CIO - Earnings call transcript Q3 2018

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Operator

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

Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce you to Tony Maretic, the company's Chief Financial Officer, Treasurer and Corporate Secretary. Thank you, Mr. Maretic.

begin. may You

Anthony Maretic

Good morning.

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

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

James Farrar

Good morning.

estate with our at of full and into of we both relative year. focus, the performance the office As on brief we to expectations and fundamentals To markets the of our X% on where our markets. concentration. absorption XXXX our our remain draw have own average with closer in square comes begin, approximately markets, performance beginning property financial weighted year-end trend real growth we approximately a picture our to the positive cities years, portfolio the quarters on X for growth feet X the space. positive continues Through to office Year-over-year higher our million seen update the rent of three the underlying in

limited side, and new our the the supply Emerging our highly supply those as office national outpaced San Denver Strong markets. XXXX attractive selection and long-term fundamentals Dallas, Phoenix the Tampa, On markets, under remain leaders been growth. targeted while construction new employment experience absorption have to and population cities and construction. believe Estate, historical in in Diego these moderate We Portland Real Orlando, and our below market buildings emergence employment average. investment cities, in in cities XX-hour remain excellent, in in highlighted ULI, nongateway of has its Trends continue

rental were in prospects our XX In of translate higher push properties fact, dynamics XXXX. in for and ranked will of rates these continue X overall the space to We the our we cities at top demand into real blocks for that attractive our believe portfolio. in estate larger, have

in in Tower ongoing buildings. most area Park properties is a In amenity have improvement common which value-add year-end. transformed approximately center our the property amenity where competitive tenant largest for Mesa set. renovation submarkets. unused greatly addition, and a the The and for Crossroads driving in of our the plan the a now San completed of are position we and spaces. the tremendous is Tampa, renovation and programs previously fantastic enhance underway, to within level The catalyst into our to space on Denver, will provide renovations campus tenants feel outdoor fitness At the the have notable substantially we vacant expect enhance renovation At $XX lounge look are in underway interest Diego, and number lobby desirable be will Sorrento their DTC securing suites façade, spec lower by add a and million two upgraded at

blocks update XX forward system The upgrades conditioning, and Denver, vacancy a largest with at Mesa and mechanical Plaza and Crossroads have remain drive team and cosmetic our space DTC As property are on new Denver, our in FRP San properties XX moving in we in results. on our leasing property available of in Collection our to an portfolio Sorrento Diego Orlando. Plaza brought on

into I to asset our With focus teams, make just a continue leasing priority the of of renovations the year. those the we and leasing going that described the management end spaces and

expectations strong we've Turning shortly thereafter. of Earlier in Two the and of inclusive were were traction two to announced. to performing all the the X of within powder quarter properties Denver, Phoenix that previously those million that acquisitions quarter vacant will year-to-date, small deployed closed are properties remain. acquisitions, which end completed third blocks at our expressed of we the in of remaining or all space of with be in year, dry $XXX the and on expectation the third

have currently over deals our and Tony completion we million pricing if have said approximately quarter stated our and targeting first pipeline goals. two have is prospects ATM discuss, strong strong believe resulted pipeline. portfolio. the In proceeds the underwriting we of to have we a standards aggressive subject we $XXX by an that leasing an awarded In the of that assets. or several made These $XXX we performing million. that on a that additional lower in that, and put towards $XX our of approximately of diligence million deals the in last to are value acquisitions well, successful that and price these awarded closing. long-term underwriting our of our purchase with We're XXXX. an separate rate to of $XXX acquisition third the of sum, Having capital capacity closing and acquisition purchases completed million the witnessed been sticking aggregate all of us. are of end to to to This quarter will definitive negotiation finding progress from in have on been and of believe we're X rigorous work our conversion With number basis existing Over alone, months, in capacity, an has attractive essential passed assets. our we contracts, and due We markets renovation, our of purchase

turn With acquisition financial the to last our two will leasing we call be of Tony With months occupancy towards driving the balance to that, deploying stated on discuss the and focused results. over our year, prudently of activity I'll our the capital. targets

Anthony Maretic

Quad, which which the higher Circle $X.XX in were million the second The contributed million third and income primarily occurred was Jamie July Thanks, Point to the this million attributable per which increase Jamie. On prior and and second million operating net quarter quarter $XX.X represents quarter core the majority both in increase million. $XX.X similarly our from achieved quarter. during over just $X.X of or the GAAP increase. the a share, This in the was which The referenced, a basis, acquired than The of was the acquisitions, $XX.X FFO quarter. was reported the acquisitions, by impacted $X.X

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

incurred to AFFO capital have be leasing by during which and XXXX quarters. Our value-enhancing continues in the several been planned three first affected costs,

to in quarter. the raising proceeds program issued affected first during our our we the in $XX.XX in credit, million were ATM expect our proceeds through markets, our net third to that on average All amounts redeploy ATM by we results we the The activities repay ATM capital accretive XXXX. us $XX.X initially an million. of proceeds benefit equity will in shares the of approximately to per capital capital choppiness the raising the in efficiently and the for by share history. growth from With outstanding time discussed. believe for Jamie was ATM, the at third of the acquisitions price made quarter, gross In of of timeline quarter on line capital Through X.X use to use of the we used providing recent

our gross-dollars Our issued a basis. previously on budgets guidance to track portfolio in-place and continues

have us potential by is the Though capital ATM, $X.XX quarter However, we we the be not of QX. Jamie no we to acquisition Due that likely update the the a that these our the have stock impact adjusted associated to our common acquisitions on deployed lag have to material as quarter activity. these acquisitions share. transactions through with range of raising have timing have per million guidance that QX to awarded core fully to third and from assumed of timing, guidance the income fourth means would and issuance mentioned, been FFO will $X.XX $XX

The timing on our our a Jamie on of fully expect we FFO We the rate range per mentioned, transaction, deployed quarter next acquisition that share the run and provide its $X.XX have $X.XX impact continue those of call. in operations XXXX, from guidance acquisitions. be XXXX will will with full core once are we to and as of to

As size associated and from incurred equities, far associated numbers AFFO our as our any well elevated with leasing DTC one quarter-to-quarter. continue Jamie primarily with QX AFFO, some the the some will Due quarter, of value-enhancing leasing be activity. the costs described in as the at move in costs will around Crossroads, that significant as to capital to relative impact portfolio of

of costs we our provided activity first-generation are under Consistent leasing have details Page and package. XX the continues disclosed supplemental Further AFFO, with are expenditures. on XX to and our of expenditures properties, the activities our some largest Our at which relate repositioning. of repositioning Tower and Park pages capital leasing several nonrecurring to XX capital definition on of excluded

markets NOI same-store to cash increased Our pool, in growth. X same-store for same-store the contributed X Of quarter. our the X.X% markets positive

same-store be provided Excluding same-store was that to have the of negative beginning NOI dragged growth the quarter. growth cash the within Denver, year-end. for range for year, where at of results, year, the At X% our properties X% and we are to tracking NOI our we X.X% X guidance cash

through to We to occupancy also balance expect tick year. the of higher the continue

the operations private assets headquartered XX,XXX October. the a firm earlier year, the term. was the a of ceased However, Crossroads, legally our third and its during space acquired foot by DTC Crossroads will quarter, the tenant, ahead repossess The square equity in lease were DTC at who in tenant of in contracted we property

not represent lower at We tenant have quarter-end, XX% portfolio, the legal occupancy track further of quarter. the update the overall a time cause that guidance to to end impact us footage and XX% we are square do portfolio expect range pursuing however, a the of year-end, the in this provided. to this which At event significant to will does portfolio of previously the X.X% our expect the towards available we size of the at fourth options to at

to balance Moving on our sheet.

was Our XX, financing costs September total $XXX debt at deferred net million. of

a and weighted enterprise debt debt fixed X.X% represented fixed-rate September a the of walked of We value years. maturity total rate net X.XX% loan quarter, closed with Circle on of XX, average million average fixed rate in At generating Point weighted weighted XX-year average during the Our at X.X to was basis. debt a a of proceeds, XX% approximately Quad our in $XX and XX.X%. loan

the sheet And X believe we fixed-rate As questions. debt our for positioned remarks. lock-in we've environment. to in the Operator? concludes past, about well balance up long-term this the years in over prepared past we'll us open line talked strategy That our has

Operator

Instructions]. comes from Janney. Stevenson [Operator Our of first question And Rob

Robert Stevenson

Or or Could on the wrong? acquisitions that the letter additional quarter that any contract given to I said intent? raise the are you under not you're I when close during say going of remaining it get to the that need equity right did that ATM

James Farrar

Rob, this Jamie. is

look got at point about you this forward. right. we're $XXX the of we capital we targeting Effectively, going forward have, from acquisitions So when that million

we're two in we so have represent about good LOI under So $XX the shape. million,

Robert Stevenson

ramping take if the that me And quarter guys today, do negotiating, are to a sort quarter space bigger that XXXX rate earnings at how X now winds commissions X continue was of you whether or not you characterize same? million up to is TIs are how it shares of wind the up need question staying to Are do up where million, up to a and terms or guidance the course there seeing that, Because when having issue is I continue in acquisition of the from to a in then you Okay. of Is How order guess. cost this question get days? look -- up what at have lines other the over the down in coming these of run versus fourth in? give that more leasing you you tenants portfolio the less, lease point? you the to back under

Anthony Maretic

Sure.

next the going our think of in. looking we're where to months, generally forward and and coming be speaking So in are XX consistent I'd kind say, we we underwriting,

have the construction As TI a factor are build-outs. kind is other last look gone costs And more few if tenants whole, with up creative years, modern, the of you line costs. in over wanting

package. kind higher we're a seeing a little We're of So also correspondingly, result. higher-base rents a seeing as

Robert Stevenson

one. And last then Okay.

of today, at the just at stuff terms any that In guys new more of same or point? this looking markets you are the

James Farrar

few looking But new they existing of the markets well, X we deals in at a We're Rob. still are markets. as have,

Operator

Our next question Capital from RBC Michael of comes Markets. Carroll

Jason Idoine

suburban little are This was bit million CBD letter been on you color have where under the is I on just or anything are you that? offer they intent? Specifically, Jason guys $XX in assets on that a more that Maybe for and timing these a around located? Mike. little if a awarded also wondering of markets, you've could or

James Farrar

million to deal the $XX been have So us. that is awarded

come extensive good done well. pricing Both that Phoenix. the They We've to we've know in with are we terms Orlando areas on are work. So and sellers. in

So leading think kind of in submarkets. the

that, In it'll averaged about overall up. bring cap average terms the and higher are than we've so year-to-date, cap rate. X.X% valuations of These little overall rates

Jason Idoine

And this you on that of guys of opinion are seem changed? in especially Or markets your currently the secondly, markets has the do interesting at any Okay, great. any time?

James Farrar

cities like still of all we're the we So in.

as in If look a we're still buildings way, growth, well same market in kind replacement at we're lot good below kind ones of Tampa, putting well leases. rising better seen performed of of both which and position interesting way, our we've Orlando, have vacancy, costs. a that opportunities extremely are been leading is well we you the in rental that really has declines with Dallas rate the the long been Phoenix, term buying have there negotiating submarkets overall think positioned

markets rental the continue really to are as be to rates think, driving we healthy so And at perform, going levels.

Operator

Crow from Bill Our of Raymond next James. question is

William Crow

guess. My two I questions,

deploy million planned, debt-to-EBITDA? as that you does If net put the where full $XXX

Anthony Maretic

Bill, it's Tony here.

which on above if million, do we the acquisitions, So net really debt-to-EBITDA it a range it put presents $XXX would of just end probably X.X. basis, full of the upper

William Crow

have you equity don't have you at like And comfortable to to raise additional million, you do then you are don't X.X? feel -- $XXX that

Anthony Maretic

Correct.

William Crow

want And That that, to tap that out right? any -- you further than going think would push that kind of is would forward, don't right? I you

Anthony Maretic

would full of kind $XXX upper that's Yes, the target we of if were the the million. to it end do where be,

William Crow

fourth Okay, could been quarter second think the if how first you the as dollars? the expect and we great. the just just And quarter question is if longer-term coverage, deploy, should both then am wondered dividend expected? not I investment you do for you target had near-term as second the give or that quarter, us I clearly about quarter wondering a

Anthony Maretic

Yes, that's a good question.

basis best I per spread share the is over the going the about a our think AFFO Bill, average think results way take to But it, between in to as see actually core if and FFO number to others. as our in on you're and it low quarters in almost averages you share. been will $X.XX $X.XXX X as as per $X.XX that out high years, some that past

FFO consistently will I is fully the portfolio, to So we've be if a I'm average trying given of guess, core once $X.XXX just size $X.XX. does bumps we're it our bit. to take -- the our deployed, But said, you say long-term $X.XX around

the the $X.XXX, coverage deployed So there. Jamie's that you we fully fully we will we'll to as remarks, deployed, -- we effectively, said soon the to basis. dividend be the dividend see equates quarter, coverage next dividend be by long-term prepared In coverage. we're But on the we're expect -- means prepare then of midpoint will substract which as end that first at that of be saying suggest that by there's year, that

William Crow

not So already the that million right? been fully deployed is million, at $XXX that's $XX-some committed,

Anthony Maretic

Correct.

William Crow

quarter? by Is great. time the million So, sort during should -- second fully you're with of helps okay. That's saying? That and what invested $XXX that be

Anthony Maretic

expectations. Correct. That's our

Operator

Our of next D.A. Oxford Davidson. question Barry from comes

Barry Oxford

more was on one-time on there? a Just I are the get of back what things they to driving other going kind down a that same-store. the Could of in the Denver Or lease cost Was little just that? Denver that to rolled market? was get high, very and color there

Anthony Maretic

it's Denver here. the known year. Good quite to Barry, the affected contributor was sort ProBuild year. Tech downsize Center. largest The Tony talked the last morning, at about this that decrease bit by That really We us a of

being contributor other single Tower and biggest So the that Logan properties But XX similarly, also occupancy a similarly was Denver. had smaller Plaza decreases. in

those the was three. that So affect of combined

James Farrar

here. Jamie Barry, So,

really where be more of much drivers to If you a we're blocks the to today, That's have to number. vacancy moving our turning going biggest big and look forward across that focused. going of that portfolio, one positive we

Tampa, in FRP Collection in big XX% in going Orlando, leased. in we Superior had at downtown here. if in leasing deals here, the We're expect look have great hand, the that. in Pointe great. that So The results leased XXs at blocks, Park we be Tower you the be looks XXs we're renovation we've to we today. to With are about low XX% shortly. Denver,

expect XXs shortly as moving into that's low to well. the going We be here,

focused great driving, traction. about ones So -- XX, on XX% we're leased. we're which it's Plaza making really The

that going on there. We the we're here Driving now leasing our just there. renovations done Crossroads, is activity So renovation of some think leased. our getting difference getting big finishing make a in focus all to DTC that's activity on

a going those huge difference So to to forward. focusing make our blocks on same-store, is going

Barry Oxford

should leasing, an we get we acceleration? look of in we leases Is NOI and more a then it to be half back but the see then you it if half, of bit the should kind little at 'XX place, of fair accelerate in half start those then back the same-store see to that once will say first

Anthony Maretic

Yes. it's Tony. Barry,

I that. I think that you've heard say

I in explanation I specifically, is what's pool. it think happen QX more the in out the chart -- for of will if you what is part

-- initially we're And be in negative the San in quarters acquired Diego because will assets because QX, be That that since we Sorrento been part so adding X it'll of properties. QX have going to the Mesa asset.

our we also to those you last year, If vacancy we significant fees, ROCA year. recall, higher but had termination it buyout big received this led

beginning be an that's in thereafter, to negative But net-net, point, a QX. So in going QX. driver, to acceleration start just to your year-over-year, we'll slightly see

be expect the positive So to accelerating we in in throughout XXXX. and year beginning QX

Operator

of question Riley FBR. comes from Kucera Craig Our B. next

Craig Kucera

that see give that feet those when XX,XXX have take you Can square tenants I taken you yet another a will leases of paying occupancy. haven't rent? of and start sense us occupancy

James Farrar

December there's last a couple our was large And call science Diego, life tenant our so talked a at signed a in with we One Mesa -- the is about of expiry them Sorrento ones that is at on in immediately. occupancy almost again, to XX known San there. Yes, taking we that vacate. replace there

Craig Kucera

you that... and mentioned Okay,

James Farrar

increase other are are Yes, that Park in and pick that at see there in some you'll Tower well. I where ones we'll those acceleration, in see up think been has there small going -- occupancy particular, Tower occupancy as to Park

Craig Kucera

mentioned of great? Is deals color fair a think there summer. us is? Any where And there give it basis Can a that throughout points? where would be sense Okay. clearing are stronger you basis this value versus significantly gotten XX XX has points, pricing you you

James Farrar

Craig. Sure,

One, we prepared diligence. above of not had more they in number ultimately, go due place seeing September, in a a groups buyers we our particularly to million. far competing going second market. see transactions, nonrefundable the together But might to doing and and And summer what to of think was have a in came and close. our deal level going those happen. we're picking did lot actually we were immediately portfolio, are $XXX pull In do was seen, sellers I were the a that that. had at X if we And going the we've higher both group as we we own what And bid So into with close. before saw luxury as

tenant as we and doing for had awarded The on deal the discovered it, secured and other themselves dug were planning one, we changed the land was and into a that build-to-suit a we risk major profile.

And we transact somebody did. we and else to the terms weren't had on prepared so

And extremely the really an refocused what that lot a and really focused area And at on of work is if exactly the have who well, we and a work, more we've So look of that frame activity situation saw deals right differentiating ourselves. that wants closing I you kind sellers quick we that forward zeroing we've kind we done. now, institution internally that done know how a X want was of put time we've on in seller we certainty lot it's certainty on close. a where we're based of have the we can tell how is of

some some other generally, really little say, the cap terms were. a it's to a than diligence where as lot of pay of the been I'd in kind say, There's done. so we rates I challenges, have to that over while. without due stable the these some get And of last willing caused buyers, But quarter more the us more bit such deals nonrefundable for doing going would have little

Craig Kucera

you in these of some seeing of And these amount these are increased increased are new smaller of players? more interest Or this are syndicates institutional buyers, -- markets?

James Farrar

I'd increased interest. say, institutional

Craig Kucera

this, have at the you're today missed assets end may existing to looking out? looking to by pipeline the pull as incremental the of quarter, as I that first you're but that potentially acquire the those And potentially far is what

James Farrar

together. And got $XXX There's We've $XX advanced. million. whether think, that deals better pretty going the the have to above we're visibility million those north We're of I over next come a pipeline. healthy couple of month, were a

accelerate value extremely lot have down really beyond, being on good create go We'd term. comfortable targeting going comfortable buying into love to to kind it time come closing frame. a internally, And We right. be to estate real at -- QX. the want But and going with all paying, good long we're us comes to done that of the real of to lot So down as early at at very it's a buying we're trying the we're XXXX we to of pricing. estate to that prices we're positioned we're

Craig Kucera

Got one me back. for more and jump it. And I'll

from been as as As there far expected change next larger your any of for perspective as year, potentially has tenants? move-outs

Anthony Maretic

Effectively, have we XXXX, tenant Collection, that's that's above only XX,XXX our the that's it's Craig, and there a they the forever. that's FRP in feet expire. these set single here. tenant Army square it's U.S. have Tony and And that's Corps been to at actually ongoing one-year renewals.

expect So to them we actually renew.

bunch that, of is to it's average, expect Beyond medium-size tenants. kind a renew of we at smaller them north And our which X/X. historical and of

Operator

Instructions]. And JMP question Mitch [Operator next our Securities. of come from will Germain

Mitchell Germain

way towards value-add you're seen with Just kind you've acquisitions more to terms in your regards may institutional of as anything as deals, looking more like it approaching the at of may kind kind shifting here? capital. assets of are? typical be of Has shifted you're or there about Is in skewing -- even be types little that what point smaller of what sizes versus seems

James Farrar

I question, great think actually Mitch. that's a

So look than which million, has it historic million. the at is if our closer a to in you in million range the divide that's average, you little X been smaller half, and deals $XX average, on which $XX $XX

credit pursuing deals great that locations are we So solid tenants. in with are

can we stabilized the for buy see and growth we looking that properties that long-term still are value. We

the price flow term, arise. the our cash of to are opportunities assets comfortable to long healthy and going grow. are that are to time, grow over the flows portfolio our we're where our will, But going to add our of generate bulk continue value-add a going We bought ones when cash acquisitions at bit and of little a value to

our looking some at as little the to lot pipeline, far those question, your as we smaller answer being But say, as that $XXX-plus are million are little compete I'd deals, are tougher larger well. to ones today. a deals. So there In are on able

Mitchell Germain

rate function of pricing you that market? in the the of Or kind in really and Is shift deals attribute the what it on deal average. the X higher or kind is Great. than of bit seeing of little a of then, the environment And asset what whatever? to boarder we're just and and I guess, a LOI nothing kind mentioned your to kind itself

James Farrar

say, of I'd of more of both it's those. function Yes, asset-specific for a

is of they one a high -- blend to kind One of is It's X a higher. the deals lower little little and Xs.

that place. cap in have our ground in portfolio great Those leases long-term looked couple a of assets rate. are have higher typically a institutional with lease little We ground

And so in a as continue to we look our at those few well. of pipeline

Operator

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

James Farrar

to today. to want our a year-end thank everybody forward moving into and reporting And day. We we look joining for Have results XXXX. great

Operator

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

You may now disconnect.

City Office REIT (CIO) 1 Nov 182018 Q3 Earnings call transcript