City Office REIT (CIO) 7 Aug 202020 Q2 Earnings call transcript

Good morning and welcome to the City Office REIT Inc.

Second Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce you to Tony Maretic, the Company's Chief Financial Officer, Treasurer and Corporate Secretary. Mr. you, Thank Maretic.

begin. You may

morning. Good

earnings historical we begin, website second you our non-GAAP package. to earnings include package a reconciliation I'd cityofficereit.com where like of The information at supplemental our that release direct and you supplemental press both will to measures and Before release can quarter view today forward-looking that their company's beliefs the within to today GAAP are discussed of Securities discuss based directly comparable the constitute financial Laws. expectations, that or fact measures. the meaning be most Certain statements not on statements may made Federal or

believes actual these SEC these disclaimer for release second material quarter now can company give that the the see will in and Although forward-looking we differences cause based made in results. Farrar; our statements the operational after I that assurance our We that statements forward-looking The and no Jamie course Chief call update our any undertakes expectations to such are company forward-looking of forward-looking press statements over financial with I'll no this may assumptions, Officer will factors earnings the be reflect filings some results between quarter's the of review reasonable could statements highlights. company's upon that call. discusses obligation turn be achieved. Executive expectations the Jamie. the in to

discussed a providing and this forward. these strategic going you joining weather update optimally begin our of for call us number Thank will by ourselves morning. we that On I positioned Good times plan. in on we today. initiatives economic uncertain to an take last

opportunistic remains expect Transaction distressed property will situations. acquisitions we new purchase in we seen markets we First, that and activity our properties compelling not not in have all and continue or any new to XXXX. limited stopped

our and as levels cash our targeted conservatively. we of lowered defensive elevated more Second, holdings part operate leverage plan, our to

continue to expect maintain on reduced the the foreseeable future. hand, elevated our we but for cash quarter, liquidity to we During

excess adjusted the dividend term. that level generate cash over to us to we Third, long our a would allow

which basis incurred our our the property. at for costs dividend we this completed well lease on cost, the our back was disclosed quarter, own properties square inherent During at leverage share. to to average healthy the level large our program lower time, Over XX-year AFFO this of at up an $X.X still accretive our million our of stock. for we execution, cents us the to own XX,XXX buy at of of to $X.XX levels. repurchase part results lease our a Denver new while In covered $XXX of intention Last, Tech full effectively highly price this leaving pleased particularly an adjusted to $XXX us million performance, we their allowed will July, common with per Normalizing be repurchase I'm a foot discount liquidity. million of for previously our value. announced

Our to collections quarter focus the be operations, during on and second continues leasing.

in increase be been have buildings for We've increased company. but recent the again bright in continues of reopen, continue buildings country open, to relatively to for operational remains available witnessed of some especially utilization All markets. tenants. the of spot and a Collections cases COVID-XX low, our have our as our as utilization a

total, XX% by by rent exposure of last deferrals base primarily five on collected total feet, revenue. our second to expected which second during deferrals in also directly industry's collected XXXX. the highlighted tenants agreement XX,XXX all on July represent square and revenue over just be base of X.X% rental XX,XXX In the rental quarter We've reached repaid to We of of to rental revenue quarter. I over of total a XX% approximately and have low call, granted COVID-XX. represent which a rent we abatement the abatement We've of have is impacted end only As square most a on base cafe the of operators, relatively feet.

to with have the and on leasing from leasing tenants and reopening space needs. their challenges, with regarding uncertainty future dealing highlight brokers been activity. space future Moving safely home Discussions Tenants their determining work offices overall requirements.

closer overall return early seems offset suburban believe office be the of trends and stages employee of term, densification remote This workstation and our the regional working to elements We medium reductions. to would social is shifting in distancing. to but continue over the also dedicated additional space to and balance housing that stock. tenants hoteling space but markets to offices help contemplation It will employees

We continue long term, will relocate as over of workforces be cities living to low markets. the state believe to to look high tax net beneficiaries and companies quality that their our

which In terms new in the of further with discuss I'll of exception life slow. new leasing, leasing activity sciences, has been moment, the

given properties. quality where markets particularly the leasing we renewal remain However, sub active, discussions own

square the Colorado the feet of additional the property state XX,XXX square building of leases XX,XXX XXX,XXX will square the of square leases. campus. was Creek space Cherry of of XX,XXX executed feet we quarter, taking feet expansion of was new existing Denver. the that in for During at our Once an largest lease new feet three The occupy square leasing, feet Of renewal and expansion expansion XX,XXX state space commences, tenants. XXX%

major outlook, lot portfolio. transaction our I'd Before our This that end. like in after to executed I of give has unlocked quarter an update discuss lease was value a on a

$X per an approximately the million us $XX in triples set foot expire Ultimately, rental XX,XXX we was San renewal science Mesa to to XX-year our renewed November The rate that square lease portfolio more of incremental for to rate square of continues in Their a per rolls Sorrento revenue space in will of foot. foot than of As net lease year. tenant. at this sector I mentioned XX existing our at on very had Diego the annual a This per active November we earlier, be square interest net triple term. and lot life leasing $XX.XX generate year. a

same in August expansion after a of generate will the commences, the square addition, $XXX,XXX tenants take In lease it that in existing space building in will tenant When XXXX. further expires revenue. annual foot the XX,XXX lease rental a

and the aspects finding building overall updates our the lease the but lease. ways also in our life this of properties square the portfolio. of in to provide enhance We'll campus, occupies science further this comprised underpinning XXXX, that package Finally, other feet. XXXX at another been future, we've successful that to of the from XX,XXX on of tenant value We and extended enhance expiration security

the outlook our to turn coming I'll for quarters. Finally,

that results consideration guidance in for uncertainties strong remain. to helpful our still the despite the believe many to of providing our that though initiate us and continue business financial strategic shifts forecasting investors Even internal own and achieved risks quarter, leasing in We today. to we've is challenges the led

date our cases into the cautious rising funding this the cash of forecasted relied activity and of net share XXXX. our expectations results and now account in I'll to outlook states our is our The of core will warranted. relief upward results. on impact in the is in manifest continue assumptions observations provide income, cases and still financial of for With same-store collections and NOI detail and COVID-XX XXXX term particular turn effect including to further FFO some net date; expectations. Taking it we to XXXX. an believe strong operating to we've balance to Further, government growth guidance throughout for and elevated to on small revision U.S. that into year many short businesses adjusted a per over our on markets, leasing businesses Tony

address basis, of $XX.X the year. the our first I'll termination second outlook second $XX.X net the Cherry higher a which slightly GAAP results Jamie. was to and payment the updated then operating at property. Thanks, amortization income lease our a in our benefited the for reported than quarter. quarter fee we On million, quarter's remainder of the from Creek We was turn million in the

core the primarily uncertainty. operating and share, termination our will complete the the departure tenant date fourth of been the rental space results. net square the total in higher $XXX,XXX a fee the positive second existing impact recorded at terminated liquidity our XXXX is a quarter, resulting quarter million of space. into Colorado was quarter tour $X.XX lower abatements mentioned, for in As fee cents space $XXX,XXX. we buyback sufficient air We in the was revenue state state as be approximately occupy FFO set per the X, this due to a or credit interest That XX. third first will reported facility and loss to amortized XX,XXX offset of in income that the had by million on to is commences income Jamie the net $XXX,XXX to on Colorado January total to The the costs, September an interest and by draw XXXX. remaining of We made Therefore, million. higher tenant, we totaled $XXX,XXX in transaction $X.X of due The costs of The feet additional approximately in quarter of the has stock $X.X than $XX.X expansion million March vacant $X.X were offsetting ensure higher program termination provisions expanding QX the weather was of income. occupancy which until rent in remain

The AFFO leasing costs share. to second elevated largest quarter during $X.XX per quarter our new XX-year million the XX,XXX was tenant $X.X foot the was improvements property. quarter AFFO prior of announced tied commission's incurred in [indiscernible] costs Our square lower the firm cents leasing the or due this and Tech strong relate lease Denver previously to to activity. with leasing at engineering

quarter, $X.X. as for improvement to tenant. $X.X AFFO coverage $X tenant we further expected the in we capital per during expect share costs to normalize levels. the therefore Jamie for improvement this are No to Those dividend quarter of allowance remaining costs return by As costs the beginning third returned allowance million this and second mentioned, the alone incurred million impacted expenditures tenant

move the We acquisition our planned Circle to have related the in cosmetic quarter. expanded also at scope the around, quarter to in largest capital exterior relative portfolio the quarter. We of improvements, the work in our work numbers which significant and property will some some that leasing to Denver. include originally, AFFO impacted Point of continuing of expenditures, Due of quarter, from our size the impact continue to any to one FFO which

last second as of Our the X.X% rent NOI year. markets performing year versus quarter for new same-store the quarter was one impact free second the the burned grew Diego the of in prior in San periods cash best leasing second quarter off. our

balance Moving on to sheet. our

negative unforeseen June COVID-XX. economic impacts cash will million. have substantial totaled XX and liquidity at withstand restricted we $XX This balance ensure cash any by ample caused Our to cash

Our total was debt at million. $XXX XX June

fixed. restricted of years quarter Our debt X.Xx. to net total a weighted was debt, and cash debt of our including was average XX% effectively EBITDA had At end X.X maturity or

We debt maturities in XXXX only have no one and in XXXX. maturity

quarter X.X $X.XX cents stock million During XXX the completed purchased share. per year the an of quarter, the buyback program. quarter date purchased stock. million at our average end, after we gross repurchases end, we completed common to amounts were of Subsequent shares to Including price

diluted total and the count similar has related second share with per weighted approved implement the an accretion million approximately buyback quarter to and a this the stock share million options. is share spectrum August forward. results of us average QX our in fully after the The the flexibility $XX repurchase $XX.X allocation impact our the share program board a significant X, full of the expect will quarter. program. versus outlay XX XX provides and have buyback The completion second led we evaluate to for in of on incremental capital a in in Our On million future million note, approval going program

sensitive we leverage our However, market maintaining to capitalization conservative levels. reducing and are

expect press XXXX As such, our release. have year the we near guidance not updated the in do activate term. to provided full currently in we program Last,

of and rate been business The pleased is more highlight of debt As have guidance I our balance impact focus, The high will estimate press comes COVID-XX details the raised of for on have with our collections arise XXXX our here. into provisions. range and guidance these in therefore main our of release the in covers driver bad the we more year.

and As was than quarter debt X.X%. less our rent for bad abatements previous second total

for year of We the and have between for uncollectible general revenue. the our lowered to X.X% of provisions balance rents X%

operating the assumptions, impact earlier increase. increased. NOI Our previous expectations on revised lease Based have all fees, The same-store been on and to was cash to a X% these our FFO guidance based X% provision. which of positive contributed the income, also I net termination described operating core change,

the share concludes revised $X.XX estimates we up Operator? ending will and between core full for prepared line $X.XX Our open FFO That year questions. and for remarks December guidance XXXX. our XX, per the

you. Thank

[Operator begin come We question-and-answer will Markets. Capital today RBC will go Instructions] the now Your question with Please session. from ahead. Carroll first Michael

a Yes, pretty talk was think the the and thanks. Jamie, about bit a big you Lake expiration. lease tenant renewal Vista property, that bit know I have that's term I short a can little Pointe that that they completed.

what's their behind over planning their that until there? bigger Is make So can on final term doing the them or something decision thought short are to process renewal? they tie just they

question, That's a good Mike.

take and and them we They they right that did to So have extend a -- lease discussions of usage, months more by on figure own I space pressure their to off triggered have time. their discussions tenants end, are have with bit bit give to them think been needs and with three their continue to really trying most that tenant ongoing. out a a as just

any there? current bit. environment they're in brighter before that's think they area that that needed that sure renew there for little Is mean, this their needs? property I'm to I a space. changes Okay. could not them I if prospect that going support more a But is there

one previously, areas, a at options looking a Yes, but number of the they large Dallas a were build-to-suit is was there's market. and of potential

but good they proposition got great could on So table to, we valuation are a a the existing there vacancies them. and we've property for think that fit

are discussions ongoing. So

Carillon the know sometime guess, renewing there is soon? what's Okay, big them great. coming there? up, on prospect Point the you I at had too. exploration another I lease of going discussions And a

do story similar the industry do to we're Utilization across term? right it's range but Where tenants to be? long probably is they the around in low they figure all board. need? utilization. out of current want Yes, around, What average, now were were probably fairly are XX% an And trying

you when so leasing, And things look renewal new down. slowed and discussions at have

position decision as particular there to have have well. good ongoing property, a It's they in make great tenant a some and we're for think that discussions time I that been space. at but a

talk for PI any Okay, events we've Is need I you there Mesa about great. And guess investments little know big to that that while. make property? ups that a been incremental Sorrento the into was you talking step finally, I completed? can pretty or about a you related renewal there that rent component

Yes, of big that us was for works a kind win we trifecta. the and the that in over Kind landed one a on on of year.

annual elements So $XX in which there's three on Rates XXXX. an a to square up happens foot to renewal, XX,XXX it. basis. net step There's

foot very the to XX-year to that going that's X a TI So bottom line. million a was add The on reasonable $XX for about a term.

of XXXX, to extending was XXXX four add XXXX about step in moved rent, months free take with same have XXXX. XXX,XXX property additional up August one free final second that rent feet, was we exact that'll feet on out us The TI, another rates piece going they're down it terms in XX,XXX there's income. a XX,XXX that an The piece And market from then another to will really to incremental then. the in but they

us overall, step comfortable their we similar are then, that today. And flow market at they're really It'll position. a put in be healthy that time. in to rates cash security and a up really package So, existence modified

was us. So, outcome for it great a

highlight you finally, leverages stock balance that mean, assuming today, you that to that at kind that repurchase targets. a just Okay, execute bit place? that? and into to program I don't sheet especially great. given your on where today do little I'm And you put you of given the want really can then where you Tony, your about talk leverage be want

place That's buyback the exactly have sure XX than program, to right. future. for We really in tool make just put the it stock we the initial more

intention to to at question, June ended XX. of we remarks, address we it we have don't leverage where than acquire million quarter term, different it said be post effectively, end. of near in stock materially don't you another kind know, We or were the my $XX I any As to use did expect

back, under debt just, than not XXX buy at net would So, levels guidance though points back million us stock we we if that the beginning originally a properties planned; strategy really we to at see and basis this lower step to the you have on allows the you original is value that year. and Had instead of completed pivot if the that operate XX. $XXX approximately we lower take June where so basis, a landed of

you. Okay, great. Thank

question with FBR. ahead. next The Kucera Craig Riley come go Instructions] will [Operator Please from B

guys. morning, Good

Now mesa at candidates, created you now to [ph]. Do hold to distribution that Sorento potentially them? so you've much become on likely assets value more those are

at at. just lot considering are the far We additional we're unlock substantially our a be still and while flow much as them ago. enhancing something over continue going to marketable little some We've options than But of next there's we two It's there. drive bought higher and done they to as and years work really consider over to Greg. value bought more value. a leasing what them try had leasing there to We're certainly cash success and

a And expansion basically Okay, Creek to to agreed that they when circle extension there that back a Cherry on lease single you get just take buildings, a in those space? to now great. the expansion tenant being did

going be space future, to rest that the ish rolled basically of space. a to which push we expire year was the XXXX the they with the about No, coterminous we one took, in out

for to the if transaction transactions what at you're But not a seeing in any know pricing in and XXXX. more curious Okay. post changes And of market you're COVID seeing looking am environment. in one kind see for I me, thoughts you're actively I

marketed of execute nutshell, So, lots good there's I it of be opportunities kind they're is we're out said, as side, opportunities. things being be personally valuation to environment today's there, willing really that the to lot I'm at XXXX And there's think a to going the And, of we're and on makes there's seller happen. going being going XXXX. not looking reason be very you expectation at a to it's do that sure pre-COVID, there a We whether and thinking beyond. think was know, other in on matter. a stops you sense another going didn't

really our own we've adjustments what not from standpoint. so and so, And seen value massive far,

know, of comfortable kind there's get need we You two elements to with.

the element first uncertainty, is to at cash and are, properties there's property going in happen where when market on there's you to is of to what The look from tenants at going long in some uncertainty. rents again, surviving be on term and you uncertainty, look going happen renewals, term long flow what's certain today's a environment, what's these

comfortable, we the get so, at And really us visibility have want property. to around for the to flow cash good

element The know, that and, those elements so other can and aggressive seeing are comfortable are get more of bit you conservatively maybe which you're compelling, neither valuations you're still is and a if underwriting little you're there today.

stepping you're we're so, at And what know, our you share as looking far as back doing, buyback.

just flow, level here our X.X we worth out. and know at the are assets a brainer, and we so today land $XXX putting we risk. own and see that risk, not to foot, see know of being million preserve our $XXX cash look look we on we a on happening backing up market cap of no our some a at liquidity we've where as identified us valued bought strong great is When midpoint the the that We our low kind effectively it's things that own portfolio. you You rate NOI and at inside company, into

expectations? the guys. for just call Okay, rates that Tony, with, you Reauthorizing buyback, utilize down $XX pay given third you a positive to of going you really your in you after more likely of reduction balance the and your cash a debt not it bad more Because certainly, seem million but run have or one near-term; buybacks likely still $XX quarter in sheet are the guidance likely to it are with does the million today, me. outlook, bit it to line?

confidence availability Yeah, is draw certainly we've the back when March, it's our need grown a line did the that was it to the money credit, very on good that's we of the the if test it. and much was there in level as case us, there question. we to Craig, of

some And quarter our during so, to for will yes, it cash monitor line continue does obviously the level is, situation. sense given us to look make of a down at conference the pay and where but the

Thanks, guys. Okay, great.

Craig. Thanks,

there like to no Farrar now additional I are conclude. Mr. As turn over to call would back questions, the to

your hope Thanks that a rest for summer. of joining We everyone great today. has Goodbye.

now now has today's disconnect. conference attending concluded. Thank may And The for you presentation. you