CIO - Earnings call transcript Q4 2019

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Operator

Good morning and welcome to the City Office REIT, Inc. Fourth Quarter 2019 Earnings 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] As a reminder, this conference call is being recorded. Instructions] [Operator

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

Anthony Maretic

Good morning.

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

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

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

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

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

over I to will the now turn call Jamie.

Jamie Farrar

like NOI, We Office to initial cash net our the start year. City was top Good the morning. XXXX for ourselves growth. for I'd our the the and relative reviewing REIT. of beginning property to tremendous end same-store expectations off guidance for XXXX results, by NOI at we set exceeded a acquisitions of year

and our growth in portfolio strong conditions as same-store Seattle added footprint new and markets. was Denver. initiatives, our step-ups and Portland by rents in driven on XXXX The our grew NOI executing strategic X.X% contractual we in across market cash both so, doing leasing In a

return market capitalization XX% shareholders and capital in-place these IPO. of execution We achieved year. XXXX the average the by equity efficiently the and of goals, X.X%. total raising continuing while This common target for our common occupancy over of XX.X% FFO returns double-digit a course accomplished in strong core by since growing midpoint total improved also of the the our We annual resulted in our trend

several flow, to NAV on growth improving property acquisitions level portfolio. focus quality Our main further targeting high continues themes, build be driving cash and to our

in study Our Tech in themes. case that is acquired Denver buildings, property of the recently XXXX. other adjacent good of two acquired Tech Denver a XXXX is we comprised one that these and of September we

XXXX its the in price be largest creating significantly that leasing a would opportunity. building first a at the reflecting acquired tenant reducing We square footage, major

center, We substantial renovation conference completed fitness a a vacant a lobby. have space upgraded improved creating and since facilities, modernized

XXXX, the a we These translated efforts motion with courtyard shared the into leasing acquired mutual landscape and results. building set a In two to have and into in second late combine to plans sister access campus, complimentary amenities. solid

to We XX.X% end In XXXX of the new took feet. feet XX,XXX totaling buildings Denver XXX,XXX buildups to Tech two of have of these after completion occupy occurred XX%. but XXXX, in their targeted square occupancy Tech previously combined At leases occupancy Denver This previously disclosed occupied were end. tenants vacancy. January, late current the the with square two year increased just the of

to of quarter the XXXX. feet moves January end. credit leasing third executed tenant We take more year square XX,XXX space, with Even bringing occupancy overall during XX.X% when also after new the XX-year in impactful of new a is occurred the in the to that tenant lease

AFFO. with The quarters, XX lease be second will year first lowering costs incurred associated this the and during temporarily

a result term the is is long and However, stabilized we that have long term. for now asset well this a great positioned

quarter. the renewal properties. and completed these several and activities, portfolio to create at We successful look similarly XXX,XXX leases other to square feet new addition of across we leasing during In renovation our outcomes

major have process Center and Mesa, City, Mission our Camelback Pima recently Square Sorrento completed renovations at or We in properties.

much higher market sciences value growth in Of leasing has note, levels. of opportunities priorities San a in market potential vacancies XXXX, driving opportunities at is management's our of very Executing life Diego highest existing and one both which cash to on strong flow significant these the potential driver be to Mesa property for and Sorrento our rents is major in creation. by the marking

Turning key priority. to another

rates in right This challenging cap we the months. harder to of properties in although of availability securing the characteristics interest having valuations. valuations we're Low our find we with compression Our and and debt has have witnessed acquisition made both the reasonable and like markets. pipeline has the resulted rates recent remains to more at across capital robust, higher equity transactions work

The effects by generate pursuing are still cap the lower offset partially on are costs of lower equity. invested borrowing the rates we acquisitions our and returns healthy

We're million details it. of our transactions $X.XX deploy of future update of a that that we capital. in quarter, on first We working the between million the third quarter. that core are continue would deploy end on to acquisitions a XXXX XXX the which projecting we and strong on our this and we're fully by over $XXX Tony, If calls actively we pipeline timing with XXXX to in timing, quarter targeting deployed. expect fourth expectations we'll $X.XX will of the we're be guidance midpoint have we're with FFO as successful provide

own in great in increased X.X of bought the acquisition have well-located to led for continued portfolio. the conditions properties cities is worth in environment that due noting growth. envious is It to flow cash We're having of billion more the of increase situated that are an challenging also competition, position these while value our

with it we next over few we generated In Though Denver. specific the completed our accretively harvest successfully Tower the quarter last Property also we're while of the produced five sales. $XX We've more to better the redeploy other our gains to smallest of initiatives, gain, the successful and opportunities was of focusing asset in properties prior our Separately $X.X aggregate years, combined leasing our remain a can themselves. a present portfolio. executing of these of asset five we If core fourth IRR years, an in key in opportunities sale number think at portfolio, open the XX% million where may we Logan in of sale million value proceeds. XXXX the

grow the the actions leading optimistic to at investors value are of the In about improve are asset conclusion, the we enhance We performance net taking as as and we term. company property should drive balance our steps by cash for long level company's XXXX, corporate targeted underpinned for the the prospects our believe well cities. to continued the over flow, sheet

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

Anthony Maretic

our third decrease operating income was million. quarter. attributable the quarter. basis fourth This GAAP small a On in amount $XX.X to Jamie. reported in a The of $X.X represents in the quarter to net the was relative the the million Thanks, sale decrease Tower primarily Logan

$X.XX from Overall, from common of from as expense FFO share, well third $XX.X our than we million rates loan million benefited higher quarter, $X.X fourth was in as or we proceeds our offerings. core which completed we from repayment the stock balance third per with lower full reported as quarter line the that the interest the of Interest was of credit in our modifications lower quarter. the

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

XXXX QX our XX affected costs Tech to City the renewal tenant related incurred of years. after tenants commissions significant where and we tenant Denver fourth year quarter. Our foot occupancy in additional who largest AFFO of square at end to that the property The quarter improvements was Mission for which Jamie leasing by mentioned the took from and extended XX,XXX a an during

We capital will in also quarter, the XXX the City leasing any relative quarter. Center to Due expenditures portfolio of significant the to Mesa, some related impacted Office impact Mission us had that our AFFO numbers from move in at one size around some continue our quarter-to-quarter. and of and Sorrento products to

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

this a growth. on leasing spreads to with and leasing by our market X.X% spreads to reformatting information, store is our enhanced disclosure proving cash leasing basis details NOI existing quarter driver on a leases the rolling for same have We providing of additional the up be activity quarter, of

for Our fourth versus increased San and mark-to-market quarter of Portland best quarter store rent calendar Diego grew primarily cash step-up performing fourth year, XXXX the XXXX. our in rents. X.X% driven in those same burn-off free full with last each same double the the It Orlando, store in fourth growth, was as which to year. X.X% NOI markets, combination compared quarter, by and where cash also occupancy gains markets by or digit NOI

onto Moving sheet. our balance

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

Our to net reported ration ratio enterprise debt as XX.X%. value was

In swap off September loan. the at LIBOR, the year of of the swap year so day million into five term LIBOR priced a is borrowing we fixes entered loan arrangement. X.XX% component term term The of a $XX five XXXX, rate for XX the

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

press full quarter had in was X.X fixed year release. of At maturity provided years. end and Last, have our average guidance debt weighted a of our XXX% effectively we XXXX

a provides results. for not in assumptions Our which considerations any our range forth impact set refer will raise earnings and and acquisitions to release. assumptions We guidance include you materially the material does capital our

projecting full of December increase $X.XX we impact XX FFO deployed, a the QX are acquisitions $X.XX Once the are Based $X.XX on the core we cents between a to per of through assumptions, these $X.XX end per FFO ending core fully the FFO effect. XXXX. year, quarterly full year share of share. a beginning and take run we the in Core future are as for estimating should rate

fourth assume projections occur quarter. the in will this Our

on our compared leverage projects and incorporates any leverage to as levels XXXX AFFO to This an FFO core XXX% coverage in transactions will fully leasing significant XXXX. prior our dividend second expectations, one offerings on close basis the be on of to in reduction deployed common quarter. our capital depending in a stock Based average overall half

We cash growth high recent with planned of dynamic increases leverage. coverage are flow, targeted lower the numerous interim in the and acquisitions comfortable nature given our this

cash to X%. and NOI same side, we growth operational store be the X% between expect On

We expect will we the as the year same expect middle fourth NOI combination be a periods. some post of growth of to vacates rent first quarters, store and but and have part the free we strong in flat, cash known

bring downsizing of end May occupancy most down Office desired a tenant XXXX Center temporarily are to Dallas. expansion in at XX,XXX space. at space. XXXX, prepare a we in significant we the the are two and At relocating as the accommodate The tenant This and larger foot Phoenix expansion XXX will square

At return and XX,XXX United QX giving is Healthcare in year end, and XXX occupancy Center, March. cash to Office levels. we will downsizing By back square flow expect feet

trends and XX% We occupancy current expect a a overall range. portfolio at healthy continued to end, midpoint the we occupancy of over positive year XX% at the range of have and increase implying guidance provided

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

Operator

[Operator Instructions] of from will Carroll Capital question Michael come first RBC The Markets.

Unidentified Analyst

on Mike. Yeah. for Thanks. This is Jason

like kind those of to guys touch success you of looks you now? it up I large of other was on Square fill and Camelback wondering, have at space of available Just vacant and some leasing wondering right able blocks the were if what FRP. the space assets you could

Jamie Farrar

Sure.

we're question. Camelback about the Thanks is Square So where to launch for our one it's repositioning. Jamie.

have had major were really some previously, So than were but some to we We there. expect higher where we the we that impact get move-outs did move-ins.

We're about Post fabulous. it. renovation excited look plans

the for that hot have year. to And of that's we given is to the expect by asset. think little how it really transformational going We the done be pocket end

the In to when major of year. the kind you of the about our to on overall XX.X at of Tech by the terms across the kind talked company, we of end blocks bring property call that we're at where of look vacancy, ones going Denver one

can but year, discussions probably to tenants take with think will in we additional are get be higher. That early that We some even one we next some space.

it's in Sorrento science that to one the full with a Diego Mesa vacant waiting building, lease and properties San can We're life In very when XX,XXX be we impactful that's submarket. space, tenant probably square hot there up. we for have our right going portfolio, great feet. one the That's

Tony the of mentioned have same opportunity this XXX renovating, with bit big space in UnitedHealthcare that do mark-to-market well Pima we We're some significant do floor as later at this have from little year Center, that well as year. space Those a there. are that we some We have portfolio. getting later a work doing in as ones. back

Unidentified Analyst

I Financial Kaplan. expirations two a secondly, guys with you Ally And larger think year up coming have about great. in Okay, and

if with on wondering insight are you any expectations give Just those? what guys to could your

Jamie Farrar

Sure.

rolls well at in have XXX,XXX that. in a we early the Ally potentially full And Ally accommodate expansion discussions So, potentially they're exploring are feet in renewal, Financial options as adding a end building about XXXX, to to looked the for of need our market. we've They some onto their building. space.

So we'll on we that of second think visibility better the the property have year. in half

is XXX,XXX December sub-tenant five XX,XXX done that's already for Kaplan there years. feet ’XX. XX a push and feet of that renewal rolls We've in with a over

But to looking potential space. this that point. XX% with a year at of basically sublease don't Kaplan, care taken it renewal and block for building So of three at last we've with looking the we of existing back or that either tenant get discussions market we're quarters and

So little a bit early. it's

Unidentified Analyst

you. Thank it. Got

Jamie Farrar

You’re welcome.

Operator

question next Janney. with The from Rob Stevenson comes

Rob Stevenson

morning, the know, to moves in do leasing are terms of Good of commissions you're some those around guys. TI cetera? tenant that some you comments expecting these leasing in what given sort in the you et Tony, of in of going XXXX, CapEx spend

Anthony Maretic

Rob. morning, Good Yeah.

know, impact movement tenant spoke particularly half Jamie first the the Denver of year these Tech. and the we leases expecting the you So are about at from

we expect end the three range year would be deal Difficulty] the of so that the first of of quarters that part And near the with on to I tenants. the be [Technical as these is the first move-out end the expected higher for going of higher

by would part us that back effectively of range way will the will which first of core this of that to some normalize of coverage. So impacted the move-out, top on be year but put $X.XX Difficulty] [Technical FFO $X.XX dividend

Rob Stevenson

Okay.

the though? is the So quarter Delta second $X.XX in

Anthony Maretic

will second be the it third between quarter. the and expecting I'm it – in spread

impacted. So both be quarters will

Rob Stevenson

you you mean, what's guidance you this at seems about Is there think the was XXX contract LOI then said point? that that a what anything working or to know, specific Can I And talk that's you're acquisition of - very XXX Okay. on? like amount. XXX like this? under I there

Anthony Maretic

of more At top XX a you sense, million, $XXX that. so is pipeline, portfolio. this just but the Rob the level a It's around deals over is than about million. give high point for multi-building Wide substantial pipelines largest smallest to variety XXX. The

range. So pretty wide

level to want know, get leverage. that on really our based We've we targeted exactly overall you on where to

a be little could could a on cap contract. little not rates So do depending lower have higher, anything our be where are. Today we under

Rob Stevenson

of markets? the Okay. you're looking terms any And at, in stuff new

Anthony Maretic

the Yeah, new time we've markets. proactive few really spending been in a months over last six

in one we we've bit lot. So time cities. talked past. time of a of fair in spent the about lot a lot a is spent which of is the our Nashville a fundamentals existing We've Salt we Lake, that lately, the pipeline in of like

Rob Stevenson

Okay. guys. Thanks, it. Appreciate

Anthony Maretic

Thanks, Rob.

Operator

Davidson. The question Barry be Oxford next D.A. of will from

Barry Oxford

about your acquisitions is know, that guess rates, remain given slightly, is I stuff, where going your year spread capital you're were nudging when down of Great. the cost you and and your talking to Thanks, to acquisitions? same these XXXX guys. going XX the or come doing has guys cap in you on When the

Jamie Farrar

kind So I'll one Tony really good start lifeco of getting at been in, or minus debt, where quotes it's that plus Basically jump if quality on you XXX. so. Barry, we've about for look can and treasuries

little We range. the debt for course modeling that year, you the that's a probably on know, around of So the but today are under that certainly side. three

that's down, we The before. where were cap rates are lower substantially than coming

to, quality really with newer assets these vintage, at assets. as been you And so tenancy, night rock of well funds, deploy know, sleep we high we've cognizant one doing really of solid trying find the is things

the we're X that so cap on as will in when long take X a borrowing, the years still very cost the well And nudge range. seeing XX, of you down bit. But cash returns to over cash percent rate time, plus little periods plus XX of

and targeting still we're today. what So very healthy, basically that's

Barry Oxford

capital in be talk not if then may of do guidance capital And XXXX. no but or want you pipeline your think that you you XXX you having you can acquisitions great. Do when given guys guys do, here not without midpoint Okay, guidance, about that your issuing? in to issuing

Anthony Maretic

Tony Barry. Hey, here. Its

couple of there. a points So

raised of the we the and know, quarter third $XXX between equity beginning the around right the You of million quarter. fourth end of

midpoint, XXX XXX So taking XX% effectively million that equity. leverage represents the of range that on and midpoint that a

existing is with first the is question the to it answer So our do and we yes. your answer can capacity, yes,

In we there's just that later know increases program can to the the could ATM terms it so further possibility. us makes so activity if in give sense our think And XXXX? and do so. refresh do shortly, and intend needs of do we a pipeline flexibility, future do I we here SX to to you you know, activity

there sure isn't intention For this that's the further and draw we execute on to but plan. capacity now capital case, to the any have term short any

Barry Oxford

for Great. guys. the Thanks color,

Anthony Maretic

Thank you.

Jamie Farrar

Barry. Thanks,

Operator

from The Craig Riley Sarah [Operator will Instructions] question come of B. next FBR.

Craig Sarah

want I morning, your Good Hey. just guys. commentary circle acquisitions. on back to to

nothing weighted it? probably Just we fair to and think the bulk under you're the more contract, that that first of see quarter, assume to it's how likely here nothing to about will really or should is quarter, third in given activity close going

Jamie Farrar

closings. I QX that's don't having we think Craig. fair anticipate any

fully and we QX and is QX think I deployed. own our planning where expect to be

So fully starting deployed. QX

our transactions, When number whatnot. you stage, again, there's and as that look are underwriting later the a at far as

think to So it's pinpoint target. that's us exact we really today but dates, for reasonable hard a

Craig Sarah

Is points of appreciate over on with move-outs think closed leasing couple here Or I commenced half you anticipate quarters. front that how weighted to about think But about paying rent hadn't handicap half? that? basis tenants beginning large the towards do And the be or it. color you that Can the of going when you Got next XXXX XXXX? you those throughout XXX yet. back I

Anthony Maretic

QX some the end in that are So really QX talked rent ties that ones free cash rent and hit Jamie that into strong, the because described we periods. we some back, back known we'll be will some leases and call, new XXXX the of signed, periods on results, QX guidance the for flat instance their the of so where larger tenants gave about and are free therefore QX rents but being the some in store of same and we of there being

Craig Sarah

Okay. on commentary of capital at that? know of initial be sort today, I rates return you're X, we cap maybe Got time cost on should And mentioned X% you even should it. a and be think over a initially, I kind we at in down were you're long high lower rate X% think about or a but But how an buying looking of your the cash-on-cash given that here X adjusting that looking basis looking what going to cap than would at I think to XXXX? we a low to frame.

Anthony Maretic

costs typically we of it you as be many, the Yeah. to you'll expect our if in little within It the you is could own you reasonable many where the average X we're In lower that X to lower on range a years. be. drag that But be Sure, it, well buying cash. lower planning can a it cash at back properties no you acquisitions own have were so weighted probably bulk lease year our for bring sub term, Craig, look XX, if absolutely planning. on and level XX borrowing have get

Craig Sarah

Okay. for One me. more

September, your year? wasn't of more to there? know sort closed the reconciliation that the a Just fourth reimbursements can we your color kind quarter-to-quarter quarter. NOI color I sequentially EBITDA what page declined there in tenant of looking there any you and quarter us little build Would bit quite the at XXXX accretion fact earlier folks some third Is give Or from you in there? expected.

Anthony Maretic

Sure.

signed, but acquired had tenant to terms tenant and to purchase one there yet. Tech And in Denver the situation sale lease taken was we we the that we a not occupancy. until it the – - XXXX occupancy the seller agreement where was of signed obligated bridge unique year under who the income an So a had the us had when took

That took in QX. didn't in occupancy They actually actually occupancy QX. take tenant

a accounting economically, instead that it further recorded purchase so reduction price. could weren't And the where book while cash in and off, we any stream not it rules revenue as for is as

of is that of reconciliation. we why end And so the in we ended part that reason EBITDA seeing of the the range on probably and lower quarter had you're the four why difference

Craig Sarah

guys. Thanks, Okay.

Jamie Farrar

Thanks, great. That's, Craig.

Operator

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

Jamie Farrar

We on further joining thank I forward to next today. want look updating our to for call. everyone Goodbye. you

Operator

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

day. You may Have lines. great your a now disconnect

City Office REIT (CIO) 26 Feb 202019 Q4 Earnings call transcript