-Increases 2015 Same-Store NOI
Guidance
-Announces Pending Dallas Acquisition
VANCOUVER, Aug. 6, 2015 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO) (the "Company" or "City Office"), today
announced its results for the quarter ended June 30, 2015.
Second Quarter Highlights
- Achieved Core Funds From Operations ("Core FFO") of
$4.2 million, or $0.27 per fully diluted share;
- Reported Adjusted Funds From Operations ("AFFO") of
$3.3 million, or $0.21 per fully diluted share. Adding back
the leasing commissions associated with the previously announced
178,330 square foot lease completed during the second quarter with
the Dun & Bradstreet Corporation ("D&B") results in a
normalized AFFO of $4.1 million, or
$0.26 per fully diluted share;
- Increased in-place and committed occupancy from 94.5% to 95.2%
representing the fifth consecutive quarter of increases;
- Executed approximately 380,000 square feet of new and renewal
leases during the quarter, including leases which will commence
subsequent to quarter end. This includes the previously
announced 10 year lease with St. Luke's Regional Medical Center,
Ltd. ("St. Luke's") for 147,657 square feet in Boise, Idaho as well as the previously
announced 178,330 square foot early renewal with D&B until
January 2027 in Allentown, Pennsylvania;
- Updated the 2015 Cash Net Operating Income ("NOI") and GAAP NOI
outlook range for the nine properties owned at December 31, 2014 due to strong leasing activity
and stable expenses. The updated range has been increased to
$28.7 to $29.1 million for Cash NOI
and $28.0 to $28.4 million for GAAP
NOI;
- Completed the previously announced Superior Pointe and DTC
Crossroads acquisitions in Denver,
Colorado for a combined purchase price of $60.8 million;
- Subsequent to the end of second quarter expanded the Secured
Credit Facility from $35 to
$75 million; and
- Subsequent to the end of the second quarter, entered into an
agreement of purchase and sale for the acquisition of Granite 190,
a 307,400 square foot Class A multi-tenant property in Dallas, Texas for $54.4
million.
"City Office demonstrated remarkable progress during the second
quarter," commented James Farrar,
City Office's Chief Executive Officer. "Our focus on securing
long-term leases with strong credit tenants, and creating value by
leasing vacant space has significantly enhanced the value of our
real estate. These efforts have resulted in committed and
in-place occupancy exceeding 95%, a testament to the strength of
our strategy, operating partners, real estate and markets.
While our large leases with Dun & Bradstreet and St. Luke's
were the highlights of the quarter, we are seeing positive trends
across our entire portfolio. Our City Center asset has
achieved 100% in-place and committed occupancy and Central
Fairwind's in-place and committed occupancy is 87.5% versus 72.1% a
year ago. Furthermore, our focus on executing value enhancing
acquisitions has positioned us to deliver continued cash flow
growth."
Financial Results for the Second Quarter 2015
Core FFO was $4.2 million or
$0.27 per fully diluted share.
AFFO was $3.3 million or $0.21 per fully diluted share. Adding back
the leasing commissions associated with the previously announced
178,330 square foot lease completed during the quarter with D&B
results in a normalized AFFO of $4.1
million, or $0.26 per fully
diluted share. Net loss attributable to the Company for the
three months ended June 30, 2015 was
$1.8 million, or ($0.15) per share.
A reconciliation of Core FFO and AFFO to GAAP net income can be
found at the bottom of this release.
2015 Revised Outlook
After considering the Company's year-to-date performance, City
Office REIT is revising its 2015 Cash NOI and GAAP NOI outlook
range for the nine properties owned at December 31, 2014. The updated Cash NOI
range has been increased to $28.7 to $29.1
million and the GAAP NOI range has been increased to
$28.0 to $28.4 million. The
prior guidance was $27.7 to $28.3
million for Cash NOI and $27.2 to
$27.8 million for GAAP NOI. These estimates exclude
all property acquired during calendar 2015.
Portfolio Operations
The Company reported that its total portfolio as of June 30, 2015 contained 2.7 million net rentable
square feet and was 95.2% occupied, including recently signed
leases not commenced at the end of the second quarter. Excluding
the impact of acquisitions that occurred during the quarter, this
represents approximately a 140 basis point increase compared to the
end of the prior quarter. City Office's net operating income
("NOI") was $7.5 million on a GAAP
basis and $7.6 million on a cash
basis during the second quarter of 2015. NOI included limited
results from both Superior Pointe, which was acquired on
June 17, 2015 and DTC Crossroads
which was acquired on June 30,
2015.
Leasing Activity
During the second quarter of 2015, the Company commenced eight
new leases for 23,000 square feet and one renewal for 2,000 square
feet. Early renewals signed in the second quarter totalled
180,000 square feet, taking the total leasing activity in the
quarter to 205,000 square feet. The early renewals include
the previously announced D&B lease for 178,330 square feet
until January 2027 in Allentown, Pennsylvania. As part of this
early renewal, the Dun & Bradstreet Corporation, which is the
investment grade parent entity, replaced its subsidiary that was
previously the tenant. The total estimated cost of tenant
inducements and leasing commissions is approximately $6.9 million of which $0.8
million was accrued as of June 30,
2015 for leasing commissions.
New Leasing – During the second quarter of 2015, the Company
signed 178,000 square feet of new leases with a weighted average
lease term of 9.3 years at an average rent per square foot of
$17.65 and at an average cost of
$4.05 per square foot per year. These
results include the previously announced 10 year lease with St.
Luke's for 147,657 square feet in Boise, Idaho.
The St. Luke's lease is expected to commence on July 1, 2016 after a build-out of approximately
six months. The lease is for the entire Plaza I building
totalling 147,657 square feet with a blended starting rent of
$16.26 per square foot on a gross
basis ($17.00 for the office space
and $12.00 for the basement
space). The lease provides for 1.5% annual increases to the
base rental rate. The build-out is anticipated to take
approximately six months, resulting in downtime for the Plaza I
building beginning on January 1,
2016. During this period of time, the estimated lost rental
revenue will be approximately $1.2
million. The total estimated cost of tenant
improvements and leasing commissions is approximately $6.0 million of which $1.2
million was incurred during the second quarter.
Renewal Leasing – The Company signed 180,000 square feet of
renewal leases, including the previously announced early extension
of the D&B lease, at an average rent per square foot of
$16.44 and at an average cost of
$3.78 per square foot per year.
The D&B extension lease rate is $16.50 triple net ("NNN") commencing on
December 1, 2016 and increasing by
2.5% per annum.
Central Fairwinds Earn-out Liability
As part of the IPO formation transactions, the Central Fairwinds
property in downtown Orlando
included a future earn-out liability linked to achieving future
leasing and cash flow milestones. As a result of the faster
than anticipated leasing results, the Company increased the
expected value of the Earn-out liability by $0.6 million to $8.6 million at June 30, 2015. Also during the quarter, the
70% occupancy threshold was achieved and $3.2 million of earn-out consideration will be
paid in common stock and operating partnership units during the
third quarter of 2015.
Acquisitions
The Company completed the acquisition of Superior Pointe, a
149,006 square foot multi-tenant building on June 17, 2015. The purchase price was
$25.8 million or $173 per square foot. Superior Pointe is a
90% occupied Class A property in the growing Northwest/Boulder
submarket. The acquisition is anticipated to generate an
initial full-year cash net operating income yield of approximately
7.5% based on the purchase price.
The Company completed the acquisition of DTC Crossroads, a
190,703 square foot multi-tenant building on June 30, 2015. The purchase price was
$35 million or $183 per square foot. DTC Crossroads is a
90% occupied Class A property located in the Denver Technological
Center ("DTC") submarket. The acquisition is anticipated to
generate an initial full-year cash net operating income yield of
approximately 7.6% based on the purchase price.
Subsequent to quarter end, the Company entered into an agreement
of purchase and sale for the acquisition of Granite 190, a 307,400
square foot Class A multi-tenant property in Dallas, Texas for $54.4
million or $177 per square
foot. Granite 190 is a two building property constructed in
2001 and 2008 that is 97% leased to a variety of strong credit
tenants. It is well located in the growing Richardson/Plano submarket of Dallas with frontage on the President George
Bush Turnpike. The property has quality amenities
including nine foot clear ceiling heights, excellent window lines,
one of the highest parking ratios in the submarket and large
efficient 50,000 square foot floorplates that are well suited to
the market's corporate tenant base. The acquisition is
anticipated to generate an initial full-year cash net operating
income yield of approximately 7.5% based on the purchase price,
inclusive of free rent credits funded by the seller at
closing. The closing is anticipated to occur in late August
2015.
Subsequent Event – Secured Credit Facility
On July 14, 2015, the Company
entered into a First Amendment and Joinder to its Amended and
Restated Credit Agreement which increased the authorized borrowing
capacity under the Credit Agreement from $35
million to $75 million.
At June 30, 2015, the Secured Credit
Facility had $35 million authorized
and drawn. In addition, the Secured Credit Facility has an
accordion feature that will permit the Company to borrow up to
$150 million, subject to additional
collateral availability and lender approval. The Credit
Agreement has a maturity date of June 26,
2018, which may be extended to June
26, 2019 at the Company's option subject to compliance with
certain extension conditions set forth in the Secured Credit
Facility. The Secured Credit Facility currently bears an
interest rate of one month LIBOR plus 2.25%.
KeyBank National Association is acting as the Lead Arranger and
Book Runner under the facility. In addition, BMO Harris Bank,
N.A. and the Royal Bank of Canada
are acting as participant lenders.
Capital Structure
As of June 30, 2015, the Company
had total outstanding debt of approximately $241.1 million. 85.6% of the Company's
outstanding debt was fixed rate, with a weighted average maturity
of 5.6 years.
Dividend
On June 15, 2015, the Company's
board of directors declared a cash dividend of $0.235 per share for the three months ended
June 30, 2015. The dividend was
paid to stockholders and common unitholders on July 17, 2015.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on August 6, 2015.
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
August 6, 2015, continuing through
11:59pm Eastern Time on November 6, 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
10069282. A replay will also be available for twelve months
following the call 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.
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") – 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, loss on early
extinguishment of debt, changes in the fair value of the earn-out
and the amortization of stock based compensation.
Adjusted Funds From Operations ("AFFO") – We compute AFFO
by adding to Core FFO the non-cash amortization of deferred
financing fees, and non-real estate depreciation, and then
subtracting cash paid for recurring tenant improvements, leasing
commissions, and capital expenditures, and eliminating the net
effect of straight-line rents, deferred market rent and debt fair
value amortization. Recurring capital expenditures exclude
development / redevelopment activities, capital expenditures
planned at acquisition and costs to reposition a property. We
exclude first generation leasing costs within the first two years
of our initial public offering or acquisition, which are generally
to fill vacant space in properties we acquire or were planned at
acquisition. 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.
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. These factors include, but are not limited to,
the Company's ability to source and acquire properties on
attractive terms, or at all; the Company's expectations and
forecasts of future leasing activity at its current and future
properties, and the Company's ability to accurately model the
income yield, capitalization rate, and other financial metrics used
to evaluate its properties. These and other material risks are
described in the Company's Annual Report on 10-K for the year ended
December 31, 2014 and any other
documents filed by the Company from time to time, which are
available from the Company and from the SEC, and you should read
and understand these risks when evaluating any forward-looking
statement. The Company does not have any obligation to publicly
update any forward looking statements to reflect subsequent events
or circumstances.
City Office REIT,
Inc. and Predecessor
Condensed
Consolidated and Combined Balance Sheets
(Unaudited)
(In thousands,
except par value and share data)
|
|
|
|
|
|
June
30,
2015
|
|
December
31,
2014
|
Assets
|
|
|
|
Real estate
properties, cost
|
|
|
|
Land
|
$ 77,708
|
|
$ 66,204
|
Buildings and
improvements
|
183,310
|
|
132,964
|
Tenant
improvement
|
30,565
|
|
27,773
|
Furniture, fixtures
and equipment
|
198
|
|
198
|
|
291,781
|
|
227,139
|
Accumulated
depreciation
|
(20,092)
|
|
(15,311)
|
|
271,689
|
|
211,828
|
Cash and cash
equivalents
|
11,293
|
|
34,862
|
Restricted
cash
|
10,114
|
|
11,093
|
Rents receivable,
net
|
11,635
|
|
7,981
|
Deferred financing
costs, net of accumulated amortization
|
2,801
|
|
2,901
|
Deferred leasing
costs, net of accumulated amortization
|
4,711
|
|
2,618
|
Acquired lease
intangibles assets, net
|
33,583
|
|
29,391
|
Prepaid expenses and
other assets
|
1,251
|
|
832
|
Total
Assets
|
$ 347,077
|
|
$ 301,506
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$ 241,095
|
|
$ 189,940
|
Accounts payable and
accrued liabilities
|
7,423
|
|
4,080
|
Deferred
rent
|
1,197
|
|
2,212
|
Tenant rent
deposits
|
2,078
|
|
1,862
|
Acquired lease
intangibles liability, net
|
1,193
|
|
606
|
Dividend distributions
payable
|
3,601
|
|
3,571
|
Earn-out
liability
|
8,600
|
|
8,000
|
Total
Liabilities
|
265,187
|
|
210,271
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
Equity:
|
|
|
|
Common stock, $0.01
par value, 100,000,000
shares authorized, 12,417,230 shares
issued and outstanding
|
124
|
|
123
|
Additional paid-in
capital
|
92,270
|
|
91,308
|
Accumulated
deficit
|
(19,664)
|
|
(11,320)
|
Total Stockholders'
Equity
|
72,730
|
|
80,111
|
Operating Partnership
unitholders'
non-controlling
interests
|
9,866
|
|
11,878
|
Non-controlling
interests in properties
|
(706)
|
|
(754 )
|
Total
Equity
|
81,890
|
|
91,235
|
Total Liabilities
and Equity
|
$ 347,077
|
|
$ 301,506
|
City Office REIT,
Inc. and Predecessor
Condensed
Consolidated and Combined Statements of Operations
(Unaudited)
(In thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30,
|
|
Six Months
Ended
June 30,
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Rental
income
|
$
10,196
|
|
$
7,714
|
|
$
20,237
|
|
$
14,951
|
Expense
reimbursement
|
1,145
|
|
503
|
|
2,036
|
|
953
|
Other
|
293
|
|
176
|
|
621
|
|
472
|
Total
Revenues
|
11,634
|
|
8,393
|
|
22,894
|
|
16,376
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Property operating
expenses
|
4,127
|
|
3,184
|
|
8,243
|
|
6,261
|
Acquisition
costs
|
882
|
|
344
|
|
1,091
|
|
1,150
|
Stock based
compensation
|
507
|
|
285
|
|
916
|
|
285
|
General and
administrative
|
495
|
|
364
|
|
902
|
|
414
|
Base management
fee
|
327
|
|
185
|
|
659
|
|
185
|
Depreciation and
amortization
|
4,494
|
|
3,416
|
|
8,900
|
|
6,576
|
Total Operating
Expenses
|
10,832
|
|
7,778
|
|
20,711
|
|
14,871
|
Operating
income
|
802
|
|
615
|
|
2,183
|
|
1,505
|
Interest
Expense:
|
|
|
|
|
|
|
|
Contractual interest
expense
|
(2,103)
|
|
(1,785)
|
|
(4,112)
|
|
(3,955)
|
Amortization of
deferred financing
costs
|
(185)
|
|
(137)
|
|
(354)
|
|
(1,129)
|
Loss on early
extinguishment of
Predecessor debt
|
—
|
|
(1,655)
|
|
—
|
|
(1,655)
|
|
(2,288)
|
|
(3,577)
|
|
(4,466)
|
|
(6,739)
|
Change in fair value
of earn-out
|
(600)
|
|
(105)
|
|
(600)
|
|
(105)
|
Gain on equity
investment
|
—
|
|
—
|
|
—
|
|
4,475
|
Equity in income of
unconsolidated entity
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
Net
loss
|
(2,086)
|
|
(3,067)
|
|
(2,883)
|
|
(864)
|
Less:
|
|
|
|
|
|
|
|
Net (income)/loss
attributable to
noncontrolling interests in properties
|
(134)
|
|
69
|
|
(255)
|
|
79
|
Net loss/(income)
attributable to
Predecessor
|
—
|
|
240
|
|
—
|
|
(1,973)
|
Net loss attributable
to Operating Partnership
unitholders' noncontrolling interests
|
422
|
|
814
|
|
598
|
|
814
|
Net
loss attributable
to
stockholders
|
$
(1,798)
|
|
$
(1,944)
|
|
$
(2,540)
|
|
$
(1,944)
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
Basic and
diluted
|
$
(0.15)
|
|
$
(0.24)
|
|
$
(0.21)
|
|
$
(0.24)
|
|
|
|
|
|
|
|
|
Weighted
average common shares
outstanding:
|
|
|
|
|
|
|
|
Basic and
diluted
|
12,365
|
|
8,058
|
|
12,328
|
|
8,058
|
|
|
|
|
|
|
|
|
Dividends/distributions declared
per
common share and
unit
|
$
0.235
|
|
$
0.183
|
|
$ 0.235
|
|
$ 0.183
|
City Office REIT,
Inc.
Reconciliation of
Net Operating Income
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
Three Months
Ended June 30,
2015
|
|
|
|
|
Net loss
|
|
$
(2,086)
|
Adjustments to net
loss:
|
|
|
|
General and
administrative
|
|
495
|
|
Contractual interest
expense
|
|
2,103
|
|
Amortization of
deferred financing costs
|
|
185
|
|
Depreciation and
amortization
|
|
4,494
|
|
Acquisition
costs
|
|
882
|
|
Stock based
compensation
|
|
507
|
|
Base management
fee
|
|
327
|
|
Loss on early
extinguishment of Predecessor debt
|
|
-
|
|
Change in fair value
of earn-out
|
|
600
|
Portfolio Net
Operating Income ("NOI")
|
|
$
7,507
|
|
Net straight line
rent adjustment
|
|
-
|
|
Net amortization of
above and below market leases
|
|
141
|
|
Free rent funded by
predecessor at closing of IPO
|
|
-
|
Portfolio Adjusted
Cash NOI
|
|
$
7,648
|
|
Non-controlling
interests in properties - share in cash NOI
|
(327)
|
Adjusted Cash NOI
(CIO share)
|
|
$
7,321
|
City Office REIT,
Inc.
Reconciliation of
Net Income to Adjusted Funds from Operations
(Unaudited)
(In thousands,
except share and per share data)
|
|
|
|
|
|
Three Months
Ended June 30,
2015
|
|
|
|
|
Net loss attributable
to stockholders
|
|
$
(1,798)
|
|
(+) Depreciation and
amortization
|
|
4,494
|
|
(-) Operating
Partnership unitholders' noncontrolling
interest
|
(422)
|
|
(-) Net loss
attributable to Predecessor
|
|
-
|
|
|
|
2,274
|
|
Non-controlling
interests in properties:
|
|
|
|
(-) Share of net
loss
|
|
134
|
|
(-) Share of
FFO
|
|
(243)
|
Funds from
Operations ("FFO")
|
|
$
2,165
|
|
(+) Acquisition
costs
|
|
882
|
|
(+) Stock based
compensation
|
|
507
|
|
(+) Loss on early
extinguishment of Predecessor debt
|
|
-
|
|
(+) Change in fair
value of earn-out
|
|
600
|
Core
FFO
|
|
$
4,154
|
|
(-) Net straight line
rent adjustment
|
|
-
|
|
(+) Net amortization
of above and below
market
leases
|
|
141
|
|
(+) Net amortization
of deferred financing costs
|
|
179
|
|
(-) Net recurring
tenant improvement
|
|
(16)
|
|
(-) Net recurring
leasing commissions
|
|
(824)
|
|
(-) Net recurring
capital expenditures
|
|
(343)
|
|
(+) Free rent funded
at closing
|
|
-
|
Adjusted Funds
from Operations ("AFFO")1
|
|
$
3,291
|
|
|
|
|
Core FFO per share
and common unit
|
|
$
0.27
|
AFFO per share and
common unit1
|
|
$
0.21
|
|
|
|
|
Dividends per
share and common unit
|
|
$
0.235
|
Core FFO Payout
Ratio
|
|
88%
|
AFFO Payout
Ratio1
|
|
112%
|
|
|
|
|
(1) The Adjusted Funds
from Operations for the three months ended June 30, 2015 include
$821,074 of lease commissions in connection with the signing of the
D&B lease in the current quarter. Without these costs AFFO was
$4.1 million, AFFO per share and common unit was $0.26 and the AFFO
Payout ratio was 96%.
|
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/city-office-reit-reports-second-quarter-2015-results-300124731.html
SOURCE City Office REIT, Inc.