Good morning, and welcome to the Office Properties Income Trust third quarter 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 a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Kevin Barry, Director of Investor Relations. Please go ahead, sir.
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 third quarter 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, October 28th, 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. With that, I will now turn the call over to Chris.
Thank you, Kevin, and good morning everyone. Welcome to the third quarter earnings call for Office Properties Income Trust. Last night we reported a solid third quarter despite an evolving office landscape and a rapidly changing economic environment. Same property Cash Basis NOI growth came in near the high end of our range and we continued to experience strong leasing momentum. Our balance sheet remains well positioned with $629 million of total liquidity and no senior notes maturing until May 2024, which Matt will expand upon momentarily. We completed 606,000 sq ft of new and renewal leasing, including a new lease for 84,000 sq ft to anchor our Seattle life science development.
Portfolio occupancy continues to outperform the broader market and ended the quarter at 90.7%, a 130 basis point improvement over Q2 and a 170 basis point increase over the prior year. During the quarter, we sold 10 properties containing 1.3 million sq ft for $118 million at a weighted average cap rate of approximately 6.2%. Year to date, dispositions totaled $196 million at a weighted average cap rate of 6.8% and close to the high end of our 2022 guidance range. Further, we have five properties totaling 338,000 sq ft for $20.5 million in advanced stages with a targeted close by year-end.
We have plans to continue our capital recycling efforts into 2023 and are pleased with our ability to close on the noted transactions to date. However, we remain cautious given the overall economic environment. Investor interest remains mixed with a thinning pool of buyers due to higher inflation, interest rates and changing portfolio strategies. To date, we have not completed any acquisitions with our primary focus on leasing, operational efficiencies, completion of our existing development projects and property sales. Turning to an update on our leasing results. We reported a solid leasing momentum with 24 signed leases for 606,000 sq ft, including a 21.6% weighted average roll up in rent and a 7.2-year weighted average lease term.
New leasing increased sequentially and represented 37% of our total activity for the quarter, including a 59% roll up in rent, primarily driven by leasing at our Seattle development. At a macro level, overall U.S. leasing activity is trending at just over 70% of pre-pandemic level, with gateway markets trailing the pace of secondary growth markets. Leasing demand is largely attributed to higher quality buildings, those with market specific amenities and better functionality. Over the past several years, our real estate and asset management teams have been instrumental in capital deployment strategies toward improving the quality of our portfolio, which has positioned our buildings to benefit from the current economic demand drivers. Year to date, we completed over 1.8 million sq ft of leasing with an 11% roll up in rent and a weighted average lease term of nine years.
New leasing included 585,000 sq ft or 32% of our activity to date. Turning to leasing and property highlights from the third quarter. At a redevelopment in Seattle, Washington, we signed a new lease with a clinical stage biotech company for 84,000 sq ft and a ten-year term. This lease is a strategic win as an anchor for the project and demonstrates the ongoing demand for premium, well-designed R&D space in this market. In Naperville, Illinois, we executed a new 57,000 sq ft lease at a 14.5% roll-up in rent and a twelve-year lease term.
Over the past year, our real estate team has strategically allocated capital to improve common areas and expand the amenity base, which has resulted in an increase in occupancy from 58% in Q4 2021 to 82% as of Q3, and supported by close to 145,000 sq ft of new leasing activity. In Atlanta, Georgia, we renewed a mission-critical GSA tenant for 91,000 sq ft and a 15-year term. Looking back at the past two years of GSA activity, on average, lease terms for new and renewal leases are 11 years and 7 years respectively, highlighting the GSA's commitment to properties within our portfolio. Looking ahead to OPI's upcoming lease expirations, we have minimal remaining lease expirations in 2022, with 80 basis points of annualized rental income expiring by year-end.
Of this, 30 basis points is attributed to properties under contract for sale, estimated for a Q4 close. The balance of expirations are mostly expected to renew. In 2023, lease expirations represent approximately 14% of annualized rental income. Nearly 4% of our 2023 expiring rental income has either signed subsequent to quarter end or is in advanced stages of lease negotiations. Approximately 1% represents planned dispositions, including 60 basis points driven by an expected Q4 2022 sale of a property in Englewood, Colorado. We are in active conversations with tenants that make up the remaining 2023 expirations, and net known vacates for the year are trending between 3% and 5% of annualized rental income.
It is worth noting that known vacates in 2023 predominantly expire during Q3 and Q4, minimizing the risk to 2023 operating results. I would also point out that in addition to our active asset management re-leasing efforts and continued capital recycling initiatives, select known vacates are being evaluated for alternative use strategies to further diversify our portfolio and capitalize on compelling value creation opportunities, as seen with our D.C. and Seattle development projects. Looking forward, our leasing pipeline remains strong with a healthy mix of new and renewal deals, lease term, and mark-to-market growth potential. We are currently tracking approximately 3.2 million sq ft of active prospects, of which more than 1.3 million sq ft is attributable to new leasing and 720,000 sq ft of potential absorption. Turning to our developments.
We continue to advance our value-enhancing three development projects. Our development leasing pipeline includes over 223,000 sq ft of active proposals. In Seattle, Washington, the project is now 28% pre-leased, and we anticipate the delivery of our move-in ready spec space will further accelerate leasing at this project as we near completion. Construction at our 20 Mass Ave development in Washington, D.C., is also on time and on budget. Tour activity continues to progress, and we remain on track to deliver both our Seattle and D.C. projects in Q2 2023. In conclusion, aggressive monetary policy, inflation, along with the current interest rate environment, are weighing on market fundamentals and decisions around real estate needs, which we believe will continue to be a factor to 2023.
Our capital recycling efforts focused on upgrading and enhancing the overall physical quality and functionality of our buildings, along with refining our geographical footprint, is a further complement to the level of tenant interest and activity across our portfolio. As we progress on core initiatives, we remain focused on leasing, operational efficiencies, development, and capital recycling, and are pleased with our portfolio position, which includes 63% of our rental income coming from investment grade tenants, a portfolio average lease term of 6.3 years, and a well-positioned balance sheet. I will now turn the call over to Matt to review our financial results.
Thanks, Chris, and good morning, everyone. Normalized FFO for the third quarter was $53.8 million or $1.11 per share. Our results came in $0.01 below the low end of our guidance range, mainly driven by the timing of property dispositions. Earlier this month, we declared our regular quarterly distribution of $0.55 per share, resulting in a normalized FFO payout ratio of 50% and a rolling four-quarter CAD payout ratio of 67%. G&A expense for the third quarter was $6.6 million, which came in below our forecast and below the $7.1 million in Q3 2021 after excluding the reversal of previously accrued business management incentive fees in the prior year period.
These declines were mainly driven by a reduction in our business management fee as our share price has declined and highlights how the fee structure in our business management agreement with RMR is aligned with OPI shareholders. Same-property cash basis NOI increased 30 basis points compared to the third quarter of 2021 and came in at the high end of our guidance range. The increase in our same-property results was mainly driven by higher levels of free rent in the prior year, partially offset by increases in operating expenses from higher rates and usage to support higher building utilization levels. Looking forward to our normalized FFO and same-property cash basis NOI expectations in the fourth quarter. We expect normalized FFO to be between $1.08 and $1.10 per share.
The decline from Q3 is mainly driven by our Q3 dispositions and an August lease expiration in a sub-market of Denver. For the full year 2022, we expect Normalized FFO to be in the range of $4.71 and $4.73 per share. This guidance takes into account our planned disposition activity and includes a range of $24.5 million-$25 million of interest expense and $5.6 million-$6 million of G&A expense during the fourth quarter. We expect same-property Cash Basis NOI to be flat to down 2% as compared to the fourth quarter of 2021. Turning to the balance sheet. Our balance sheet remains well-positioned in the current rising interest rate environment.
The $1.1 billion of fixed-rate refinancings that we completed in 2021 provided a solid foundation for us to deliver on our operating and redevelopment priorities. At quarter end, we had $2.4 billion of outstanding debt at a weighted average interest rate below 4% and a weighted average maturity over five years. 97% of our debt is unsecured and 94% is fixed. As a reminder, the company does not have any variable rate debt besides the revolving credit facility, and our near-term maturity schedule is light with only $50 million of mortgage debt due in mid-2023. We have no senior notes maturing until May 2024.
While our revolver matures at the end of January 2023, we have the option to extend the facility for two additional six-month periods and expect to exercise our first extension option next month. We ended the quarter with $629 million of total liquidity, including $615 million of availability under our revolver. Subsequent to quarter end, we repaid a 4.8% mortgage with a June 2023 maturity at a discounted amount of $22.2 million using cash on-hand, making this an accretive transaction. We are currently under agreement to sell five properties containing 338,000 sq ft for an aggregate sales price of $20.5 million.
We spent $25.9 million on recurring capital and $36.8 million on redevelopment capital during the third quarter. For the full year, we expect recurring capital expenditures of approximately $100 million and redevelopment capital of approximately $180 million. In 2023, we anticipate recurring capital expenditures to be flat year-over-year and redevelopment spend of approximately $100-$120 million as we complete our two ongoing redevelopment projects in Washington, D.C., and Seattle. Operator, that concludes our prepared remarks. We're ready to open the call up for questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Today's first question comes from Bryan Maher with B. Riley FBR. Please go ahead.
Good morning, Chris and Matt. Just a couple from me. We were surprised by the 10 asset sales for sure in 3Q. I think that you mentioned that the buyer pool is thinning. Can you give us, you know, kind of what your level of confidence is on closing on the five that you talked about and what your outlook is for, you know, kind of number of properties for 2023 and the ability to close on those?
Yeah. Thanks, Bryan. I think for the balance for the dispositions that we kind of noted in our prepared remarks, I think we feel pretty confident about those closing. You know, those are really in advanced stages under kind of PSA or LOI. At this stage, there's no reason to believe that they won't be able to close in Q4, you know, and maybe in the turn of the year. For 2023, you know, we've talked about, you know, a couple quarters ago, we pulled back on some dispositions just to kinda see where the market's going. Again, you know, we're in a position where we can be disciplined and don't have to sell.
You know, right now we're working through kind of what that list looks like, to then determine what we wanna put out in 2023. I don't know that we have a determined list of assets specifically. It remains fluid. I would say that, you know, we've talked about kind of re-upping on dispositions and continuing where we slowed down this year, which was in the neighborhood of $300 million. I think it's gonna be very ebb and flow just as we watch kind of where the market goes.
Maybe a two-part question. I think your leverage is around seven times or so currently. You know, where do you wanna take that, you know, given the cash that you're gonna receive from these asset sales? How do you think about deploying capital in 2023? You know, if the transaction market gets as tight as we're currently hearing generally across all our covered companies, you know, might you expect to see some opportunities to act upon given your strong balance sheet? What might those look like maybe from a type of asset and maybe geographic location?
Hey, Bryan, this is Matt. I'll start on the leverage question, then turn it to Chris on capital use for potential acquisitions. You know, leverage 7x at Q3, looking at a trailing 12-month EBITDA base. You know, we want leverage to get back in that 6-6.5x rate. You know, we've been investment grade rated, and we wanna remain investment grade rated. That is our focus as it relates to leverage and our overall target. You know, we are comfortable where leverage is today in running the business this way, but we do wanna see that tick down over time.
Yeah, for acquisitions, I mean, you know, as we've discussed, our focus is more so on just completing our developments, leasing and other related operational items. I mean, I think in general, there's a handful of different markets we like. You know, we like kind of the Southeast, we like the Pacific Northwest. It's just really gonna depend on, you know, the opportunities. There, you know, we generally see just about everything that's out there, and there hasn't been a lot of activity with opportunities. I think it's, you know, safe to say that cap rates are widening. As opportunities present themselves, we'll see them, and we'll be in a good opportunity or in a good position to kinda execute on that strategy.
I think, you know, as we get into the turn of the year, and kinda see where things shake out, again, with our capital recycling and other initiatives, we're gonna be in a position to kind of better quantify what that might look like.
Okay, thanks. Maybe just last for me. I mean, clearly, where the shares are trading and the 15% yield on the dividend, you know, obviously there's people out there, you know, in the market who don't believe that that dividend is sustainable, and yet we continue to highlight the low payout ratio either on CAD or on FFO. You know, what world would we have to be in for you to envision, you know, a period where, you know, that dividend would be sustainable?
Yeah. Bryan, it's a good question, and I'm glad you highlighted the low payout ratio we've had, which has really been a constant since the merger at the end of 2018. We've been very satisfied with our dividend coverage and level. I think as it relates to dividend coverage in the future and any risk to that, it really is gonna be upon factors outside of our control with the future of office and any potential recession. Where we are today, we remain very comfortable with our dividend.
Okay. Thank you.
Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press Star then one. Our next question comes from Ronald Kamdem with Morgan Stanley. Please go ahead.
Hey, you've got me on for Ronald Kamdem. Yeah, just wanted to follow up on some of the development you guys expect to complete next year. Could you walk us through, you know, kind of like the cash and the GAAP NOI you expect from those two developments upon completion?
Yeah, I mean, I think, you know, right now, just as a reminder, for, you know, we'll start with Twenty Mass Ave. You know, we have kind of a cash-on-cash, stabilized return projection of between 8% and 10%. You can kinda use that as a good barometer with what we'd respect for kind of cash yields. Then I think for Seattle, you know, we're currently targeting 10% to 12% with respect to that asset. That's a good barometer with respect to cash yields. I mean, I think from a GAAP perspective, it's gonna depend a lot on, you know, what those lease terms look like as things shake out.
What I mean by that is, you know, when you look at, you know, Seattle is a good example where we just signed the lease, you know, that we referenced in our script, you know, the GAAP roll-up there was, you know, a 109% increase, albeit, you know, with the conversion to kinda life science. That was a, you know, a 10-year term. What we're also doing in that project is we're doing spec deliverable suites, and we would expect that the terms at that location would vary just depending on the circumstances. That would have an impact on the overall GAAP aspect. It's a bit of a moving target.
Just to follow up on that, I mean, do you expect any cash contribution from either of those properties next year?
Cash contribution from the assets, I mean, will be more in the form of, you know, mitigating some of the loss that's coming with the carrying costs on the expense side. You know, from a timing perspective, you know, we have the lease signed at 20 Mass Ave representing 54% of the project. That's, you know, that's. They're scheduled to take occupancy in Q2, but there's a free rent period that goes with that. As part of that free rent, they're gonna pay their proration of operating expenses, so we'll mitigate any cash drag as part of that. Then same with Seattle. While we're excited about signing the lease with Seattle, there's a timing for tenant improvements and prep to get into the space.
We don't think they'll physically occupy the space until Q4 2023. At that point in time, you know, there's some free rent up front, but the same story on the full building or the majority of the building, we'll mitigate the cash drag given that they'll pay OpEx until they pay full rent at the turn of the year.
Got it. That makes sense. You know, just on some of the debt maturities that are coming up over the, you know, next couple years. You know, how are you thinking about that? Any chance you pay down the debt with some dispositions that may come or, you know, is it planned right now just to refinance most of that?
Yeah. You know, we're in a very good position right now with our balance sheet. We have $50 million of mortgages that are maturing in mid-2023. We'll likely use cash on hand and a line of credit to pay those off. Our next maturity isn't until May 2024. You know, we have plenty of time to be watching the market. But right now we're not gonna try to accelerate paying off those 2024s. It's a good in-place rate and we'll kinda see the market settle and we have plenty of liquidity in the meantime.
Great. Thank you, guys.
Thank you.
Thank you. Ladies and gentlemen, our next question today comes from Aditi Balachandran with RBC. Please go ahead.
Hi. Good morning. Sorry if I missed this in the beginning, but can you just give us a quick update on the leasing activity at 20 Mass Ave right now?
The leasing activity, you know, as I mentioned in the prepared remarks, we have 200,000 sq ft between the two projects. Just so, 100,000 sq ft is attributable to 20 Mass Ave. When we talk about lease activity, you know, it's more in the form of at proposal stage. In addition to that number, you know, there's the benefit of the tours that are coming through the property. You know, nothing far enough along to kind of speak to with respect to definitive timing. I think on the positive, we're seeing kind of an increase in tours now that we're nearing completion and are starting to kind of track more proposals. You know, everything is trending in the right direction.
Okay, cool. Thank you.
Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Christopher Bilotto for any closing remarks.
Thank you for joining us, for your interest in OPI, and we look forward to speaking with you again soon.
Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a great day.