VANCOUVER, Nov. 14, 2014 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO), today announced its results for the quarter
ended September 30, 2014.
Third Quarter Highlights
- Achieved Core Funds From Operations ("Core FFO") of
$3.2 million, or $0.27 per fully diluted share;
- Reported Adjusted Funds From Operations ("AFFO") of
$3.1 million or $0.26 per fully diluted share;
- City Office's 2.2 million square feet of net rentable space was
93.1% leased at September 30, 2014,
including recently signed leases not commenced;
- Commenced new and renewal leases during the quarter totaling
approximately 16,000 square feet, and executed approximately 22,000
square feet of new leases during the quarter resulting in 32,000
square feet of leases that will commence subsequent to the end of
the third quarter;
- Closed the Lake Vista Pointe acquisition in Dallas, Texas, a 163,336 square foot office
property in the growing Lewisville
submarket for $28.4 million;
- Declared and paid a third quarter dividend of $0.235 per share; and
- Subsequent to the end of the third quarter, agreed to purchase
Florida Research Park, a 124,500 square foot property in
Orlando, Florida, for $26.5 million.
"We continue to see strong underlying real estate fundamentals
in our target markets and increasing demand for office space from a
variety of users," commented James
Farrar, Chief Executive Officer. "During the quarter
we executed approximately 26,000 square feet of new leases with
average GAAP rents of $21.17 per
square foot. Most of these leases will commence subsequent to
the third quarter. In total, we currently have 32,000 square
feet of signed leases that have not commenced which are expected to
contribute over $640,000 annually to
our rental revenue."
"While more institutional sources of capital have begun seeking
acquisition opportunities in the non-gateway markets that we have
historically targeted, our existing relationships with local
players enable us to continue sourcing attractive deals. Since
completing our IPO in April, we have closed two acquisitions in
great locations totalling $54 million
at just under an 8% average capitalization rate. Furthermore,
we have recently secured the acquisition of Florida Research Park,
a fully leased 124,500 square foot building. This property is
well located in Orlando's Central
Florida Research Park, one of the largest research parks in the
country. The $26.5 million
purchase price represents approximately a 9% capitalization rate on
the first year's net operating income. We believe that the quality
of our properties together with the demand for office space in our
markets positions City Office to increase net operating income and
create value for our
stockholders."
Financial Results for the Third Quarter 2014
Core FFO was $3.2 million or
$0.27 per fully diluted share.
AFFO was $3.1 million or $0.26 per fully diluted share. Net loss
attributable to the Company for the three months ended September 30, 2014 was $1.8 million, or ($0.22) per fully diluted share.
A reconciliation of Core FFO and AFFO to GAAP net income can be
found at the bottom of this release.
Portfolio Operations
The Company reported that its total portfolio as of September 30, 2014 contained 2.2 million net
rentable square feet and was 93.1% occupied, including recently
signed leases not commenced, at the end of the third quarter
2014.
City Office's net operating income ("NOI") was $6.1 million on a GAAP basis during the third
quarter of 2014. NOI for the quarter benefited from a
$140,000 termination fee from a
tenant at the Washington Group Plaza property in Boise, Idaho. This benefit was partially
offset by a $69,000 payment by City
Office to a tenant at the Cherry Creek property in Denver, Colorado to induce them to vacate
their space prior to their lease expiration. This space has
subsequently been leased to the Colorado Department of Public
Health and Environment who will take occupancy in early 2015.
Leasing
During the third quarter, the Company commenced 3 new leases and
2 renewals totaling 16,000 square feet, and executed approximately
22,000 square feet of new leases that will commence subsequent to
the end of the third quarter. This will bring the total
signed leases not commenced to 32,000 square feet.
Acquisitions
The Company completed the acquisition of Lake Vista Pointe in
Dallas, Texas on July 18, 2014 for a purchase price of
$28.4 million. Lake Vista
Pointe is a 163,336 square foot office property in the growing
Lewisville, Texas submarket.
The property is leased to a single tenant through 2021, with a 5
year extension option. The acquisition is anticipated
to generate an initial full-year cash net operating income yield of
approximately 7.8% based on the purchase price, with contractual
annual rent escalations. The acquisition was financed with an
$18.5 million mortgage that has been
fixed at a 4.28% interest rate for 10 years.
Subsequent Events
On November 7, 2014, the Company,
through its Operating Partnership, entered into an Agreement of
Purchase and Sale to acquire the Florida Research Park property in
Orlando, Florida for $26.5 million. This represents an
approximate 9% capitalization rate on year one net operating
income. In addition, the Company, through its Operating
Partnership has executed a term sheet to secure a $17 million mortgage with a 10 year fixed
interest rate estimated at approximately 4.4%. A number of
conditions to closing the financing remain, and there is no
certainty that it will be completed.
Capital Structure
As of September 30, 2014, the
Company had total outstanding debt of approximately $179.6 million. Over 96% of the Company's
outstanding debt is fixed rated with a weighted average maturity of
5.9 years.
Dividend
On September 15, 2014, the
Company's board of directors declared a cash dividend of
$0.235 per share for the three months
ended September 30, 2014. The
dividend was paid to stockholders and common unitholders on
October 17, 2014.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on November 14, 2014.
The webcast will be available under the "Investor Relations"
section of the Company's website at www.cityofficereit.com.
The conference call can be accessed by dialing 1-866-262-0919 for
domestic callers and 1-412-902-4106 for international
callers.
A replay of the call will be available later in the day on
November 14, 2014, continuing through
midnight Eastern Time on January 14, 2015 and can be accessed by dialing
1-877-344-7529 for domestic callers and 1-412-317-0088 for
international callers. The passcode for the replay is
10054423. A replay will also be available at "Webcasts &
Events" in the "Investor Relations" section of the company's
website.
A supplemental financial package to accompany the discussion of
the results will be posted on www.cityofficereit.com under the
"Investor Relations" section.
Forward-looking Statements
This press release contains "forward looking statements" within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and other federal
securities laws. All statements that are not statements of
historical facts are, or may be deemed to be, forward looking
statements. Forward looking statements reflect our current
expectations concerning future results, objectives, plans and
goals, and involve known and unknown risks, uncertainties and other
factors that are difficult to predict and which may cause future
results, performance or achievements to differ. These risks,
uncertainties and other factors include factors described in our
news releases and filings with the Securities and Exchange
Commission. The Company does not have any obligation to
publicly update any forward looking statements to reflect
subsequent events or circumstances.
Non-GAAP Financial Measures
FFO, Core FFO and AFFO are supplemental non-GAAP financial
measures.
Funds from Operations ("FFO") – The National Association
of Real Estate Investment Trusts ("NAREIT') states FFO should
represent net income or loss (computed in accordance with GAAP)
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments of
unconsolidated partnerships and joint ventures, gains or losses on
the sale of property and impairments to real
estate.
The Company uses FFO as a supplemental performance measure
because it believes that FFO is beneficial to investors as a
starting point in measuring the Company's operational
performance. We also believe that, as a widely recognized
measure of the performance of REITs, FFO will be used by investors
as a basis to compare the Company's operating performance with that
of other REITs.
However, because FFO excludes depreciation and amortization and
captures neither the changes in the value of the Company's
properties that result from use or market conditions nor the level
of capital expenditures and leasing commissions necessary to
maintain the operating performance of the Company's properties, all
of which have real economic effects and could materially impact the
Company's results from operations, the utility of FFO as a measure
of the Company's performance is limited. In addition, other
equity REITs may not calculate FFO in accordance with the NAREIT
definition as the Company does, and, accordingly, the Company's FFO
may not be comparable to such other REITs' FFO. Accordingly,
FFO should be considered only as a supplement to net income as a
measure of the Company's performance.
Core Funds from Operations ("Core FFO") – Management
believes that Core FFO is a useful measure of our operating
performance. We calculate Core FFO by using FFO as defined by
NAREIT and adjusting for certain other non-core items.
We also exclude from our Core FFO calculation acquisition costs,
the one-time loss on early extinguishment of Predecessor debt,
changes in the fair value of the earn-out and the amortization of
stock based compensation.
Adjusted Funds From Operations ("AFFO") – Management
believes that AFFO is a useful measure of our liquidity. We
compute AFFO by adding to FFO the non-cash amortization of deferred
financing fees, and non-real estate depreciation, and then
subtracting cash paid for any tenant improvements, leasing
commissions, and capital expenditures, and eliminating the net
effect of straight-line rents, deferred market rent and debt fair
value amortization. For the current quarter, we have further
excluded all costs associated with tenant improvements, leasing
commissions and capital expenditures which were funded by the
entity contributing the properties at closing.
City Office REIT,
Inc. and Predecessor
|
Condensed
Consolidated and Combined Balance Sheets
(Unaudited)
|
|
|
|
|
|
September 30, 2014
|
|
Predecessor
December 31,
2013
|
|
|
Assets
|
|
|
|
Real estate
properties, cost
|
|
|
|
Land
|
$
61,788,918
|
|
$
30,164,513
|
Building and
improvement
|
115,639,203
|
|
62,908,338
|
Tenant
improvement
|
25,252,774
|
|
14,590,971
|
Furniture, fixtures
and equipment
|
198,114
|
|
198,114
|
|
202,879,009
|
|
107,861,936
|
Accumulated
depreciation
|
(13,065,451)
|
|
(7,735,450)
|
|
189,813,558
|
|
100,126,486
|
Investments in
unconsolidated entity
|
—
|
|
4,337,899
|
Cash and cash
equivalents
|
8,855,196
|
|
7,127,764
|
Restricted
cash
|
13,184,871
|
|
7,368,124
|
Rents receivable,
net
|
7,372,062
|
|
4,680,284
|
Deferred financing
costs, net of accumulated amortization
|
2,919,700
|
|
1,167,666
|
Deferred leasing
costs, net of accumulated amortization
|
2,478,801
|
|
2,302,841
|
Acquired lease
intangibles assets, net
|
26,995,279
|
|
13,751,563
|
Prepaid expenses and
other assets
|
546,298
|
|
296,572
|
Deferred offering
costs
|
—
|
|
1,830,950
|
Total
Assets
|
$
252,165,765
|
|
$
142,990,149
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$ 179,604,305
|
|
$ 109,916,430
|
Accounts payable and
accrued liabilities
|
4,201,127
|
|
2,347,999
|
Deferred
rent
|
2,648,850
|
|
1,488,618
|
Tenant rent
deposits
|
1,842,820
|
|
1,361,641
|
Acquired lease
intangibles liability, net
|
649,234
|
|
167,346
|
Dividend distributions
payable
|
2,689,532
|
|
—
|
Earn-out
liability
|
8,000,000
|
|
—
|
Total
Liabilities
|
199,635,868
|
|
115,282,034
|
Commitments and
Contingencies
|
|
|
|
Equity:
|
|
|
|
Common stock, $0.01
par value, 100,000,000 shares authorized, 8,192,915
shares issued and outstanding
|
81,929
|
|
—
|
Additional paid-in
capital
|
45,503,697
|
|
—
|
Accumulated
deficit
|
(7,136,038)
|
|
—
|
Predecessor
equity
|
—
|
|
26,624,375
|
Total Stockholders'
and Predecessor Equity
|
38,449,588
|
|
26,624,375
|
Operating Partnership
unitholders' noncontrolling interests
|
14,816,720
|
|
—
|
Noncontrolling
interests in properties
|
(736,411)
|
|
1,083,740
|
Total
Equity
|
52,529,897
|
|
27,708,115
|
Total Liabilities
and Equity
|
$
252,165,765
|
|
$
142,990,149
|
City Office REIT,
Inc. and Predecessor
Condensed Consolidated and Combined Statements of
Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
Revenues:
|
|
|
|
|
|
|
|
Rental
income
|
$ 9,036,858
|
|
$6,222,764
|
|
$ 23,987,891
|
|
$ 12,938,686
|
Expense
reimbursement
|
843,753
|
|
406,622
|
|
1,796,567
|
|
1,093,117
|
Other
|
117,809
|
|
202,990
|
|
589,631
|
|
593,724
|
Total
Revenues
|
9,998,420
|
|
6,832,376
|
|
26,374,089
|
|
14,625,527
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Property operating
expenses
|
2,782,296
|
|
1,819,634
|
|
7,304,371
|
|
4,005,302
|
Insurance
|
167,046
|
|
144,057
|
|
489,471
|
|
374,655
|
Property
taxes
|
753,329
|
|
458,611
|
|
1,775,641
|
|
1,015,164
|
Property management
fees
|
225,719
|
|
143,764
|
|
619,497
|
|
397,297
|
Acquisition
costs
|
401,200
|
|
—
|
|
1,551,347
|
|
1,479,292
|
Base management
fee
|
226,295
|
|
—
|
|
411,471
|
|
—
|
Stock-based
compensation
|
382,205
|
|
—
|
|
667,347
|
|
—
|
General and
administrative
|
407,075
|
|
—
|
|
821,379
|
|
—
|
Depreciation and
amortization
|
4,057,809
|
|
2,530,128
|
|
10,633,593
|
|
5,245,498
|
Total Operating
Expenses
|
9,402,974
|
|
5,096,194
|
|
24,274,117
|
|
12,517,208
|
Operating
income
|
595,446
|
|
1,736,182
|
|
2,099,972
|
|
2,108,319
|
Interest
Expense:
|
|
|
|
|
|
|
|
Contractual interest
expense
|
(1,866,999)
|
|
(1,229,215)
|
|
(5,821,533)
|
|
(3,065,648)
|
Amortization of
deferred financing costs
|
(159,670)
|
|
(433,495)
|
|
(1,288,714)
|
|
(638,938)
|
Loss on early
extinguishment of Predecessor debt
|
—
|
|
—
|
|
(1,654,828)
|
|
—
|
|
(2,026,669)
|
|
(1,662,710)
|
|
(8,765,075)
|
|
(3,704,586)
|
Change in fair value
of earn-out
|
(942,650)
|
|
—
|
|
(1,047,515)
|
|
—
|
Gain on equity
investment
|
—
|
|
—
|
|
4,474,644
|
|
—
|
Equity in income of
unconsolidated entity
|
—
|
|
84,774
|
|
—
|
|
255,422
|
Net
(loss)/income
|
(2,373,873)
|
|
158,246
|
|
(3,237,974)
|
|
(1,340,845)
|
Less:
|
|
|
|
|
|
|
|
Net (income)/loss
attributable to noncontrolling
interests in
properties
|
(87,296)
|
|
21,368
|
|
(8,326)
|
|
60,356
|
Net loss/(income)
attributable to Predecessor
|
—
|
|
179,614
|
|
(1,973,197)
|
|
(1,280,489)
|
Net loss attributable
to Operating Partnership
unitholders' noncontrolling
interests
|
693,971
|
|
|
|
1,508,097
|
|
|
Net loss
attributable to stockholders
|
$ (1,767,198)
|
|
|
|
$ (3,711,400)
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
Basic and
diluted
|
$
(0.22)
|
|
|
|
$
(0.46)
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
Basic and
diluted
|
8,192,915
|
|
|
|
8,133,940
|
|
|
Dividend
distributions declared per common share
and unit
|
$
0.235
|
|
|
|
$
0.418
|
|
|
|
City Office REIT,
Inc.
|
|
Reconciliation of
Net Operating Income
|
|
(Unaudited)
|
|
|
|
|
|
Three
Months
|
|
|
Ended Sept
30,
|
|
|
2014
|
|
|
|
Net loss
|
$ (2,373,873)
|
Adjustments to net
loss:
|
|
|
General and
administrative
|
407,075
|
|
Interest
expense
|
1,866,999
|
|
Amortization of
financing costs
|
159,670
|
|
Depreciation and
Amortization
|
4,057,809
|
|
Acquisition
costs
|
401,200
|
|
Loss on early
extinguishment of Predecessor debt
|
-
|
|
Change in fair value
of earn-out
|
942,650
|
|
Stock based
compensation
|
382,205
|
|
Base management
fee
|
226,295
|
Net Operating
Income ("NOI")
|
$
6,070,030
|
|
Straight-line rent
adjustments
|
(302,677)
|
|
Amortization of
acquired above market leases
|
114,815
|
|
Free rent funded by
predecessor at closing of IPO
|
274,578
|
Portfolio adjusted
cash NOI
|
$
6,156,746
|
|
Noncontrolling
interest in properties - share in cash NOI
|
(284,090)
|
Adjusted Cash NOI
(CIO Share)
|
$
5,872,656
|
|
City Office REIT,
Inc.
|
|
Reconciliation of
Net Income to Adjusted Funds from Operations
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Three
Months
|
|
|
|
Ended Sept
30,
|
|
|
|
2014
|
|
|
|
|
Net loss attributable
to stockholders
|
|
(1,767,198)
|
|
(+) Depreciation and
amortization
|
|
4,057,809
|
|
(-) Operating
Partnership unitholders' noncontrolling
interest
|
|
(693,971)
|
|
(-) Net loss
attributable to Predecessor
|
|
-
|
|
|
|
1,596,640
|
|
Non-controlling
interests in properties:
|
|
|
|
(-) Share of net
loss
|
|
87,296
|
|
(-) Share of
FFO
|
|
(199,001)
|
Funds from
Operations ("FFO")
|
|
$
1,484,935
|
|
(+) Acquisition
costs
|
|
401,200
|
|
(+) Loss on early
extinguishment of Predecessor
debt
|
|
-
|
|
(+) Change in fair
value of earn-out
|
|
942,650
|
|
(+) Stock based
compensation
|
|
382,205
|
Core
FFO
|
|
$
3,210,990
|
|
(-) Straight line
rent adjustment
|
|
(302,677)
|
|
(+) Amortization of
above and below market lease
|
|
114,815
|
|
(+) Amortization of
deferred financing costs
|
|
154,322
|
|
(-) Net tenant
improvement
|
|
(116,349)
|
|
(-) Net leasing
commissions
|
|
(125,359)
|
|
(-) Net capital
expenditures
|
|
(87,986)
|
|
(+) Free rent funded
at closing
|
|
274,578
|
Adjusted Funds
from Operations ("AFFO")
|
|
$
3,122,334
|
|
|
|
|
Core FFO per share
and common unit
|
|
$
0.27
|
AFFO per share and
common unit
|
|
$
0.26
|
|
|
|
|
Dividends per
share and common unit
|
|
$
0.235
|
Core FFO Payout
Ratio
|
|
87%
|
AFFO Payout
Ratio
|
|
89%
|
|
|
|
|
Number of common
stock and common units outstanding
|
|
11,832,199
|
Contact
City Office REIT, Inc.
Anthony Maretic
+1-604-806-3366
investorrelations@cityofficereit.com
SOURCE City Office REIT, Inc.