VANCOUVER, Nov. 7, 2022
/PRNewswire/ -- City Office REIT, Inc. (NYSE: CIO) (the "Company,"
"City Office," "we" or "our") today announced its results for the
quarter ended September 30, 2022.
Third Quarter Highlights
- Rental and other revenues were $45.5
million. GAAP net income attributable to common stockholders
was approximately $0.1 million, or
$0.00 per fully diluted share;
- Core FFO was approximately $16.5
million, or $0.39 per fully
diluted share;
- AFFO was approximately $7.7
million, or $0.18 per fully
diluted share;
- In-place occupancy was 85.8% as of quarter end;
- Executed approximately 195,000 square feet of new and renewal
leases during the quarter;
- Completed the Company's share repurchase program. During the
second and third quarters of 2022, the Company repurchased
$50.0 million in shares of common
stock at an average gross price of $12.48 per share;
- Declared a third quarter dividend of $0.20 per share of common stock, paid on
October 21, 2022; and
- Declared a third quarter dividend of $0.4140625 per share of Series A Preferred Stock,
paid on October 21, 2022.
"While macroeconomic uncertainty continues to impact our
industry, we believe we are positioned well to outperform over the
long term," commented James Farrar,
the Company's Chief Executive Officer. "Our Sun Belt markets
continue to be national leaders in employment growth, population
growth and office leasing metrics. The flight to quality
assets also continues to be a trend driving leasing outcomes, and
we believe our high-quality portfolio will be the beneficiary of
that trend over time."
"During the quarter, we continued to focus on advancing
opportunities to position the Company for long term success.
As a result of our spec suite program and select property upgrades,
we believe we are on the path to optimizing our leasing
potential. Prospective tenants continue to focus on securing
high quality and amenitized spaces for their employees. Our
core portfolio and planned enhancements position us well in this
regard. As an example, at our recently renovated 190 Office
Center property in Dallas, we
signed 49,000 square feet of new leases during the quarter.
Heading into the end of the year and looking forward to 2023, we
intend to operate conservatively while taking active steps to
enhance our competitive positioning."
A reconciliation of certain non-GAAP financial measures,
including FFO, Core FFO, AFFO, NOI, Same Store NOI, Same Store Cash
NOI, Adjusted 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 September 30, 2022 contained 6.0 million net
rentable square feet and was 85.8% occupied.
Net Operating Income was approximately $28.1 million and Adjusted Cash NOI (CIO share)
was approximately $27.0 million for
the third quarter of 2022. Net Operating Income benefited from
$0.9 million of termination fee
income recognized in the quarter.
Same Store Cash NOI decreased 4.3% for the three months ended
September 30, 2022 as compared to the
same period in the prior year. Same Store Cash NOI decreased
5.4% for the nine months ended September 30,
2022 as compared to the same period in the prior year.
Leasing Activity
The Company's total leasing activity during the third quarter of
2022 was approximately 195,000 square feet, which included 137,000
square feet of new leasing and 58,000 square feet of renewals.
Approximately 171,000 square feet of leases signed within the
quarter will commence subsequent to quarter end.
New Leasing – New leases were signed with a weighted
average lease term of 5.8 years at a weighted average annual rent
of $26.68 per square foot and at a
weighted average cost of $7.44 per
square foot per year.
Renewal Leasing – Renewal leases were signed with a
weighted average lease term of 3.2 years at a weighted average
annual rent of $26.51 per square foot
and at a weighted average cost of $1.85 per square foot per year.
Capital Structure
As of September 30, 2022, the
Company had total principal outstanding debt of approximately
$680.1 million. Approximately
$445.1 million, or 65.4%, of the
Company's outstanding debt was fixed rate. When factoring in the
$50 million term loan as fixed rate
debt due to an interest swap, approximately 72.8% of the Company's
debt was effectively fixed rate. City Office's total principal
outstanding debt had a weighted average maturity of approximately
3.5 years and a weighted average interest rate of 4.1%.
On August 5, 2020 the Company's
Board of Directors approved a share purchase plan authorizing the
Company to repurchase up to an aggregate amount of $50 million of its outstanding shares of common
stock. During the three months ended September 30, 2022, the Company completed this
program and settled on the repurchase of 3,612,064 shares of its
common stock at an average gross price of $12.46 per share for a total cost of
approximately $45.0 million.
Including repurchases in the prior quarter, the Company settled on
the repurchase of 4,006,897 shares of its common stock at an
average gross price of $12.48 per
share for a total cost of approximately $50.0 million.
Dividends
On September 15, 2022, the
Company's Board of Directors approved and the Company declared a
cash dividend of $0.20 per share of
the Company's common stock for the three months ended September 30, 2022. The dividend was paid on
October 21, 2022 to common
stockholders and unitholders of record as of October 7, 2022.
On September 15, 2022, 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 September 30, 2022. The
dividend was paid on October 21, 2022
to preferred stockholders of record as of October 7, 2022.
2022 Outlook
Following the Company's performance year-to-date and
expectations for the remainder of 2022, the Company is reiterating
the components of full year 2022 guidance provided in the Company's
second quarter 2022 earnings report.
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
the pace of future acquisitions and dispositions, rental rates,
occupancy levels, leasing activity, 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 COVID-19 pandemic,
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 November 7, 2022.
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 1-844-200-6205 for
domestic callers and 1-929-526-1599 for international
callers. The passcode for the conference call is 378399.
A replay of the call will be available later in the day on
November 7, 2022, continuing through
February 5, 2023 and can be accessed
by dialing 1-866-813-9403 for domestic callers and 44-204-525-0658
for international callers. The passcode for the replay is
810602. 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 the earn-out,
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 first generation leasing costs within
the first two years of acquisition, 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"), Adjusted Cash NOI (CIO
share) – We define NOI as rental and other revenues less
property operating expenses. We define Adjusted Cash NOI as
NOI less the effect of recurring straight-line rent / expense,
deferred market rent, and any amounts which are funded by the
selling entities and NCI in properties.
We consider NOI and Adjusted Cash NOI to be appropriate
supplemental performance measures to net income because we believe
they provide 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 and Same Store Cash NOI is calculated as the NOI
attributable to the properties continuously owned and operated for
the entirety of the reporting periods presented. The Company's
definition of Same Store NOI and Same Store Cash NOI excludes
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 is an
important measure of comparison because it 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, projected capital improvements, expected sources of
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 and operating costs, and changes
in local, regional, national and international economic conditions,
including as a result of the ongoing COVID-19 pandemic.
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, 2021 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 September 30, 2022 or relate to the quarter ended
September 30, 2022. 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
Condensed
Consolidated Balance Sheets
(Unaudited)
(In thousands,
except par value and share data)
|
|
|
September
30,
2022
|
|
December 31,
2021
|
Assets
|
|
|
|
Real estate
properties
|
|
|
|
Land
|
$
200,686
|
|
$
204,801
|
Building and
improvement
|
1,233,713
|
|
1,244,177
|
Tenant
improvement
|
134,785
|
|
119,011
|
Furniture, fixtures
and equipment
|
673
|
|
664
|
|
1,569,857
|
|
1,568,653
|
Accumulated
depreciation
|
(178,237)
|
|
(157,356)
|
|
1,391,620
|
|
1,411,297
|
Cash and cash
equivalents
|
22,012
|
|
21,321
|
Restricted
cash
|
19,669
|
|
20,945
|
Rents receivable,
net
|
39,700
|
|
30,415
|
Deferred leasing
costs, net
|
22,060
|
|
20,327
|
Acquired lease
intangible assets, net
|
58,580
|
|
68,925
|
Other
assets
|
30,638
|
|
28,283
|
Total
Assets
|
$
1,584,279
|
|
$
1,601,513
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$
676,116
|
|
$
653,648
|
Accounts payable and
accrued liabilities
|
38,091
|
|
27,101
|
Deferred
rent
|
8,921
|
|
11,600
|
Tenant rent
deposits
|
7,014
|
|
6,165
|
Acquired lease
intangible liabilities, net
|
9,602
|
|
10,872
|
Other
liabilities
|
20,199
|
|
21,532
|
Total
Liabilities
|
759,943
|
|
730,918
|
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 September 30,
2022 and December 31, 2021
|
112,000
|
|
112,000
|
Common stock, $0.01
par value, 100,000,000 shares authorized, 39,718,767 and
43,554,375
shares issued and outstanding as of September 30, 2022
and December 31, 2021
|
397
|
|
435
|
Additional paid-in
capital
|
435,086
|
|
482,061
|
Retained
earnings
|
273,843
|
|
275,502
|
Accumulated other
comprehensive income/(loss)
|
2,819
|
|
(382)
|
Total Stockholders'
Equity
|
824,145
|
|
869,616
|
Non-controlling
interests in properties
|
191
|
|
979
|
Total
Equity
|
824,336
|
|
870,595
|
Total Liabilities and
Equity
|
$
1,584,279
|
|
$
1,601,513
|
City
Office REIT, Inc
Condensed
Consolidated Statements of Operations
(Unaudited)
(In thousands,
except per share data)
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Rental and other
revenues
|
$
45,522
|
|
$
44,889
|
|
$
135,871
|
|
$
124,369
|
Operating
expenses:
|
|
|
|
|
|
|
|
Property operating
expenses
|
17,412
|
|
15,180
|
|
50,736
|
|
43,477
|
General and
administrative
|
3,506
|
|
7,900
|
|
10,575
|
|
13,768
|
Depreciation and
amortization
|
15,555
|
|
14,648
|
|
47,072
|
|
44,017
|
Total operating
expenses
|
36,473
|
|
37,728
|
|
108,383
|
|
101,262
|
Operating
income
|
9,049
|
|
7,161
|
|
27,488
|
|
23,107
|
Interest
expense:
|
|
|
|
|
|
|
|
Contractual interest
expense
|
(6,582)
|
|
(5,650)
|
|
(18,311)
|
|
(17,533)
|
Amortization of
deferred financing costs and debt fair value
|
(303)
|
|
(267)
|
|
(917)
|
|
(869)
|
|
(6,885)
|
|
(5,917)
|
|
(19,228)
|
|
(18,402)
|
Net gain on sale of
real estate property
|
—
|
|
—
|
|
21,658
|
|
47,400
|
Net
income
|
2,164
|
|
1,244
|
|
29,918
|
|
52,105
|
Less:
|
|
|
|
|
|
|
|
Net income
attributable to non-controlling interests in properties
|
(175)
|
|
(378)
|
|
(510)
|
|
(760)
|
Net income
attributable to the Company
|
1,989
|
|
866
|
|
29,408
|
|
51,345
|
Preferred stock
distributions
|
(1,855)
|
|
(1,855)
|
|
(5,565)
|
|
(5,565)
|
Net income/(loss)
attributable to common stockholders
|
$
134
|
|
$
(989)
|
|
$
23,843
|
|
$
45,780
|
Net income/(loss) per
common share:
|
|
|
|
|
|
|
|
Basic
|
$
0.00
|
|
$
(0.02)
|
|
$
0.56
|
|
$
1.05
|
Diluted
|
$
0.00
|
|
$
(0.02)
|
|
$
0.55
|
|
$
1.04
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
Basic
|
41,351
|
|
43,554
|
|
42,838
|
|
43,478
|
Diluted
|
42,125
|
|
43,554
|
|
43,663
|
|
44,091
|
Dividend distributions
declared per common share
|
$
0.20
|
|
$
0.15
|
|
$
0.60
|
|
$
0.45
|
City
Office REIT, Inc
Reconciliation of
Net Income to Net Operating Income and Adjusted Cash
NOI
(Unaudited)
(In
thousands)
|
|
|
Three Months
Ended
September 30,
2022
|
Net income
|
$
2,164
|
Adjustments to net
income:
|
|
General and
administrative
|
3,506
|
Contractual interest
expense
|
6,582
|
Amortization of
deferred financing costs and debt fair value
|
303
|
Depreciation and
amortization
|
15,555
|
Net Operating Income
("NOI")
|
$
28,110
|
Net recurring straight-line rent/expense adjustment
|
(701)
|
Net amortization of
above and below market leases
|
(9)
|
Portfolio Adjusted Cash
NOI
|
$
27,400
|
NCI in properties –
share in cash NOI
|
(419)
|
Adjusted Cash NOI (CIO
share)
|
$
26,981
|
City
Office REIT, Inc
Reconciliation of
Net Income to FFO, Core FFO and AFFO
(Unaudited)
(In thousands,
except per share data)
|
|
|
Three Months
Ended
September 30,
2022
|
Net income attributable
to common stockholders
|
$
134
|
(+) Depreciation and
amortization
|
15,555
|
|
15,689
|
Non-controlling
interests in properties:
|
|
(+) Share of net
income
|
175
|
(-) Share of
FFO
|
(325)
|
FFO attributable to
common stockholders
|
$
15,539
|
(+) Stock based
compensation
|
992
|
Core FFO attributable
to common stockholders
|
$
16,531
|
(-) Net recurring
straight-line rent/expense adjustment
|
(701)
|
(-) Net amortization
of above and below market leases
|
(9)
|
(+) Net amortization
of deferred financing costs and debt fair value
|
300
|
(-) Net recurring
tenant improvements and incentives
|
(4,202)
|
(-) Net recurring
leasing commissions
|
(1,691)
|
(-) Net recurring
capital expenditures
|
(2,566)
|
AFFO attributable to
common stockholders
|
$
7,662
|
FFO per common
share
|
$
0.37
|
Core FFO per common
share
|
$
0.39
|
AFFO per common
share
|
$
0.18
|
Dividends distributions
declared per common share
|
$
0.20
|
FFO Payout
Ratio
|
54 %
|
Core FFO Payout
Ratio
|
51 %
|
AFFO Payout
Ratio
|
110 %
|
Weighted average common
shares outstanding - diluted
|
42,125
|
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
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Rental and other
revenues
|
$
45,522
|
|
$
44,889
|
|
$
135,871
|
|
$
124,369
|
Property operating
expenses
|
17,412
|
|
15,180
|
|
50,736
|
|
43,477
|
Net operating income
("NOI")
|
$
28,110
|
|
$
29,709
|
|
$
85,135
|
|
$
80,892
|
Less: NOI of properties
not included in same store
|
(8,962)
|
|
(5,796)
|
|
(23,827)
|
|
(13,681)
|
Same store
NOI
|
$
19,148
|
|
$
23,913
|
|
$
61,308
|
|
$
67,211
|
Less:
|
|
|
|
|
|
|
|
Termination fee
income
|
(485)
|
|
(5,077)
|
|
(2,705)
|
|
(6,773)
|
Straight-line
rent/expense adjustment
|
(482)
|
|
381
|
|
(706)
|
|
644
|
Above and below market
leases
|
23
|
|
20
|
|
31
|
|
375
|
NCI in properties –
share in cash NOI
|
(419)
|
|
(645)
|
|
(1,217)
|
|
(1,495)
|
Same store cash
NOI
|
$
17,785
|
|
$
18,592
|
|
$
56,711
|
|
$
59,962
|
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
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SOURCE City Office REIT, Inc.