VANCOUVER, May 3, 2024
/PRNewswire/ -- City Office REIT, Inc. (NYSE: CIO) (the "Company,"
"City Office," "we" or "our") today announced its results for the
quarter ended March 31, 2024.
First Quarter Highlights
- Rental and other revenues were $44.5
million. GAAP net loss attributable to common stockholders
was approximately $2.4 million, or
($0.06) per fully diluted share;
- Core FFO was approximately $13.5
million, or $0.33 per fully
diluted share;
- AFFO was approximately $9.1
million, or $0.22 per fully
diluted share;
- In-place occupancy was 83.0% as of quarter end, or 86.0%
including signed leases not yet occupied;
- Executed approximately 191,000 square feet of new and renewal
leases during the quarter;
- Declared a first quarter dividend of $0.10 per share of common stock, paid on
April 24, 2024; and
- Declared a first quarter dividend of $0.4140625 per share of Series A Preferred Stock,
paid on April 24, 2024.
"The first quarter's results tracked our expectations and we
progressed renovations at several of our properties to drive
incremental value," commented James
Farrar, the Company's Chief Executive Officer. "As far as
the leasing marketplace, we continue to see the return of larger
tenant prospects. During the first quarter, we executed two
sizable new leases, including a 29,000 square foot 11-year lease
with a financial tenant at Bloc 83 in Raleigh and a 43,000 square foot 10.5-year
lease with a healthcare tenant at FRP Ingenuity Drive in
Orlando. The completion of these leases resulted in all
full-floor availabilities at Bloc 83 now being leased and 100%
occupancy at FRP Ingenuity Drive."
"Our guidance outlook has been updated to reflect our latest
expectations for our co-working tenant WeWork at two of our
properties. While we have not finalized lease amendments, we
have updated our expectations to reflect taking back one floor at
each of the Terraces building located in the premium Preston Center
submarket of Dallas and at Bloc 83
in Raleigh. Both of these top tier assets have no full-floor
vacancies remaining today and these spaces are highly
desirable. We believe this outcome will position us to
further diversify each property with high-quality and long-term
tenancy and ultimately enhance value."
A reconciliation of certain non-GAAP financial measures,
including FFO, Core FFO, AFFO, NOI, Same Store NOI, Same Store Cash
NOI and their equivalent per share measures, to the most directly
comparable financial measure under U.S. generally accepted
accounting principles ("GAAP") can be found at the end of this
release.
Portfolio Operations
The Company reported that its total portfolio as of March 31, 2024 contained 5.7 million net rentable
square feet and was 83.0% occupied, or 86.0% including signed
leases not yet occupied.
Net Operating Income was approximately $26.7 million and Adjusted Cash NOI (CIO share)
was approximately $26.0 million for
the first quarter of 2024. Net Operating Income benefited from
$0.9 million of termination fee
income recognized in the quarter.
Same Store Cash NOI decreased 1.0% for the three months ended
March 31, 2024 as compared to the
same period in the prior year.
Leasing Activity
The Company's total leasing activity during the first quarter of
2024 was approximately 191,000 square feet, which included 110,000
square feet of new leasing and 81,000 square feet of renewals.
Approximately 184,000 square feet of leases signed within the
quarter are expected to commence subsequent to quarter end.
New Leasing – New leases were signed with a weighted
average lease term of 9.1 years at a weighted average annual rent
of $33.33 per square foot and at a
weighted average cost of $9.86 per
square foot per year.
Renewal Leasing – Renewal leases were signed with a
weighted average lease term of 4.2 years at a weighted average
annual rent of $32.50 per square foot
and at a weighted average cost of $3.28 per square foot per year.
Capital Structure
As of March 31, 2024, the Company
had total principal outstanding debt of approximately $671.2 million. Approximately 91.1% of the
Company's debt was fixed rate or effectively fixed rate due to
interest rate swaps. City Office's total principal outstanding debt
had a weighted average maturity of approximately 2.3 years and a
weighted average interest rate of 4.8%.
Dividends
On March 15, 2024, the Company's
Board of Directors approved and the Company declared a cash
dividend of $0.10 per share of the
Company's common stock for the three months ended March 31, 2024. The dividend was paid on
April 24, 2024 to common stockholders
and unitholders of record as of April 10,
2024.
On March 15, 2024, the Company's
Board of Directors approved and the Company declared a cash
dividend of $0.4140625 per share of
the Company's 6.625% Series A Preferred Stock for the three months
ended March 31, 2024. The dividend
was paid on April 24, 2024 to
preferred stockholders of record as of April
10, 2024.
2024 Outlook
Following City Office's performance for the first quarter of
2024, the Company's outlook for full year 2024 guidance remains
unchanged except for the expectation that the Company will take
back portions of WeWork leased spaces at the Terraces property in
Dallas and the Bloc 83 property in
Raleigh, as described above. The
impact of these pending lease modifications, assuming they are
completed, are expected to reduce Core FFO in 2024 by $1.8 million or $0.04 per fully diluted share. Approximately
$0.02 of this expected reduction
relates to the non-cash write-off of this tenant's straight line
rent.
The outlook includes the following assumptions:
Full Year 2024
Guidance
|
Previous
|
|
Updated
|
|
Low
|
High
|
|
Low
|
High
|
Dispositions
|
$21.0M
|
$21.0M
|
|
$21.0M
|
$21.0M
|
Net Operating
Income
|
$103.5M
|
$105.5M
|
|
$101.5M
|
$103.5M
|
General &
Administrative Expenses
|
$14.5M
|
$15.5M
|
|
$14.5M
|
$15.5M
|
Interest
Expense
|
$34.5M
|
$35.5M
|
|
$34.5M
|
$35.5M
|
2024 Core FFO per fully
diluted share
|
$1.18
|
$1.22
|
|
$1.14
|
$1.18
|
Net Recurring
Straight-Line Rent Adjustment
|
$2.0M
|
$3.0M
|
|
$1.0M
|
$2.0M
|
Same Store Cash NOI
Change
|
(1.0 %)
|
1.0 %
|
|
(2.0 %)
|
0.0 %
|
December 31, 2024
Occupancy
|
84.5 %
|
86.5 %
|
|
83.5 %
|
85.5 %
|
Material Considerations:
- Dispositions reflects the expected disposition of the Cascade
Station property in Portland to
the lender and the expected disposition amount represents the
outstanding principal balance of the loan.
- The General & Administrative Expenses guidance includes
approximately $4.3 million for
stock-based compensation. Our Core FFO definition excludes
stock-based compensation. Excluding stock-based compensation,
General & Administrative Expenses guidance for Full Year 2024
would have been $10.2 million –
$11.2 million.
- Annual weighted average fully diluted shares of common stock
outstanding are assumed to be approximately 41.3 million.
- 2024 guidance assumes no share issuances, no acquisitions and
no share repurchase activity.
The Company's guidance is based on current plans and assumptions
and subject to the risks and uncertainties more fully described in
the Company's filings with the United States Securities and
Exchange Commission. This outlook reflects management's view of
current and future market conditions, including assumptions such as
timing and magnitude of future acquisitions and dispositions, if
any, rental rates, occupancy levels, leasing activity, our ability
to renew expiring leases, uncollectible rents, operating and
general administrative expenses, weighted average diluted
shares outstanding and rising interest rates. The Company
reminds investors that the impacts of the work-from-home trend,
inflation and general market conditions are uncertain and
impossible to predict. See "Forward-looking Statements"
below.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on May 3, 2024.
The webcast will be available under the "Investor Relations"
section of the Company's website at www.cioreit.com. The
conference call can be accessed by dialing 1-833-470-1428 for
domestic callers and 1-404-975-4839 for international
callers. The passcode for the conference call is 855802.
A replay of the call will be available later in the day on
May 3, 2024, continuing through
August 1, 2024 and can be accessed by
dialing 1-866-813-9403 for domestic callers and 1-929-458-6194 for
international callers. The passcode for the replay is
497483. A replay will also be available for twelve months
following the call at "Webcasts & Events" in the "Investor
Relations" section of the Company's website.
A supplemental financial information package to accompany the
discussion of the results will be posted on www.cioreit.com under
the "Investor Relations" section.
Non-GAAP Financial Measures
Funds from Operations ("FFO") – The National Association
of Real Estate Investment Trusts ("NAREIT") states FFO should
represent net income or loss (computed in accordance with GAAP)
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments of
unconsolidated partnerships and joint ventures, gains or losses on
the sale of property and impairments to real estate.
The Company uses FFO as a supplemental performance measure
because the Company believes that FFO is beneficial to investors as
a starting point in measuring the Company's operational
performance. We also believe that, as a widely recognized
measure of the performance of REITs, FFO will be used by investors
as a basis to compare the Company's operating performance with that
of other REITs.
However, because FFO excludes depreciation and amortization and
captures neither the changes in the value of the Company's
properties that result from use or market conditions nor the level
of capital expenditures and leasing commissions necessary to
maintain the operating performance of the Company's properties, all
of which have real economic effects and could materially impact the
Company's results from operations, the utility of FFO as a measure
of the Company's performance is limited. In addition, other
equity REITs may not calculate FFO in accordance with the NAREIT
definition as the Company does, and, accordingly, the Company's FFO
may not be comparable to such other REITs' FFO. Accordingly,
FFO should be considered only as a supplement to net income as a
measure of the Company's performance.
Core Funds from Operations ("Core FFO") – We calculate
Core FFO by using FFO as defined by NAREIT and adjusting for
certain other non-core items. We also exclude from our Core
FFO calculation acquisition costs, loss on early extinguishment of
debt, changes in the fair value of earn-outs, changes in fair value
of contingent consideration and the amortization of stock based
compensation.
We believe Core FFO provides a useful metric in comparing
operations between reporting periods and in assessing the
sustainability of our ongoing operating performance. Other equity
REITs may calculate Core FFO differently or not at all, and,
accordingly, the Company's Core FFO may not be comparable to such
other REITs' Core FFO.
Adjusted Funds from Operations ("AFFO") – We compute AFFO
by adding to Core FFO the non-cash amortization of deferred
financing fees and non-real estate depreciation, and then
subtracting cash paid for recurring tenant improvements, leasing
commissions, and capital expenditures, and eliminating the net
effect of straight-line rent / expense, deferred market rent and
debt fair value amortization. Recurring capital expenditures
exclude development / redevelopment activities, capital
expenditures planned at acquisition and costs to reposition a
property. We exclude certain first generation leasing costs,
which are generally to fill vacant space in properties we acquire
or were planned at acquisition. We have further excluded all
costs associated with tenant improvements, leasing commissions and
capital expenditures which were funded by the entity contributing
the properties at closing.
Along with FFO and Core FFO, we believe AFFO provides investors
with appropriate supplemental information to evaluate the ongoing
operations of the Company. Other equity REITs may calculate AFFO
differently, and, accordingly, the Company's AFFO may not be
comparable to such other REITs' AFFO.
Net Operating Income ("NOI") – We define NOI as
rental and other revenues less property operating
expenses.
We consider NOI to be an appropriate supplemental performance
measure to net income because we believe it provides information
useful in understanding the core operations and operating
performance of our portfolio.
Same Store Net Operating Income ("Same Store NOI") and Same
Store Cash Net Operating Income ("Same Store Cash NOI") –
Same Store NOI is calculated as the NOI attributable to the
properties continuously owned and operated for the entirety of the
reporting periods presented, and Same Store Cash NOI is calculated
as Same Store NOI less non-recurring other income, termination fee
income, straight-line rent / expense, deferred market rent and the
non-controlling interest's share of cash NOI. The Company's
definitions of Same Store NOI and Same Store Cash NOI exclude
properties that were not stabilized during both of the applicable
reporting periods. These exclusions may include, but are not
limited to, acquisitions, dispositions and properties undergoing
repositioning or significant renovations.
We believe Same Store NOI and Same Store Cash NOI are important
measures of comparison because each allows for comparison of
operating results of stabilized properties owned and operated for
the entirety of both applicable periods and therefore eliminates
variations caused by acquisitions, dispositions or repositionings
during such periods. Other REITs may calculate Same Store NOI and
Same Store Cash NOI differently and our calculation should not be
compared to that of other REITs.
Forward-looking Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Certain statements contained in this press release, including those
that express a belief, expectation or intention, as well as those
that are not statements of historical fact, are forward-looking
statements within the meaning of the federal securities laws and as
such are based upon the Company's current beliefs as to the outcome
and timing of future events. Forward-looking statements are
generally identifiable by use of forward-looking terminology such
as "approximately," "anticipate," "assume," "believe," "budget,"
"contemplate," "continue," "could," "estimate," "expect," "future,"
"hypothetical," "intend," "may," "outlook," "plan," "potential,"
"predict," "project," "seek," "should," "target," "will" or
other similar words or expressions. There can be no assurance that
actual forward-looking statements, including projected capital
resources, projected profitability and portfolio performance,
estimates or developments affecting the Company will be those
anticipated by the Company. Examples of forward-looking statements
include those pertaining to expectations regarding our financial
performance, including under metrics such as NOI and FFO, market
rental rates, national or local economic growth, including the
impact of inflation, estimated replacement costs of our properties,
the Company's expectations regarding tenant occupancy, re-leasing
periods, the Company's ability to renew expiring leases, tenant
compliance with contractual lease obligations, projected capital
improvements, expected sources of financing and ability to service
existing financing, expectations as to the likelihood and timing of
closing of acquisitions, dispositions, or other transactions, the
expected operating performance of the Company's current properties,
anticipated near-term acquisitions and descriptions relating to
these expectations, including, without limitation, the anticipated
net operating income yield and cap rates, lower than expected
yields, increased interest rates, operating costs and costs of
capital, and changes in local, regional, national and international
economic conditions, including as a result of the systemic and
structural changes in the demand for commercial office space.
Forward-looking statements presented in this press release are
based on management's beliefs and assumptions made by, and
information currently available to, management.
The forward-looking statements contained in this press release
are based on historical performance and management's current plans,
estimates and expectations in light of information currently
available to us and are subject to uncertainty and changes in
circumstances. There can be no assurance that future developments
affecting us will be those that we have anticipated. Actual results
may differ materially from these expectations due to the factors,
risks and uncertainties described above, changes in global,
regional or local political, economic, business, competitive,
market, regulatory and other factors described in our news releases
and filings with the SEC, including but not limited to those
described in our Annual Report on Form 10-K for the year ended
December 31, 2023 under the heading
"Risk Factors" and in our subsequent reports filed with the SEC,
many of which are beyond our control. Should one or more of these
risks or uncertainties materialize, or should any of our
assumptions prove to be incorrect, our actual results may vary in
material respects from what we may have expressed or implied by
these forward-looking statements. We caution that you should not
place undue reliance on any of our forward-looking statements. Any
forward-looking statement made by us in this press release speaks
only as of the date of this press release. Factors or events that
could cause our actual results to differ may emerge from time to
time, and it is not possible for us to predict all of them. The
Company does not guarantee that the assumptions underlying such
forward-looking statements contained in this press release are free
from errors. Unless otherwise stated, historical financial
information and per share and other data are as of March 31, 2024 or relate to the quarter ended
March 31, 2024. We undertake no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments or
otherwise, except as may be required by applicable securities
laws.
City
Office REIT, Inc.
Consolidated Balance
Sheets
(Unaudited)
|
|
(In thousands,
except par value and share data)
|
|
|
March
31,
2024
|
|
December
31,
2023
|
Assets
|
|
|
|
Real estate
properties
|
|
|
|
Land
|
$
193,524
|
|
$
193,524
|
Building and
improvement
|
1,196,003
|
|
1,194,819
|
Tenant
improvement
|
156,625
|
|
152,540
|
Furniture, fixtures
and equipment
|
944
|
|
820
|
|
1,547,096
|
|
1,541,703
|
Accumulated
depreciation
|
(229,680)
|
|
(218,628)
|
|
1,317,416
|
|
1,323,075
|
Cash and cash
equivalents
|
29,533
|
|
30,082
|
Restricted
cash
|
13,831
|
|
13,310
|
Rents receivable,
net
|
53,114
|
|
53,454
|
Deferred leasing
costs, net
|
23,220
|
|
21,046
|
Acquired lease
intangible assets, net
|
40,459
|
|
42,434
|
Other
assets
|
27,954
|
|
27,975
|
Total
Assets
|
$
1,505,527
|
|
$
1,511,376
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$
668,249
|
|
$
669,510
|
Accounts payable and
accrued liabilities
|
29,908
|
|
29,070
|
Deferred
rent
|
8,040
|
|
7,672
|
Tenant rent
deposits
|
7,853
|
|
7,198
|
Acquired lease
intangible liabilities, net
|
7,393
|
|
7,736
|
Other
liabilities
|
16,431
|
|
17,557
|
Total
Liabilities
|
737,874
|
|
738,743
|
Commitments and
Contingencies
|
|
|
|
Equity:
|
|
|
|
6.625% Series A
Preferred stock, $0.01 par value per share, 5,600,000 shares
authorized,
4,480,000
issued and outstanding as of March 31, 2024 and December 31,
2023
|
112,000
|
|
112,000
|
Common stock, $0.01
par value, 100,000,000 shares authorized, 40,154,055 and
39,938,451
shares
issued and outstanding as of March 31, 2024 and December 31,
2023
|
401
|
|
399
|
Additional paid-in
capital
|
438,909
|
|
438,867
|
Retained
earnings
|
214,709
|
|
221,213
|
Accumulated other
comprehensive income/(loss)
|
1,515
|
|
(248)
|
Total Stockholders'
Equity
|
767,534
|
|
772,231
|
Non-controlling
interests in properties
|
119
|
|
402
|
Total
Equity
|
767,653
|
|
772,633
|
Total Liabilities and
Equity
|
$ 1,505,527
|
|
$
1,511,376
|
City
Office REIT, Inc.
Consolidated
Statements of Operations
(Unaudited)
|
|
|
|
(In thousands,
except per share data)
|
|
|
|
|
Three Months
Ended
March 31,
|
|
|
2024
|
|
2023
|
|
Rental and other
revenues
|
$
44,493
|
|
$
45,957
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Property operating
expenses
|
17,744
|
|
17,720
|
|
General and
administrative
|
3,711
|
|
3,765
|
|
Depreciation and
amortization
|
15,075
|
|
15,304
|
|
Total operating
expenses
|
36,530
|
|
36,789
|
|
|
|
|
|
|
Operating
income
|
7,963
|
|
9,168
|
|
Interest
expense:
|
|
|
|
|
Contractual interest
expense
|
(8,098)
|
|
(7,972)
|
|
Amortization of
deferred financing costs and debt fair
value
|
(319)
|
|
(323)
|
|
|
(8,417)
|
|
(8,295)
|
|
Net
(loss)/income
|
(454)
|
|
873
|
|
Less:
|
|
|
|
|
Net income
attributable to non-controlling interests in
properties
|
(135)
|
|
(169)
|
|
Net (loss)/income
attributable to the Company
|
(589)
|
|
704
|
|
Preferred stock
distributions
|
(1,855)
|
|
(1,855)
|
|
Net loss
attributable to common stockholders
|
$
(2,444)
|
|
$
(1,151)
|
|
|
|
|
|
|
Net loss per common
share:
|
|
|
|
|
Basic
|
$
(0.06)
|
|
$
(0.03)
|
|
Diluted
|
$
(0.06)
|
|
$
(0.03)
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
Basic
|
40,097
|
|
39,873
|
|
Diluted
|
40,097
|
|
39,873
|
|
|
|
|
|
|
Dividend distributions
declared per common share
|
$
0.10
|
|
$
0.20
|
|
City
Office REIT, Inc.
Reconciliation of
Net Income to FFO, Core FFO and AFFO
(Unaudited)
|
|
(In thousands,
except per share data)
|
|
|
Three Months
Ended
March 31,
2024
|
Net loss attributable
to common stockholders
|
$
(2,444)
|
(+) Depreciation and
amortization
|
15,075
|
|
12,631
|
Non-controlling
interests in properties:
|
|
(+) Share of net
income
|
135
|
(-) Share of
FFO
|
(294)
|
FFO attributable to
common stockholders
|
$
12,472
|
(+) Stock based
compensation
|
1,070
|
Core FFO attributable
to common stockholders
|
$
13,542
|
(-) Net recurring
straight-line rent/expense adjustment
|
(305)
|
(-) Net amortization
of above and below market leases
|
(27)
|
(+) Net amortization
of deferred financing costs and debt fair value
|
316
|
(-) Net recurring
tenant improvements and incentives
|
(2,172)
|
(-) Net recurring
leasing commissions
|
(815)
|
(-) Net recurring
capital expenditures
|
(1,464)
|
AFFO attributable to
common stockholders
|
$
9,075
|
|
|
FFO per common
share
|
$
0.30
|
Core FFO per common
share
|
$
0.33
|
AFFO per common
share
|
$
0.22
|
|
|
Dividends distributions
declared per common share
|
$
0.10
|
FFO Payout
Ratio
|
33 %
|
Core FFO Payout
Ratio
|
30 %
|
AFFO Payout
Ratio
|
45 %
|
|
|
Weighted average common
shares outstanding - diluted
|
41,155
|
City
Office REIT, Inc.
Reconciliation of
Rental and Other Revenues to Same Store NOI and Same Store
Cash NOI
(Unaudited)
|
|
(In
thousands)
|
|
|
Three Months
Ended
March 31,
|
|
2024
|
|
2023
|
Rental and other
revenues
|
$
44,493
|
|
$
45,957
|
Property operating
expenses
|
17,744
|
|
17,720
|
Net operating income
("NOI")
|
$
26,749
|
|
$
28,237
|
Less: NOI of properties
not included in same store
|
(735)
|
|
(1,574)
|
Same store
NOI
|
$
26,014
|
|
$
26,663
|
Less:
|
|
|
|
Termination fee
income
|
(934)
|
|
(26)
|
Straight-line
rent/expense adjustment
|
(359)
|
|
(1,716)
|
Above and below market
leases
|
(20)
|
|
27
|
NCI in properties –
share in cash NOI
|
(426)
|
|
(434)
|
Same store cash
NOI
|
$
24,275
|
|
$
24,514
|
City
Office REIT, Inc.
Reconciliation of
Net Income to Core FFO Guidance
(Unaudited)
|
|
(In thousands,
except per share data)
|
|
|
|
Full Year 2024
Outlook
|
|
Low
|
|
High
|
Net loss attributable
to common stockholders
|
$
(16,900)
|
|
$
(16,150)
|
(+) Depreciation and
amortization
|
60,000
|
|
61,000
|
(+) Net loss on
disposition of real estate property
|
100
|
|
100
|
(-) Non-controlling
interests in properties
|
(500)
|
|
(500)
|
FFO attributable to
common stockholders
|
$
42,700
|
|
$
44,450
|
(+) Stock based
compensation
|
4,300
|
|
4,300
|
Core FFO attributable
to common stockholders
|
$
47,000
|
|
$
48,750
|
|
|
|
|
FFO per common
share
|
$
1.03
|
|
$
1.08
|
Core FFO per common
share
|
$
1.14
|
|
$
1.18
|
|
|
|
|
Weighted average shares
of common stock
|
41,300
|
|
41,300
|
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
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SOURCE City Office REIT, Inc.