CIO - Earnings call transcript Q3 2019

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Operator

Good day and welcome to the City Office REIT, Inc. third quarter 2019 earnings call and webcast. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

conference being this reminder, a call recorded. is As Instructions]. [Operator

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

Anthony Maretic

Good morning.

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

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

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

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

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

Jamie Farrar

term have taking steps actively success. been to Since morning. we Office call last our for City August, Good long in earnings position

on strong our capitalized and we improve balance conditions quarter, the significantly capital During equity debt market sheet. to

long acquisition which drive performance. to term attractive source We continued opportunities have also will

portfolio. have results continued healthy our addition, In and leasing momentum same-store across

we our I raised pricing offering access our strong share. stock of third just results of gross year-to-date the us price raising average per through The recent today, this conditions of October, shares at would million a quarter. in quarter ATM allowed common of to follow-on like With each and components with speak our $XXX capital our market at outperformance combination issued Between these capital activity. an to program early and equity issuance Starting to-date. equity major my $XX.XX highest to our during of over comments

This the of meaningful but growth rates will fully Tony generate property million as advantage renegotiate Separately, will interest also step we but in more us reduce for diversification, deployed and shortly, important with of on to $XX it the over portfolio time. details summer approximately over level it leverage terms debt. to capital our steps provide secure an these level. loan allowed will savings took drop

recent acquisition Denver closed the called building previously and Tech. our We six-story is a submarket existing adjacent $XX XXXX we XXXX acquisitions our to of in Tech to Southeast a which Center, property million Denver Crossroads. pipeline. Moving during the quarter in located DTC Tech This Denver called

properties the contract buildings full or as of combined XXX,XXX amenities. a and recently both feet provides attractive flexibility that of two into This have amenitized suite buildings. tenants out the the We profile square campus enhances leasing within grow two features us and a built

Life leases. leasing tenancy properties the public is lease years, with the The of well-capitalized acquisition by time Denver. the leasing consolidated a company. Company amenitizing and average including strong of we and anchored success X.X execution a further addition, when In have Insurance recent weighted with the remaining committed of National teams was has be term Tech one best at leasing and building had leased Jackson will the XX% XXXX in

the to of XXXX. space Tech as space shows as fourth XXXX the early early the physically they XXXX signed lease quarter third XX% occupancy one quarter a in of and tenants new to expected expand for Our into are or occupy

we Tech, evaluate solid produce cap the expect a Behind at of long acquired rate and will XXXX pipeline it in a to property term continue million. $XXX broad excess X.X% We results.

acquisitions XXXX. a further timeline have to the any don't of closing Given we process, expect in typical

on We acquisitions. executing pipeline are are million and focused million $XXX on and $XXX the targeting of new between

note, Denver, land parcel The had process the one two related Logan in Circle is Tower is property smaller land a which in On is dispositions Point parcel of our Point the on other our we adjacent a deposit buyer's and property. to nonrefundable. Circle

details earnings further provide call. will We on next our

performance operating our to Turning quarter. the during

brings continued our same-store growth an growth with cash for NOI quarter, year-over-year. cash the robust NOI X.X% trend to impressive year-to-date of We X.X%. growth the same-store This

decreased during to performance. far quarter, XX.X% occupancy as bit little XX.X% as our from Our a actual misleading the which is

our XX% term. occupy technically property that This one at about significant despite leased this reported earlier of brought to XX% portfolio occupancy yet. Tech is being tenant mentioned the lowered XXXX new the leased by the occupancy X.X% long space not but combined and Tech XXXX end, quarter acquisition I does down

feet in straddle majority leases committed these leases of of are The but approximately previous signed offset are expected earnings occupancy. XXX,XXX had timing of the that year-end. of were part moveouts be as were square square feet construction These the Square that will tenant QX, at QX suites committed, the the mentioned commence we on vast repositioning by we our or Further, calls higher of XXX,XXX during although to and rents. new quarter. could vacates known not in Camelback in of market necessary yet vacates These

updated in signed have year-end. property, a Notably, attractive blocks at Tech over the vacancy is to at property. XX,XXX portfolio that therefore guidance step We significant we of which square quarter, occupancy in of feet and up lease at leasing XXXX tick the back expect XX% we a during provided our QX

and over our and intelligently capital, for long will and sheet to believe the price growth. impactful our the positioned that NOI take management's will that value the have Office continues of sheet of investing to focus share steps The our enhancements Tony City discussed net our the enhancing detail in effect I on We investors markets. transactions net these term. be balance asset balance conclusion, In opportunities advantage increase our thriving driving increase

turn I And that, to financial details Tony with to call further over provide will on our results. the

Anthony Maretic

in the income quarter $XX.X $X.X million. million by is reported The reported basis, in one-time million quarter. quarter. our Jamie. portfolio. the decrease a represents net assignment one-time primarily Tech in Thanks quarter the million income Without to approximately the growth $XX.X third would fee NOI acquisitions On previous second $X the third GAAP relative NOI to attributable which by from fee in a same-store decrease and driven the a operating in late XXXX was increased our have was This quarter, previous $XXX,XXX the

revenues rental second $X.X quarter. received The in the income gross recorded fee assignment other of within million was and

and quarter. as G&A million Those benefit costs. outlays were the purposes, were net expenses the previous costs resulting accounting a in classified in million For in $X.X one-time $X.X approximately

core of share $X.XX Overall, million FFO per we second was $XX.X or $X.X which lower than million reported quarter. the

with $X.X the higher As to fee G&A first under benefit a partly in net due the related our income slightly to attributable I mentioned, to included a quarter from offsetting year-to-date costs acquisitions. to attestation quarter, Sarbanes-Oxley. auditor million second assignment subject an increase the year was also higher being

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

our the would our $X.XXX have impact higher AFFO the capital of right our activity, of top on dividend. been from raising count share Excluding

of associated numbers our and Our leasing leasing of continue third our AFFO activity some Due and in quarter our tenant around commissions any to in was significant leasing impact the improvements affected portfolio with AFFO relative quarter, move from one quarter. to the by quarter-to-quarter. the will size the

first-generation acquired excluded activity pages of some our capital with property. and AFFO, expenditures Further largest on which on of leasing have non-reoccurring XX definition XX Park capital provided Canyon supplemental we Our recently are details of relate the leasing disclosed page our the and are XX package. to expenditures. under Consistent costs,

same-store markets which in and NOI with best first months to X.X% growth, the year-over-year the the combination of the in NOI grew Portland Our and period prior a each gains the San third performing burn same-store year. third or those same rent double-digit nine free driven compared year for quarter mark-to-market in were off cash by step-up Diego Orlando, primarily of rents. quarter in X.X% or as markets, occupancy was cash our

With experienced end same-store in QX, expect remain moderate positive occupancy of but at we the growth to in quarter. fourth slight decrease the we the

sheet. balance our onto Moving

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

to the is offering, from value figure was shares does ratio include at underwriting million reported the but of additional closer Including enterprise that the XX.X% our Our today. proceeds X.X enterprise October. net XX% not net value net issued to debt discounts, in early debt to

loan our without renegotiate in penalties. also interest During to a annual of properties. those incurring interest savings four drop approximately will was result $XXX,XXX prepayment the from and agreements rates quarter, of advantage savings this expense initial on we take annualized renegotiations of achieved any in The

million $XX also entering facility to We our five-year loan. by a credit $XXX into term million unsecured expanded

off we loan of swap entered arrangement. $XX into a The priced LIBOR. five-year term Simultaneously, million is

for So of XX the X.XX% swap component day LIBOR loan. a the term at LIBOR swap X.XX%. fixes our loan five-year end, effectively rate the interest the quarter term the At at rate fixed of term borrowing

comprehensive Given the this hedge is rate, from unrealized reflected in gain XX-Q our the positive income. differential the in in

years. transactions, our and X.XX% weighted quarter. debt effectively X.XX% debt end I discussed, rate of a and was portfolio of total on end X.X agreement at As of a result had a to our quarter prior weighted we maturity XX.X% those At at balance the end versus of lowered the sheet swap overall average including interest average quarter our fixed

year. third our the guidance Finally, we reflects in Based and previously updated earnings XXXX ending and $X.XX primarily issued FFO share year quarter a share release, count XXXX. savings our end share core through higher issuances our full these The between to are the updates of interest provided full guidance. from XX, the assumptions, $X.XX December anticipating we to the per on year for

the cash our is been continue growth A $X.XX, X%. of is provided between updated to and assumptions estimates of full expect in quarter set guidance. press guidance would the NOI end a revised release. previous $X.XX have same-store Excluding and higher which and of third X% issuances, impact underlining share Further, our range between we

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

Operator

Instructions]. [Operator

from Carroll Markets. ahead. today Our come first question go will RBC Capital Michael of Please

Jason Idoine

the This of that chasing deal? Hi for also curious asset wondering guys. am other type about what is am and XXXX marketed a Tech on if acquisition. was Jason, just that Mike. Good I was I morning. capital

Jamie Farrar

the marketed was Thanks deal. It competitive. for Yes, was it question. fairly a

knew clearly good competitive sold that was it. and a own it the a given pretty we private a market process. had we think next-door REIT was large it I But and well that very advantage,

Jason Idoine

guys And expecting out a you built now there? then, leasing kind of synergies cluster you any you. Got that are have little

Jamie Farrar

part it put helpful really together to and of what was amenitize are campus. As we doing,

great acquired are steps the food we offering. a had a we One, there. So few building taking

amenities, other shared have We building in conference. recently built fitness, out our

them all package. combining a better provides So much

XXXX leasing And have leasing on who was have the to so as re-awarded fabulous team part of the that, we done a that that job.

we into a it as in candidate to So think and going rapidly some there there, might be synergies that is our good the to building be grow tenants advantages do of growing, particularly building. some are

Jason Idoine

Okay. in you are Great. on update Sorrento moving from And could trends Mesa? then any And that markets? DTC, you at then and FRP provide away an leasing seeing those

Anthony Maretic

Sure.

So this is Tony here.

Collection, the was the by we some that and FRP space in. tenants backfilled are ago vacated effectively So time moving have Metters

XX% Collection So QX. we effectively occupancy was in, at in moving another quarter have tenant end at FRP and

Jamie Farrar

sciences In Mesa, A have one life at. still few terms that looking prospects of are do is Sorrento vacant. we building,

have majority work. cosmetic our of We completed the

kind campus. built of have We amenity centralized a

in there as far as extremely strong So we shape there. rents. good as The well are market

very is significant So to us. vacancy the value the of

Jason Idoine

Got it. guys. you Thank

Jamie Farrar

you. Thank

Operator

come will Janney. Rob go today ahead. question next Stevenson The from Please of

Rob Stevenson

concentrations you XX% Denver of rent. Good million are days of are morning are evaluating deals? how market thinking these Jamie, $XXX and now about you Phoenix guys. over when

going even far in Is get If you in days? behind. out isn't you assets? the keep XX% in sort in maybe market exposure and to trade things you of XX%, where you markets? about Are comfortable of Denver and And Camelback that want Tampa will these Tech those to

Jamie Farrar

a It's Rob. good question,

have generally, at So what markets of we a are and got But if with you very have. look comfortable Seattle lower our Portland. few we we towards, weighting

on going a We where XX% Phoenix. are long comfortable that's higher and based we slightly term the getting on Yes. to right both be assets? little But over some Would want great quality Denver just in we upper be around end.

find great of to So markets. other focus continuing is some our in acquisitions our

discussed well build look past couple we the a We portfolio. have out continue markets of to at as a and broader similar in

Rob Stevenson

or likely incremental this to have quarter? any known And light moveouts Okay. that

Anthony Maretic

Rob. here. Tony Hi It's

known of quarter. So do during take another in will we QX, expect place XX,XXX approximately vacates that the

of that has feet XX,XXX Now But of been actually there already some vacates known in square backfilled. are QX.

Rob Stevenson

days in notification given at or looking who is or note? XX But anybody XXX Okay. days you so that XXXX, the has, of there last like, is

Anthony Maretic

than talked the tenants least previous about year. calls are that have at that No say on about in have in talked And Yes. on confidence calls, that high day that, are we change greater previous on real last we XX we next four seven them. actually rolling renewals XX,XXX having

And We of of bump number them to half the will extensions. discussions. five XXXX. do vacates known or the both then that expected may term couple positive both and are we of probably on have recent a year back do in short based They

So looking pretty for XXXX. good

Rob Stevenson

And Okay. any at between difference Tony, then this NAREIT in FFO quarter core point? known lastly, and fourth

Anthony Maretic

really stock the so core talking for our we FFO which which definition mean I compensation are FFO non-cash of you adjustment backed -- So we known based use only about a have. and that only adjustment is out are That's the NAREIT, item. is

Robert? your Did question, I understand

Rob Stevenson

to some a wanted that make anything that so be be FFO, be it's refinancings for one-time debt just to the would that be or FFO there that in wouldn't either sure we back wasn't thing core for cognizant NAREIT. of about anything, would that like from core I else, need Yes. added

Anthony Maretic

and I talk because We mentioning did any question it's without refinancings do actually point did penalties. all those incurring a refinancing. to the manage prepayment worth Fair good actually about

prepayment no expected. So penalties are

Rob Stevenson

Okay. Thanks it. appreciate guys. I

Anthony Maretic

Thanks Rob.

Operator

Our of ahead. go Crow will question Raymond Please today from James. Bill next come

Bill Crow

morning. that exposure guys. coworking Hi forward Thanks updated and good going your thoughts thoughts and Any towards maybe sector? on

Jamie Farrar

we a have lot, something been Bill. looking It's

really offices significant is a no And buildout well space that have, are our again We a have couple you There across when we nothing then high exposure occupancy few WeWork. the have they great. occupied. portfolio. we is do So smaller look regional, very at and are to Regus the have they levels

have our within portfolio. no we So concerns

Bill Crow

building All also saw I just out the building? asset you right. home-court reached potential partner And office an in to here. wondering for you which just that I own. that your downtown partnership in acquired then a Tampa they am just just Carillon in a whether And advantage

Jamie Farrar

That was on the table on. early

in we that the Given partner something wanted not building, particular that was CIO. within to vacancy it in

was explored. So that something we not

Bill Crow

Great. Okay. Thank you.

Jamie Farrar

Bill. Thanks

Operator

FBR. today Kucera B. Our will of Craig from come go question ahead. Please next Riley

Craig Kucera

Hi. morning guys. Good

bring in handful of you loans there down them you X%. work in of are to a opportunities Given those that quarter? to have other still that well priced mid what the to achieved the maybe any kind on Are as third

Anthony Maretic

good question, That's a Craig.

more Just color. to give you a little bit

a had and So when negotiate that with but we start kind focused opportunity, had penalty fall of of to was managed prepayment no to waiver and same that we of them couple loans prepayment interest and a of entire were at there our on a looked bank the rates We portfolio. penalties and we that reductions penalties. those prepayment actually couple some had

penalties. a within our rates loans that little do other higher bit have substantial The have prepayment portfolio of

dial We moving that. have made the some in of in inquiries but sort were unsuccessful

best remaining it ones, we make So for prepayment opportunity as to way penalty that's is prohibitive advantage taken we And think can. the saying, the a of too I probably long sense. have of the

Craig Kucera

And money sort sort going the fair $XXX shoot million just going that that you commentary you of to to see back acquisition Got pipeline to to the $XXX putting next do is what something that that's are your looking are and raised. guys on was Or of time it. year? over you your with where equity do to million it Is to of order say, on work? to

Jamie Farrar

it's where of in meaningfully Based We see beginning transactions. Yes. impact of November, on we timing don't anything are, QX.

closings of start on to with is deployment plan XXXX. XXXX advantage internal own back in the early taking our half full So

Craig Kucera

sort this as forward, I leverage of going is we target math of back envelope just in Is the leverage company general the acquisitions the think And gradually as how think leverage? it. capital. on that moving of sort on XX% far we forward about just a bringing as should about the new and around of on about guess, Got of sort sort leverage

Anthony Maretic

Craig. Hi

I have past. the term I about I think have about used right. low-XXs. the you in talked that are

acquisition are will XX% acquisition. size rates It the math a bit on it or NOI. so a of on of our we time we by are and the chunkiness capital. we getting And little sufficient little this I as depend between was are it penciling XX% can't So be cap it the own out, may determined perfectly. that kind bit ensuring

So low-XXs, the agree right use. certainly, I would that's number to

Craig Kucera

that Got think picked and got rents? you your at sounds I it. a was lease was XXXX. like this of And What commentary, there were where that mentioned in but kind it number up the

Jamie Farrar

full feet, XX,XXX floor. a it's So so

to that's mentioned half going that's Tony Now that that's there a quarter. about of in fourth the roll, tenant floor there is the

So taken space $X,XXX, rate the of rest the The that we floor. up starting we have on rental rate. backfilled that and was negotiated

Craig Kucera

Okay. being activity And Denver slow market I and double Are I that what the alluded quite a and to of down led now has better you a slow. think there you maybe been in little was you even a while Center that seeing start know sort submarket? to for that Tech little

Jamie Farrar

something Yes. we a lot, It was Craig. looked at

by think our it the buildings we really positions well. So having campus,

food large quality fitness, outdoor conference, amenities, integrated high So space.

look it building leasing last was a you major this of activity If the at that the who we little lot particular while, bought. was winning over

they space having move-in by they really out did it so that that basically fully built And and ready. was backfilled

team explore success, the building vacancy So that's onto going quality something moving that that that a over had them of we to bringing the are spec suites, into leasing property. as have, next we advancing some lot probably going year of same our

synergies that lot for But strengthened sure, lot. there's think of we there. so submarket a has And a

Craig Kucera

Thanks. Okay.

Jamie Farrar

Appreciate the questions.

Operator

Instructions]. [Operator

ahead. today Our JMP Please from of Mitch question will come go Securities. next Germain

Mitch Germain

$XXX talk less you grow a scale? further of you When there concerted effort about some X%. Seattle million, markets X%, in pipeline Portland possibly have a those where is guys. of Hi to Yes. deal

Jamie Farrar

well those the are make at of challenge we Absolutely. work. lower point a harder where It's a some is the math have markets just The buy percentage. are at you valuations to hitting and

look give smaller at us pipeline, significant and exposure. a our transactions, minimal are really couple would then don't scale you If that substantial portfolio have that to markets of of a some or it a in we exposure couple mixture is larger some that size

to way of the feeling a about. there markets growth particular think that are we those a hopefully really good us I for few in is So accelerate

Mitch Germain

any underwriting underwriting, your anything really pipeline kind And are talk then, Jamie, way point, or cycle for looking that account maybe you to about at on are the that of made later you it kind you when just shifts and you have in your is these assets? that real of market-by-market or that

Jamie Farrar

We shifts over say, would of I two, have or we as made a how assets. last far as underwrite the lot year

that So generally to growth we over there have goals, we not been, lot every been there are be And rents. It that's seeing we going pricing but are in accordingly of setbacks. be expecting that are going a to term long year. has

and pricing that for business we You underwriting doing. doesn't in going to plan. are sure long to of if comfortable if accordingly making we cycle, our our And some for make that so assets happen that still is time, want to are the sure we are but in pullback there we a are the later happens types it business hitting any be we market we we are in plan, are going rents exceed are

Mitch Germain

Is that about have your know by just to raise equity just talked for one you gets raise? full assuming back that it EV to and I turn? shaved I debt debt is kind envelope, guess, the the way Tony, was understand leverage. Last EBITDA post Is what a me. that think to post that it? to it about, Great. of about the of equity net

Anthony Maretic

a I think turn. full between half somewhere turn,

the of But we significantly. I before into terms kind deployment. kind the going it a guiding should to rates are in of that low-Xs of move depend those now even am cap what down on adjustment will of and acquisitions But the are. again, post So high-Xs. lot acquisitions initial

Mitch Germain

Thank Great. you.

Jamie Farrar

Thanks Mitch.

Operator

any this and Jaime Ladies I back to time, session. Farrar closing for remarks. At conference the will our would Mr. to turn gentlemen, conclude question-and-answer this over like

Jamie Farrar

you for joining bye. Good We look us next our updating further today. on forward Thanks call. to

Operator

now and today's you now disconnect conference concluded. The may has attending for We lines. thank presentation you your

City Office REIT (CIO) 1 Nov 192019 Q3 Earnings call transcript