CIO - Earnings call transcript Q4 2017

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Operator

Good day, and welcome to the City Office REIT, Incorporated Fourth Quarter 2017 Earnings Conference Call and Webcast. 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. [Operator Instructions] It is now my pleasure to introduce you to Mr. Chief Treasurer company's Corporate the Maretic, Financial and Officer, Secretary. Anthony you. Thank Mr. may Maretic, sir. you begin,

Anthony Maretic

Good morning.

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

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

James Farrar

are period about With of properties robust, believe that which XXXX, morning. but front volatile in of completed $XXX complete our the we was quarter and the for in Tony. in start are office the fully excited were Restart we Good to we a in first position remain deployed. million opportunities had the markets fourth acquisitions and our year, Thanks, fundamentals valuations the us.

important of AFFO we well increases, reasons, over FFO positioned are number and growth Our for for a strong and core term. healthy we company generated believe long the

and that in-place to has across on XX% up of current to for are strategy and growth. cities the to markets Rents Industry acquisition grow, healthy as markets approximately embedded will some spread, rents new our projections X.X% today, fastest growing with from the our sets competition levels. years, well, estimate development. increases next average country. as rent we our NOI This growth First, employment contractual X% our perform concentrated below continue market X in limited indicate that well over continue continued us these the

down over fixed our time, well at X.X Second, of we've some at proving our strategy to disciplined been was rise XX% expense At end, recent for valuable. interest maturities but in interest rates, benefits a and spoken year-end, the basis. Today, quarter long-term these average rate. weighted about a we be are rate. steps are a healthy locking years with this to debt interest on X.X% the debt cost our We've positioned, of averaged

acquirers of potential enviable estate volatility efficiently capital, recent having real accessing other equity markets. given and Third, ample debt liquidity, we're have the in may of capital while position trouble in

that leveraged operators in or reigns million the to smaller pending equity finance are sale require Many acquisitions. $XXX our million common leverage competitors us buying direct and with Boise Our provides higher our approximately December, equity $XX.X of of private in funds power.

the we're becoming excited greater alternatives. expensive about And positions However, growth. and opportunities relative finally, these own structure, purchased increasingly cash are portfolio that which flow our drive across favourably offices can loans our long-term to require

in XX% the buildings tenants, ways to find beyond. in market to value Approximately, our out-leased our quarter renewals with push credit to our reinvest terms, Our at creative and fourth unlock XXXX leasing position related properties. continued focus has new their leases been in activity or elevate to high and of

an We from term. actively with Orlando. tenant FRP lock X A its Ingenuity the fully great its it X% the create flow provide purchase underutilized stable Drive sufficient in years purchase a the stability steps example of growth. to at office we to cap Florida to as through leading in leased, that auctions long-term But of was of an When in and cash recognized predictable and exiting acquired in-place fourth space, time this for the XXXX, acquired taking building to was utilizing success saw quarter an The Park not rate remaining we building was we in the a have attributes. the property been to well-located, opportunity acquisition this was single-tenant opportunity investments, ourselves during XXX% Research space. XXXX the elevated seller at lease the we lease with

This extended entire at term a XX% the During role until Sedgwick with to and superior Sedgwick XXXX. for believe sublease. with contractual tenant, for with The foot lease the cash terms flow, fourth the market but we to quarter, XX,XXX-square the valuation. Management of property current X commences we sign The diversified area. it our net repositioned building's time strong the future unused only lease in lease the years subtenant came lease rentable us their Services backfill a rent direct of property's with upon not another expiration the Claims but the space solidified almost also

The Next, access Scottsville in to with an for to term. property is number acquire foot $XX.X The strong XX nearly XXX,XXX-square are contract in quarter parking It's XXX% lease acquisitions, is capitalization second approximately property leased new a a A in transaction property still freeway a closing is long-term to has terms excellent of situated on rate. years ground Class a conditions, subject over of Phoenix close high the but at of in X% ratio. is remaining over and early and anticipated under X-building This the million. submarket. tenancy, we located

information we acquisition We will this after provide further the about complete purchase.

pipeline opportunities that to robust we million are the very continued the $XXX This a since quarter. and acquisitions, of billion is other to of of a addition portfolio maintain passed evaluating few fourth on in $X.X the of beginning opportunities. over terms In we

earlier, a As we I believe have it's to liquidity. great mentioned time

front, quarter sold Boise to ended at occupancy, March which X. operational on our is the the scheduled On we property, XX.X% be excluding

Denver our XX discussed our and As our occupancy at on property. our a targeted levels well previous ongoing Crossroads calls, our [indiscernible] known to like ProBuild's efforts property Tampa is due to and Tower primarily Plaza lease at space as departures, in below downsizing few vacant in reposition as DTC Park

XX,XXX-square in unexpectedly. doors had closing a Orlando, setback We its our foot at a tenant Collection also FRP property with

to very deposit, debt to but healthy in bad re-leasing less security any than and weren't direct and submarket it be confident occupancy. our XX% Given We're there the space, year-end. contributed losses, our continues a with indirect reduced vacancy this at

will NOI. at Our on are that across XX% higher year-end. our focus our which XX% between that by portfolio, lead continues which property-level provided to occupancy driving highlights targeting earnings guidance, regard, press release In we and occupancy be to our XXXX

in properties handful We efforts Tampa. a absorption. it of have programs good renovation and number of our position a blocks these will desirable that implemented space A example Park project maximize Downtown these rents to of of is our Tower and properties, highly at

has our units. our XX with the of a yet XX.X% of including We Tower spec X X leased underway but its leases completion. in already well not full occupancy already XX.X% from move This to and at Park today, helped at signed occupancy. September recently have now has activity floor and in of our renovation, suites picked are completed We leasing anticipation up

We to anticipate our gross for also forecasting Given suites in XX% to square process success per full date, foot occupancy at the foot. our spec being above asking or these $XX another of increasing square average ahead by schedule. year-end, of per $XX we launching of suites. in-place the approximately of rents full-service versus are floor rents We're

will projects, acquisition fully that will activity While raises, results as on fourth the quarter Tony and our I complete substantially our capital we guidance first timing deploy expect our it's in projects out XXXX. the we impact our first as is and as expectation will AFFO renovation look X to going leasing positive should performance. our deployed the provide XXXX are on quarters, drag details of capital material deployment leasing resulting the results X the during view moments, acquisition on normalized pro want our of a quickly to ongoing NOI, helpful growing that point of capital our various operations. quarters associated drag of have provide for quarter results company, renovations as more a a better Last, that at fourth with measure our this forma the well costs projects but in or a leasing to a few means

our call information I we've release, which press our on to With and performance our presentation that, results. expectations. Tony over helpful to to updated financial addition to provides the turn website, Investor our In discuss also our relating will

Anthony Maretic

Thanks, million increase $XX.X the acquisition the primarily $XX.X a of operating the acquired second We We achieved core at in of quarter. portfolio the of our $X.XX the in a over Papago quarter closings Diego the This million basis, Jamie. third fourth. day acquired third fourth on share. or result quarter was beginning and On straddled was reported and income that million. to GAAP San fourth million the $X.X net of $XXX the increase third last FFO The the represents the $X.X quarters. a Tech per of million

a Our same to at core of $XXX,XXX related core QX, Mesa of earlier. higher ended year. FFO in due QX that million we our this Including to tenant primarily Sorrento the reasons the February FFO, in million described $X.X property termination departed than our recognized a fee quarter $X.X

XX% departure recognize XXXX. million the the expiration estimated base of March reimbursement The through will its lease at in time income tenant's of of XXXX. $X.X We of underwrote remaining obligation acquisition. the fee payment termination this in and QX rent represented We

timing to the around our related relative move of per the XX%. historical signed. some quarter to higher $X.X of numbers from This size and was million will impact AFFO and our NOI were was AFFO leasing relative as fourth in or capital at quarter-to-quarter. partly in quarter recurring net $X.XX of one approximately to quarter, any share Due to tenant the improvements due activity XX% costs property's of to our previously average significant of deals the continue portfolio the XX% our and leasing leasing to Our

XX, activity with leasing expenditures Tower our expenditures. and out with on multi-tenanted excluded Ingenuity associated have some activities and building, into page our and transitioning AFFO, the XX are supplemental leasing costs details of nonrecurring first-generation Our Jamie discussed. we as a Drive capital FRP disclosed package. repositioning XX some Park Further of definition of under on the Plaza clearly and are property Pages capital costs laid XX of Consistent

quarter the of tenant was and by impacted a for change therefore, was Our a X.X%. NOI Jamie same-store described, cash negative move-outs, which couple

Our beginning was year-to-date range. figure, however, our a of the X.X% within and guidance healthy year

we rate strategy over that to of closed X.X% which average and on years interest been our a Diego, X fixed total X.XX%. represented with has past City years. XX, During believe long-term, rate Mission was financing fixed-rate San fixed-rate X.X the average December our for financing in debt prudent. a liquidity. XX-year At quarter, of We weighted our with lock rate attractive a debt on weighted further very The a maturity in increased the property XX% debt interest

costs deferred the at non-controlling was $XXX.X million deducting Our of interest $XXX.X XX net or total financing when share certain of million debt indebtedness. December

the value was been north begun while weak stock at the time enterprise has XX.X%. trading In is at to yield debt stock of lower seen with and market year common X%. has our indices, line lows XX-week dividend net the our Our

to consensus We are also trading and our estimates. discount value own asset significant analysts' net internal at a

prudent ATM, our the allocation a emerge place capital such, interest in discussions place our board, make which put we They shareholders. common through it's million to disposal in that discretionary best repurchase this for of tool have As in we stock management additional most $XX to flexibility last determined year, program. the the put with at decisions we having believe of provides

guidance. XXXX we Plaza, ample Group in year the advantage of our opportunities Lastly, Washington QX raise XXXX. we late pending of in sale have powder to full capital With provided and take dry have

quarters. occupancy $XXX between all guidance million to XX% acquisitions the guidance and year-end. XXXX. reflects in third in acquisitions The occur second and in will And increase XX% an Our assumes also total $XXX we'll by from make property those million

X the first levels Our will the year during same-store same-store the in growth NOI face as our the year. headwinds portfolio start be the will quarters lower of of occupancy at

by discussion of assumptions, capital our in tenant range rollovers represents we Further our the Operator? rent core and improvements, when open we'll normalize, and to arrived our found are quarter between $X.XX complete have As of occupancy of how be prepared line the which these share the significant levels fourth impact approximately details per our assumptions, income. $X.XX, a positive expect more number on below-market December per assuming The XXXX, the of fourth would share XXXX been impact for discussion currently quarter. we remarks, will the fee questions. rent $X.XX on including FFO we and the estimating on release. and for guidance, termination the timeline turn press our escalators $X.XX a Based timing That up rate are the in leasing actual XXXX. increase XX, material to acquisitions full year we of of can fourth But will $X.XX commissions quarter improvement, over our which at concludes close core we including ending FFO the our anticipating excluding estimates. these run guidance acquisitions expect,

Operator

you, we have of first Thank D.A. The Oxford Instructions] will sir.[Operator from question come Davidson. Barry

Barry Oxford

you a of why leaves comments seems obviously, at a you I'm Great. little little stock Thanks, it frustrated, scratching too, rallying down it? my to today. price do Jamie, kind any look guys. your But, you be I where bit here on sure me right at are head is and mean, $XX, it to have now, I'm as it's trading when

James Farrar

$XX, equity which did mean, rise We raise good. a as I we're mean, of XXXX felt lot the over in I and our frustrated us tenure, REITs. closed The Barry, just well. Yes, we've pressure had December. on in very $XX.XX We other

to the is capital and really work. focus Our on business running occupancy driving putting and

with capital. and when say, of that really trade that sale is part accessing a is really we're think, view and well And challenges of we're, But poorly mean, we in perceived there the I little frustrated. can't the did. both a positioned small So it I raise obviously, WGP general capital caps

Barry Oxford

Right, is maybe agree for NOI known you. I have for you Why lower in expected? I space? Yes, that just same-store got renovation move everything Is the the with said. outs that guidance your than what might XXXX

Anthony Maretic

Tony Barry, that's think I here. its Yes, fair.

for you bit If which little the will you we while look at guidance relatively looks our assets year-over-year, quarters, any time, actually held same-store a reason is contains actually flat, XXXX, small. assets full that main the It actually that for this the our is really, of at repositioning. only call is note growth And is full strong same QX kind for a that pool X -- excludes year-over-year projecting and we it are odd. same-store

-- we notably, you the this dragged that gains by before But from from of excluded most bit Crossroads being that we some assets come down and have a pool. year FRP it's move biggest the So you and anticipate little are will this that DTC outs. mentioned

So renovation program. Park Jamie to going anything as as ongoing talked an well about else Tower

of driving will but is was numbers at We will same-store our occupancy other a the growth from the very that cap be be proceeds growth. on in-place redeployment excluded going so driving item, then AFFO. from that's sale. of announced, time, WGP really the and to there that's And FFO XA to So accretive redeployment be the a lot

Barry Oxford

it, a it XXXX, return Right. 'XX? your not -- normalized fair about more I'm would from about to thinking mean, just a to then talk in to general but I Is NOI say, of same-store rate

James Farrar

Exactly. [indiscernible] well. pool as And same-store the with

our So absolutely. That's are. what expectations

Operator

Craig And of we B. ahead. Please next Kucera FBR. go Riley have

Craig Kucera

the any and this tenant really color improvement the in Appreciate that on given were the there given sort renewal leasing I dig surprises NLCs, there guys. to bit any costs guess, were which -- where quarter, TIs occurred? a seem but morning, concentration into market and wanted was good I pickup to your any little there? And up. activity there picked any Or have of there Hi,

Anthony Maretic

case, and the Tony years. renewals. was here. its in X Craig, that one did effectively that have to certain XXXX, relating renewal It's significant term actually on We

I one concentrated which wasn't slightly really to in longer-term, may a with part it, any cost but in associated be a of So think that. higher market. led particular that But

Craig Kucera

And and sort forward rate? just of last as how year financing of year? on where little XXXX, look they or in you can fixed spreads were a more bit financing debt we about, seeing you Okay. to this relative are you more to Will and to comment thinking asset-level talking where you're use line a about credit be continue

Anthony Maretic

executed Late XXXX, I couple Yes, fair. mean, we of long-term that's financing, in think tenure I was financing a sub-X%.

in projecting XXXX. to my on mentioned this in the also although, property-loan I higher a our set is line of mentioned what for line all I expect attractive way way credit X.X%, the and be do have line that probably it and call And will you our That's finance to a for credit our are expectation acquisitions. on improve will of is financing, both -- We think that this the us also a credit, neighborhood X-year year. middle of in terms of be further to conclude year, mature previous But credit line this which new calls I to an is pricing. we do extension of that option,

Craig Kucera

Okay. your guidance. back And for going more me, to one

in more of commentary, like the know basis understand of looking call wanted steady point opposed year, the sort sort you're seeing of to throughout at, XXX your it, of is Just it as to occupancy a, vast the but late assume? fair occur I to pickup is going year XXX, to in that pickup that even a majority sounds certainly

Anthony Maretic

on little again, bit, start a back leases year. fair we've I of and talking the is so Park assume. the think of in Tower to that start, those half based just when about sort been that's will one

now, are with will in really impact activity the doing the the we And so fourth quarter. be noticeable even

Craig Kucera

Okay, thanks.

Anthony Maretic

you. Thank

Operator

Instructions] we Vincent [Operator Chao Next have Bank. Deutsche of

Vincent Chao

morning, Good Hey. guys.

quick question. Just a

like the a Just G&A bit line, looks higher a than talking we steep growth fairly anticipating, stock looked excluding like was year-over-year. on the rate comp, it and I'm were

if what on towards. that's curious comment of sort you going Just could

Anthony Maretic

a you Sure. City, Really it's arrangement, to months. XX Good have of from that morning, in It's is here. of in reimbursement been One we burn its off the combination Tony set if Vin. reduction Second next receiving that couple the the recall things.

this higher just simply anticipate $XXX-ish headcount of is part given from in that's so the growth, rest our million that this really office, And personnel equation. the $XXX-ish Dallas acquisition it year And the me, another we pardon with to growth. [indiscernible] manage really of and a anticipating last than additional the just program million it's -- year, year

Vincent Chao

now place? that Okay. the And headcount Or the in is over coming course online of that is year?

Anthony Maretic

in most is it later it of but of Some in is coming place, [indiscernible]. place actually

So we end surprised wouldn't at lower the the all of at range. if I up be end

Vincent Chao

Okay. the side. And on then maybe just investment

but healthy, Sounds the how then little the a were for is perspective coming to pretty mid-Xs. down bit a It like quarter curious while, to past this a your are little rates relative cap things from pipeline but back cap history. tracking like, rate seemed

James Farrar

its Vin, here. Jamie

XXXX, I'd products profit there bit acquisitions. say, in the of started wasn't fair was we So market. a a There lot of in some

lot out, It back buying there's perspective. held our changed little seems over better bit. the coming That's a last a little from we So while. dynamics more product like

a to range, rate if expecting little trending maybe to our look lower, pipeline, in transactions, it's that at X% looking mean, higher, little but that still X.X% So I in some you be cap we're some direction. we're at a

Vincent Chao

it. Got

have lot guys point? company And just sense question to the just how this then, of in makes the realistic it But to really back the given obviously liquidity, size which on for buy a Okay. mean, at the the a and stock of stock you is buyback, toolkit. I everything maybe,

Anthony Maretic

Vin. think is I fair, your comment

As we to as prudent I mentioned it place. you put in mentioned, in just comments, my think and just was

go markets for We mindful be where deploy -- lot are and opportunities discount growth at doing see but to to just we'll our we so company, a and a NAV the capital, is which in to, still to the the you which want of and we of time, shareholders. same best our alluded what what's and

to it. I a going So take we're pragmatic to approach out think very

Vincent Chao

Got just it. And then one request. maybe

perspective, the included just of do You which from to on a fact overview alluded be nice the same-store slide, ones in it assets that property are somehow, many to the the same-store of pool. a guys side, job that your not maybe but possible or pool included? are Would mark you on not to disclosure

James Farrar

think best I it. look at part the to

a I way think it that. is to important to highlight, so find do we'll

Vincent Chao

you Thank great. Okay,

James Farrar

Thanks, Vinc.

Operator

Well, turn showing we at for go our are like remarks. I now session. this closing the ahead conference Farrar to question-and-answer would no call questions. Mr. Sir? further over We'll and back to time, conclude Jamie any

James Farrar

progress today. Have in Thank great We to our you, with continued everybody, joining quarters. the look discussing for forward you day. coming a

Operator

your the sir, you, your The rest a day. you, today. this time now care, has and of may Take again, thank the Thank we and concluded. conference call management you have for also lines. great time, And team disconnect At everyone.

City Office REIT (CIO) 1 Mar 182017 Q4 Earnings call transcript