VANCOUVER, March 3, 2016 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO) (the "Company" or "City Office"), today
announced its results for the quarter and full year ended
December 31, 2015.
Fourth Quarter Highlights
- Achieved Core Funds From Operations ("Core FFO") of
$5.9 million, or $0.37 per fully diluted share;
- Reported Adjusted Funds From Operations ("AFFO") of
$4.5 million, or $0.28 per fully diluted share;
- Achieved same store net operating income ("NOI") growth of
12.7% versus the fourth quarter last year;
- In-place occupancy closed the quarter at 94.8%;
- Executed approximately 41,000 square feet of new and renewal
leases during the quarter, including leases which will commence
subsequent to quarter end;
- Declared a fourth quarter dividend of $0.235 per share paid on January 20, 2016; and
- Subsequent to quarter end, closed on the internalization of
management effective February 1,
2016.
"City Office delivered our strongest quarter yet with impressive
growth in net operating income, Core FFO and AFFO," commented
James Farrar, City Office's Chief
Executive Officer. "Throughout 2015, our focus was on
building our portfolio of properties and creating long term value
by raising rental rates and increasing occupancy with strong
tenants. Our fourth quarter same store NOI increased to
$7.5 million, a 13% increase over the
same quarter in the prior year. Core FFO per share increased
to $0.37, a 42% increase over the
$0.26 earned for the fourth quarter
of 2014. Similarly, AFFO per share increased to $0.28 representing a 22% increase over the fourth
quarter of 2014."
A reconciliation of certain non-GAAP financial measures,
including Core FFO, AFFO and NOI, to GAAP net income can be found
at the end of this release.
Financial Results for the Fourth Quarter 2015
Core FFO was $5.9 million, or
$0.37 per fully diluted share.
AFFO was $4.5 million, or
$0.28 per fully diluted share.
Net loss attributable to the Company for the three months ended
December 31, 2015 was $1.6 million, or ($0.12) per share.
Portfolio Operations
The Company reported that its total portfolio as of December 31, 2015 contained 3.3 million net
rentable square feet and was 94.8% occupied.
City Office's NOI was $10.9
million on a GAAP basis and $9.8
million on a cash basis during the fourth quarter of 2015.
The straight line rent adjustment related to the Dun &
Bradstreet Corporation lease at the Company's Corporate Parkway
property was approximately $0.7
million during the period. NOI for the quarter
benefited from $385,000 of unspent
lease incentives and a lease departure payment for two leases that
expired on December 31, 2015.
These amounts were included in rental income for the fourth quarter
of 2015.
Leasing Activity
During the fourth quarter of 2015, the Company commenced six new
leases for 22,000 square feet and one renewal for 6,000 square
feet. New leases for 5,000 square feet and early renewals for
8,000 square feet were signed in the fourth quarter which will
commence subsequent to quarter end, taking the total leasing
activity in the quarter to 41,000 square feet.
New Leasing – During the fourth quarter of 2015, the Company
signed 11,000 square feet of new leases with a weighted average
lease term of 4.2 years at an average rent per square foot of
$21.69 and at an average cost of
$4.64 per square foot per year.
Renewal Leasing – The Company signed 8,000 square feet of
renewal leases at an average rent per square foot of $14.28 and at an average cost of $5.04 per square foot per year.
Central Fairwinds Earn-Out Liability
As part of the IPO formation transactions, the Central Fairwinds
property in downtown Orlando
included an earn-out liability linked to achieving future cash flow
and leasing milestones triggered at 70%/80%/90% occupancy
levels. As a result of the faster than anticipated leasing
results, the Company increased the expected value of the earn-out
liability by $0.2 million to
$5.7 million at December 31, 2015. Also during the quarter,
the 80% occupancy and NOI thresholds were achieved and $3.8 million of earn-out consideration will be
paid in common stock and operating partnership units during the
first quarter of 2016. A corresponding amount will be reduced
from the earn-out liability.
Management Internalization
On February 1, 2016, City Office
completed the previously announced internalization of the Company's
management as described in the November 2,
2015 press release.
Pursuant to the closing under the agreements, City Office
acquired its former external advisor, City Office Real Estate
Management Inc., in exchange for an aggregate of 297,321 shares of
City Office common stock. Pursuant to the terms of the Stock
Purchase Agreement, a further $1
million payment was triggered by the Company achieving a
$200 million fully diluted market
capitalization based on its closing stock price on March 1, 2016. The Company expects this
cash payment will be made to the sellers in March
2016.
In addition to entering into employment agreements with its
Chief Executive Officer, Jamie
Farrar, its President and Chief Operating Officer,
Greg Tylee, and its Chief Financial
Officer, Secretary and Treasurer, Tony
Maretic, the Company has hired eleven other employees who
previously worked for the former external advisor.
Capital Structure
As of December 31, 2015, the
Company had total outstanding debt of approximately $344.7 million. 81.4% of the Company's
outstanding debt was fixed rate, with a weighted average maturity
of 5.8 years.
Dividend
On December 18, 2015, the
Company's board of directors declared a cash dividend of
$0.235 per share for the three months
ended December 31, 2015. The
dividend was paid on January 20, 2016
to stockholders and common unitholders of record as of January 6, 2016.
2016 Outlook
For 2016, the Company expects Core FFO in the range of
$1.19 to $1.25 per diluted
share. This outlook reflects management's view of current and
future market conditions, including assumptions such as rental
rates, occupancy levels, operating and general administrative
expenses, weighted average diluted shares outstanding and interest
rates. This guidance was determined based on incorporating
the full year of results for all 14 properties owned at
January 1, 2016 as well as the
reconciliation items noted below. No acquisitions or
divestitures of properties have been included.
Full-year 2016 Guidance:
- Properties GAAP NOI: $40.0 - $41.0
million
- General & administrative expenses and base management fee:
$3.9 - $4.1 million
- Interest expense, net: $15.5 -
$15. 9 million
- Core FFO per diluted share: $1.19 to
$1.25
- Straight Line Rent Adjustment: $3.3 -
$3.7 million
Material Considerations:
I.
The downtime associated with re-tenanting two material properties
has reduced our normalized full year 2016 guidance. St. Lukes
Regional Medical Center, Ltd. has leased 147,657 square feet at our
Washington Group Plaza property in Boise, Idaho. The prior tenant's lease
expired on December 31, 2015 and St.
Luke's premise is currently being built-out with a scheduled
occupancy in Q3 of 2016. Kaiser Foundation Health Plan, Inc.
has leased 33,424 square feet at our AmberGlen property in
Portland, Oregon. The prior
tenant's lease also expired on December 31,
2015 and Kaiser's premise is currently being built-out with
a scheduled lease commencement date in Q2 of 2016. No rental
revenue will be received during the construction period on either
of these two leases. As a result, Q1 GAAP NOI is expected in
the range of $9.6 million to $9.8
million before building back up in the last half of the
year.
II.
Straight-line rent in 2016 is materially impacted by two renewal
leases. Dun & Bradstreet executed a 10 year lease extension in
June 2015. Terms of the lease provide a rent abatement until
August 2016 which results in an
overall $1.4 million straight-line
rent adjustment in 2016. United Health Care, Inc. completed a
seven year lease extension that commences in March 2016.
Terms of the lease provide a rent abatement until May 2016 which results in a $1.3 million straight-line rent
adjustment.
III.
2016 annual weighted average diluted shares outstanding (inclusive
of shares issued for the internalization of management and Central
Fairwinds earn-out payment) are assumed to be 16.4 - 16.6
million.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on March 3, 2016.
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
March 3, 2016, continuing through
11:59pm Eastern Time on June 3, 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
10078515. 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)
|
|
|
|
|
|
|
December
31, 2015
|
|
December 31,
2014
|
Assets
|
|
|
|
Real estate
properties, cost
|
|
|
|
Land
|
$ 90,205
|
|
$ 66,204
|
Buildings and
improvements
|
256,317
|
|
132,964
|
Tenant
improvement
|
35,069
|
|
27,773
|
Furniture, fixtures
and equipment
|
198
|
|
198
|
|
|
|
|
|
381,789
|
|
227,139
|
Accumulated
depreciation
|
(26,909)
|
|
(15,311)
|
|
|
|
|
|
354,880
|
|
211,828
|
|
|
|
|
Cash and cash
equivalents
|
8,138
|
|
34,862
|
Restricted
cash
|
15,176
|
|
11,093
|
Rents receivable,
net
|
14,382
|
|
7,981
|
Deferred financing
costs, net of accumulated amortization
|
3,393
|
|
2,901
|
Deferred leasing
costs, net of accumulated amortization
|
5,074
|
|
2,618
|
Acquired lease
intangibles assets, net
|
40,990
|
|
29,391
|
Prepaid expenses and
other assets
|
1,567
|
|
832
|
|
|
|
|
Total
Assets
|
$ 443,600
|
|
$ 301,506
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$ 344,671
|
|
$ 189,940
|
Accounts payable and
accrued liabilities
|
8,745
|
|
4,080
|
Deferred
rent
|
2,653
|
|
2,212
|
Tenant rent
deposits
|
2,178
|
|
1,862
|
Acquired lease
intangibles liability, net
|
2,292
|
|
606
|
Dividend distributions
payable
|
3,663
|
|
3,571
|
Earn-out
liability
|
5,678
|
|
8,000
|
|
|
|
|
Total
Liabilities
|
369,880
|
|
210,271
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
Equity:
|
|
|
|
Common stock, $0.01
par value, 100,000,000 shares authorized, 12,517,777 and 12,279,110
shares issued and outstanding
|
125
|
|
123
|
Additional paid-in
capital
|
95,318
|
|
91,308
|
Accumulated
deficit
|
(29,598)
|
|
(11,320)
|
|
|
|
|
Total Stockholders'
Equity
|
65,845
|
|
80,111
|
Operating Partnership
unitholders' non-controlling interests
|
8,550
|
|
11,878
|
Non-controlling
interests in properties
|
(675)
|
|
(754)
|
|
|
|
|
Total
Equity
|
73,720
|
|
91,235
|
|
|
|
|
Total Liabilities
and Equity
|
$ 443,600
|
|
$ 301,506
|
|
|
|
|
City Office REIT,
Inc. and Predecessor
|
Condensed
Consolidated and Combined Statements of Operations
|
(Unaudited)
|
|
|
Three Months
Ended
December 31,
|
|
Twelve Months
Ended
December 31,
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Rental
income
|
$
15,171
|
|
$
9,255
|
|
$
48,009
|
|
$
33,236
|
Expense
reimbursement
|
2,071
|
|
1,073
|
|
5,808
|
|
2,869
|
Other
|
301
|
|
201
|
|
1,235
|
|
791
|
|
|
|
|
|
|
|
|
Total
Revenues
|
17,543
|
|
10,529
|
|
55,052
|
|
36,896
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Property operating
expenses
|
6,656
|
|
4,142
|
|
20,420
|
|
14,332
|
Acquisition
costs
|
65
|
|
582
|
|
2,959
|
|
2,133
|
Stock based
compensation
|
503
|
|
424
|
|
1,907
|
|
1,091
|
General and
administrative
|
509
|
|
493
|
|
1,821
|
|
1,314
|
Base management
fee
|
321
|
|
271
|
|
1,302
|
|
682
|
External advisor
acquisition
|
318
|
|
—
|
|
492
|
|
—
|
Depreciation and
amortization
|
6,836
|
|
4,103
|
|
21,624
|
|
14,729
|
|
|
|
|
|
|
|
|
Total Operating
Expenses
|
15,208
|
|
10,015
|
|
50,525
|
|
34,281
|
|
|
|
|
|
|
|
|
Operating
income
|
2,335
|
|
514
|
|
4,527
|
|
2,615
|
Interest
Expense:
|
|
|
|
|
|
|
|
Contractual interest
expense
|
(3,697)
|
|
(2,032)
|
|
(10,607)
|
|
(7,854)
|
Amortization of
deferred financing costs
|
(196)
|
|
(155)
|
|
(746)
|
|
(1,443)
|
Loss on early
extinguishment of Predecessor debt
|
—
|
|
—
|
|
—
|
|
(1,655)
|
|
|
|
|
|
|
|
|
|
(3,893)
|
|
(2,187)
|
|
(11,353)
|
|
(10,952)
|
Change in fair value
of earn-out
|
(241)
|
|
—
|
|
(841)
|
|
(1,048)
|
Gain on equity
investment
|
—
|
|
—
|
|
—
|
|
4,475
|
|
|
|
|
|
|
|
|
Net
loss
|
(1,799)
|
|
(1,673)
|
|
(7,667)
|
|
(4,910)
|
Less:
|
|
|
|
|
|
|
|
Net (income)/loss
attributable to noncontrolling interests in properties
|
(130)
|
|
(73)
|
|
(500)
|
|
(82)
|
Net loss/(income)
attributable to Predecessor
|
—
|
|
—
|
|
—
|
|
(1,973)
|
Net loss attributable
to Operating Partnership unitholders' noncontrolling
interests
|
377
|
|
447
|
|
1,576
|
|
1,955
|
|
|
|
|
|
|
|
|
Net loss
attributable to stockholders
|
$
(1,552)
|
|
$
(1,299)
|
|
$
(6,591)
|
|
$
(5,010)
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
Basic and
diluted
|
$
(0.12)
|
|
$
(0.14)
|
|
$
(0.53)
|
|
$
(0.59)
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
Basic and
diluted
|
$
12,518
|
|
$
9,471
|
|
$
12,409
|
|
$
8,476
|
|
|
|
|
|
|
|
|
Dividends/distributions declared per common share and
unit
|
$
0.235
|
|
$
0.235
|
|
$
0.940
|
|
$
0.653
|
City Office REIT,
Inc.
|
Reconciliation of
Net Operating Income
|
(Unaudited)
|
|
(In
thousands)
|
|
|
Three Months
Ended
Dec 31, 2015
|
|
|
|
|
Net loss
|
$
(1,799)
|
Adjustments to net
loss:
|
|
General and
administrative
|
509
|
Contractual interest
expense
|
3,697
|
Amortization of
deferred financing costs
|
196
|
Depreciation and
amortization
|
6,836
|
Acquisition
costs
|
65
|
Stock based
compensation
|
503
|
Base management
fee
|
321
|
External advisor
acquisition
|
318
|
Change in fair value
of earn-out
|
241
|
|
|
Net Operating
Income ("NOI")
|
$
10,887
|
Net
straight line rent adjustment
|
(1,116)
|
Net amortization of
above and below market leases
|
20
|
|
|
Portfolio Adjusted
Cash NOI
|
$
9,751
|
Non-controlling
interests in properties – share in cash NOI
|
(324)
|
|
|
Adjusted Cash NOI
(CIO share)
|
$
9,427
|
|
|
|
|
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
Dec 31, 2015
|
|
|
|
|
Net loss attributable
to stockholders
|
$
(1,552)
|
(+) Depreciation and
amortization
|
6,836
|
(-) Operating
Partnership unitholders' noncontrolling interest
|
(377)
|
|
|
|
4,907
|
Non-controlling
interests in properties:
|
|
(-) Share of net
loss
|
130
|
(-) Share of
FFO
|
(241)
|
|
|
Funds from
Operations ("FFO")
|
$
4,796
|
|
|
(+) Acquisition
costs
|
65
|
(+) Stock based
compensation
|
503
|
(+) Change in fair
value of earn-out
|
241
|
(+) External advisor
acquisition
|
318
|
|
|
Core
FFO
|
$
5,923
|
|
|
(-) Net straight line
rent adjustment
|
(1,116)
|
(+) Net amortization
of above and below market leases
|
(20)
|
(+) Net amortization
of deferred financing costs
|
191
|
(-) Net recurring
tenant improvement
|
(221)
|
(-) Net recurring
leasing commissions
|
(100)
|
(-) Net recurring
capital expenditures
|
(201)
|
|
|
Adjusted Funds
from Operations ("AFFO")
|
$
4,456
|
|
|
|
|
Core FFO per share
and common unit
|
$
0.37
|
|
|
AFFO per share and
common unit
|
$
0.28
|
|
|
Dividends per
share and common unit
|
$
0.235
|
Core FFO Payout
Ratio
|
63%
|
AFFO Payout
Ratio
|
84%
|
|
|
Weighted average
common stock and common units outstanding
|
15,916,192
|
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-fourth-quarter-and-full-year-2015-results-300230181.html
SOURCE City Office REIT, Inc.