000 sq ft, or close to 460 basis points of occupancy. Government agencies accounted for approximately 40% of our total leasing volume, followed by tenants in the manufacturing and transportation industry, as well as real estate and financial sectors. We ended the quarter with investment grade rated tenants, representing approximately 64% of our annualized rental revenue. Turning to a few highlights from Q1 leasing transactions. We completed four lease renewals with the GSA for approximately 233,000 sq ft for a weighted average lease term of 10.7 years and a rent roll up of 5.5%.
As previously communicated, in Plantation, Florida, to sign the lease for 64,000 sq ft of space that the GSA will vacate in mid-2022. This building is now fully leased to a single tenant for a 14-year term, and the pace at which we were able to fully backfill the property is reflective of the creativity from our manager's real estate team. In San Jose, California, we executed two new full building leases for a combined 126,000 sq ft, which include a 27% roll up in rent and a combined 8.9-year term. Now looking ahead to OPI's upcoming lease expirations. In 2022, 5% of our total annualized revenue is scheduled to expire. We are managing through a limited number of known vacates that represent 2% of our annualized revenue.
Our tenant located in Greater Denver, Colorado, remains our largest known vacate for the year, representing 168,000 sq ft and 90 basis points of annualized revenue with an August 2022 expiration. The property is a BOMA 360 award recipient and is well-positioned within a heavily amenitized submarket, including its access within walking distance to the public light rail station. We are investing in the property to offer additional on-site amenities, collaborative areas, and move-in-ready space, which is fielding healthy interest from a variety of prospects looking to lease portions of the building. Currently, we have close to 50,000 sq ft, or 30% of the property who have signed letters of intent at rent roll-ups in excess of 10%.
We also remain focused on lease expirations in the coming years as approximately 15% of OPI's portfolio is scheduled to roll in each of 2023 and in 2024. Our real estate services and asset management teams are proactively engaging with tenants to evaluate early renewals and maintain positive tenant retention trends. With our active asset management discipline, we view OPI's expiration schedule as an attractive opportunity to right-size rents during the current inflationary environment. At the same time, we have broad mechanisms embedded in our leases to protect us from inflation risk. Approximately 90% of OPI's rents contains either annual lease bumps or escalations tied to an inflation index. Looking at our current leasing pipeline, we are tracking more than 3.6 million sq ft of activity, of which 1.2 million sq ft is attributable to leasing.
Nearly 1 million sq ft of our pipeline is in advanced stages of negotiation, which includes over 300,000 sq ft of positive net absorption. Based on the continued strong interest from our tenants, as well as signs across our nationwide portfolio that office fundamentals are improving, we are reaffirming our expectations for year-end 2022 occupancy of 89%-90%, along with our expectation for rent roll-ups of 5%-7%. Turning to our developments. We are making steady progress on our redevelopment efforts in Washington, D.C. and Seattle, Washington. Both projects are on schedule to deliver in early 2023, and our pre-lease dialogue with prospective tenants has been positive.
As we have discussed on prior calls, our development at 20 Mass Ave in D.C. is currently 54% pre-leased to Sonesta International Hotels Corporation, which expects to begin welcoming guests in the spring of 2023. At our life science redevelopment project in Seattle, construction commenced during Q1 with anticipated delivery in the spring of 2023. The market continues to show strong signs of growth within the lab sector, including a growing pipeline of tenants in the market and year-over-year asking rent increases of close to 29%. This momentum has supported strong activity for our development, and we are in advanced leasing discussions for approximately 30% of the property. Finally, we are extremely proud of the progress we continue to make to strengthen OPI's corporate governance. Earlier this month, we welcomed Mark Talley as the newest member of our board of trustees.
Mark has more than 25 years of commercial real estate industry experience with an extensive background in office real estate. We look forward to drawing on his perspective as we continue our work to create value for OPI shareholders. I will now turn the call over to Matt Brown to provide details on our financial results. Matt?
Thanks, Chris, and good morning, everyone. Normalized FFO for the Q1 was $62.7 million or $1.30 per share, which exceeded the high end of our guidance range by $0.01. This compares to Normalized FFO of $58.1 million or $1.20 per share for the Q4 of 2021. The increase on a sequential basis was driven by the factors that we highlighted on last quarter's earnings call, consisting mainly of termination fees recognized in the Q1 , which enabled the commencement of our Seattle redevelopment project and a strategic full building lease in San Jose, California. The increase was also attributable to lower G&A expense, primarily due to a state franchise tax refund received in the quarter.
CAD increased 20% on a sequential quarter basis to $51 million or $1.06 per share for the Q1 . Our dividend is well covered with a rolling 4-quarter CAD payout ratio of 67%. Turning to property level results for the quarter. Same property cash basis NOI was essentially flat compared to the Q1 of 2021, which was in line with our guidance range. Our results were positively impacted by increases in cash rents related to free rent that rolled off during 2021, offset by increases in expenses related to increasing building utilization levels and cost pressures on rates for utilities and cleaning. Looking ahead to our Normalized FFO and same-property cash basis NOI expectations in the Q2 . We expect Normalized FFO to be between $1.11 and $1.13 per share.
The key drivers compared to our Q1 results are the following: $0.15 due to termination fee income and the February lease expiration of F5 during the Q1 , and $0.03 due to increased G&A, mainly attributable to trustee compensation expense in Q2. This guidance takes into account our planned disposition activity and includes a range of $26 million-$27 million of interest expense and $7.2 million-$7.3 million of G&A expense during the Q2 . Our G&A expense forecast in the Q2 includes expected annual trustee share-based compensation that occur in conjunction with our annual board meeting in June. We expect same property cash basis NOI to be down 2%-4% as compared to the Q2 of 2021, mainly driven by expense increases resulting from improving utilization levels and cost increases.
Turning to capital expenditures in the balance sheet. We spent $11.4 million on recurring capital and $37.5 million on redevelopment capital during the Q1 . Consistent with last quarter's call, we continue to expect 2022 recurring capital to be elevated as compared to 2021 as a result of our plans to drive strong leasing activity this year and increase redevelopment spend to support our 20 Mass Ave and Seattle redevelopment projects. From a financing perspective, we believe we are in great shape.
The actions we took last year to refinance higher rate debt strengthened our balance sheet, reduced our weighted average cost of fixed rate debt, and provides us with ample liquidity to pay off our $300 million of senior notes maturing in July and to fund our capital spend ahead of market conditions that are meaningfully less favorable today. These refinancings largely resulted in a decrease in interest expense of $1.4 million or approximately 5% year-over-year. 100% of our $2.6 billion of outstanding principal balance is fixed at a weighted average interest rate below 4%. Our exposure to the rising interest rate environment is limited to our revolving credit facility, which was undrawn at March 31st, and we ended the Q1 with nearly $850 million of total liquidity.
In April, we repaid $25 million of mortgage debt with cash on hand, resulting in less than 3% of our debt being secured. Beyond our July notes, we have no senior notes maturing until May 2024, leaving us well positioned in this environment. Operator, that concludes our prepared remarks. We're ready to open the call up for questions.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Bryan Maher of B. Riley FBR. Please go ahead.
Good morning, Chris and Matt, and thanks for those comprehensive prepared comments. That's very helpful. A couple questions, if I might. On the assets that you plan to sell in 2022, is there any common denominator or characteristic on those properties that we should be thinking about when we look at the total portfolio? I would guess it's stuff with nearer lease term expirations and/or higher CapEx needs. Is there anything else?
No, I mean, that's really kind of what the focus is. As you know, as we've talked about, you know, for our disposition program, it's really to kinda, you know, kind of get out of markets where we don't feel like we can grow NOI or those that are gonna kind of have larger capital burden, you know, for various circumstances. You know, as you look at kind of the weighted average lease term or the average building age and other things, those are all kind of, I think, where we're focused. I think occupancy too is something that, you know, most of what we're selling, you know, also has kind of some occupancy challenges as well. You know, we kind of look at or are seeing that occupancy range kind of in the 80-ish%.
You know, as we sell out of these properties, those are really the primary factors we're looking at.
Got it. As it comes to, you know, receiving those proceeds, how should we think about redeployment? Is it going to be a combination of delevering and, you know, capital recycling into new properties? Is it mostly gonna be geared towards the redevelopment projects in Seattle and, you know, Mass Ave? You know, how should we be thinking about those proceeds?
Bryan, it's a good question, and it's a little bit of everything that you had just highlighted. You know, as I did mention in prepared remarks, we have $300 million in notes coming due in July. We'll use our liquidity position and additional asset sales to pay those off when they become due without penalty in June. Then it's continued focus on our redevelopment projects. You know, we do continue to look at acquisitions, but really the focus is more on the redevelopment.
Right. Just two more quick ones for me. How much of an impact did the F5 termination and move to redevelopment in Seattle impact occupancy in the quarter?
Well, I think that, you know, if you look at it from. It was 2% of annualized revenue that burned off. If you look at it from an occupancy standpoint, I mean, it was really nominal in the sense that, you know, that building was 300,000 sq ft, and at the same time we did, you know, just over 230,000 sq ft of new leasing. I think kind of the net impact to occupancy was really nominal, which is a testament as to why kind of our same occupancy trends didn't really have much of an impact quarter-over-quarter.
Okay. Just last for me. Matt, I think you talked a little bit about the CapEx numbers. I don't think I caught you mention a 2022 full year CapEx estimate. Do you have that you can share?
Yeah, it's consistent with last quarter. I would say it's around $100 million for the full year ± $10 million.
Thank you very much.
Thank you.
Once again, if you would like to ask a question, please press star then one. Our next question will come from Ronald Kamdem of Morgan Stanley. Please go ahead.
Hey, thanks for taking the question. Nick, so first is just a big picture question on the return to office. Just, if you can update us there, sort of what are you hearing from clients? What are you hearing from tenants, in terms of that process? Thanks.
Yeah, thanks, Ron. It's Chris. I think first, you know, last quarter, we kinda talked about utilization being in the high 30s%, and you know, that just continues to improve. You know, I think we feel, you know, we're kind of, you know, north of that 40% utilization now and really kind of with, you know, additional return to office occurring over the next several months and even into the next quarter. I think we'll continue to see that trend progress, and that's consistent with a lot of, you know, what tenants are telling us.
Even when you kinda look at maybe more at the government level, given our GSA portfolio, you know, you're seeing kind of a lot of guidance out there across these agencies, where return to office, whether it's in part or in full, you know, really kind of starts to evolve, let's just say, kind of starting March, April, and making its way into kind of mid-summer. You know, that trend progresses and we're consistent, I think, overall with the national average in what we're seeing for re-entry.
Great. You know, I think obviously there's sort of the two development and redevelopment projects going on. Just, can you give us a sense, what's after that? How are you guys thinking about sort of future opportunity for new development, redevelopment as you're thinking about the portfolio?
Yep. You know, I think redevelopment is something and development is something we'll continue to do across the portfolio. I mean, as you know, some of these projects can take time to evolve, and really what our focus is on opportunities within our existing portfolio today. I mean, you've heard on prior calls over the last year plus about assemblage we've done in downtown Boston. You know, we think there's kind of good prospects long-term there. You know, we've looked at other opportunities across markets, you know, for potential conversions, whether it be to life science or other alternative uses, and those are all kind of active discussions in the queue. I mean, ideally, if we can retain a tenant and renew them, and it looks favorable, I mean, that's a focus of ours.
I think kind of given the makeup of our portfolio and a lot of the kind of diversity across geographies, we tend to kinda have, you know, varying levels of opportunity for repositioning or development, which we think is kind of a good opportunity for the portfolio over the medium and long term.
Great. That's all my questions. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Operating Officer, for any closing remarks.
Well, thank you, everybody, for joining us, and we look forward to seeing many of you at the upcoming Nareit, and other meetings.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.