City Office REIT (CIO) 23 Feb 232022 Q4 Earnings call transcript

Good morning, and welcome to the City Office REIT, Inc. Fourth Quarter 2022 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] As a reminder, this conference call is being recorded. Instructions] [Operator

my Financial you Secretary. Officer, Mr. now the Tony Thank to Maretic. Chief company's Treasurer pleasure is to introduce Maretic, you, It and Corporate

now may You begin.

morning. Good

most to would our a view quarter reconciliation comparable both that earnings earnings directly supplemental measures I we release you and fourth Before will release of today package. website cioreit.com where non-GAAP measures. our to begin, to financial be include at information direct press and like can package, their you GAAP discussed The supplemental

Certain statements of or constitute not historical made Laws. today the meaning company's may Federal the that based expectations beliefs discuss forward-looking fact the are or within Securities statements that on

company's material reasonable be believes are obligation factors any no filings the forward-looking While give undertakes for earnings no statements in in with to will SEC forward-looking the assurance release this of course results. that expectations these these in company actual quarter may fourth that that disclaimer between achieved. and press forward-looking company and forward-looking differences the The the statements We the cause made assumptions. Please expectations update our see could can based reflected call. that statements upon be such statements, are

results, Executive Jamie the Chief will of review I our financial discusses Officer after, some Farrar, our quarter's highlights. operational

turn Jamie. I to now over will call the

weighted share share To recorded company's our headed key core I'll The XXXX, call, is was in per start today. achieved In XX% provide summary joining the for we per then and increase history. highest accomplishments XXXX we a thanks focus of XXXX. the annual $X.XX brief and and occupied our morning, year. highly on FFO that Good in the company this a very XXX,XXX where three that well, XX% integrating constructed prior and These newly are of a Dallas main stabilizing Phoenix we lease amenitized acquisitions of increase approximately term XX the performing average properties remaining the was in in completed XXXX. have of years. Raleigh, The December over square feet and driver are

strong our to repurchase in to We accretive at the per share. average which share, and performance net was earnings contributing FFO share share per million invested per our an completion $XX.XX $XX both core price share program. per of asset was Also value XXXX of

Another XXXX generated highlight which a the the was Lake Pointe of of property gain. of million our Dallas closing $XX Vista in sale

throughout the we On operational approximately amount the with new XXX,XXX side, square of occurring XXX,XXX feet leases and quarter. square fourth the completed of that feet renewal year in

leasing. also positive program on suite a had impact spec Our

spec XX,XXX signed During leases for suites. XXXX, we feet square new of

We also this signed the new leases as are feet extent We will for but to from started the in had off. rent free and leased of space burns over vacancy conditionally. we program, suites full benefit XX,XXX be realized square where time completed investment

directors to our John to recent last the a of who IPO company. as public our terrific to in our both become leadership since since position outstanding that McLernon, who note of we John the succession John's before Chairman make fit announced We're today company, Sweet, to excellent him to service their been we Director strategy. John the our these And Independent changes on and contributions our report Board. industry XXXX planned for He of will base Chairman. our one prior Board. move XXXX within as assumed company continued Independent an Chairman board from his Director. has events XXXX. our I'm an knowledge has grateful has an continue been McLernon extensive pleased some

XX served finance private years also and consultant. is boards highly We and an previously to investor, brings appointed throughout management Mike's after over deepest last, board that involvement. on to experienced with Michael and service, Flatt we'd from Mike we as like impact a time that announced express having years period down banker to the look his our Will for company announced we to Additionally, stepped XX and Mazan the has equity Will And dating extensive thanks his Mike XX of our immensely the company. been investment governance has IPO. positive back contribute on forward nearly to career. background our Board. thoughtful

occupancy Counter and Sunbelt our office amount industry and facing, trends best this been XXXX to We've continue strong are markets interest population, time rising ourselves considerable across balancing position spent an focus associated in the the and our beyond, industry. are to capital tailwinds the we to for has formulating with performance. headwinds of moving employment portfolio, including rapidly the a outperforming. benefit conditions rates, where from volatile challenges Now approach office

Our plan caution strategic and initiatives. to balance continues

our is To income how position out intend select long will achieve We An steps primarily level. renovations to net expect by have quality property which optimize that end, both focus the lay and our spec completing and potential we I'll term to long us. lease benefits. for way to XXXX leasing areas value flow these ready that and believe for building operating us at grow create we of to term this suites, cash important

spec investments suites significant of we also square for these planned XXX,XXX feet and under leasing. our San Specifically, feet believe Pima advancing properties as Tan or will XX,XXX inventory our in have drive spec at currently suites we in square Phoenix, and We're construction Center renovations XXXX. of over

This to slated Center to note, our million broke in which Pima XX,XXX far our walkable of provide recently restaurants, a set for to offering. Scottsdale venues us new renovation a Pima in On $XX Center's ideal amenity launch pickup entertainment Pima activity an bars, the a experienced we've leased leasing time with that in Center number feet XXXX. related It's greatly entertainment property. and and directly [indiscernible] approximately will square are from enhance development is to so called development already the and benefit buildings ground is adjacent

our element we XXX,XXX we portfolio few of divest We've down or portfolio could important This selectively conditions. market what today's leasing fluctuate our Another targeting strategic optimize years. next over amount with to alignment are and future. opportunities and up feet is of trends leasing are trends that square the of to our the believe identified depending pruning plan the on approximately

portion drive guidance occurring value. Our advantage And us balance a of occur will benefit strong with to non-core million of in leverage already and These sheet and dispositions million. our XXXX be reflects profile. $XX enhanced liquidity shareholder position opportunities that of this to will between a assumed future when take they range $XX dispositions

to plan will fabulous strategic This help portfolio advantage in with continue enhance we So future maintain lower a will to on operate powder summary, while leverage dry opportunities. core and caution take overall of to focusing positioning. our

and our are not our stock strategy, company. satisfied portfolio price, Given our the outlook current at inherent which we believe value on to with discount we all major of is our a

December point, As million XXXX, our data life science million, Diego in recall generated San a one of gain. sold $XXX in portfolio $XXX we which for

exactly as markets, proceeds The about were at We this in We and closed quality Dallas. asset submarkets $XXX into raised current the company level that without best-in-class to debt. properties magnitude of per what our challenging while the reflected of top of purchase dollars significantly today. portfolio are transactions size million these the profile have don't of premium acquainted to The as to time stock our of investors is capital desire share the considerations in whole a price. reducing price these compared continue of $XX and these reinvested those our acquisitions aggregate property believe of Despite Raleigh, risk. Phoenix

results guidance. premium of earlier further As I the to that on attractive we discuss the updates we'll properties will providing we and steps our the that value initiatives look we forward, out and niche these proactive Sunbelt unlock and believe close look XXXX to our Maretic an hand to call and Tony help over price gap. forward carved share outlined financial

Thanks, Jamie.

income fourth our Phoenix Our than quarter result is a of was quarter. million, the from This $XX.X of $XXX,XXX which the the the decrease in reported Toyota the the primarily San of is lower quarter. in in Tan property we net third middle departure in third amount operating

expenses mostly muted on has the a operating as categories, in income impact various recoveries impact. operating been inflation increased this While result have offset as of net

FFO operating with income net core $X.X or The million million than per San quarter. $X.XX primarily which our credit the higher were floating $XX.X was in share, facility. property reported on lower third vacate, decrease at rates lower due along of drivers Toyota's We our Tan rate of that to interest

lease largest million expenses at new $X $X.XX in XX,XXX Denver, or The was our share XXXX. AFFO item commenced to per tenant Our January improvement $XXX,XXX to tenant AFFO property foot whose square of a impact single in fourth Point related Circle was quarter

part spec is and building share. in out plan. vacancy As continue spec our of X.XX we Janie and which quarter to or invest million suites condition key suites conditioning, fourth implementing also total The to per mentioned, investment the was in $X.X ready in lease business vacancy a

we a of XXX,XXX Cascade properties of Those estimated two During their that Portland. described. represents anticipated write two values The selective of approximately represents assets in values. our million. recorded book down of quarter, real to of a cash $XX.X This estate non charge the fair of impairment the properties of Station these Dallas Office pruning in square Jamie and half Center properties of combined two non-core XXX were the feet market

property at those level both of debt. two all advantageously considering options We non-recourse are which have of properties, our

positive XXX lender, exceed Center approximately value our for our its also are term strategic as expected core eliminate balance. property Office property we option the property's NOI. the would it have impact given relative asset For would view the of a interest to in and to best $XX maybe the to the That million that on particular, of debt to transfer of costs anticipate loan FFO near

to of metrics. operational some on our Moving

store as by same to was or of Our with expectations cash quarter X.X% NOI XXXX. quarter $XXX,XXX leases negative Fourth line properties. cash at number our NOI our free lower impacted fourth fourth rent was of change new the at store quarter with in associated same a periods compared

as debt $XX was total December of Our million. XX

EBITDA debt, net was cash Our times. including restricted to X.X

in are XXXX in two by secured these levels. year. high relatively leverage the fall completing of refinancing later a loans the low have We and of We quality both at small properties maturities anticipate

December far our million as facility. undrawn of $XX we had XX, as availability our on credit liquidity, of As over

of into our as unencumbered two cash financeable related We interest better million quarter cash rate as enhance our give liquidity. of end which $XX end, of earnings. we restricted debt also liquidity, future and source visibility reduce to properties quarter highly us to with and an transactions, exposure Subsequent along additional executed had fluctuations

the credit floating swap term our the fixed reduce the three and loan entering loan. interest enter We we that First, at million by a use rate $XX to term facility loan expanded rate year a X.X% of new our facility. portion proceeds by term credit into to

we effectively of transactions, by fixed total floating majority credit million the our at rate over interest rate facility swap. fixed our the debt of is XX% Second, X.X% $XXX a executing of as today. swap After

Moving to guidance.

full We press XXXX our release. have provided guidance in year

strategic Our guidance is Jamie outlined. of reflective that XXXX business the plan

decrease of At federal is which The represent lower the $X.XX to attributable decline We year mitigate of net as in per expense the to decrease recent per FFO $X.XX $X.XX in during are expected higher year, over year. to from the the the $X.XX projecting balance XXXX share. with primarily of swap help will share Approximately that rate. a operating results. transactions our The midpoint, $X.XX leverage. funds result further would potential our will our completion of dispositions expectation interest core the of projected movements compared impacts is

property with acquisitions. for $XX year have million $XX the million between We dispositions no assumed and

NOI and the three same The XXXX. XXXX. in our beginning X% closed December store cash that will we in expect in acquisitions, X% added will to a XXXX, grow positive We be which pool between

Our flat occupancy the throughout guidance occupancy relatively year. reflects

in also out We vacancy suites. quality high continuing and spec building invest to anticipate conditioning

material will press successful primarily investments expect for in details. growth We earnings AFFO $XX commencing the refer set to be and we we all planned these earnings to beyond. by release that will We in in our XXXX. and you XXXX million forth We considerations drive assumptions have believe are completing impacted up if for further

That the line concludes remarks. open Operator? our for questions. prepared We'll up

Janney. from go [Operator Our is Stevenson now open. your Please first today Robert line Instructions] question for from comes ahead. Rob,

XXXX? Tony, could versus that impacted when morning, Good point $XX that Is general? by guys. AFFO that said just that last on be million. is in you Or just

Rob. morning, Good

than was So program. what for that XXXX. is up total higher $X.X in spent I we is the in about which we're XXXX, million pretty QX when spending in spent and we typical, ramping we’re mean, that

total. significant it is a year, increase is year it but the So over

Okay.

aggregate, commissions sort in thinking about improvements, How your should reason recurring for guess I of CapEx on XXXX XXXX. remainder I AFFO given $XX million we the like between line mean, looks and of you leasing So of given comments tenant in did guys plans what -- number between incentives, the those the for within the that year? be

Yes.

will lot on depend leasing activity. So, obviously, of that a

So to leasing properties. going last bit at amenities even then activity. we've will commissions add couple predict what maybe that TIs with part quarters, spending really and to a the we I be we spec are on that are year. we But up a for hard ramping more in on lot depend line of of more the the that of suites little again, leasing is vacancy later the can in capital say just talked about is expenditures what program as conditioning and spending been And as

the are known thinking occupancy year given then you guys the ebbs -- the and And outs, et of about the expirations, what's how flows of throughout Okay. cetera. sort move

XX.X% ended XX%. to guidance You is at like the XX%

sort So right of is occupancy the and other washes that? the I throughout it wise Is are be band sort mean, we of have and it about the of where where that out year. midpoint you to to peaks there in remains should throughout sort going expect you think all the one of troughs pretty ended sort quarters XXXX. year? How of sort narrowly

Yes.

at that end way best of in you a either and maybe just It's of the range. bottom about the spikes going move latter to bottom think kind out We're direction. expecting think within I the not suggested. that is it significant to band

also If you taking in be new over feet there's a XXX,XXX coming -- of have number December of will look discussed at outs which we square year. we occupancy at leases year, that we've have the move but the XX,

out. other each balance do they So

occupancy same there what's NOI gains? to driven Okay. occupancy And rate of be growth, sort then mostly of X% the -- Is the to store cetera? terms by that X% expected it rental is on et renewals, you're in breakdown what versus

at a is of those December It's we to are lot And mean, the being that in cash free will of that the acquisitions those of store basis. XXXX the a mixture pool of gain XXXX, I rent both. many same three added and from number took during a coming properties leases be did periods. that occupancy

off increases burn properties the of from lot driven those rent. a So three the being from of free

view ratio is need And that is more XXX% right. one the thinking temporary Is of one ratio. out it or dividend in the thing me. All last for the payout a just be point be Board that's a to a common thinking Jamie, to secular time you'll given addressed? about grow to going how eventually of then today more but FFO the plus this AFFO payout XX% able

I pretty think we in same the when the position quarter. we're last as the much discussion had

conditions on impact with overall number comfortable But completely challenging the we're level reflecting dividend things, today. a So of operating having is a and thoughtful on Board of discussion that quarter dividend rates, we the assessing and business. the interest each we're the of conditions at are

we think today, repeat, dividend I a point look So being operating to we're ball a have at fully we're the at to and quarter level it we're don't on each covered. with until comfortable of future going crystal conditions but pragmatically

appreciate guys. Thanks I time. the Okay.

Thanks, Rob.

now from comes Instructions] Craig Please Our Riley line ahead. Kucera Thank Securities. next question you. open. B. Craig, your [Operator is from go

and at think to breakout of thought your spec $X back would as of should think want XXXX? or maybe as expectations say couple million quite going CapEx San kind all I $XX you morning XXXX. projects few Tony, just is good spend you million what But of thought were million Tan at you right a to Hey, but budget of you on your between if for dollars Pima. the more in-depth those kind and I calls apologize Jamie, for I this. some well suites missed I guys. sort now, There's I to go I a in

can So of some comments, address I those Craig.

is, that with about at is we're play you buildings a a in there been Tan is just that larger look as indicated. little that treated result, expecting San XXXX, you two that a we're a result, we've is threw a in there one property -- that as one completely have what AFFO San for doing repositioning has is, And have number Tan number But there's and mentioned, won't it we if gutted. line but XXXX. as XXXX. impact. as thing you we So to as Pima, an And larger, out

is to some really to properties Pima, of impacts mentioned. I as which at to AFFO about. to addition add going spec XXXX CapEx, we're other sort continue program, So of looking sheet at then for biggest the the Pima. that amenities in talked you And we're the

And thing just add one to on that.

is at a renovation doing. we're finalize to trying the So San Tan level point that we're of where

on at So we position, end, what higher could but think get than could we rents. upper a the premium be you

And to so whether just that makes assessing we're sense today. not or do

great. Okay,

Moving directions.

On you I'd right out seeing to assets if what those the market? you're have you front, be And brought of now as have? to kind curious sort there appetite of any disposition of

brought of market sales I would remains the not very So to I say slow. we those investment guess market. have any

there's so transactions. a not of And lot

and [$XXX our cap from public bought is If markets, effectively (ph). you're which the their transactions. metrics an there been Highwoods But you but there release, get looking at of close, type just and hasn't over all premium Dallas cash foot] that mid-December one rate and in a did McKinney can across assets transaction is Uptown, X.X% many

got you've the third, Tony, one Right. more debt me. fourth maturities. And just for quarter

currently about kind you what how mortgage as over just guess, are thinking I priced debt debt with those dealing comparable kind of they're as are far think seeing two of X%. maturities? you I and

sure Yes, Craig.

So year, with mature of those later of expirations. both September those a and regional October this are bank. Both

on looking started starting the preliminary canvas as Today, And so, low other you them those pretty at of you're term, probably refinancing with of might you're looking well with and say, be would not assets as the to buttoned lease rate, anticipating at there those, we Xs, -- in have significant refinancing that both I probably lenders of in up a whatever given renewable those conversations whether interest. if points occupancy XXX choose. problems terms properties. are But any two index basis

Thanks Okay. guys. your time for

Craig. Thanks

Thanks Craig.

Thank you.

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

forward joining on progress next for Thanks today. quarter. We look you updating to our Goodbye.

Thank you for joining call. today's

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