City Office REIT (CIO) 31 Oct 242024 Q3 Earnings call transcript

Good morning, and welcome to the City Office REIT, Inc.

Third Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [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 begin. may Maretic, you

Good morning.

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

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

company these assumptions, forward-looking we the achieved. these reflected reasonable statements no give in be assurance that Although such believes that can expectations upon are based will expectations

quarter Please SEC see no any forward-looking company in this earnings call. that with company's obligation factors and for statements course The may update of be the material the filings the and forward-looking release statements differences third undertakes could to our press cause that results. between the statements actual disclaimer forward-looking made in

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

will the now to over I call Jamie. turn

been Throughout leasing for continued sentiment office improving Good XXXX, dynamics quarter. trends in highlighting to industry. and These the momentum morning. the gather third we've the

The This total in was amount in declined of space quarter. office XXXX. since space the third decline the available nationally available first quarterly

drivers has significant sharp supply demolitions of reduction the the conversions, is with been office coupled This of X office redevelopment. One and in building buildings. record-setting new of years

from inventory JLL. of over million feet removed buildings period office have XXXX, X-year been to since XXX the Over according square

ultimately needed, these is While are favorable more trends.

activity levels, consistent of second X office years. continue quarters on more XXXX focusing and the below approximately by a two This employees quarters to XX% executives remains to on also last nationally basis. conditions were aided back the been has improve. bringing the leasing third of Though best over the leasing Leasing pre-pandemic

corporate the they higher report, of outsized market cost quarter and relocations has has third highlighted In by offer. JLL's Belt life Belt experienced an This and that lower markets recovery. driven leasing Sun office Sun the that quality been

activity suppressed, continues for by driven the availability to markets capital sector. Office largely limited be debts

for to properties. see signs we've well-leased of improvement started quality and However,

our Block healthy the with After of X to leases. end, total this XXX,XXX year. was set leasing achieved square completed portfolio. lease new to Turning represented XX We we during Raleigh in leasing. feet quarter of November amount, floor that property this at a activity our square on Of extension full feet XX,XXX expire quarter

full WeWork continue to using back that previously were taking has XX, high-profile enterprise the their floor A of communicated through occupancy We of calendar that Block client XXXX. one end representing the space we been of square WeWork's spaces XX,XXX at feet. requested

and on we component the this a by for then and starting commenced including this later in office a were Block positive the As leases leased when XX We see X% being rent signed approximately result, increased it as months XXXX. XX% result that XX floor in will to of outcome, $XX.XX.

for leases new complete. square on has vacancies. been property by is very resulting quarter, commencement. The will occupancy it at two traction signed which leasing XX,XXX in renovations increase also remaining now we upon our transformed, are during Phoenix, in The Center Pima feet Pima and At the good XX%

properties. should These few in Dallas in and Center XXXX Phoenix, also months. projects are in Petersburg, at projects concluded over XXXX St. City we at Pima, completing Beyond the renovation other three be next McKinnon

million spend to expect on these approximately million four In approximately renovations $X.X total, with XX. spent through $XX we September

mixed-use on Petersburg One parking last opportunities of the condo value-enhancing City St. garage residential in opportunity touched the tower. a to evaluating addition within our Center we at and potential renovations, Downtown we're portfolio. In is other quarter few our into redevelopment a

an October In plan continues renderings with application. investor advance some presentation, potential St. This recent through Petersburg. city our design process redevelopment we've to site the condo building our approval of from the included of

also lead project's agreements to experienced the are a developer very execution. advancing We with

remains our to of redevelopment on of some future Center of a provide number progress City We'll updates are which control. calls. our conditions, subject Our on further beyond

to We are also the our two weathered pleased extremely report Florida that hurricanes well. portfolio recent

Florida, well after sincerely incredible the tenants. operators have had thank our storms. dedication after We them on our how buildings quickly for We in the they ground look and online back their they and

updated we expectation our Lastly, guidance ranges.

several not year-to-date. our due results to Specifically, ranges benefit year-end change tailwinds developments same-store NOI XXXX and but increased are both we beyond. our for narrowed favorable will only These cash leasing XXXX strong expected occupancy results, and and

I to in Tony that, call results will our more over to discuss financial turn With detail. the

Jamie. Thanks,

the second Our the net is in Station NOI a $XX.X Cascade in was was income the marginally we lower quarter the operating lower million, third during disposition QX than quarter. which of of the $XXX,XXX reported quarter. second in primarily than QX, result amount in

We reported FFO decrease $X.XX or per net Core second the we operating higher marginally and in for interest $XXX,XXX than the reported quarter. $XX.X third quarter, core of share amount the primarily driven income FFO expense. lower the million was by

Our to expect million quarter. per we resulted this improvement in lease, November impact quarter. tenant resulted AFFO occupancy a take reduction XXXX. $XXX,XXX in largest described, The third which to Jamie significant related will was new quarter deduction which $X in which AFFO was this continued property million $X.X renovations, The or a dividend a four $X.XX share, AFFO to coverage

We on also spec and vacancy spent suites $XXX,XXX conditioning.

on to metrics. some Moving our operational of

quarter. as territory to XXXX. in quarter same-store of third increase third to the compared was X.X% of There an $XX,XXX or Our cash NOI returned change positive the

quarter. further this the improvement expect metric of We fourth in

the of as our have these end. quarter. occupancy Our leases XX.X%, increase was occupancy the square prior commenced, at of that quarter quarter ended XX.X% the an from inclusive portfolio leases feet not yet of Including XXX,XXX signed

Our total was as million. debt $XXX XX of September

Our net EBITDA to cash debt, including restricted Xx. was

million authorized $XX and undrawn had on our approximately facility. we XX, September of credit As

of cash million quarter of had end. We also and restricted $XX as cash

$XX planned, drew our $XX in as term quarter, to we loan the of line September. matured million million that repay on the During credit

XXXX. maturities We October have no further debt of until

Block two unencumbered, a of at XX Raleigh we significant in value, City Center properties have that Block and alternatives and financing also XX. We potential are are exploring Tampa in

lastly upward guidance have these quarter revisions mentioned, to for we number fourth And as driving The made or signed to expected several me, are have are significant categories. in revisions. Jamie that the of of XXXX leases commence

for prepared remarks, questions. up will concludes the That our Operator? line we and open

question We with Capital [Operator our Instructions] have Upal KeyBanc from Markets. Rana first

you expectations XX Jamie, through us you lease fruition? in Block And with and to WeWork XXXX? the walk came could expires have do the how plans or after renewal any

space were of three and quite of they in enterprise back there our of XXXX. So, been get wanted Raleigh to one had an they we decided as to and the using out that is floors that happy, end their push until November and tenant usage X,

dialogue the So in TI to X%. effectively were and were we rent starting the them we happy economics project, with a the and of we and had keep them, no about moving there happy with

anything WeWork driver then assumption? in Great. your And of of occupancy, moving Okay. your that, is are to there a pieces big XX.X% included I'm regarding know you And what guidance? else that sure is that some I the get but midpoint that's there of

Sure.

commencing Jamie. haven't will signed start in significant leases here. of The So It's QX. a that commenced, I'll be portion them

current that about feet some when where look Raleigh, of vacancy leases impactful in of you XX,XXX in in commence is, we've got XX,XXX about Orlando. our So will XX,XXX at Phoenix,

And are QX. so those that will speak signed are and as we completed being start in

had feet. Ingenuity vacancy. Drive a at will our biggest in it's square moving go in October, QX, in, tenant single property, moved Collection tenant that's part is is Upal, The to Yes. That XX,XXX FRP The of has property XXX%. the complex. which in, It

biggest that. So that's the to single component

less the renewing, then kind medium that. from the tenants drag to obviously, of kind of there's of And size. smaller WeWork With are to rest

me. last was helpful. Great. then Okay. And That for one

see relatively on that to prior what you demographics larger mentioned calls Is interest to that in case? demand from today? seeing tenant tenants. sort leasing regards Or are started you of the still You

were is, larger tied to of I'd explore. last favorable picked that that starting is one some seeing see So probably say we're time it's tenants And significantly. most year, the this up you things that's And in back of extensions leases, trying that's what short-term and employees really a longer to doing wanting turned. office avoid more employers back tenants to of to kind trend be the larger and used of the

our the those other is that of that amenitized in best own newest, The pipeline. is we're the that leasing the submarkets and demand, same as ties in most modern space, what spaces in to trend kind as seeing renovated are well

users wanting for our industry. to term, to So commit willing bigger commit which longer fantastic is and

is The Barry next with question Colliers. Oxford from

having you when concessions to versus it are get signing Great. you're seeing deals and holding what rent? Are of the free Or actually Jamie, you year looking line are you more and a better? give doing when to and done? comes ago to today kind like maybe leases,

Barry. costs at were. we the high good rapidly. very It's in continue as signing year year inflation I'd that for I'd check. new Rents, cost, of again, month has not concessions the still And a term. come grow, were typically the that rents it's where about A question, say, leases, but we're on construction So face a healthy, they are we're were seeing ago, say moving to the properties. on same very per rent, good are free actual X

well. of kind as stabilized that's So

were ago. I'd than all, a we in all So happier say much we're where year

you with Or don't work lot And on the lot Great. refinancing? of have do have Great. you to then, in as anticipate 'XX them, of right I you Okay. Barry. don't giving know now, of 'XX, we're a the going into conversations Tony, I but and you think later a half I'm And pushback look, expirations, difficulty. banks

a it's Barry, good Yes. question.

next highlight I XXXX. in four not begun maturities really in those that really any will honest, and XXXX. early debt soon maturities the gain And QX have traction pending to debt do do not have certainly earnest. We fact be over we You starting quarters. those by have two discussions conversations expect the

properties a it's too that of will go. depend So where obviously early state the tell. those and will little It on to

early have sit to expect as time. some I conversations but I early probably to and it's today, in So we here those tell begin XXXX, too

Instructions] Lucid question The Markets. Capital [Operator with Craig next Kucera from is

take looks Can call to in some color paying occupancy like It on us are gains quarter. you the 'XX? expected the basis here and XXX rent occupancy the are give of points start to fourth in occurring it, XXX when bulk remaining,

Yes, happen in QX. the XXXX. exactly dictate so schedules of have early in construction but in, falls XXXX that move-ins the will The balance. rest when Obviously, balance of we a number early will for

sort the Great. like a sense of make revenue might Center or maybe gears, How some I Okay. City there appreciated. talk a would it be Office would to Any I but the mean, agreement? most -- monetize redevelopment. developer lease be Changing that? color sharing think City likely, about to I'd would or sale ground maybe could

Sure.

we that of by too with goes and in it market. in off. but So we've if days project The get that we plan ideally to right huge at as very way condos cash details the We'd expect is early we benefit additional the land ongoing. a is can't place. contributing like approaching over have a way and market. all that, next into The it Petersburg. developed sold St. conclude beyond many we've we're with application a is and public city to approached the are Where experienced believers is And our partnership we the developer we've have submitted in elements the the significant XXXX, well, That's site XX-ish we're value approvals been now. that into like aren't stay contributing involved

Got it.

credit, using one to And thoughts giving know for you more fourth me. them in liquidity a quarter Block as the are after XX all sources? how a Okay. the next I exploring of third line lot with but liquidity of the other you of here handling in anticipate of some or quarter year, source they're just using maybe

good Yes. It's a question, Craig.

trophy earlier asset my be Block mean, CMBS the is improving in be options is to the we open. are XX. Block that mentioned and done. type appears I remarks, getting appears to for XX I market As of exploring financing

to XX So most Block speculate. separate certainly, a There's property. early our towers But there, unencumbered. valuable City too two and Center also little it's is is

assets. unencumbered some have we So

some move going decide before have we pieces board. And move what time make. we've can little a of We the around bit we're we chess to got

two loans just in fourth for have property clarity, the we that And quarter. mature

which option, We going also have do line. trigger. we extension our operating have X-year We to able to we're believe a be

So two there loans is that really discussed the property were earlier.

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

reach further out questions. have Please joining today. Goodbye. if for any you Thank you

you Thank call. today's concludes all This for you. joining. Thank

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