CIO - Earnings call transcript Q1 2018

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Operator

Good morning and welcome to the City Office REIT Inc.

First Quarter 2018 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]. pleasure Financial you Secretary. Officer, my the Tony now Chief company's Treasurer is to to introduce Maretic, It and Corporate you. Thank Mr. Maretic, you may begin.

Tony Maretic

morning. Good

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

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

Jamie Farrar

a moment company track wanted of which of time, had great in quarter's markets, we our we since to discuss We thought Office the fourth progress properties Good morning. take public initial anniversary with our City Early offering. launched April growth that results. this handful outsized before six of potential. the We to a marked

believe properties over generated in place third $XXX approximately past of and those from annualized an initial negotiating has markets our terms the asset external in gains initial potential to lease Over portfolio and XX% the through of have seen increase selected high properties in management. $XX portfolio we four acquisitions speaks The million by in existing four success exited We through strength growth markets that we years, about remaining a rent adding in the favorable and Meanwhile, expanding active base have centered years. million. this in our portfolio in strategy markets. new our our of

western in markets, Dallas, billion including Diego smallest Phoenix Allentown We our as two of which and were and and and dispositions in their growth our the San quality have geographic aligned southern $X strategic our tenant acquired the within and addition States. previously wholly These now vastly diversification markets. and assets, new markets acquisitions over while exiting Boise, increased have high mix, footprint United

also internalized of governance interest corporate additional have structure. and to XXXX which our made on improvements shareholders. company focused with undertaken have management We from initiatives, align those and further our We

in locking positioned and from all With We benefit common a shareholder capital initiatives, and expanding and fixed our rates. increasing raises have company liquidity these also executed the have scale. is the an balance grow and shares. economies strategy, we debt term long deleveraged on sheet improved our attractive flexibly, efficiently well of rate Through base, to of

the turn way, and believe long that, strategy operations term for shareholders along the our execution the generate our we will from of grateful to and will I and returns. attractive continue to are acquisitions. topics support With We our

with that our vacancy leasing last XXXX operations, our our are our within is call, quarter We up to tracked first stated our we for key pleased report results that of portfolio. Starting one our focuses on expectations.

of new foot a of feet Mesa square XXX,XXX tenant our executed property, which the at we acquisition. expected moveout quarter, XX,XXX was renewal square in Despite the During and Sorrento leases.

to increased occupancy XX quarter-over-quarter XX.X%. basis points Our

of handful of a properties desirable and that absorption. We number to highly a programs blocks position of maximize space have our have rents will these at implemented properties, renovation and

target efforts. One XX% these third to is case Tower is construction occupancy during major tracking completion schedule where this, We continue a study Tampa, to substantial on through for renovation XX% Park for quarter. in the

leases of has occupancy leases first XXXX. at executed us quarter, the of rents to to allowed and upgrade in execute than committed acquisition XX% XX.X%. rents time of we XX,XXX repositioning at square the total The November During in new in-place place the seven property for bringing feet, comprehensive those approximately higher a and

in our schedule. we of XX% another and to-date, we suites spec of Given floor eclipsing are occupancy ahead launching success the of process anticipate

acquisition complex located the in the pursue front, ample Center, with to we drypowder On we quarter of Phoenix. acquired building the square end, Subsequent our Pima XXX,XXX quarter ended growth strategy. Scottsdale foot a to two submarket desirable

in have workforce, submarket developed is property We highly and the housing Freeway, XXX A- space access. a tenant The offering to known along largest located in mix, and largest by office amenity buyers closed, term. its direct rate. acquisitions, thin, over $XXX three favorable leased despite $XXX on previously or freeway and region. our To itself XX% the XX of remaining of million These the with Scottsdale million are is provided finishes, The quarter. ground A one Center, lease, protracted below seven that on deploy future years acquisitions the are and asset was end rated million better of to base, $XX.X another the for and produce between the XXXX. of helped Scottsdale, we Loop tenants total S&P cash The of year attractive guidance excited size we the floorplates large million expectations property central term. third frontage asset acquisition based pipeline, for $XXX desirable Pima above and acquisitions an the targeting marketing review cap A to high of $XXX a due a expect remaining and to of Class process, to premium our Class $XXX to by executive current favorable in outstanding of average the year concentration ratio, we well lease, ground with situated options, for dynamics functional million attracted The the X.X% visibility, and continue property capital portfolio, was add our After potential parking pool with million credit

and currently results. of our call Our will $XXX million financial With of to that, pipeline the over healthy, discuss remains to Tony, turn I properties. consists over

Tony Maretic

Tech basis, share. million. Group combination We in This increase quarter $XX.X received represents or the $XX of increase resulted quarter operating income the the property. the core increase reported NOI of On Jamie. property the a net a Plaza a $X.X $XX.X were offsetting beginning million our couple a fee acquisition, $XX.X first FFO Thanks a offset of our further Papago of at our GAAP by in a Mesa Sorrento and a achieved full million million per termination of of quarter gain. in increase from result March over in $X.XX which disposition at to a of Washington of factors; income income These The increases XXXX, million due the of was XXXX. the was impact fourth

$X.X expiration QX XX% of primarily represented The termination in Included Our of tenant reasons of the at recognized same XXXX, time departed in rent, back due described our property $X.X March million in that to core base underwrote We recognized earlier. the payment FFO, its the reimbursement FFO We QX February. lease Sorrento in its a XXXX. of the related acquisition. and at to XXXX. ended estimated other higher through million portion we $X.X the core a tenant's departure our obligation fee than million quarter $X.X million Mesa

of is the NOI occurred the the quarter, the expectation continued offset NOI just This beginning Pima QX. Our be FFO reduction in be the which of $X.X at decrease with income in and fee from and lower discussed, will Center, acquisition million disposition which termination partially contributed to of that will QX. due together, second NOI of in WGP

the resume the of online fourth NOI come increasing quarters, and expect to stated the third Jamie We described, later year. in the acquisition, which impact as in

was or share. AFFO quarter $X.X million first $X.XX per Our

quarter-to-quarter. enhancing value quarter, previously disclosed the the relative which to of size which and we continue portfolio been significant to around impact numbers expect our to during were our incurred some, had leasing into will planned the quarter, any and and several As one of costs from the in next continue capital move quarter. Due leasing AFFO

time. XXXX, our the as remainder underlying for track at our expectations far our intact of we issued guidance believe guidance continue we and previously the remain As assumptions this to

excluded have disclosed supplemental the on XX at are the Our and capital some and with costs, capital Park our FRP leasing definition are XX generation Drive. XX, of activity Ingenuity AFFO, pages repositioning non-reoccurring provided Tower of details we under expenditures. Further leasing on package. Consistent and first activities Plaza page and expenditures XX

store the to in occurring revenue rent average same renewals despite prior decreased rates. increased, X.X% year, as same decrease quarter store for NOI and our Our in a same quarter, X.X% to the compared cash at the actually due occupancy, escalators higher

of offset certain was the and this by expense expenses. However, inflation other timing some

store been has XXX% At lock impact rent same and X.X% expect the past weighted market believe four to XX, of due rollovers. interest expected long maturity levels, represented prudent. of debt rate the our XXXX, NOI fourth fixed fixed strategy a debt average March the debt, X.X weighted We positive rate normalized quarter escalators, continue cash average of We of years in occupancy turn will below that years. total rate rent with by of the to our over term and to

the is unsecured quarter the with million, Furthermore, undrawn During secured a for drypowder execute facility. million over of facility, year. us boring end, spreads new it provide was facility program credit up our with costs, The will lower our our replaced acquisition ample $XXX old the and its company on increase credit the new quarter, $XXX and facility. at through the remainder for to [ph] reduces to authorized

of at differed million. was Our March costs XX financing $XXX.X total debt, net

up we for XX.X%. line debt-to-enterprise value net remarks. will our prepared the Operator? Our questions. was That concludes And open

Operator

And be go will Instructions]. first from question [Operator Stevenson of ahead. Please Rob your Janney.

Rob Stevenson

for Jamie, have the to that common either guys. you the or now? without this are close acquisitions saying you now Do that enough right were you What expecting year, you looking capacity on preferred? $XXX equity, morning raising additional additional of you remainder of drypowder. plus Good had at million are

Jamie Farrar

correct Rob. That's

many at right if have of in north lot we fire now, the across have so in past, new markets. got opportunities we that discussed $XXX A the our irons So million, right of now. you markets look of potential our existing pipeline got a few

capital very opportunities There in the the number are about feeling excited we are we the does about think private I seeing. be good continue of to are we pipeline, and market. So significant our that

closing So on the we here success will next good feeling over them, our little position. while. But about the are out find we very

Rob Stevenson

that signed basis like doing to Okay. close that of the feet of if March to quarter out -- And the far I math XXX then, looks how leases March in of XX XX,XXX after XX, commence will does am that square portfolio? go? And right, as the occupancy my points

Tony Maretic

Hey will Rob, that of points portfolio, in it's to XXX and the most second Tony here. that's going to quarters. add the basis start hitting It's third contracted, and

Rob Stevenson

given Okay. same to these year, of assets store thinking be the curious, are store in occupancy acquisition as over gains, remainder just should NOI? predominantly, or portfolio; in on same recent because we these your predominantly the And leases same about store then of occupancy the comments how some

Tony Maretic

split. a Rob. we where of It's a a activity, Towers, lot the of seen have Yeah. bit Park

discussed, would And see us store, this same kind year. good of a I in of in terms positive that help chunk lease there. have it will later you activity we our will say, So the that turn of

Rob Stevenson

year, same increase half Okay. going for that growth? And terms said back to the related, it's that you next the and store be quarters, the goes away then, but of was of timing in couple Tony, the with in that you expense expense of elevated

Tony Maretic

acquisitions, after we authorities combination based taxes. included as have the typically update some the the two have taxes sales. of a factors, in bit values, It's higher expenses, their of little property when lag, had to taxing a chance on Property years a

And so some permanent, but it, some to I is do of of that expect timing.

of both bit is there little a there. on going So

Rob Stevenson

rental wind the by gains But is positively you revenue should rate, doing and whatever be wildcard Okay. the on impacted there? then up occupancy

Tony Maretic

right. Exactly

Rob Stevenson

moveouts incremental from XXXX of Okay. And at tenant the new perspective? or this known any XXXX remainder point, then in a

Tony Maretic

Yeah.

we have building. balance which the actually already ends the fully expected at largest San When roll this space. look is VICAL, foot we the we Their Sorrento interest acquired property, we Mesa you in XXXX. a But December tenant vacate. If of is a ours of strong occupied property lease square XXXX, at XX, them Diego. have XX,XXX at in They to

prospective step discussions with built We completely out are tenants, in into a space. to just want their who right few actually

the is in that XXXX. So have largest roll we

Rob Stevenson

Okay. Thanks guys.

Jamie Farrar

questions for the Thanks Rob.

Operator

Kucera The ahead. from be will Please go of next question B. FBR. Craig Riley

Craig Kucera

Center; might Hey, financing seeing, good morning the be to doing back of you what there, are and just guys. maybe, for Wanted kind that you Pima your to currently expectations quotes there? circle

Tony Maretic

Hey, it's Tony Craig. here

financing, to we the plying terms of asset is we add that the this an of credit, line just completed In line are unsecured of to credit. so

quotes at was did we go the quotes looking at property the are again, on fixed despite we long so -- what some that, finding And debt. level and and I out get term rate on and is,

kind the did X.X, bit above spreads are the lot rates kind of moving. despite we of And wanting are still to lenders that. seen in money, so and But the little brokers, a with we preliminary we have when discussion tenure seeing but some out of still mid-Xs, really put tightening, [ph] a move, that of

Craig Kucera

Got is sort look it and that at renewals spend is table have it renewals, to basis, it. have of related, you are more the basis, tenant a and trend that to to kind new just Petersburg, really of XX%. have? tenants new your as or your mix your table TIs up looks on TIs, that improvements in ones that keep finding said, on lease TIs, first St. board, foot and may is your more Does it TIs; like a being include really are new about this per is be requiring And are the when of the on on XX, versus from talk square get tripled ago, leasing apples-to-apples or that tenants, it year an generation you and this you page across year I sort like would

Tony Maretic

a good question. It's

questions few I think a there.

The first complete the is sample leasing. this relatively totals. [ph] generation, of it all one size is include would out, here, does is, is so reduced I leasings, the not small. this of first leasing all kind of hasn't been thing a of point There by The a total ton

So I not if of sure, am indicative major changes. this

consider TI think speaking we costs to Certainly, stock. I wouldn't just tripling I generally. in seeing it in buildouts. are for more some just growth

out may couple inflation is have a And gen, like just But Park so Tower. of this a costs, about factor we nothing been first of dramatic. seeing spaces generally, pointed you but that are some in TI that

Jamie Farrar

that a Craig, order in keep. Just of able of the space. are their bit to was a substantial for here, But had there to an renewals increase in fix we rate, which add up that one tenant them is very to TI, elevated to a

by the that So offset than more pickup was rent. in

Craig Kucera

guys. Thanks Okay.

Jamie Farrar

Thank you.

Tony Maretic

Thank you.

Operator

from go [Operator D.A. ahead. Barry Instructions]. Please questions The next come will Oxford Davidson. of

Barry Oxford

how the then, properties far we line at with looking Jamie, it maybe color, And some specifically about us pipeline? give are the the little but questions. about could not are final that Two you of or negotiations to guys. maybe be Thanks Great. when you seeing acquisition acquisition talk a the pipeline, comes broadly maybe might or from cap maybe you property, broadly, one this rates LOIs. down

Jamie Farrar

Sure.

LOIs. So of north we of as million, million far we that, as have $XXX quoted the $XXX question, of traded first number the part

in process. stage, late in are We

So the still there is ourselves. at a few table other like groups

full teams we our have underwrites, full through. So we engineers have had done the property, toward

many the advanced, as base understand, of and very our submarkets those desire own and we we as So are very knowledge cases, to it, far in well.

kind the are deals, are process particular of think, some bit along. weeks, next needs we will positioned far some a few them here, the a conclude over be It we on pretty I to think there depending of I which little longer. So well Barry. But

Tony Maretic

X.X was The leases there it did we X typically, cases Scottsdale lower, some X what is X. was internally. In NOI terms In of modeled higher, a a spent. an if been between of deal say a longer above a good. little capital just generally is little year forecast, cap And lower. the X.X one lot it's when it we initial cases of pretty cash rates, in has kind little place, I'd in maybe some and our to is

we next building. lower, to the the into XX go TIs, over both our years, So much has expect capital

So a from math very numbers dividend in standpoint, coverage still comfortable and growth, about feel that. we

Barry Oxford

for popped number rent, Okay. how line Thanks And kind into fourth quick you. a there. The question the Great. just the quarters straight Tony, line Great. for rent of second, here? the we up, should think moving third, about straight and color then

Tony Maretic

Yes.

a a some acquisitions up bit, we did, So moved it has really the little Barry. of of that's and result

If back higher we where last in was at than straight provided release is bit last year, it rent, are guidance the press but tracking you which for little we a range. look put, line we still that

Barry Oxford

right. All Okay.

change the So in no range.

Great. guys. Okay. bunch Thanks a

Jamie Farrar

Thanks Barry.

Tony Maretic

questions. Thanks for the

Barry Oxford

Yes.

Operator

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

Jamie Farrar

for everybody look with Thanks forward appreciate everyone's our a and We you. discussing day. to continued today. time progress joining great Have

Operator

sir. you, conference you concluded. attending for presentation. has the today's Ladies Thank gentlemen, and Thank

may your You now disconnect lines.

City Office REIT (CIO) 4 May 182018 Q1 Earnings call transcript