VANCOUVER, Nov. 7, 2016 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO) (the "Company" or "City Office"), today
announced its results for the quarter ended September 30, 2016.
Third Quarter Highlights
- GAAP net loss attributable to the stockholders was $1.9 million, or ($0.08) per fully diluted share,
Core FFO was $6.6 million, or
$0.27 per fully diluted share, and
AFFO was $4.6 million, or
$0.19 per fully diluted share;
- Entered into a conditional agreement to sell the Washington
Group Plaza property for a gross sales price of $86.5 million, before customary closing and
transaction costs and subject to confirmatory due diligence;
- In-place and committed occupancy closed the quarter at 92.4%;
executed approximately 288,000 square feet of new and renewal
leases during the quarter, including leases which will commence
subsequent to quarter end;
- Completed a $30.9 million
seven-year secured property financing for FRP Collection with a
fixed interest rate of 3.85%;
- Declared a third quarter dividend of $0.235 per share paid on October 25, 2016; and
- Subsequent to the end of the third quarter:
- Raised total gross proceeds of $112.0
million in a public offering of 4,480,000 shares of 6.625%
Series A Cumulative Redeemable Preferred Stock ("Series A Preferred
Stock"), including 480,000 shares issued pursuant to the exercise
of the underwriters' over-allotment option, at a public offering
price of $25.00 per share;
- Completed a $17.1 million
seven-year secured property financing for Carillon Point with a
fixed interest rate of 3.50%;
- Expanded the Secured Credit Facility from $75.0 to $100.0
million;
- Completed the acquisition of Park Tower, a 472,596 square foot
Class A multi-tenant property in Tampa,
Florida for $79.8 million;
and
- Entered into an agreement to acquire 5090 N 40th St, a 175,835
square foot Class A multi-tenant property in Phoenix, Arizona for $42.6 million.
A reconciliation of certain non-GAAP financial measures,
including Core FFO, AFFO and Net Operating Income ("NOI"), to GAAP
net income can be found at the end of this release.
"During the third quarter of 2016 and subsequent to quarter end,
we completed property transactions and significant financing events
that we believe demonstrate our ability to create long term value
for our shareholders," commented James
Farrar, City Office's Chief Executive Officer. "We closed
over $129 million of acquisitions
and, with an additional property under contract for $42.6 million, expanded our geographic footprint
of growth markets to include Phoenix,
Arizona. These high-quality acquisitions were acquired or
will be acquired at expected cap rates significantly in excess of
the estimated sale cap rate of our Washington Group Plaza property,
providing another example of our ability to effectively recycle
capital.
To support this active pipeline, we completed several benchmark
financing transactions during the third quarter and subsequent to
quarter end. We closed our largest equity capital raise to date,
expanded the Secured Credit Facility and completed property
financing on favorable terms. We believe that our attractive
pipeline and increasingly flexible financing options, coupled with
a focus on operational improvement, will continue to deliver
attractive risk-adjusted returns for our shareholders."
Portfolio Operations
The Company reported that its total portfolio as of September 30, 2016 contained 3.5 million net
rentable square feet and was 91.5% occupied and 92.4% occupied
including committed leases.
City Office's Net Operating Income ("NOI") was $11.4 million, or $10.5
million on an adjusted cash basis, during the third quarter
of 2016. NOI for the quarter benefited from $420,000 of termination fee income. These
amounts were included in rental income for the third quarter of
2016.
Investment and Disposition Activity
The Company completed the previously announced acquisition of
the FRP Collection in Orlando,
Florida for a purchase price of $49.8
million, exclusive of closing costs. The property
includes five Class A office buildings and a 10-acre land parcel
within the Central Florida Research Park, the fourth largest
research park in America. FRP Collection's five buildings total
272,192 square feet of net rentable area and are 93% leased to a
strong and diversified tenant roster. The acquisition is
anticipated to generate an initial full-year net operating income
yield of approximately 8.4% based on the purchase price and the
estimated cost of planned capital improvements.
The Company entered into a conditional purchase and sale
agreement with St. Luke's Health System Ltd. ("St. Luke's Health
System") to sell the Washington Group Plaza property in
Boise, Idaho to St. Luke's Health
System for $86.5 million. St.
Luke's Health System has a due diligence review period through
December 16, 2016. Should they
elect to proceed with the purchase, they are required to post a
non-refundable $5.0 million deposit
with closing to occur in April 2018
in conjunction with the maturity of the property's secured
mortgage. Either party has the right to accelerate closing by
providing at least 120 days' advance notice and incurring all
defeasance costs associated with the existing mortgage loan.
In addition, subsequent to the end of the third quarter, the
Company completed the acquisition of Park Tower, a 472,596 square
foot property in Tampa, Florida,
for a purchase price of $79.8 million
exclusive of closing costs and future renovation capital. The
property is a 36 story office tower located in the heart of the
Tampa central business district
and was 86% occupied at closing by a strong and diversified tenant
roster. The acquisition is anticipated to generate an initial
full-year net operating income yield of approximately 7.1%.
As a condition to closing, $2.0
million of the $79.8 million
purchase price was funded into a third party cash escrow
account. This cash will be returned to the Company if certain
renewal leasing thresholds are not achieved in the first year of
ownership. The property will be contributed as collateral for
the Secured Credit Facility.
In addition, subsequent to the end of the third quarter, the
Company entered into a purchase and sale agreement to acquire 5090
N 40th St, a 175,835 square foot Class A multi-tenant property in
Phoenix, Arizona for $42.6 million. The property is located in
the heart of the Camelback Corridor, considered a premier business
corridor in metropolitan Phoenix.
The property has been institutionally maintained, undergone
an extensive recent renovation and is located in close proximity to
both first-class amenities and executive housing. The
transaction is anticipated to close in mid-November.
Leasing Activity
During the third quarter of 2016, the Company commenced five new
leases for 157,000 square feet and ten renewals for 99,000 square
feet. In addition, 32,000 square feet of new leases were
signed which will commence subsequent to quarter end, taking the
total leasing activity in the quarter to 288,000 square feet.
On July 1, 2016, St. Luke's Regional
Medical Center Ltd. ("St. Luke's") commenced a 10-year lease for
147,657 square feet at the Company's Washington Group Plaza
property. The St. Luke's lease includes two months of upfront free
rent and rental payments commenced on September 1, 2016.
New Leasing – During the third quarter of 2016, the
Company signed six new leases for 41,000 square feet with a
weighted average lease term of 7.3 years at an average annual rent
per square foot of $23.43 and at an
average cost of $4.67 per square foot
per year. In addition, the Company signed a 10-year lease
with St. Luke's for an additional 111,381 square feet commencing on
July 1, 2017. The Company has
the right to defer the commencement date up to one year to
accommodate the existing tenant. This lease is
non-cancellable by the tenant in the event that St. Luke's chooses
to not proceed with the purchase of the Washington Group Plaza
property.
Renewal Leasing – The Company signed 31,000 square feet
of renewal leases at an average annual rent per square foot of
$24.27 and at an average cost of
$2.65 per square foot per year.
In addition, during the quarter, the Fairwinds Credit Union
extended its 36,000 square foot lease until June 30, 2026 and waived its early lease
termination option.
Capital Structure
As of September 30, 2016, the
Company had total principal outstanding debt of approximately
$306.2 million. 100% of the Company's
outstanding debt was fixed rate, with a weighted average maturity
of 6.1 years and a weighted average interest rate of 4.3%.
Subsequent to the end of the third quarter, the Company expanded
its Secured Credit Facility from $75.0 to $100.0
million and expanded its lending syndicate to include
Raymond James Bank, N.A.
During the third quarter, 3,126,084 of the Operating
Partnership's common units were redeemed for common stock and
subsequently distributed by the tendering unitholders to their
investors.
Subsequent to the end of the third quarter on October 4, 2016, the Company raised total gross
proceeds of $112.0 million in a
public offering of 4,480,000 shares of Series A Preferred Stock,
including 480,000 shares issued pursuant to the exercise of the
underwriters' over-allotment option, at a public offering price of
$25.00 per share. In addition,
the Company completed a $30.9 million
seven-year secured property financing for FRP Collection with a
fixed interest rate of 3.85% and subsequent to the end of the third
quarter completed a $17.1 million
seven-year secured property financing for Carillon Point with a
fixed interest rate of 3.50%.
Common Stock Dividend
On September 15, 2016, the
Company's board of directors declared a cash dividend of
$0.235 per share of the Company's
common stock for the three months ended September 30, 2016. The dividend was paid
on October 25, 2016 to stockholders
and common unitholders of record as of October 11, 2016.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on November 7, 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
November 7, 2016, continuing through
11:59 pm Eastern Time on February 7, 2017 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
10094252. 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.
Net Operating Income ("NOI') – We define NOI as total
revenues less property operating expenses.
Adjusted Cash NOI – We define Adjusted Cash NOI as NOI
less the effect of straight-line rents, deferred market rent, and
any amounts which are funded by the selling entities.
Forward-looking Statements
This press release contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Certain statements contained in this press release, including those
that express a belief, expectation or intention, as well as those
that are not statements of historical fact, are forward-looking
statements within the meaning of the federal securities laws and as
such are based upon the Company's current beliefs as to the outcome
and timing of future events. There can be no assurance that actual
forward-looking statements, including projected capital resources,
projected profitability and portfolio performance, estimates or
developments affecting the Company will be those anticipated by the
Company. Examples of forward-looking statements include those
pertaining to expectations regarding our financial performance,
including under metrics such as FFO, market rental rates, national
or local economic growth, estimated replacement costs of our
properties, projected capital improvements, expected sources of
financing, expectations as to the timing of closing of
acquisitions, dispositions, or other transactions, the expected
operating performance of anticipated near-term acquisitions and
descriptions relating to these expectations, including, without
limitation, the anticipated net operating income yield and cap
rates. Forward-looking statements presented in this press release
are based on management's beliefs and assumptions made by, and
information currently available to, management.
Forward-looking statements are generally identifiable by use of
forward-looking terminology such as "may," "will," "should,"
"potential," "intend," "expect," "seek," "anticipate," "estimate,"
"believe," "could," "project," "predict," "hypothetical,"
"continue," "future" or other similar words or expressions. All
forward-looking statements included in this press release are based
upon information available to the Company on the date hereof and
the Company is under no duty to update any of the forward-looking
statements after the date of this press release to conform these
statements to actual results. The forward-looking statements
involve a number of significant risks and uncertainties. Factors
that could have a material adverse effect on the Company's
operations and future prospects are set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and subsequent reports filed
from time to time with the U.S. Securities and Exchange Commission,
including the sections entitled "Risk Factors" contained therein.
The factors set forth in the Risk Factors section and otherwise
described in the Company's filings with SEC could cause the
Company's actual results to differ significantly from those
contained in any forward-looking statement contained in this press
release. The Company does not guarantee that the assumptions
underlying such forward-looking statements are free from errors.
Unless otherwise stated, historical financial information and per
share and other data is as of September 30,
2016.
Should one or more of these risks or uncertainties occur, or
should underlying assumptions prove incorrect, the Company's
business, financial condition, liquidity, cash flows and results
could differ materially from those expressed in any forward-looking
statement. While forward-looking statements reflect our good faith
beliefs, they are not guarantees of future performance. Any
forward-looking statement speaks only as of the date on which it is
made. New risks and uncertainties arise over time, and it is not
possible for us to predict the occurrence of those matters or the
manner in which they may affect us. We disclaim any obligation to
publicly update or revise any forward-looking statement to reflect
changes in underlying assumptions or factors, of new information,
data or methods, future events or other changes. Use caution in
relying on past forward-looking statements, which were based on
results and trends at the time they were made, to anticipate future
results or trends.
City Office REIT,
Inc
Condensed
Consolidated Balance Sheets
(Unaudited)
(In thousands,
except par value and share data)
|
|
|
|
|
|
|
|
|
September
30,
2016
|
December 31,
2015
|
Assets
|
|
|
|
|
Real estate
properties
|
|
|
|
|
Land
|
|
|
$
98,651
|
$
90,205
|
Building and
improvement
|
|
|
289,311
|
256,317
|
Tenant
improvement
|
|
|
44,699
|
35,069
|
Furniture, fixtures
and equipment
|
|
|
220
|
198
|
|
|
|
|
|
|
|
|
432,881
|
381,789
|
Accumulated
depreciation
|
|
|
(34,290 )
|
(26,909 )
|
|
|
|
|
|
|
|
|
398,591
|
354,880
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
12,022
|
8,138
|
Restricted
cash
|
|
|
17,009
|
15,176
|
Rents receivable,
net
|
|
|
14,026
|
14,382
|
Deferred leasing
costs, net of
accumulated amortization
|
|
|
4,612
|
5,074
|
Acquired lease
intangibles assets, net
|
|
|
38,607
|
40,990
|
Prepaid expenses and
other assets
|
|
|
2,562
|
1,567
|
|
|
|
|
|
Total
Assets
|
|
|
$
487,429
|
$
440,207
|
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
|
Liabilities:
|
|
|
|
|
Debt
|
|
|
$
302,769
|
$
341,278
|
Accounts payable and
accrued liabilities
|
|
|
11,270
|
8,745
|
Deferred
rent
|
|
|
4,873
|
2,653
|
Tenant rent
deposits
|
|
|
2,120
|
2,178
|
Acquired lease
intangibles liability, net
|
|
|
2,161
|
2,292
|
Dividend distributions
payable
|
|
|
5,739
|
3,663
|
Earn-out
liability
|
|
|
1,900
|
5,678
|
|
|
|
|
|
Total
Liabilities
|
|
|
330,832
|
366,487
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
Equity:
|
|
|
|
|
Common stock, $0.01
par value, 100,000,000
shares authorized, 24,382,226 and
12,517,777 shares issued and
outstanding
|
|
|
244
|
125
|
Additional paid-in
capital
|
|
|
198,792
|
95,318
|
Accumulated
deficit
|
|
|
(42,798)
|
(29,598)
|
|
|
|
|
|
Total Stockholders'
Equity
|
|
|
156,238
|
65,845
|
Operating Partnership
unitholders'
non-controlling interests
|
|
|
121
|
8,550
|
Non-controlling
interests in properties
|
|
|
238
|
(675 )
|
|
|
|
|
|
Total
Equity
|
|
|
156,597
|
73,720
|
|
|
|
|
|
Total Liabilities
and Equity
|
|
|
$
487,429
|
$
440,207
|
|
|
|
|
|
|
|
|
City Office REIT,
Inc
Condensed
Consolidated Statements of Operations
(Unaudited)
(In thousands,
except per share data)
|
|
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
|
2016
|
2015
|
2016
|
2015
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Rental
income
|
$
16,644
|
$
12,601
|
$
44,919
|
$
32,838
|
Expense
reimbursement
|
1,805
|
1,701
|
5,149
|
3,737
|
Other
|
342
|
313
|
1,090
|
934
|
|
|
|
|
|
Total
Revenues
|
18,791
|
14,615
|
51,158
|
37,509
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
Property operating
expenses
|
7,385
|
5,521
|
19,779
|
13,764
|
Acquisition
costs
|
252
|
1,802
|
339
|
2,893
|
Stock based
compensation
|
630
|
487
|
1,788
|
1,403
|
General and
administrative
|
1,122
|
411
|
2,751
|
1,313
|
Base management
fee
|
—
|
322
|
109
|
981
|
External advisor
acquisition
|
—
|
174
|
7,045
|
174
|
Depreciation and
amortization
|
7,763
|
5,888
|
20,834
|
14,788
|
|
|
|
|
|
Total Operating
Expenses
|
17,152
|
14,605
|
52,645
|
35,316
|
|
|
|
|
|
Operating
income/(loss)
|
1,639
|
10
|
(1,487)
|
2,193
|
Interest
Expense:
|
|
|
|
|
Contractual interest
expense
|
(3,321)
|
(2,798)
|
(10,206)
|
(6,910)
|
Amortization of
deferred financing
costs
|
(200)
|
(196)
|
(671)
|
(550)
|
|
|
|
|
|
|
(3,521)
|
(2,994)
|
(10,877)
|
(7,460)
|
|
|
|
|
|
Change in fair value
of earn-out
|
—
|
—
|
—
|
(600)
|
Net gain on sale of
real estate property
|
—
|
—
|
15,934
|
—
|
|
|
|
|
|
Net
(loss)/income
|
(1,882)
|
(2,984)
|
3,570
|
(5,867)
|
Less:
|
|
|
|
|
Net income
attributable to
noncontrolling interests in properties
|
(65)
|
(116)
|
(243)
|
(371)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss/(income)
attributable to
Operating Partnership unitholders'
noncontrolling interests
|
3
|
601
|
(871)
|
1,199
|
|
|
|
|
|
Net (loss)/income
attributable
to stockholders
|
$
(1,944)
|
$
(2,499)
|
$
2,456
|
$
(5,039)
|
|
|
|
|
|
Net (loss)/income per
share:
|
|
|
|
|
|
|
|
|
|
Basic
|
$
(0.08)
|
$
(0.20)
|
$
0.13
|
$
(0.41)
|
Diluted
|
$
(0.08)
|
$
(0.20)
|
$
0.11
|
$
(0.41)
|
|
|
|
|
|
Weighted average
common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
23,884
|
12,473
|
19,143
|
12,373
|
Diluted
|
23,884
|
12,473
|
21,731
|
12,373
|
|
|
|
|
|
Dividends/distributions declared per
common share and unit
|
$
0.235
|
$
0.235
|
$
0.705
|
$
0.705
|
City Office REIT,
Inc
Reconciliation of
Net Operating Income
(Unaudited)
(In
thousands)
|
|
|
Three Months
Ended
September 30,
2016
|
|
|
|
|
Net
(loss)/income
|
$
(1,882)
|
Adjustments to net
income:
|
|
General and
administrative
|
1,122
|
Contractual interest
expense
|
3,321
|
Amortization of
deferred financing costs
|
200
|
Depreciation and
amortization
|
7,763
|
Acquisition
costs
|
252
|
Stock based
compensation
|
630
|
|
|
Net Operating
Income ("NOI")
|
$
11,406
|
Net straight line rent adjustment
|
(967)
|
Net amortization of
above and below
market leases
|
17
|
|
|
Portfolio Adjusted
Cash NOI
|
$
10,456
|
Non-controlling
interests in properties –
share in cash NOI
|
(301)
|
|
|
Adjusted Cash NOI
(CIO share)
|
$
10,155
|
City Office REIT,
Inc
Reconciliation of
Net Income to Funds from Operations ("FFO"),
Core FFO and Adjusted FFO
(Unaudited)
(In thousands,
except share and per share data)
|
|
|
Three Months
Ended
September 30,
2016
|
|
|
|
|
Net income/(loss)
attributable to stockholders
|
$
(1,944)
|
(+) Depreciation and
amortization
|
7,763
|
(-) Operating
Partnership unitholders'
noncontrolling
interest
|
(3)
|
|
|
|
5,816
|
Non-controlling
interests in properties:
|
|
(-) Share of net
income
|
65
|
(-) Share of
FFO
|
(206)
|
(-) Net gain on sale
of real estate property
|
-
|
|
|
Funds from
Operations ("FFO")
|
$
5,675
|
|
|
(+) Acquisition
costs
|
252
|
(+) Stock based
compensation
|
630
|
|
|
Core
FFO
|
$
6,557
|
|
|
(-) Net straight line
rent adjustment
|
(967)
|
(+) Net amortization
of above and below
market
leases
|
17
|
(+) Net amortization
of deferred financing costs
|
195
|
(-) Net recurring
tenant improvement
|
(674)
|
(-) Net recurring
leasing commissions
|
(217)
|
(-) Net recurring
capital expenditures
|
(279)
|
|
|
Adjusted Funds
from Operations ("AFFO")
|
$
4,632
|
|
|
|
|
Core FFO per share
and common unit
|
$
0.27
|
|
|
AFFO per share and
common unit
|
$
0.19
|
|
|
Dividends per
share and common unit
|
$
0.235
|
Core FFO Payout
Ratio
|
88%
|
AFFO Payout
Ratio
|
125%
|
Weighted average
common stock and
common units outstanding
|
24,685,252
|
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-2016-results-300358087.html
SOURCE City Office REIT, Inc.