CIO - Earnings call transcript Q4 2020

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Operator

Good morning, and welcome to the City Office REIT, Inc. Fourth Quarter 2020 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] As a reminder, this conference call is being recorded. now company's to and Chief is Tony to Corporate It the Maretic, Financial Instructions] my introduce pleasure you, Secretary. [Operator Officer, Treasurer you. Thank Mr. you begin. Maretic, may

Anthony Maretic

Good morning.

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

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

James Farrar

elements in and and on markets flow US. business XXXX, mix consistently Office, inception the plan. in the through lease desirable put One, Since recycling focus diversified thesis a leasing, strategic to the focused invest in five, today. City renovations. cash capital drive high-growth joining In for business to this Thanks on value Two, operate most tenants Three, conservatively industries. of core several our morning. submarkets. we've and strong to of value test. the growth protect shareholder Western Southern Good Four, and space creation of was

well-timed indicate Our renewal rent. endure exceptional a over is over and to year. completed million the collected a touch highlights the On related investment base results challenging niche one We NOI contractual I'd largest for note, core in square well company's In that with for few XXXX in XXXX, a suited executed We leasing a of amount program And did on prices. new and common initial our We bought $XXX succeed year back guidance, and growth. like pre-pandemic completed feet employed. leverage XX% environment. in of lower year to of of the our we any share our leasing, same-store positive $X.XX per our history. share and at exceeded of last, repurchase cash so the achieved of accretive stock FFO million

these broader a few attention in call Within that subsequent want and to. to quarter year-end transactions to the fourth results, I are there

in tenant option, rate September It's at property can a occupancy their cap Vista Tampa. option at the XX, We with both commencing lease, Paychex Paychex, a that portfolio. another during After renewed long-term point time an July space. and to next First, through any April we property both and of in than lease Financial renewal. tenant major basis. effectively Dallas. the higher XXX,XXX XXXX, represent approximately to of largest market these expanded in the quarter, year, foot our our property in willing square property XX,XXX expansion commencing a great with XX,XXX year-end, of to In exercise early renewal would granted square renewal lease X.X%. They the foot occupies which Lake with foot the the space extensions on also year. a connection signed price fourth the at XXXX sale of year-end, fourth renewal the about the of rate If be Ally we to X.X% the the worth signed were our at purchase two extended Ally X signed we quality, run these square case was narrative tenants, agreed-upon office Ally exercised noting office rate a an in counter commit locations. were cash lease to to secure transactions Carolyn In to largest current and XXXX. Ally prior XXX%

While generally grant largest operations tenants their renewals, there long-term mission-critical office their and to corporate continue view to our we instances is in will shorter we're term culture. which be finding that space

fourth property a way the Another the sell in raises last only Cherry to our a Creek and opportunistically the will leased time. the three attractive proceeds and capital property with building reduced on has either This the strong level relative generated note, million rate buyback. our as generated recycle to which we detail. space. positions XXXX, million state sales Earlier million of the Tony Cherry repositioned in from transaction us take that sell conditions Consistent was sale of deploying gain. into a Of lower was Cherry and into a to entering leverage stock implication campus. a to a market we representing in One X.X% cap to our particular of This to in highlight growth a cover to of a over from Colorado a long Creek over in to price, while properties It our will leverage our reduction ultimately property while gross sheet. Denver more a tenant lease tenant for FFO months, buyout low time quarter the the with we've to and a government contract at history operations. us campus with we paved occupy a $XXX also sale in XX. $XXX as buyer, XXXX, completing February XX capital messaging, balance strong $XX subsequently or past historical This the opportunities XXX% XXX% advantage core Creek negotiated preserving is improve our property guidance of completed this occupying from sale

our achieve with deployed be year, guidance in we share. shows leverage. the lower rate, is that $X.XX million However, provided run per expect once $XXX $X.XX acquisition capital, this guidance overall we we will time deploy to with it that expect to and This core line fully pre-pandemic we our FFO last of quarterly approximately

with investment sales a activity volume. The to current we is As fraction our capital. of the XXXX, look still intend forward cautious pre-pandemic into we be

We detail also leasing the recap, position to over earnings improve. and results. expect continue conditions to operations with levels higher market this see that a the transaction the in to across excited At with Tony we'll balance healthy are acquisitions. it share drive expand and time, to markets. a further We'll now already dynamic and for I'll we our on about activity that great to will conditions start will our evaluate continue and underwriting growth achieved in prioritize date sheet normalize can to quarters. utilization environment year. financial provide We're To office to opportunities improving in our the turn same expect to portfolio progress and a we to we coming start advantage our per provide conducive to shift XXXX, more coming as use in

Anthony Maretic

XXXX. Jamie. guidance our I'll address the for and quarter's results Thanks, fourth then provide

quarter. which $XX.X income $X.X Our these bulk the million, third fourth was the in contributed we was of than lower properties net quarter operating to of amounts. million Two our the $XX.X reported in the million

fourth income in at lower $XXX,XXX Cherry First, net Creek operating property was our quarter. the

we on ahead XXXX, the property the occupancy a end fee of was at space in until quarter beginning sale and that third our that our of property. call, a last when income XXX% of space in the third vacant the vacant termination quarter, loss of approximately a and terminated fourth We $XXX,XXX tenant at state Cherry the $XXX,XXX. further discussed of remained recorded we of quarter, that the Colorado As Creek the of at took

to down by property tenant caused $XXX,XXX foot XX,XXX the Second, the out quarter. a of income of at due square occupancy at in our move end drop was net scheduled third also a operating a circle point

fourth collections the reasons reported remain million or provision was Our strong, was also FFO than very NOI that $XX.X of the AR quarter. and same we in We not $X.X lower increase quarter lower. in did share, for per our which the third million core $X.XX

share in property. Our fourth quarter million XX our was Lake fourth to impact the or by quarter. AFFO commission This The on was share. AFFO largest $X.XX paid at year Vista $X.X per renewal $X.X $X.XX million lowered approximately a Ally leasing per the AFFO

we quarter XXXX. Considering growth last over quarter versus challenging fourth a higher positive NOI basis X.X% believe Denver signed fourth year, Our X.X% biggest the and a is on was same-store XXXX, to at the results. leases cash XXXX, property full the impressive in year environment this The the our in renewal an Tech are result. Mesa those particularly drivers Sorrento mark-to-market we and these

Our total million. $XXX was debt at December XX

Loan, total X.X Our Simultaneously quarter the of $XX restricted end, of this Midland our and of X.X Creek which an of fixed. to rate a Life times. weighted EBITDA we the earlier net debt At debt with bore was years cash Insurance X.XX%. maturity was our million average sale effectively debt, Cherry including XX% month, repaid interest had

release. have maturities provided our XXXX Our press Last, weighted now X.X%, average and guidance we property interest until debt full no year XXXX. rate is have in we

guidance activities. Our raising repurchase share reflect capital does not any or

sale and Cherry acquisition potential capital. for guidance of of Our the a Creek February the reflect redeployment range does in provides

$XXX that fourth XXXX, acquire through high and Specifically, of in the scenario XXXX. million quarter the midway properties not of assumes do the scenario acquisitions any we contemplates low closing

that we on between assumptions, of be core most quarter levels beginning share through estimating anticipate XXXX. FFO as our share will were benefit we per December FFO the anticipate with ending FFO estimate Cherry and rate, XX, Jamie of the quarter, mentioned. and FFO to that $X.XX the $XXX by has have As be core core we are share. Based guidance Creek in for for we million of of to sale leverage such, we is operating $X.XX If $X.XX full the indicative our to per lower lower scenario low fourth year reduced per XXXX. run leverage $X.XX we Creek XXXX. core corresponding full fourth the would between in our Cherry the of year approximately XXXX, sale acquisitions would the not $X.XX of the guidance the The by Due under deployed of of these

of be assumption activity to the year expect in new X% and cash side, X.X% between That back remains we On of half the leasing the operational muted the XXXX. through half in same-store that positive begins the growth up and NOI year. first pick to assumes

We of the have projected of end year. That half concludes occupancy to the forth the midpoint refer year. assumptions questions. We be the and considerations higher through reflects our our end range declines at This of the first at for activity year, open we prepared to modest in release. to by line will the up offset the the set earnings XX% Operator? and you our material remarks, by

Operator

Thank you.

the We D.A. begin will Davidson. from first be And Please question-and-answer session the ahead. Barry go [Operator with question Instructions] now Oxford will

Barry Oxford

that Great. XXXX. on may you in acquisitions Thanks, here guys. the Jamie, have

a us where far markets talk the your want you little marketplace most right what what also attractive a as deploy now far might capital? you're could give now? finding And then you as there seeing to in you're color about bit as right out maybe as If little

James Farrar

Thanks, Barry.

early. as bit a pipeline a as it's traditional number, So still quoting far

When and today, lot a seeing standpoint And have a is options, you And go their the looking space look so into the talking are unknown. space, sure usage buy, that potentially of when for we a at opportunities category which are they acquisition of means what their tenants right. us, falling is watching. of the them, lot may the aren't that at important insufficient to get making yet, visibility the what's we're of the really wrong, for opportunities. a we tenant, us of early from the could for it's utilizing right, and transactions bit termination the still value understanding utilization we And the happen we number get

need. understand we're that to quite in to have going going it's And think so we nicely year, that we still coming as visibility, as and do few that on like, valuations. what have fit can we far requirements better and come both And later back we down a the more opportunities to transaction so to work the people we

look really you is as particular, inquiries, which up when at as Texas, new so doing a leasing activity we all well. extremely our picking markets, is And sign. in and far again, Arizona, Florida, Phoenix great Arizona, think

would be top. those So the

Barry Oxford

question. you share In new about How a with that utilizing Perfect. if Perfect. have Jamie, thinking And you me that, conjunction wrong, last then, in buyback. guys, $XX I'm are relatively correct million you XXXX?

James Farrar

say, expect It's a We've it as it. float to Yes. prior mean, said of top is don't for we I'd Barry, liquidity calls, - significant as us. consistent, on put our We and there tool, in place. using I maintaining be we've mind

Barry Oxford

appreciate Okay. sense. of That right. makes lot it. a Thanks guys, All

James Farrar

Barry. Thanks,

Operator

the question comes ahead. from Janney. Stevenson Rob go with And Please next

Rob Stevenson

in the capital you anticipating morning, of XXXX are Good guys. starting What projects type on portfolio?

Anthony Maretic

is here, This Rob. Tony

investing number there's thing we we're spec the projects, terms previously In that capital a that launches, we're about talked in. suites one that to starting of of

Camelback possible the here. little repositioning. to as of expenditure go being well see as QX. We condition largest and as was for in and in in that side, activity, QX the best our the speak the That impact a to our bit XXXX spaces you'll start just Square expenditure want up. that that to Jamie basically QX, see on leasing is You'll ready of more of Outside we capital that, finalized as picks mentioned, have

costs see the of we into balance QX. And beginning don't nature some the really year. then anything roll have you'll that of So of significant for the

Rob Stevenson

Okay.

occupancy or is less more flat. So guidance

CapEx XXXX, was leasing I $XX.X they $X.X tenant if and another the add commissions the million, million. Tony, then improvements So about were up from and

the CapEx the commissions or for your little about be then there meaningfully should bit? tenant what assumptions given improvements a and So decreasing leasing And leasing XXXX?

Anthony Maretic

Yes.

very question. a that's good So

through remain half year As of Jamie first mentioned, half then to second pick to muted activity year. in the we are basically the of the expecting leasing up the and

know, those actual as precede and occupancy so income generated. you usually And the costs being

just and start timing to pick move-ins. the until up it occupancy the of expect to beginning due would the but move I may XXXX, So have you QX QX, not to

Rob Stevenson

given of falloff, that in - I because the in range? year, that you But XX more of it early improvements, commissions of Okay. a that, million roughly AFFO Is big the mean, call that's and those be to sort that a boost between lack $XX-ish to it, numbers, going leasing meaningful somewhere especially Are million XXXX. $XX tenant anticipating CapEx has so? activity, if was in

Anthony Maretic

the number your leasing a reality that to is it's very very mean, I Yes. sensitive good question. assumption. And is

than over happens numbers we of year. what which so significant, talking that XX push doesn't end the quite in point And lower that would there. over have numbers a and And the If there, if QX successful you're building one that. Sorrento about. we of this be the we good it on there's then very particular the we've range about particularly range the or leasable, to quite lease blocks that it happen will I out in it be we our have higher would are will XXXX, of concluding talked of past into is spread TI kind some Mesa, showed space

that's of also saying us? here. Could guess the big factors long answer where it is was than The yes. be in to number a I short answer yes. XXXX? So lower move for a that needle is there's way But could transactions The some it of

James Farrar

news. Which is good

Anthony Maretic

a is news. good Which

Rob Stevenson

that or in was was was said, quarter? was CapEx the commissions, that as the leasing you of half almost mean, million I But Okay. that Allied $X.X

Anthony Maretic

Yes.

So the right. - exactly

the has - The was leasing TI. that commission, amount just not QX So It been spent was the yet. correct. was the TI just

Rob Stevenson

Jamie, rough that plan guys then, there and what's portfolio? much And value sitting you how of undeveloped And Perfect. still Okay. the are land on?

James Farrar

Rob. valuable X-acre our the over acres, is development on is, is value Diego. There's Mesa in most Sorrento XX what XXX,XXX the feet. So we've parcel And never the San quoted potential that

directly So headquarters, real particular market. in there's is life on Qualcomm's site value in fire absolutely world from that that across science

unlock lot meaningful to have is over of And we're I we'll a forward, forward coming spend And answer value, so continuing think a quarters, but what our better a best how there. the of that look as is it's one that we asset number. path time on we

Rob Stevenson

Okay. Thanks, Appreciate it. guys.

James Farrar

Thanks, Rob.

Operator

FBR. Kucera And B. the question Riley Craig ahead. go comes Please next from with

Craig Kucera

wanted the were Cherry that particularly Creek pricing Hey. surrounding by Good I without disposition, decision acquisition timing. driven Midland an refinancing? morning, getting to or additional to you guys. loan Was up, teed about sell the the the were considerations there talk the

James Farrar

to be that I comfortable, do No, do and with be to loan had able nothing had sufficient but capital still we Midland extremely Craig. to the refinancing,

well, that's to - So quite really an the pricing. oldest property. we one leased monetize like is vintage it. was We and The it It we're institution XXs, XXX% terms had. aggressive our asset really was XXs we to an of really properties, government acquire asset it that in on opportunity that saw that's focused buyer an was a

Craig Kucera

housekeeping it. item, renewal Got rent And just begin cash Sorrento rents any free at a there? period Or is paying as there December? did in large the Mesa

James Farrar

Yes.

they - cash So rents they started the right, X. December you're paying started

Craig Kucera

just to assumptions. And Okay. me. one for want about your more I occupancy talk

have through move sort that half leasing - year, you remarks, any quarter the first Is as shift year. in you're seen clearly, And also leasing leasing far your strong conservative said muted of that as this - done. quarter the as as largest you prepared sort amount in just was was of assuming here the guidance? first well, real you you're your of being mentioning midway Your but Or this had fourth ever in that we demand? of

James Farrar

question, a Craig. it's Yes, good

are you up markets, lot others. than some our across look a So quicker if picking

going maybe starting that to put lot of tours far the is so COVID, looking. their say Life science a would requirements right tenants very with well. I aggressive get Phoenix strong and top And are as out more hold, on coming is into now as it as

So the some San a are other slower. Diego, little markets of

work And assumption to that's to so forecasted to going accelerate. a through start to to how that we really We the year. need really see return you're into going our think link to occupancy greater before try we

Craig Kucera

the I color. Thanks. Okay. appreciate

Operator

Carroll Capital And the Markets. RBC with ahead. next Michael question from is go Please

Michael Carroll

I little and I mentioned like that kind you, the asset, block. bacon property about sorry. ability Mesa and prospects or about Yes, to But Tony that? of thanks. it maybe bit I the of a Jamie, discussions Jamie, the wanted a was what's to the talk lease mean know on Sorrento leasing

James Farrar

we didn't finish line. year. in a our was good early to signed tour tenant negotiations. the That mentioned before the That that, get on complete and hot. it prospect call lease We've had really chose red continues to the irrespective of across lease, activity. So last not one acquired we be buyer But

we have we'll judging XXXX. if when that submarket, think the assumptions, user to for think is about And right that lot coming in, to. feet. we it's In just the finding building particular don't the XX,XXX I have a don't get want We it you in break not don't prospects from there's income us, look really up it we and in of we vacancy under leased. have, own by square our

So in based our year mind, it's seeing. flow, mean of for rates of million I that's that a XXXX we're a event, on but the that's $X.X us. material north cash

Michael Carroll

commence how could today, will you signed, provided? rents this the how is until free end commence? let's lease year? of rent the I will rent signed not And that say, it - be once long if much would is the how And there quickly take I mean cash build-out guess, and

James Farrar

been going the the in quarter would talking have fourth 'XX. of quarter, cash it third Using of rent, believe, to the one that we example the I were paying into

terms, year build-out It range. the turn probably about the on the to lease. extent the that it's was going kind signing really but is it in and of of So a from depend

Michael Carroll

of a bit about have And progress Research you have about expirations? those you think your rolling at large And upcoming X% Okay. talk are then the that of And Florida a going? think lease still leases 'XX. what's can Park, little tenant specifically, How lease? I the discussions I still you in

Anthony Maretic

Yes. can that. Mike, it's speak here. to I Tony

feet. right, that just total, So about Page therefore, on XX the signed total I XX, the actually there's if within which and absolutely lease, over that we you X%, is will leases, that say, the XX,XXX reduces look you're square XXX,XXX at after feet. by Carolyn square stats year-end, largest

I The that's that, two can XX,XXX above we're as exactly on the feeling And the is Florida you They floor confident there it GSA best one we're have building. guess square So it little characterize on feet. What late Park. to way They lease But have a the phrase the maybe way that's only XX, full XX,XXX renewal one discussions. really Research said, I that after are and very floors square is, of a on is the other is, those feet, less floor. best a that long-term mentioned. stage we're constructive second to - having confidence ongoing. one conversations but I say

Michael Carroll

ago? mean, I see let's post-COVID types you're you of little in Okay. looking guess, I stabilized you guess, comfortable about XX at of to part about going these deploying of bit what to acquisitions the to environment? earlier Great. can you know versus, there you talked do you're say, And months type the then, capital? have more deals activity? a And I for? start guess, some get talk Jamie, the is it different call. view be the looking type investment how I to do I are

James Farrar

kind transaction market of just overall the stat XXXX, activity. quote was to on XX%. by down So an office over

see you if not part. and most nobody rates. the of leases come those September we the to So have a to ones there getting dissimilar is what's tenants, that of what very are very number risk, say low happened kind the lowest for i.e., since are, the valuations for pre-COVID, there's pre-pandemic, is The you've buildings, done do great started And challenge are back. cap I'd is, late transactions long-term

likelihood And Again, component valuation very get through, what a we or important every us. for that's metrics is right. of staying us factor big that walk to so underwrite space tenant for that's the And leaving. understand and we a we and try

think sense that. we're by valuation I - And can of somewhat what that great tenants we're seeing, a seeing though, that not utilization be so you're of just what deals. getting today are coming That's seeing, solved back. their And can solve

think properties have in of at forward, rolling teed that when getting an that I you number there's interest look we are a up.

be like Absolutely. tenants And great than to tenants, to what committed comfortable We'd faster want said? have that we great And long so timing are our assets. very we could those term. be

more And we can year would I the remains further. life sector the where there that's so a up think that and the to we as We more and we've looking unlocked get portfolio. on on, that value add portfolio going we're that comfortable. rolls need to how the we're that to monetizing, in past, love that comments actively build think science also saying It's a space. and When I made Once consider true. we at that we've

reassess And that next and so what we I think advance year, need over can there decision. then to the we hopefully, we'll,

Michael Carroll

you. Thank Great. Okay.

Operator

ahead. will be go [Operator question Instructions] James. with Bill next from Crow The Raymond Please

Bill Crow

questions. morning, Good number be make that you Two the or one, on guys. you equity? finance that acquisition, acquisition would rate, the quarter. in that if assuming Number XX% What fourth XX% stabilized run

Anthony Maretic

Bill. morning, Good

capital just leverage… So your use essence, to to markets - tap use we, is, acquisition as that finance in question if opposed the a

Bill Crow

Yes. Yes.

where Just you structure to from are not capital today? your change

Anthony Maretic

Yes.

on price the funds saying you're what you're essence, in raising that change that number, obviously mean, depend I $XX mean, what have would that too. million equity is would of at. I So

an last a than equity different we've But successfully more where the at drop we it traded over more half we by ago. would raise rate. than little year a answer it the been if trading where a that roughly, so attractive $X.XX can And would number probably year that be

Bill Crow

done the this bit a lower. bringing down. assume level that it Is just to fair? you I go leverage in job keep - not want little a I if you've Yes. good range,

Anthony Maretic

Yes.

we've, to time. term, represent XX would I in we be absolutely, is long last essence, our it's million raises equity versus very still over were reduction down from a $XXX the $XXX XXX% stated size. the million short number that over XX $XXX term, prepared the to and where if remarks, in walk do still leverage us would in sales, he for debt, ago, is so our through deployed from only this In we've Jamie's goal we've think significant million and and to months date, were even months, Over it we given indicated which proceeds our leverage - Bill, in

is want while, to the is probably what things So or yes, likely. way, answer not to, relatively we we along are that's the long-term, get where keeping most

Bill Crow

Yes.

you Okay, contemplate on wouldn't fair. feet? interesting for what up The parcel created value exciting doing sheet earlier really sounds opportunity. you and XXX,XXX and balance square But land a like ground discussed development, you

James Farrar

at right options now, looking You're all Bill.

is ways We we We options. a significant there's it recognize potentials, haven't do excluded size land. lot of and anything. that's there development, to a that, where sell the There JV is

Bill Crow

be would What per do the cost foot? think you

James Farrar

whether out science. expansion. It's XXX higher potential Depending build maybe or that, depending on than X, science life life it's a on office the

Bill Crow

Life of be science north X,XXX. could

Okay. Appreciate guys. it. Thank you,

James Farrar

Bill. Thanks,

Operator

back no I Farrar additional gentlemen, questions, will and call there as call. to the conclude over are Ladies to the Mr. turn

James Farrar

missed of to for reach out Good-bye. your free any us I today. we've to If directly want feel please at questions, joining to time. thank everybody any

Operator

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

may You now disconnect.

City Office REIT (CIO) 25 Feb 212020 Q4 Earnings call transcript