VANCOUVER, Nov. 6, 2015 /PRNewswire/ -- City Office REIT,
Inc. (NYSE: CIO) (the "Company" or "City Office"), today announced
its results for the quarter ended September
30, 2015.
Third Quarter Highlights
- Achieved Core Funds From Operations ("Core FFO") of
$5.1 million, or $0.33 per fully diluted share;
- Reported Adjusted Funds From Operations ("AFFO") of
$4.2 million, or $0.26 per fully diluted share;
- Increased in-place and committed occupancy from 95.2% to 95.4%
representing the sixth consecutive quarter of increases;
- Executed approximately 95,000 square feet of new and renewal
leases during the quarter, including leases which will commence
subsequent to quarter end;
- Completed the previously announced 190 Office Center
(previously called "Granite 190") and Intellicenter acquisitions in
Dallas, Texas and Tampa, Florida for a combined purchase price
of $101 million; and
- Subsequent to the end of the third quarter, entered into
definitive agreements to internalize its management effective
February 1, 2016.
"City Office executed well against a number of our key
priorities during the third quarter," commented James Farrar, City Office's Chief Executive
Officer. "We closed on $101
million of acquisitions, continued with our strong leasing
momentum and achieved solid results with $0.33 of Core FFO per share and $0.26 of AFFO per share. This is a
testament to the quality of execution by our team and the
impressive leasing fundamentals in our target markets.
Furthermore, as announced in our press release on November 2nd, we have made the
decision to become an internally managed company on February 1, 2016. This decision positions
us to secure a committed and aligned management team, realize
economies of scale as we grow and expand our potential investor
universe."
Financial Results for the Third Quarter 2015
Core FFO was $5.1 million or
$0.33 per fully diluted share.
AFFO was $4.2 million, or
$0.26 per fully diluted share.
Net loss attributable to the Company for the three months ended
September 30, 2015 was $2.5 million, or ($0.20) per share.
A reconciliation of Core FFO, AFFO and NOI to GAAP net income
can be found at the end of this release.
Portfolio Operations
The Company reported that its total portfolio as of September 30, 2015 contained 3.3 million net
rentable square feet and was 95.4% occupied, including recently
signed leases not commenced at the end of the third quarter.
Excluding the impact of acquisitions that occurred during the
quarter, this represents approximately a 20 basis point increase
compared to the end of the prior quarter. City Office's net
operating income ("NOI") was $9.1
million on a GAAP basis and $8.4
million on a cash basis during the third quarter of
2015. NOI included limited results from both 190 Office
Center and Intellicenter, which were both acquired on September 3, 2015.
Leasing Activity
During the third quarter of 2015, the Company commenced three
new leases for 5,000 square feet and seven renewals for 14,000
square feet. Early renewals signed in the third quarter
totalled 15,000 square feet, taking the total leasing activity in
the quarter to 34,000 square feet.
New Leasing – During the third quarter of 2015, the Company
signed 61,000 square feet of new leases with a weighted average
lease term of 7.0 years at an average rent per square foot of
$22.75 and at an average cost of
$2.45 per square foot per year. The
new leasing includes 33,424 square feet leased to Kaiser Foundation
Health Plan, Inc., at the Company's Amberglen property. This
ten year lease will commence on April 1,
2016 for the 2430 building where a known vacate will occur
on December 31,
2015.
Renewal Leasing – The Company signed 15,000 square feet of
renewal leases at an average rent per square foot of $26.28 and at an average cost of $1.63 per square foot per year.
Investment Activity
The Company completed the acquisition of the 190 Office Center,
a 302,829 square foot Class A multi-tenant property in Dallas, Texas for $54.4
million, or $179 per square
foot. 190 Office Center is a two building property
constructed in 2001 and 2008 that is 98% 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 acquisition
was financed with a $41.3 million
mortgage that has been fixed at a 4.79% interest rate for 10
years.
The Company completed the acquisition of Intellicenter, a
203,509 square foot Class A multi-tenant property in Tampa, Florida for $44.6 million, or $219 per square foot. Intellicenter is a
four story office building constructed in 2008 that is 100% leased
to a variety of strong credit tenants. The property is well located
on the I-75 Corridor submarket in the Tampa Telecom Park and is in
close proximity to the University of South Florida.
Intellicenter caters to large corporate tenants that require
efficient floorplates and a premium quality office environment. The
building offers impressive features such as nine foot ceiling
heights, raised access flooring with underfloor air distribution
and a desirable 5.6 per 1,000 square foot parking ratio. The
acquisition is anticipated to generate an initial full-year cash
net operating income yield of approximately 7.3%. In
addition, as part of the transaction the Company has also purchased
an adjacent 14.1 acre development site for $2.0 million. The combined purchase price
of Intellicenter and the land is $46.6
million, and is anticipated to generate a combined initial
full-year cash net operating income yield of 7.0%. The
acquisition was financed with a $33.6
million mortgage that has been fixed at a 4.65% interest
rate for 10 years and a $14.0 million
one year floating rate term loan with KeyBank.
Management Internalization
On November 2, 2015, the Company
announced that it has entered into definitive agreements to
internalize its management effective February 1, 2016. The Company believes that
internalization will allow City Office to realize economies of
scale and enhance its earnings potential as it grows. The
transaction, which was negotiated and approved by a committee of
independent directors, provides for the Company to acquire its
current external advisor and directly employ the advisor's existing
management team and other employees. The independent
directors of the Company believe that the effective termination of
the external advisory relationship and internalization of
management will reduce expenses as the Company grows and further
align the interests of management, the Board of Directors and
shareholders.
Key Aspects of the Internalization:
- Continuity of Management Team – The management team of
the Company's external advisor, including the Company's current
executive officers, will become employees of City Office. The
Company will enter into employment agreements with each of its
Chief Executive Officer, its President and its Chief Financial
Officer providing a seamless transition and clarity as to future
senior leadership.
- Favorable Internalization Economics – In connection with
the internalization, City Office will enter into an administrative
services agreement to provide certain affiliates of the external
advisor administrative services and support and will receive an
aggregate of $3.25 million for such
services over the three years following closing of the
internalization. In addition, the agreements provide for the
immediate elimination of the 1.0% acquisition fee payable by the
Company to the advisor under the advisory agreement.
- Economies of Scale and Accretion – Through the immediate
elimination of the acquisition fee and the elimination of the base
management fee effective February 1,
2016, the transaction permits economies of scale as the
Company's equity capital grows. Excluding the one-time costs
associated with the internalization, the Company expects the
transaction to be accretive to FFO, and as the Company grows,
accretive to both Core FFO and AFFO.
- Alignment of Interests – The internal management
structure creates a stronger alignment of interests among
management, the Board of Directors and shareholders. It also
empowers the Board of Directors and the internal management team
with full strategic and operational control. The Company also
believes an internal management structure is preferred by the
investment community over an external management structure allowing
for greater diversity in its shareholder base.
The Company's current Advisory Agreement, amended to provide for
elimination of the acquisition fee payable, remains in effect until
February 1, 2016. Effective
February 1, 2016, City Office will
acquire the external advisor (City Office Real Estate Management
Inc.), in exchange for an aggregate of 297,321 shares of City
Office common stock. This was determined based on a
$3.5 million purchase price and using
the 10 day volume weighted average stock price of approximately
$11.77 at October 30, 2015. City Office will also pay
up to an additional $3.5 million of
cash if, but only if, the Company achieves the following fully
diluted market capitalization thresholds prior to December 31, 2016: $1.0
million upon achieving a $200
million fully diluted market capitalization, an additional
$1.0 million upon achieving a
$225 million fully diluted market
capitalization and an additional $1.5
million upon achieving a $250
million fully diluted market capitalization.
Capital Structure
As of September 30, 2015, the
Company had total outstanding debt of approximately $344.9 million. 81.4% of the Company's
outstanding debt was fixed rate, with a weighted average maturity
of 6.1 years.
Dividend
On September 15, 2015, the
Company's board of directors declared a cash dividend of
$0.235 per share for the three months
ended September 30, 2015. The
dividend was paid on October 19, 2015
to stockholders and common unitholders of record on October 5, 2015.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on November 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
November 6, 2015, continuing through
11:59pm Eastern Time on February 6, 2016 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
10074251. 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, AFFO and NOI 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)
|
|
September
30,
2015
|
December 31,
2014
|
Assets
|
|
|
Real estate
properties, cost
|
|
|
Land
|
$ 90,205
|
$ 66,204
|
Buildings and
improvements
|
254,934
|
132,964
|
Tenant
improvement
|
34,509
|
27,773
|
Furniture, fixtures
and equipment
|
198
|
198
|
|
|
|
|
379,846
|
227,139
|
Accumulated
depreciation
|
(23,304 )
|
(15,311 )
|
|
|
|
|
356,542
|
211,828
|
|
|
|
Cash and cash
equivalents
|
10,516
|
34,862
|
Restricted
cash
|
17,420
|
11,093
|
Rents receivable,
net
|
12,676
|
7,981
|
Deferred financing
costs, net of accumulated amortization
|
3,585
|
2,901
|
Deferred leasing
costs, net of accumulated amortization
|
4,936
|
2,618
|
Acquired lease
intangibles assets, net
|
44,245
|
29,391
|
Prepaid expenses and
other assets
|
1,396
|
832
|
|
|
|
Total
Assets
|
$ 451,316
|
$ 301,506
|
|
|
|
Liabilities and
Equity
|
|
|
Liabilities:
|
|
|
Debt
|
$ 344,946
|
$ 189,940
|
Accounts payable and
accrued liabilities
|
10,615
|
4,080
|
Deferred
rent
|
3,147
|
2,212
|
Tenant rent
deposits
|
2,184
|
1,862
|
Acquired lease
intangibles liability, net
|
2,534
|
606
|
Dividend distributions
payable
|
3,663
|
3,571
|
Earn-out
liability
|
5,437
|
8,000
|
|
|
|
Total
Liabilities
|
372,526
|
210,271
|
|
|
|
Commitments and
Contingencies
|
|
|
Equity:
|
|
|
Common stock, $0.01
par value, 100,000,000 shares authorized, 12,517,777 shares issued
and outstanding
|
125
|
123
|
Additional paid-in
capital
|
94,814
|
91,308
|
Accumulated
deficit
|
(25,104)
|
(11,320 )
|
|
|
|
Total Stockholders'
Equity
|
69,835
|
80,111
|
Operating Partnership
unitholders' non-controlling interests
|
9,648
|
11,878
|
Non-controlling
interests in properties
|
(693)
|
(754 )
|
|
|
|
Total
Equity
|
78,790
|
91,235
|
|
|
|
Total Liabilities
and Equity
|
$ 451,316
|
$ 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
September 30,
|
Nine Months
Ended
September 30,
|
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Rental
income
|
$
12,601
|
$
9,037
|
$
32,838
|
$
23,988
|
Expense
reimbursement
|
1,701
|
844
|
3,737
|
1,796
|
Other
|
313
|
118
|
934
|
590
|
|
|
|
|
|
Total
Revenues
|
14,615
|
9,999
|
37,509
|
26,374
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
Property operating
expenses
|
5,521
|
3,929
|
13,764
|
10,190
|
Acquisition
costs
|
1,802
|
401
|
2,893
|
1,551
|
Stock based
compensation
|
487
|
382
|
1,403
|
667
|
General and
administrative
|
411
|
407
|
1,313
|
821
|
Base management
fee
|
322
|
226
|
981
|
411
|
External advisor
acquisition
|
174
|
—
|
174
|
—
|
Depreciation and
amortization
|
5,888
|
4,058
|
14,788
|
10,634
|
|
|
|
|
|
Total Operating
Expenses
|
14,605
|
9,403
|
35,316
|
24,274
|
|
|
|
|
|
Operating
income
|
10
|
596
|
2,193
|
2,100
|
Interest
Expense:
|
|
|
|
|
Contractual interest
expense
|
(2,798)
|
(1,867)
|
(6,910)
|
(5,821)
|
Amortization of
deferred financing costs
|
(196)
|
(160)
|
(550)
|
(1,289)
|
Loss on early
extinguishment of Predecessor debt
|
—
|
—
|
—
|
(1,655)
|
|
|
|
|
|
|
(2,994)
|
(2,027)
|
(7,460)
|
(8,765)
|
Change in fair value
of earn-out
|
—
|
(943)
|
(600)
|
(1,048)
|
Gain on equity
investment
|
—
|
—
|
—
|
4,475
|
|
|
|
|
|
Net
loss
|
(2,984)
|
(2,374)
|
(5,867)
|
(3,238)
|
Less:
|
|
|
|
|
Net (income)/loss
attributable to noncontrolling interests in properties
|
(116)
|
(87)
|
(371)
|
(8)
|
|
|
|
|
|
Net loss/(income)
attributable to Predecessor
|
—
|
—
|
—
|
(1,973)
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to Operating Partnership unitholders' noncontrolling
interests
|
601
|
694
|
1,199
|
1,508
|
|
|
|
|
|
Net loss
attributable to stockholders
|
$
(2,499)
|
$
(1,767)
|
$
(5,039)
|
$
(3,711)
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
Basic and
diluted
|
$
(0.20)
|
$
(0.22)
|
$
(0.41)
|
$
(0.46)
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
Basic and
diluted
|
$
12,473
|
$
8,193
|
$
12,373
|
$
8,134
|
|
|
|
|
|
Dividends/distributions declared per common share and
unit
|
$
0.235
|
$
0.235
|
$
0.705
|
$
0.418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Office REIT,
Inc. Reconciliation of Net Operating
Income (Unaudited)
(In
thousands)
|
|
Three Months
Ended Sept 30,
2015
|
|
|
|
|
Net loss
|
$
(2,984)
|
Adjustments to net
loss:
|
|
General and
administrative
|
411
|
Contractual interest
expense
|
2,798
|
Amortization of
deferred financing costs
|
196
|
Depreciation and
amortization
|
5,888
|
Acquisition
costs
|
1,802
|
Stock based
compensation
|
487
|
Base management
fee
|
322
|
External advisor
acquisition
|
174
|
|
|
Net Operating
Income ("NOI")
|
$
9,094
|
Net straight line rent
adjustment
|
(760)
|
Net amortization of
above and below market leases
|
72
|
|
|
Portfolio Adjusted
Cash NOI
|
$
8,406
|
Non-controlling
interests in properties – share in cash NOI
|
(305)
|
|
|
Adjusted Cash NOI
(CIO share)
|
$
8,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
City Office REIT,
Inc. Reconciliation of Net Income (Loss) to Funds from
Operations ("FFO") Core FFO and Adjusted
FFO (Unaudited)
(In thousands,
except share and per share data)
|
|
Three
Months
Ended Sept
30,
2015
|
|
|
|
|
Net loss attributable
to stockholders
|
$
(2,499)
|
(+) Depreciation and
amortization
|
5,888
|
(-) Operating
Partnership unitholders' noncontrolling interest
|
(601)
|
|
|
|
2,788
|
Non-controlling
interests in properties:
|
|
(-) Share of net
loss
|
116
|
(-) Share of
FFO
|
(221)
|
|
|
Funds from
Operations ("FFO")
|
$
2,683
|
|
|
(+) Acquisition
costs
|
1,802
|
(+) Stock based
compensation
|
487
|
(+) Change in fair
value of earn-out
|
—
|
(+) External advisor
acquisition
|
174
|
|
|
Core
FFO
|
$
5,146
|
|
|
(-) Net straight line
rent adjustment
|
(760)
|
(+) Net amortization
of above and below market leases
|
72
|
(+) Net amortization
of deferred financing costs
|
191
|
(-) Net recurring
tenant improvement
|
(53)
|
(-) Net recurring
leasing commissions
|
(92)
|
(-) Net recurring
capital expenditures
|
(347)
|
|
|
Adjusted Funds
from Operations ("AFFO")
|
$
4,157
|
|
|
|
|
Core FFO per share
and common unit
|
$
0.33
|
|
|
AFFO per share and
common unit
|
$
0.26
|
|
|
Dividends per
share and common unit
|
$
0.235
|
Core FFO Payout
Ratio
|
72%
|
AFFO Payout
Ratio
|
89%
|
|
|
Weighted average
common stock and common units outstanding
|
15,809,435
|
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-third-quarter-2015-results-300173828.html
SOURCE City Office REIT, Inc.