CIO - Earnings call transcript Q2 2022

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Operator

Good morning and welcome to the City Office REIT Inc.

Second Quarter 2022 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce you to Tony Maretic, the company’s Chief Financial Officer, Treasurer and Corporate Secretary. Thank you. Mr. begin. may you Maretic,

Tony Maretic

morning. Good

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

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

Jamie Farrar

those very big office are this the From are going that desires. perspective, positioned that sector companies to picture assets with on and morning believe with today’s successful us for tenant we thanks in most We Good are regard. in align growth a high-quality the today. joining be well markets focused

business, Raleigh, are like quality the long-term of and right predominantly rates in growing Dallas a of Orlando for a life Our poised provide Phoenix, and and doing pool. cost growth demand. lower locations markets talent and higher rental are they Cities Tampa, Sunbelt

continue. and office Further, others, to companies relocations. reasons, a be believe there the their will flight they differentiated, for beneficiaries employees. corporate continues and quality have We well-located labor amenitized these spaces force these migration trends to been among with For of seeking

high-quality, consistent are principally Our in looking portfolio invested assets what is with that for. tenants amenitized are

While that and discussed portfolio calls of core have with on are plans to we executing solid that our this opportunity, we advancing elevate prior we have a properties. several aligns

We also to the spec timelines. and leasing occupancy build to continue out suites country across accelerate drive appeal

suite effective in proven yielding Year-to-date spec Our totaling spec XX leased our square XX,XXX program and we XXXX, in of results. feet. is have suites

substantial some also since despite leased XXX,XXX impact We over spaces completed larger square To of spec conditioning. XX,XXX out had suite on X inventory. have this context provide built we where have on space totaling feet program, XXXX, we leasing, feet, square pandemic’s the

XX% approximately of typical of to-date lease-up it X leased have period with We months. approximately a

will square drive these will intend is of and during spec ready-to-lease spec XXXX We inventory position at space. feet inventory our commence believe conditioned another additional XXX,XXX attractive on over that XXX,XXX portfolio. to XX,XXX suites results. plus with suites square the of of We planned remaining Our construction across feet us square investments feet remainder

renewals. second executed new of In square it and terms of of We in square a leases leasing, healthy of XXX,XXX overall XXX,XXX feet consisting leases, the generally feet was of total square feet XXX,XXX of quarter.

XX% That commenced. We that yet not leases occupancy are in XX also pleased at during to signed new Raleigh to property’s feet when Block brings report leases signed the including that XX,XXX quarter. square we of the have

of for. increase a and the tremendous and fits the with Today, of XX,XXX given XX renewal feet during a the square we We approximately modern rates strong feet number tenants Our are perfectly It on beyond square XX,XXX with looking retail office in were overall great Overall, remaining to additional construction ability XX,XXX results quarter terms are these prospects of of in inventory new with space amenities, at spaces Block line our generally months. our remain and what confident XX% trailing property’s is in space. lease feet lease location. results space the in leasing that. retention XX approximately negotiations rental with cash square approximately in tenant are These for rates. attractive

However, some several pension lower to over to vacator space. the we do have requires tenants which looking forward next and backfill will expect months, XX rates larger downsize,

a positioned the a tenant modern completely just space. and over we foot. To of for a commenced set look up to renovations Effectively, transformed our Phoenix. footprint Dallas. year. potentially us upscale to of Their from quarter. enhancing there, square its on year, implemented retain at office upgrade in facility healthcare We of million next years extended XX,XXX been outdoor and $X square have the property during of aware the as square conclusion end, in which through an vacating feet to XXX project when renewal Subsequent rolls tenant property and lobby didn’t modest this the receivable The quarter largest The feet fitness June June a investment XXXX. had mitigate X an lease center, We strategy XXX,XXX a connected has its at earlier to in were the of lounge, The all per as the by us balance company Toyota previously in tenant renovation a and high-end work-from-home conference completed of to end we our property discussed of at space. much $X a a Santan reduce came our August property was and scenario, spectacular tenant major adding will that backfill included tenant or space. the space their the require existing

posted included We recent our after most have our in before renovation and website. photos investor on presentation

we $XX benefits with backfill and have have property quarter completed months We we balance. sale we the tenants terms the cash feet and the us sale quarter million to gain-on-sale Other a these Dallas XX during square lead cap included at X.X% of find replacement at over After for approximately to activity upgrades. The that experienced expect of completion have the million. Lake the was the tenants a $XX of already of come rate. Point two in Vista end, will XX,XXX times generated notable for

during and capital markets quarter program. subsequent we front, share the the end, to executing quarter On been have repurchase a

end To our presentation. we of The effectively the buying are to This portfolio our comparable the X% While is we disconnect means that great office a is price cap properties investors number the not blended and and including is able reducing average acquire That at purchases value our per a we share. after to its in new buyback, be our we repurchase price anywhere our common would included valuation. in sensitive remain tremendous rationale stock investor shares private own outstanding, near markets on opportunity. quarter of approximately the understand slide view high-quality between help $XX.XX that value to-date, a rate.

long have and even that on terms, million, with helpful. the more most lease also consider implied our newly compelling. remain We which you constructed properties highly information associated our is value desirable metrics other $XXX Raleigh, Dallas, three the in investors. with slide, segmented in-place provided XX purchased recent inherent When Phoenix office for in for buildings maybe amenitized Today, and acquisitions

portfolio Bottom earnings premium tenants month value levels are discounted better replacement further, we of average purchased last with our costs this and stock own five valuation. share accretive $XXX provided know to major To net Our an portfolio highly three help JLL well. by costs $XXX replacement stock our and high three a per per illustrate at implied a which recent Contrasting to repurchasing current The of perfectly construction square Metro its new should this our including most across acquisitions a segment than and low each be foot indicative construction fit we recent square across estimated Denver submarkets. markets our anyone. today. believe our per costs a buyback, be we per deeply report that released this foot. of $XXX foot, equivalent believe discounted per over range as at of And more strongly of line, acquisitions, our from We this to our is these asset blended foot range to and will time. $XXX and

only our discuss in further IPO the shareholder second look and the I our to Alexandria and XXXX, updating call return Maretic, over results. you the unlock As ways sector on and the This value cash markets office we the has noise in achieve approach and broadly, creative forward total and to real us flow. to the to us will focus Tony hand well to navigate next grow estate. second highest to served sector continue quarter we office to financial will since in has led

Tony Maretic

Thanks, Jamie.

than quarter occupancy first at net result higher as in generated acquired properties increased was in amount in the of by $XX.X the a were income quarter. the primarily in reported newly tenants that of properties. income million, which take fourth Our XXXX the operating was This those the lease-up second first-generation developed the is quarter $XXX,XXX

Phoenix, For the year at of which occupancy occupied XX% instance, was at end started Block XX quarter. the XX% the

categories, slightly a of the as their we reported in quarter. is income income impact. net expenses mostly $XX.X various the first net per recoveries million offset reported core inflation was amount result by muted While as on which seen operating AFFO in impact have increase facility. credit operating We higher interest our on of costs increases $X.XX or offset was share, equal to operating in The the

tenant related to XX,XXX which to was per AFFO tenant at impact item $X.XX foot largest the quarter single during the or million occupancy second of Property, expenses Tower $X our share. improvement $X new AFFO quarter. took was Our square million The

spec That business the in we the Center in at in key vacancy As our quarter Last, Jamie which spec investment part suits The implementing our XXX $XXX,XXX, to completing project also $X.X upgrade. of is continue $XXX,XXX. second was plan. a we property suites discussed. property in Jamie the also Office out building was XXXX ready-to-lease invest and the Dallas, just conditioning, quarter total which mentioned, upgrade investment million during completed

metrics. of operational our some to on Moving

line second compared NOI change was in at lower as same-store to our negative second with expectations $X.X Our or million quarter of quarter X.X% XXXX. the cash

at a XXXX, that impacted by on tenants new quarter same-store Park the not square space as lower free quarter was to commenced of rent paying decreases scheduled lease – free BB&T foot of new point periods a cash increase XX,XXX year-over-year of Tower significant QX collection attributable rent vacated X-month leases. is value third begin property, superior cash accommodate new result the with the X, period Second Further That XXXX negative to tenant’s rent contributor and until and during lease were but new a will tenant. the peak to periods February same-store the properties May X-year occupancy for associated but their XXXX. renewals. contributing a recent $XXX,XXX decrease, downtime lease to in The results. NOI at

We same-store off. of results the free remaining year quarters the NOI will cash burn improve periods in as rent expect these

total million. Our June was debt $XXX at XX

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

two of in in maturities debt no the have XXXX We XXXX. and small fall maturities

the a against updated primarily our tuxes released point eligible is guidance sale have in cash net we our outdated debt restricted net proceeds Restricted Subsequent the million release. slight and end, the the the of Our end provided minuses, account. decrease the $XX.X fixed earnings Last, cash on we was year. per press of several proceeds There a of applied quarter XXXX effect were as are for cash in held of core Vista which FFO is from share restricted to rate. and credit. midpoint quarter line net at guidance Lake

the our for First, the floating rate on credit we interest facility are year. balance anticipating higher rates of

accretion we make range led Second, to had our still balance core adjust quarter in new this expected the that These the and drive income than leasing us leasing-related commence per through factors year, We impact share fourth the the by in are healthy buyback income share that program. that is our were while guidance included to assumptions Block now XXXX in likely prior leasing positive our guidance. factors the from downward same progress are Offsetting flow more impacted that forecast AX same but the XXXX of we quarter occupancy of in part we the the generated will guidance. suites of leasing, from year. Raleigh reducing at especially expect spec

of remarks, million our During end, million the open the quarter share currently subsequent Board $XX and will authorized. quarter up of $XX Operator? is completed to and concludes line we questions. That we the the repurchases for that prepared

Operator

ahead, comes Michael. RBC. question Please Carroll first Our Instructions] go from [Operator from you. Thank Michael

Michael Carroll

Thanks. larger that expect XX the Jamie, months. move-outs you the over next you mentioned

the past for we’ve company healthcare Now tenants quarters that about is Dallas, in including the been talking this few too? now that mostly previously announced

Tony Maretic

Good take Mike, can this I here. morning. question. is that Tony

break it for So on just just you. down I can

next the that roughly total, are tenants rolling. over XXX,XXX square feet are So that have we four do that Of have feet known XX,XXX quarters, greater vacates. square five we than

these We you of have those. three take on to previous discussed through calls

end at XX,XXX at Pima one downsizing square square So is at vacating company XXXX. tenant our are XXX,XXX have of XX,XXX And They XX, the Title month. at December property this year. of feet we vacating XXXX square October Toyota. by in feet feet this is a

later I And March that’s one tenant taking that we will One XX,XXX XXX,XXX those feet XX,XXX about have XX, of is and other over move-outs, Adding quarter these which just foot be at XX,XXX end, at which a discussed. the centers all will signed do those occupancy than center. year, that known these to the just of by they’ll square then at completed company downsized help feet. So, vacating thing square spoke after next leases XXX is XXX we vacates. also to one be XXXX. offsetting feet, the known have healthcare Jamie square will tenant new have be XXX square other that previously offset includes highlight want square been XXX,XXX feet There

Michael Carroll

includes the little bigger And term kind Okay. that range. of what guidance And range term than the fee that you know believe I XQ? to? then in a What gives talk the the new fee prior did Great. I Tony, that about Can relate does bit?

Tony Maretic

Yes, for appreciate Mike, explain question, the sort that. that thanks I and opportunity to of

fee in relate Toyota to largest single the income item termination So lease. that our continues to

scheduled that this in total announced, $X.X of year. that And was we in that termination an announced million the in be $X a and we we to At At they so end $X.X the of us fee. we $X time further the our departure. million time the in that, Toyota had amortize we depart amortized million year XXXX just to and the of until at last XXXX paid announced amortized additional review published of would guidance until scheduled we February, million XXXX August

really, change the relates So that an XXXX. guidance we mentioned, option expected additional for number XX,XXX that March, year, the anticipating XXX $X.X beginning I this of were March to who total and therefore, was the and and vacate have the tenant that million their feet, in at which to quarter office of that exercised square property, of in termination are and they $XXX,XXX in

that So I of that clears kind up. hope

Michael Carroll

about That’s to your should guess, how to the to program, future is Is we continue very how of under mean, No. to we activity your I that on related it? I depend should going fund to then think And it kind repurchase share think really about, within assets repurchases. that helpful. sell ability portfolio

Tony Maretic

we is And authorized. that’s estate remaining million worth. major a our real $XX are have discount at to own we what trading So, view is

are bulk be in I to basically, when Vista the that we so from will to-date, it we funded at has mean line. using reassess of to sale. just look that can’t Lake been continue portfolio, the And $XXX an cash we the near price And buy But and own metric. using incredible estate we and portfolio a of are cap comparable our you basically and buying around real X average at foot. $XX.XX, an anywhere at the going

alternatives land. price to report we will we see and we back and so is, on where into where fall. go And will to reassess we going are continue our the And as versus we

Michael Carroll

portfolio. there kind of of sales those Are were Jamie, still some within you contemplating the at that you now? right other looking asset is And

Jamie Farrar

looking mean some Yes. nothing assets. I can at to I what great is be how to position portfolio, would our to are we we best own value and to monetize constantly imminent trying do think today time create don’t There a be today. assets.

want this to we is portfolio, we what – tried slide, lay X in I investor going presentation, that to talks core is a value. really our do think to few next we Slide about And position it’s we into assets can do may apply new we also capital there value how drive leasing applies best over investors. it’s and that our create those have some out dispose create really how to it and to to for that ultimately do really put And the properties years. our

getting today so premier our and leasing is the assets, what the interest properties And we most portfolio, you rental are getting are seeing are across excellent the rates. best

lobby. the is are That We you things great it all can older, the the door, discount and or in world. is It side our that you what the are. number that outdoor the experience feeling prospective great. offer properties. ticks in makes AA that that fabulous a all of want so and it, locations do portion And buildings a a And little but through our a the have those has It’s have a the big of tenants locations. an incredible capital covers facility, bit boxes. think space, tenant sense condition all fitness into large we a great market tenant of when can got fabulous in a to put strategy And that at products assets a walks

that’s for a big so And focus us.

are to going do We that.

over will doing we dispose We candidates incremental think that talked from but some the that. few have next we be those may properties of by to And create that. years, will benefit about certain assets of, value

Michael Carroll

Great. Thank you.

Tony Maretic

questions. the for Thanks

Operator

from question Rob ahead Stevenson Janney. next Please from go Rob. comes Our

line now open. is Your

Rob Stevenson

business quarter. What second are What’s on square differs suites guys. foot are build morning terms market, a the about but what guys, talked spend the the you probably average spec you it you the guys square by Tony, suite Good costs? on per average, spending per that on of out to on in spend spec foot in today?

Jamie Farrar

will that. I answer

it of on foot condition foot. average a $XX the space But you are it’s to from anywhere back. to really, So, on basically, a the $XX your depends point, getting

some it’s have condition little build opening be you modern ceiling if are condition. you might depending the the concrete, a already space, really you are ceilings, The little are we is and a comes are lots due, But cool, though suites Some the and polished out when creating finding on backfill on bit are higher, to glass, is the it, is up The depending concrete. lower floors when you the economical cost of already lease open. to polished higher. and backfill. What very

And so it’s some color. changing

we bit found a So, those long-term. particularly more though the even role in higher or far spends, first of upfront, it’s are they two economical

Rob Stevenson

suites, then you do space of spending per guys improvements And I are sort spending other was you forget doing that building? but it or – the your of Okay. the it was the where you type foot what about square spec talked are What other. that are wasn’t improved you the type of what terminology to

Jamie Farrar

haven’t the the here service. the go our building today the lobby then incredible in to And on I it. tied into yet, it slow have this have in done And you that professional off put particular a we Slide incredible and photography pictures fitness looked a after. you been now, go conference before, we lobby, submarket. space, we we And tenant got was good just the kind X did right justice food XXX the – right it. wish has chance, one call presentation the highlighted built-out facility. And a suites And like spectacular when into into our room example looks you Center. building that you and if brand-new when shows So of before

have sizable the activity this, doing seen immediately so two we and we tour pick deals. And lease already up, done have

a in above a but get $X.X few say, And could so we a a that rent in that, a In it be going modest to are much range million, we foot. think other some it’s to more. was cases, $X going the bigger I around would differential. cases, payoff that be little

we being good design number we for of a probably plans. And at average of focusing the higher a little Where so team. these, with time that’s a are I little with nailing really on lower. we lot our And a something and are spent bulk the think in some on

pretty are we bid We are We we engineer. there much are have and fabulous. go now going value getting and and think to out

we it should So, yet, I quote that be are range. exactly can’t where in but

Tony Maretic

other have thing referenced space. I would where about and is typically The talk to only I space of a the for to when conditioning, $XX cost. foot. of $XX or we some those on have $XX rate to a we the boxing, that’s think up we leased call, heard that’s square what equivalent kind much vacancy conditioning Rob, add may like lower that, And you That’s

Rob Stevenson

me. Okay. for And of then the revenue producing feet start guys commencing? you one bulk when That’s helpful. last leases did of signed, that XXX,XXX The square for that

Jamie Farrar

So, it’s staggered equally. but would next I and really look, equally staggered over go the quarters. to it’s next number have over four of quarters pretty the

Rob Stevenson

in previous Okay. quarter, commencements? up quarter coming or up fairly year back from next big terms go big And the quarters quarter signings, in abnormal, or it’s first is quarter look when it Is first and is lease terms quarter anything of we there at of coming fourth etcetera. third where of any signage smooth there

Tony Maretic

focus on the expect Sure. in occupancy Raleigh, the acquisition at that will look one QX. property our if To move new in we and property by XXs specifically, into that you

amount of the increases. that So, specifically. you That’s will property a significant a see in movement

Rob Stevenson

Thanks it. Perfect. Okay. Appreciate guys.

Jamie Farrar

You’re welcome.

Operator

Our ahead Kucera Riley next Securities. go from Craig comes question Please from B. Craig.

Craig Kucera

guys. Yes. morning Hi. Good

than slower mentioned changes And maybe little had of back leasing that is a more assumptions during or curious, your year. be this little would I it are any broad-based? running there some are you bit expected, particular the a in markets You half

Jamie Farrar

kind an in actually the means when right. return that, own fair mid-XXs than the we I summer, be was more a pick which starting And it I up. should the it’s say went our to in higher seen would in to original bit definitely back improvement have is say broad-based. mean to utilization would of assumptions I our office we

kind at peak are You in time, mid-XXs. the are vacation and of we still

it’s the to and of to the continue pick year tenants. balance we going So, to talking our think up through

are thoughts returning in seeing fall. We back the good on

So, QX inked, that. would a we up our little been getting as But leases and little as thought. about slower discussions early next we would thought more, bit But we pick it’s pushing than say year. good are on broadly some spread. far it’s of latest based I initially feeling We are into a those

Craig Kucera

back Got a it. period your now to requiring – it tenants of just start bit are And free little or kind to ready circling their comments a on just occupancy into kind more kind from things take rent, and of pushing are is that of is that perspective? they XXXX,

Jamie Farrar

I Yes. have elevating. construction metrics costs I mean much. that think changed don’t really were

leveled up, would off little going say, were a bit, TIs So, I that’s recently.

there. are we elevated historically. from feeling Free a hasn’t That better is changed. little where rent still So, been really it’s

time and then build-out a finish push line So, the it’s number discussions getting at of and into to get people looking lease year the cases. of a really across it’s to going next probably function in,

Craig Kucera

Thanks Okay. the color. for

Jamie Farrar

Our pleasure. Thanks.

Operator

Jamie am Q&A back hand going ends there any final and it Today’s session to to I remarks. for

Jamie Farrar

today. our progress look next to Thanks for on you joining quarter. forward Goodbye. updating we And

Operator

Thank call. today’s you concludes for joining. This

disconnect lines. You may now your

City Office REIT (CIO) 5 Aug 222022 Q2 Earnings call transcript