Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the City Office REIT, Inc.

Second Quarter 2023 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. now may you Maretic,

Anthony Maretic

Good morning.

supplemental we like our quarter direct and to I'd at Before earnings cioreit.com, release second to website our where you view begin, you package. information press can

measures may GAAP or and the supplemental fact company's that on forward-looking to include of discussed The earnings that Certain within based the that directly statements historical package be comparable release will most discuss expectations are measures. statements a not beliefs both of laws. constitute reconciliation or non-GAAP financial federal the their today today made meaning securities

Although reflected expectations with our earnings in press are course give filings The statements actual the and cause forward-looking achieved. any forward-looking may that for forward-looking company factors assumptions, statements assurance second obligation quarter no update SEC believes call. results. the between these differences in the be to the in such that that we material disclaimer of made company's and this could statements company reasonable upon expectations no release Please undertakes forward-looking these that see the be based statements

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

James Farrar

morning, expectations. portfolio half joining has Good and line today. our our for first of continued in XXXX, thanks Through the with to perform

on progressing strong premium business as we leasing generate steadily focus on as we upgrade our strategy reflect We portfolio. property Sunbelt our execute results believe and results level to quarter position second that plans. Our future our will continue this

experienced the Day, In quarter, office policies continue utilization to properties XX%. slightly the after anticipate summer an for year to ending we will return and that be we uptick the approximately at Labor also a in further of throughout this higher season. after XXXX, vacation levels our catalyst Utilization trend

activity slow year. a driving start paid the during on focus to the leasing Our off quarter after

leasing increase achieved total properties, at the at healthy improvement feet assets. X quarter, we XXX,XXX our at X.X% XX rents second occupancy completed we activity During in experienced an with renewal in square X occupancy of only and Quarter-over-quarter, a decline the versus rents. maintained of cash a expiring

continue our XX,XXX square As at of particularly spec continued rental that best regard, to rates. had occupancy, activity. is is prior leased this enhancing overall calls, suite function the on assets in we've focus we our that be our suites spec spec year, driver modern for a the of available. We've highest mentioned with leasing a limited In suites ready-to-lease which inventory feet

deliver expectation as is the continue that accelerate. suite we totals to Our spec spaces leasing under construction, will

June recent have of XX, with feet suites a of our inventory. XX,XXX built we deliveries, As spec our square in

We square construction planned at we locations approximately the fastest. XXXX. the half also commence be under focused of We absorbed XX,XXX construction second XX,XXX to over that have believe feet and or square new delivery feet our during inventory decisions will

We expect long-term to will results. this drive that continue program

led Of from part with connected financing, improvements Accessibility property campus funds the the from our buildings so with special truly completed secure Denver enhanced, million were with major incredible these also without amenity new pods. approximately to to transformation of coming for amenity out our to hardscaping, strict the to to upgrades, our note, this and second costs. We renovations able property the was Circle outdoor work we Point park quarter, amenity completed. the garden-like related the $X was were X.X-acre in making areas integrated adjacent The of renovation a pocket during landscaping, buildings. tax park

is well a fitness Circle tenant Point restaurant lounge, leasing perspective. high-end amenity, existing With the park updates, from positioned the and

sector. and in outperform. headwinds positioned Nonetheless, view, to the we Sun commercial real estate our From these of well believe real headwinds be continue the to and of industry, point weather portfolio is across there estate Belt a office premium high-level properties particular,

the second year, also a to continue provide to in move the ensure with strategic pursue to and we ample flexibility operate continue As they and properties conservative half leasing. we arise. on of into to achieve will We'll to optimizing to our opportunities as manner the focus liquidity ourselves

look I to to hand and updates future to call forward progress, our providing on over results. the discuss Maretic will financial our Tony

Anthony Maretic

property Jamie. in accounting the quarter to Office XXX was transaction significant during most Dallas. Thanks, The related our Center

decision likely opinion and As strategic to the nonrecourse calls, possession we to we of balance. We prospects Center future consented on loan made its the occur XXX lender. on was during value hand our of the to previous had of property relative based indicated the quarter, Office the to

we transaction, as with this of result a debt the the million. deconsolidated associated asset $XX.X corresponding well of value as As the property

minor had As down the XXXX, in this a loss book quarter. we $XXX,XXX resulted written property's of value transaction the in during

Moving financial to on our results.

in year-over-year. but operating reported million, we On both of we the increased second across cost net operating result amount basis, operating our quarter. a the deconsolidation expenses a second which decrease Related to income, the than various utilization $XXX,XXX Office This the XXX X%. primarily have year-over-year the also to Our inflation same-store operating during buildings the is Center income This net lower of $XX.X operating increased quarter attributable in categories, of at seen is quarter. expenses. a is recent first increases was in function

primarily was lower This FFO reported the or per quarter. Center. in which lower $XXX,XXX Office first $XX.X also of NOI than was from We XXX Core result of million decrease share, a $X.XX

impact suites to continuing suites and key part vacancy is share. which a share. Our investment total second spec was in in conditioning, was $X.X conditioning second or and ready-to-lease of plan. $X.XX quarter The the AFFO our business or per spec was $X.X AFFO in million vacancy per quarter investment largest million $X.XX The

some of operational Moving to metrics. on our

Raleigh and Store occupancy higher the increases rent as and Park in to was XX period X.X% compared prior Tower positive had year leases. a change as year-over-year quarter due in to $X.X result of in XXXX. second Same free of Tampa Our quarter slightly Cash Bloc the or signed comp second NOI largest million

will of NOI, Stores year moderate towards increase the reach. burn during comparable as the to Same results We expect which our rent Overall, a in free tracking Same Store periods are the is half Cash X% second guidance we previous off. year end X% prior XXXX, for our higher of

occupancy ended occupancy end. portfolio XX,XXX Our feet quarter signed Including square our yet of commenced, that at have XX% the quarter not as XX.X%. leases was of

of Our as million. XX $XXX was total debt June

million. property Our mortgage by X.Xx. The to Dallas and was deconsolidation Office our restricted net reduced nonrecourse debt, cash XXX including total debt Center $XX.X in its EBITDA, of our

X XXXX, both properties. and loans these the are of in secured by We fall of smaller high-quality maturities have

rate We expect are X% loans, lender. will high X-year terms in the each currently with be in late stages of existing effective renewing interest our The range. these we on

authorized far of facility. as as June we our As liquidity, of undrawn on $XX approximately credit XX, million had

of also quarter restricted cash $XX as and cash million end. We had of

have reflect balance Last, updated the year-to-date of expectations year. to we provided our guidance the performance and for

outcome guidance within have the the were provided these likely reduced information the We revised are most beginning slower, in half of around through we volumes year of first we as ranges the year. of of result, initial the leasing a all and at Leasing guidance ranges Our speculative income on half the second the from our ranges today. year. we expectations for have tightened based the each

net of a prior the by top have adjustments guidance share range, FFO Core our $X.XXX. of per midpoint effect lowering end the lowering Our

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

Operator

Instructions]. Stevenson. Rob [Operator question today first our And goes to

Robert Stevenson

at previous we known move-outs talked that any calls Difficulty] on haven't Tony, this about Hello? [Technical additional point?

Operator

and by speakers. Ladies as please gentlemen, reconnect stand the we

our reconnected have we Ladies and speakers. gentlemen, with

If you continue with your can question. [Technical Difficulty] please

Anthony Maretic

The of effectively flat the if you we're year. math the behind end the that the known move-outs, move-ins is known occupancy expecting to offset to remain versus

Robert Stevenson

anything saying, in this much you on this Okay. term? those FRP the you're at where in Carillon you've hey, some else? about And wind comments may around up you're talked assets on Or then pretty near the Is coming don't debt year. the anything pipeline at thus looking we of X later prepared things point far turning is likely if and to and Point the in done turn on that be it keys up materially, there

James Farrar

call, probably midst marketing a of So more the of what which be of previously, in little on asset at end the we And an We'll around took we update early write-down have the in Station there, an our mentioned next We're process Cascade year. quarter on comment. talked about that to so Portland, last the Rob. going it's a to we asset. XXX is strategy

Anthony Maretic

does Yes. mature May in loan But XXXX. that

Robert Stevenson

stocks next of for Okay. guess XX utilization increasing. the I office XX, Office Jamie, are last are And months the little here is have back guys guess, talked expenses me bit a to I X then, up, Is you of -- REIT cetera. last about the thinking the mean, about the had it this bounce a But coming back X et the and the I current state how over XX industry? days, you

James Farrar

good So question. a it's

few I both changes the recently, There think, think that office macro started And stabilize. they is the had factors, loan the we've has how actually understanding when a the a consider hit you've important to of the are really on position highlights really I couple investors there. industry need of what renewal as some environment. banking And company's to well each is which sector first, really has as positioned. seen the gauge

improvement to loans, work that borrowers. category. challenge. at And help with when working overall strong are but look stability you a lenders to willing likely are much I And borrowers, will falls sourcers, which have think require not greater with that's big those a far for quality in that everyone more CMBS

appetite And much outside lender. trying order have of really means and new look seem debt really generally their today's available working important? securing to to office terms environment. be why isn't new unencumbered difficult. want at office for little many means there's remains properties, owner and It in There of to extremely an must existing that's little exposure, And bid transact new been making It buying and with a to today. loans reduce refinance with providing also if overall very transact existing have their In of loans, in able want assets are effectively they loans. seller that they've to for to that. sellers, a financing Lenders

well also go is It's are stress lenders. we lot going owners situation in think to the to to with period to their add unable or refinance line, about, be to aren't over assets the talked concentrated be leasing to who going probably not time in a you the tenants. -- as likely Rob. to going utilization that going of the that lower trades to to And in likely we year. next bottom result positioned lower assets a result, in best work many are lenders are or lenders' think properties So there's finance existing It's limited bleed back more on the trophy or suspect hands, those occupancy, assets going see lenders. really to back And I today's quality world. you're likely assets to with

so is to over seen years overall, decisions we're leasing deferred have to have And things And of they mentioned this the is express time. we've And really tenants impacted what really of a assets. started, majority and X.X the kind the of factor, main which back come their better of employees business since for continue there, and the I to for by COVID last desire their just our lot well-positioned the leasing. X is part third starting feel about well-located

our each tenants average company in a so portfolio. sizes, feet. over around And an how average We of market. positioned, is differentiator have tenant that's smaller impacts our we generally XXX the XX,XXX stronger and important is which really subsector across case, We that have

cities a We have well-located amenitized great position. financial in and strong and buildings

like a we're So feeling we're here. spot good in

is the what locations, from. to the on benefit is They're really going their to best buildings, have on tenants going leasing going going to we up But to financial think and to believe focus amenitized to we're position, area going are we buildings happen that focus an firm plans. that's continue strong a best be

it's those owners. And a So there new are happen across have leasing going leverage, development going some that of a to less limited high concentrate and properties we is of lenders, as think industries, there's subset go at no well-capitalized lot starting. virtually the overall time back to of the to a properties when really office industry, into

while. said summarize lot To refinancing lender going limited sales all I next of for you're see to a repossessions so and outside challenges think the that, And there.

next some owners assets cash to well-located the think tenant the I little to going that position. rightsizing but in to well-capitalized do to while, has a that create quality and overall going win opportunity if and it's grow capitalized, an tenancy. your flow good are and to really of need strongly think to they're their are result everybody rent I your in over drive roll you're And going opportunity hands

Robert Stevenson

that is is that thinking updated renegotiation, need looking interest X at, that given that Tony, renewals Okay. that we you're the the in et I now guess X% $XX follow-up, range, in renegotiating comments million that you're debt that impacted Or cetera. guidance, wise? $XX.X about to to expense be million? in the addition earnings high to about the

Anthony Maretic

doing No, in depending effectively corresponding debt when X-year we're -- floating fix it's that to fall the range. rate And rate. a with included where be rates on swap we a going to

or at end we where the on that top that range. depending So lands when we'll of either land close, lower

Robert Stevenson

weekend. a Have great

James Farrar

Thanks, Rob.

Operator

of Oxford And the Colliers. to next Barry question goes

Barry Oxford

put for construction the of dollars we those going second half year? you dollars spec to work planned the work? being back the Have said of to those in Looking to the you put at half. Or you see are had in most XX,XXX suite,

Anthony Maretic

Yes.

clarify to just Barry, it's So Tony -- here.

We currently have feet is XX,XXX under Yes. construction. is -- square There that

So XX,XXX. another

In the not before but all. of commence that's end year, we complete in expect planning stages that, addition now to to that probably the

that of second that budgeted into the the what we have So be in more about spent of million in year. dollars, translates terms half $X will

Barry Oxford

looking healthy spec getting for? getting you guys suites on -- that looking Okay. number you are IRRs you're justify the was the That's you Are Are rates? for. the that fairly I still rental the also rents

James Farrar

expected highly landing and rental you're with so quality when achieving building be. rates, we've we've Yes, again, are those. with been We've to line concentrated and it's better particularly the of kind the Jamie. happy spec assets, rates suites. rate we pleased rent And leasable is with in program for been our then where where that assets, Barry, our it we're

Barry Oxford

Right.

you -- least, of little you than looked -- slower but that it had lease like you So it like indicated what the a at was feels leasing anticipated.

James Farrar

Yes.

on that's been spec fair think I The delivery's side. slower well. little as suite the a

Barry Oxford

an it -- Does of kind something aberration? Okay. is about? Or concerned be just that is to

James Farrar

Yes. Again, of kind seeing, we leasing bit, leasing business, that And when be right? we of the the the you so bank over froze, if beginning had the happened, with last failures. of basically, year, just remember, seem And going to but few to at to months, be getting stability back delayed thoughts we on our a what kind out own normal to and a it it on trend of pushed we're be kind seems on and of achieve improving. we'll

Barry Oxford

loosely picking So is translated, foot up? traffic

James Farrar

Yes.

Operator

our B. And next to goes Kucera Instructions]. Craig [Operator question Riley. of

Craig Kucera

on I spec of appreciated 'XX the suite color spending. the second half

you what in Can million. second expensed AFFO a $X sense of you mentioned the give through think I was quarter? us

Anthony Maretic

Yes, sure.

$X I of vacancy total So million of another in spec $X.X up a million approximately on $X.X year. the and permitting half second second $X.X delays, to million for expect in is QX, in half conditioning, a catch but what we had by year-to-date and delays And suites million shows the QX. effectively, of the bit as construction spent those we're little have of expecting the mentioned, And that we year. of terms

Craig Kucera

That's the helpful. renovations at expensed? and those capitalized? Great. they are Pima have Camelback, Okay. have been been Or And

Anthony Maretic

in U.S., So Pima terms of and... both

Craig Kucera

Camelback.

I highlighted they're each I believe. at $X your presentation, think investor million, on

Anthony Maretic

Yes.

is renovation a half this the remainder first last the year So year effectively finished the and it numbers. hit the currently Pima in half. in And year's that portion the there's and and Camelback isn't second was ongoing, of

Craig Kucera

pass through? Southwest, Phoenix. do quarter? it. that but some able that expecting Okay. NOI extreme you'll you largely have to on There's obviously be impact particular, in pretty Are the to been think Or Got this heat meaningful you in

James Farrar

Yes. Craig. probably leases We're much. a of major these And of because too anticipating a going us that, have pass-throughs, lot so change impact it's not not to

Craig Kucera

it Great. Okay. That's for me.

Operator

now We have Farrar hand no closing for I'll questions. comments. James to back Mr. any further

James Farrar

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

Operator

for joining. call. today's you Thank now This concludes you. all Thank

You may now lines. disconnect your

Anthony Maretic	CFO, Secretary & Treasurer
James Farrar	CEO & Director
Robert Stevenson	Janney Montgomery Scott
Barry Oxford	Colliers Securities
Craig Kucera	B. Riley Securities
William Crow	CIMB Research

City Office REIT (CIO) 3 Aug 232023 Q2 Earnings call transcript