CIO - Earnings call transcript Q4 2021

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Operator

00:06 Good morning, and welcome to the City Office REIT Incorporated Fourth Quarter 2021 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 Instruction] As a reminder, this conference is being recorded. [Operator Instructions] 00:40 It is now my pleasure to introduce you to Tony Maretic, the company's Chief Financial Officer, Treasurer, and Corporate Secretary. Mr. you, Thank Maretic.

begin. You may

Anthony Maretic

morning. Good XX:XX

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

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

James Farrar

Thanks joining today. morning. Good for XX:XX

experienced. fourth during sale, in the Cherry our to execution for results. create XXXX, ways has We and the XX:XX December generated quarter. incredible of recognize $X.X to sale, million. outstanding want our portfolio on of dispositions. San enhance with our build moment we’ve a property team. dispositions billion and fully a the share. COVID, recap, best results, work, started for equating life portfolio. and market value sold two Their our top-performing and challenges common return $XXX our and ranked well the persistence REIT and performing the The to more thank science a the Diego per return Office This the I $XXX our life REIT that the fourth associated San as I completed XXXX. Combined, then on shareholders. From the equity company the to approximately science the thoughtful touch in total than hard want Despite we XX:XX X our anticipation closing of shareholders $XX.XX to with has Creek end, our first to a quarter's in that we for Before transformational company and year these Denver value To back Diego during quarter. the reflect on found the and diluted gain our million quarter We generated As step In of perspective, the for companies to a month our achieved us rewarded. properties one use our we of were City up the of XXX% entire Moving results doubled leading a during sale office public pipeline in of year. acquisitions months to universe portfolio

quality that and construction, new these of features best-in-class and spaces. properties employees of type these Phoenix, $XXX of of Dallas these There These an today. and is location, Following the million. a exactly asset website efficiently that the conveys has appeal Raleigh. on to X superb Each purchases amenities is tenant XX:XX each located acquisitions properties. Each the acquisition we are totaling tenants sale, presentation modern property sequential the for our highest completed in

a signed walkability is million. XX XX deck and wealthiest in square in Block the million. rooftop The a and the ranking growth It as that life in XX% a metro term to $XXX Block add first between XXXX building its provides to incredible Raleigh characteristics many in great these features restaurants, commenced increases, increase with close, scale Dallas Center an by leased population to an in We of US. and a XX:XX a will and lease XX surrounding variety very Raleigh have entire to make possesses bars the in talent STEM the that experienced homes is property including transaction enter in of the the Triangle science delivered signed a a submarket He XXX,XXX continue XX% was and approximately area submarket nearby best centers years. Raleigh including population lease commenced Texas. The is not a of we vibrant The package. that foot for Next, a of all in on-site purchasing amenities. weighted the XX:XX options. fastest-growing finished and portfolio. office close similar XX% advantage of the in Raleigh average universities the leases in some of provided and remaining entry Raleigh with The has Proximity unmatched GDP our Phoenix multiple and $XXX The has entertainment it property location. great to XX-year barrier is city The weighted amenity The XXX,XXX yet Preston experienced it a with yet believe to the competitive at special of we the Block world-class leases was by South Last, The wide innovation. very have corporate also strong is industries. cities source average Terraces future submarket acquisition a foot XXXX, surrounded term X million. tremendous of to one in one premier with our leasing. year close, in high-growth residential other attributes expansion. $XXX for downtown these deep XXXX, at to neighborhoods Preston The newest West. square market. XX:XX high for and building by assets for decisionmakers' to not opportunity Terraces Center remaining. Research closed is of immediate has leased market propelled was

to South spectacular preeminent Our and the comprised of property acquisition is coffee is up of district build of have top construction of Block Raleigh. to in rapid Block retail. XX and location The located of with approximately new X-building downtown office shops options. the walkability a XX:XX lease and a XX. a The nearby square and on-site restaurants, It's unique amenities led complex XXX,XXX housing bars quality ample in feet live-work-play line Glenwood street-level

in is XXXX now The the XX% of was X leased. first delivered and buildings

XXXX. The feet additional is tracking during delivered of XXXX leasing stabilization. XXX,XXX building and in well The achieved for an XX% square second building and was has pre-leased

be priority We at of expect these to section overview significant December lower take will the the XX,XXX I the accelerate capital by transactions that XX:XX land, percentage the quarter. earnings was of these Note, roughly leased, extremely to discussing to and XX.X% that which higher were square of future time. are provides remaining with allowed described occupancy our leverage the the this dividend growth that, San until these disposition, core main The than activities. as X% In continue positioned property share across same The is also for to our including we XX% in purchase and at Because trailing recycling lease fourth commence. a shift that these to proceeds core as With worth equated XXXX and I'll the generating and for increases signed improve XXXX. FFO the Diego lower scale with to the increase XXXX growth quarter fourth rate, dividend leases is our us higher cap XX:XX best-in-class busy this we the per from our which supports XX:XX properties the we FFO summary, leases net financial midpoint make we for will signed vacancy of share remaining is It flow outlook portfolio. guidance XXst, beyond. we leases the levels. leasing our in evaluate each time, Notably, commence. achieved includes portfolio able progress further future. to feet signed occupied of Over and the of our XX:XX our acquisitions, vacancies which we're new percent our supplement per The cash focus on that noting year. in increase will

the and available our we've invest our past, have we properties in to continue in discussed will and inventory. As

our This markets, our to focus terms over portfolio. intent Omicron Omicron addition, on cases few activity office many we've over now the the In caused appears we arise, new years months. be XX:XX quality and elevate velocity capital as to opportunities take leasing in and of been the markets. In of prospects to recycling pleased leasing passed to further usage the a by generally, in step new next we've tour back last changing in of the improvement few peak that

seeing we However, needs. at overall are some tenants the same their space time rethink

in the to this results throughout we Maretic into long-term to For which our guidance. shareholders. the and Further, enhance speed of discuss look sourcing elevated potential with be these materials the construction results We XX:XX accelerate and investments for want desire from to continue new thesis XX:XX office. Responding spaces high-quality we I'll that on outlook returning our believe believe XXXX cities XX:XX over portfolio in leasing. with to our to anticipate investment ahead, cash be will the in investing to in South team the attractive updating to you our We this They or and As in the for further great opportunity near vacates, believe our factored continues of tenants now we in and fourth properties year anticipate of to appeal quarter year. flow spaces our term, will occupied West and call the detail. we we marketplace our modern labor. that focus forward a our growth speed the can today's downsizing turn minimal to and look progress. continue delays yield Tony we risk

Anthony Maretic

XX:XX Thanks, Jamie.

$X in quarter higher the This quarter income of which We in in quarter general was than was science In we termination we of $XX.X employee million for $X.X third in BB&T at was X special the the instead portfolio and the units that quarter, which reversed was over this expenses. reported lower $X.X million in the FFO reallocation operating of primarily amount Core XX:XX from million the quarter. higher accrued. that a XXXX lower a third due $X.XX reallocated was of cash amount fees reported life lower incentive that recorded operating net to due fourth for per administrative or net to a the a grant Tower During years the $XX.X share, to fourth amortize sale. restricted G&A FFO decreased prior income accrued the million next will and quarter. that core was payment in G&A impacts million, they Tampa. than $X.X as result Park the third vest. is Our million stock despite of the

tenant implement by a from with quarter per of periods mentioned. as increase accommodate AFFO during quarter be compared same-store fourth foot ready was that cash XXXX, the XXXX the Tower as well of lower $X.X Point to XX,XXX was tenant quarter-to-quarter build fourth Jamie announced our believe X, XX:XX to impacted the business X contributor significant AFFO a continue a to results and eight-year This Carillon same-store XXXX AFFO guidance. expansion of to square The large Tampa. begin for in XXXX or in at We an was to XXXX. but investments our That decrease per dividend which XX:XX foot $X.XX improvement whose from our in ended XX,XXX XX:XX the conditioning, cash lease Fourth at until XXXX, We BB&T X.X%. our our move $XXX,XXX quarter same-store numbers January an third million downtime Park spec XXXX. extension February is December share. Our vacancy tenant QX capital NOI incurred new positive suites was was May total long-term a amount and of period share. key lease per million. incurred costs our the was also cash vacated quarter our or $X.XX XXst property to million largest of to year around property, to in share part rent signed expenditures. plan covered, as $X.XX free On Our but leasing paying approximately negative at basis, $X.X will quarterly their is dividend full at we some negative X.X% but will impact well December lease square Contributing commences $XXX that Our same-store and as year-over-year. rent occupancy, year increased new space to during on occupancy the NOI cash quarter the the fourth not lease value tenant's change but will quarter NOI debt in

a including restricted healthy debt net was X.X Our times. to cash EBITDA

we expanded facility. our the and During renewed credit quarter, unsecured

million million XXXX credit from end and increased revolving facility with one-year maturity option. Our of to a $XXX extension $XXX the the availability at has been

release. full small guidance press XXXX. year provided X maturities debt Last, have have We and XXXX no we our in XXXX XX:XX in maturities in

We midpoint is a XX% be our XXXX $X.XX can share, over are of to FFO corporate at substantially highest history in is utilizing core and This results. $X.XX per projecting lower increase the leverage. achieved our which the

a tenant acquisitions leases will built of our the overall XXXX, end lowering expect at of Pointe we property. in dispositions, $XX signed the XXst. occupancy. on to option a Dallas as We purchase XX:XX of slowly has year there a these Despite Lake take at that likelihood that Vista will have the property is throughout some July as For believe occupancy in rise occupancy indicated the expires million significant $X purchase million newly properties we our tenant our a range

that same-store and XXXX. cash XXXX, NOI move-outs several expect will negative be anticipated free rent due in periods We our in to

lobbies will acquisitions and rebound significant equal, accelerate to We capital properties. off. and We select pool expect as costs are amenities improvement else of certain invest rent building intent we million further high-quality periods it in leasing. We make all same-store investment upgrade XXXX, spec also and as out new to a at expect similar burn in a to added $X to free tenant XXXX, in XX:XX approximately the suites to anticipate number

While and buildings and XX:XX questions. assumptions intent and We sooner future set inventory Drive occupancy in remarks release the you accelerate and vacant prepared leasing Tan enhance the considerations to open XX:XX We our costs we Research our will normalize in property within in portfolio would Phoenix. this A a and to the incurred, San are our Orlando million one forth Park also and leasing line incur otherwise our TI property We to Ingenuity of material will Florida cost further two approximately at activity. than commission reposition earnings $X the pre-funding will the for to and details. pay position signed in it think for leases refer be a good investment Operator? will rent the about concludes it costs. best as way tenant be leases to time to that and able up improvement is lower this view is our That in reduced expect at believe When this suites costs spec are as commence are as tenant we a AFFO and spaces, TI complete. repositioning XXXX those expenses do. to way these may

Operator

We will the session. XX:XX with Our Janney. begin comes Instructions] from now Rob question first Stevenson [Operator question-and-answer

You go ahead. may now

Rob Stevenson

anticipating how repositioning, leasing your about AFFO math spec and on programs into place thinking going your given guidance and Tony, guys guys. morning, in little XXXX XXXX, I'm Good stuff You comments the lines the in should how in of the the if from but this my stuff or lobby be to tenant stuff over some or commissions being suites, X is those straight that the AFFO million. CapEx thinking be through improvements, running Are be standpoint? gave your on those doing about correctly, a in line, XX:XX a we it's number? combined with is that financial mid-XXs capitalized, should we $XX were this we

Anthony Maretic

XX:XX Rob. Yeah. good question, That's a

in there. of as couple items a So, I said call, the

run, million a through equal about You and for really program, it's by lobbies million, do to suite that years. prior $X Similarly, spec the we're higher said which of about $X enhance million roughly couple we've over will I than on AFFO. amount again historically have is the sure. for Yes, what CapEx planning to of amenities amount and not and that's that program elevated similar the run

treating single-tenant So X turn an as they of AFFO. X the terms combined, properties extra rate repositioning, what won't improving roughly properties XX:XX be so multi-tenanted through then a And into we taking would are the – $X will of them, be will and be. amenitizing those AFFO. We're in numbers million run and removed acquisitions our lobbies effectively X run them those from result, properties, the

So, million from of $X you probably can those expect it, additional, call the neighborhood of in higher an categories. costs net-net

Rob Stevenson

that's occupancy the here. helpful question should the years? Other out X lease-up is based that of we what of perspective, thinking the economic AFFO the how Okay, be XX:XX we about a point to paying in end? from an off as they've acquisitions leasing Block Is seeing vast for get people included Do we throughout this thing still you're point? where that figure for by up What's are at of there? the a XXXX that and the for -- more got occupancy there from guidance year XXXX in a standpoint of your the majority space economic lease for XXXX

James Farrar

Thanks Rob. the question, XX:XX for

our cases, is, the They XX% structure paid statement. income leases basically haven't leased signed. some rent, currently, deal So, in we Block have commenced into so doesn't bridge the XX but some have in and flow about we way is in been fact through that so

Block in one By bigger year, XX:XX leasing will feet XX, So of the block that's the where focused. occupancy of we're Raleigh that In is. kind has, match XXX,XXX vacancy of already the the effectively, it, stabilized. under just that call end terms where of and one is

activity actually with pleased And so, very we've how that. good some very along. got lease some We're on have moved discussions

think by And year. going end to we're the stabilize that make so, substantial the of we to headway

Rob Stevenson

a the guys are beyond X You've XX:XX portfolio or forward? year portfolio And more a option how minus then, and guys then basically that legacy got right? going you much, and rate you we thinking acquired acquisitions mean, on of of Was Okay. XXXX? the and the parts just go recycle higher rate. into got you have I plus asset, dispositions Mesa, recent the purchase been Sorrento you've whittle lower? cap-ish it this capital as you've got continue the you recycling -- rate that some about X use and lower the that are to down much about guys Do how acquisitions to of guys thinking cap XXXX the cap redeployment assets

James Farrar

you'll haven't assumed in So, on net acquisitions new that guidance year, our based could we XX:XX any recycling. see change this

portfolio our phenomenally lease type more competition. So if those are class to the and the are much and out XX:XX And they the of there's larger ones back I'd categorization drive drive the of those suites are create portfolio we as into looking positioned, value. harder focused any second say, as at XX% value well that those, AA, the XX% you've position we today of feel might of can office we made They to little bit We those put capital and some assets haven't say, on our we but do conclusions. of how of and are in were are the have, positioned. great our aren't and properties we're that and a of so I you trying you XX% some assets flow to positioned, can step got well spec really constantly for cash great are you to tenancy. the a markets, so, of back mean, where then about about

higher it recycled some think to will might and reposition and And be I category. a of those others up shift

probably months. XX that next will out play over the so, And

now. that And so strategy with we our concluded but of right any out aspect we're the planning not options on all are particular really of portfolio,

Rob Stevenson

of then, Okay. for size over come last XX:XX the you the known Tony, of one last terms any to since call? me. move-outs months that have guys And couple incremental last with earnings

Anthony Maretic

and but -- recap XX,XXX in ones there terms In new, that don't some FRP is so January. we think have Drive of can a at I Ingenuity square vacated new, of that well, know is vacating I the we foot that larger XX:XX do tenant

the that, 'XX, foot We beyond of have so And known XX,XXX in Pima just end nothing before is talked at that Phoenix at the square tenant QX. a our in Toyota about new. a Center we've move QX which lease, it's of out then,

Rob Stevenson

Thanks Appreciate XX:XX guys. the time. Okay.

James Farrar

XX:XX Thanks, Rob.

Operator

XX:XX Michael from Our Markets. next RBC Capital question with comes Carroll

You may ahead. now go

Michael Carroll

level of downsizing to your schedule? in and Jamie, in kind in you're some highlighted remarks of color office prepared can you is vacates. I that Thanks. you an provide of going you're what environment current that Yeah. mean, XX:XX reflected on guidance 'XX in that this seeing, kind your your exploration expecting elevated in

James Farrar

it how reflected has been the in So, we XX:XX year, Mike. for projected

that And we -- been we've XX% renewal. so, in forward as historically, look XX%,

if downsizes a there. of tenants low more really starting under like the think, space. some it's little going coming be might and dialog we're lot across might XX bit balance really that We're XX%. have little there number utilize to that but look at good be call their is the back roll these having under to utilization right right? next, XX:XX you now, a So, a we of XXXX. the for depend months, it, It's And XX and with on I to of tenants industry over a that, XXXX,

view. not so, happen going as we're to easy of rule what's bit predict so more a to needs tenants a it's with And taking an occurs and exactly time conservative

Michael Carroll

or their or come footprint their they when like to to around early space too TIs are active more their -- of are in for due, trying it tenants they I more tell? reinvest leases mean, asking Are looking is Okay. XX:XX change

James Farrar

be trying larger yeah, of space, they're on they It's back for XX:XX some want office the a to arms existing they and to get depends how their space what of condition mixture, around the need really the laid that it out. users, but

higher And so, are TIs a forward. bit be going little probably to going

Michael Carroll

then highlighting it? to back capital through just think about if is going so we recycling, going new do And to a of earlier, acquisition that funded strategies to kind Okay. you're kind you good that that XX:XX that's of your assume be way should investment

James Farrar

a XX:XX think good to about it. way Probably

our with have so guidance change And the new we time monetize at some assets. decided X said could on if additional depending that year, we to for this acquisitions

Michael Carroll

within within XX:XX And any like there that portfolio? is potential like a land parcels the still of or kind better higher capital anything unique the recycling deals use within or portfolio the science in life

James Farrar

there own like disposition we the of have look and imminent your that purchase property we office thing get the a XX:XX and Mike. thoughts look that the what their tenants about and as of really that, our Yeah, say you past, is single-tenant in, on nothing Lake of you if our put back at to we arms worthy particularly book-ins coming and the commenting are, thinking I'd Vista to million. that's around a our at guidance option have they in $XX mentioned one

those here want that in building. quite incrementally market. that's and buy likely will optimistic office today, the a going the it, of that to up that's yet gets today but now their conversation best happen. we're one on Tenants so, that to with a firm investment the about that substantial think table the at hearing back XX:XX right it they likelihood point, as going considerations of get to number often There's general building property, to do to are purchase employees comments feeling sold, back sort so are different being we we'll is, own recycled. to we're we going what thought decide a made real your to to some the We'll that Our there's more evolves. say, and not proceeds. that utilizing they're I and you step going okay, And all they're be year conservative, make the When

Michael Carroll

this can a prepared me. for last talk XXXX? reasoning in bit that just of G&A large then but uptick believe expecting little what's Tony, you remarks, And great. Okay, the a your you one such the mentioned increase? for kind about I we're XX:XX in

Anthony Maretic

the of vest component in that that one So, years. is three RSUs were over that XX:XX January million $X.X issued of

professional to are incur has alone. another travel our in up $X.X going there, component seeing service components over And across higher providers. combined increase we it little the years. of compensation couple -- that bit than bit we have then, of is the G&A from There's a a with the last had the the You little more expense. million expecting Cost really we're rest other increases stock from

Michael Carroll

Thank you. XX:XX Okay. Great.

James Farrar

XX:XX Thanks, Mike.

Operator

next Kucera Riley question XX:XX Our comes Craig from with B. FBR.

You may now go ahead.

Craig Kucera

debt Thanks. anticipate with at those Yeah. down would is to Lake Good proceeds option or morning guys. Vista If at you you pay the XX:XX executed, would using look other alternatives those proceeds?

James Farrar

be the be preferred table. used help the So, recycled into could used leverage, to retire They well. could acquisition, as lower options on another be are all XX:XX could to

options now. considering So we're all right

Craig Kucera

you’ve looking the guidance XX:XX exit of that Toyota is in Got income. who with Is lease being another is amortized it. And just is Tony, based there had termination may to be conversations $X tenant the on of in mention million or the of 'XX? credit's that Motor early remainder

Anthony Maretic

Yeah. XX:XX

we're termination, is that of the property. amount there a the So a is Toyota that the X nearly over amortizing just smaller tenants X X of total actually including Point and X/X Circle option then us largest our for, gave tenants. other X/X representing at or tenant

James Farrar

XX:XX No. Point. Superior

Craig Kucera

that? you may -- at? can you free mention a there X Did lot -- I was read your but this, have Okay. rent, and lease you I guidance, it, in which That's was of helpful did mentioned XX:XX missed signed that with but and which building

James Farrar

same-store Park from grown until of starts replace least is that paying and the related actually Their in So, Tampa they they actually to signed XX:XX we initial cash February terms year, at Xst. next May looking of rents XX,XXX They've in Tower don't largest fintech to signed feet start our lease XXXX. for the lease the at tenant now to BB&T. square

Craig Kucera

That's All Perfect. from it right. XX:XX Thanks. me.

James Farrar

XX:XX Craig. Thanks,

Operator

Barry from with comes Colliers. question Our Oxford XX:XX next

You may now ahead. go

Barry Oxford

Raleigh XX:XX talk get of that to Thanks so you get real it what pricing. about people to that the very quick is lot was the guys. pricing a want a feel can on extent it? that dynamic market of for Because Jim, kind to trying into, Great. acquisition, a just

James Farrar

hear we XX:XX So Cap asset long term. buildings $XXX that's to there into may that portfolio. in well, participate kind there, on is original the developers piece flowing There that's closing that you was that yeah, another ground it going and in of in again building that we everything activity million, was and think numbers Sure. the the adjacent be And happening the Based third be there cash is to build Barry development over $XXX structured lease based at on a lower, was the we've the that the ourselves to of in coming on portfolio two can that to. economics as occupancy rate and could side. extremely and we we attractive in if like nice foot. on seeing low-Xs we're Nice what's a stabilizes with where and right? think our feeling we're that about from good And

participating enhance so, by or well. part see to kind And next, our it, as we'll year returns in so, whether of that over the want we call overall

Barry Oxford

in there there? Jamie, to market near-term XX:XX is mark any

James Farrar

and flow the on asset, is XX:XX we we've when continues is are And And rates settle In where really do amenities brand so by Raleigh, where space. think, going I The you But they spectacular. I strengthen. vacancy the them step the we remaining We have really we're rental spectacular. they new leasing good. upside we're really to to the going all tour cash Barry it feel well that leases, is are out. underwritten to moved pickup, long-term get and market the the on so had out rents on where really think, already also above nice

Barry Oxford

Thanks guys. Great. XX:XX

James Farrar

XX:XX Our pleasure.

Operator

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

James Farrar

bye. have for out, you other Please Thank today. Good to hesitate XX:XX you any reach if don't joining questions.

Operator

XX:XX joining. Thank conference This you concluded. is now for

disconnect. may You Thank you. now

City Office REIT (CIO) 25 Feb 222021 Q4 Earnings call transcript