VANCOUVER, May 4, 2018 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO) (the "Company" or "City Office"), today
announced its results for the quarter ended March 31, 2018.
First Quarter Highlights
- GAAP net income attributable to common stockholders was
approximately $45.2 million, or
$1.24 per fully diluted share, Core
FFO was approximately $10.3 million,
or $0.28 per fully diluted share, and
AFFO was approximately $6.7 million,
or $0.18 per fully diluted
share;
- In-place occupancy closed the quarter at 88.3%; the Company
executed approximately 130,000 square feet of new and renewal
leases during the quarter;
- Completed the $86.5 million
disposition of the Washington Group Plaza property in Boise, Idaho, resulting in a net gain on sale
of $47.0 million;
- Replaced the existing secured credit facility with a new,
larger unsecured revolving credit facility (the "Unsecured Credit
Facility"). The new facility has an authorized amount of
$250 million with an accordion
feature allowing for potential borrowing capacity of up to
$500 million;
- Same Store Cash NOI decreased 1.4% for the first quarter 2018,
as compared to the first quarter 2017. Same store revenue increased
0.9%, which was offset by increased property operating
expenses;
- Declared a first quarter dividend of $0.235 per share of common stock, paid on
April 25, 2018; and
- Declared a first quarter dividend of $0.4140625 per share of Series A Preferred Stock,
paid on April 25, 2018.
Highlights Subsequent to Quarter End
- Closed on the acquisition of a two-building, 271,782 square
foot property in Phoenix, Arizona
for $56.5 million ("Pima
Center").
"Our first quarter results tracked to our expectations and we
continue to be upbeat about our prospects for 2018," commented
James Farrar, the Company's Chief
Executive Officer. "We executed the disposition of Washington
Group Plaza as expected for a significant gain, and subsequent to
quarter end, we added the desirable Scottsdale, Arizona submarket to our portfolio
with the acquisition of Pima Center."
"We continue to be focused on leasing the attractive blocks of
vacant space within our portfolio and executing the value-enhancing
renovation programs we have planned. Occupancy increased 60
basis points quarter over quarter including a healthy 130,000
square feet of new and renewal leasing, and we expect to continue
progressing towards our occupancy targets."
A reconciliation of certain non-GAAP financial measures,
including FFO, Core FFO, AFFO, NOI, Same Store Cash NOI and
Adjusted Cash NOI, to the most directly comparable GAAP financial
measure can be found at the end of this release.
Portfolio Operations
The Company reported that its total portfolio as of March 31, 2018 contained 4.6 million net rentable
square feet and was 88.3% occupied.
City Office's NOI was approximately $19.9
million, or approximately $18.5
million on an adjusted cash basis, during the first quarter
of 2018. NOI for the quarter benefited from $1.0 million of termination fee income, of which
$0.9 million is related to the
previously announced tenant departure at our Sorrento Mesa
property.
Same Store Cash NOI decreased 1.4% as compared to the first
quarter of 2017. Same store revenue increased 0.9%, which was
offset by increased property operating expenses.
Investment and Disposition Activity
Subsequent to the end of the first quarter, the Company
completed the previously announced acquisition of Pima Center for a
purchase price of $56.5 million,
exclusive of closing costs. Pima Center is a 271,782 square
foot, Class A multi-tenant property in the Scottsdale submarket of Phoenix. The
acquisition is anticipated to generate an initial full-year net
operating income yield of approximately 8.3%. The property's
location in the Scottsdale
submarket, excellent freeway frontage and access, large functional
floorplates and high parking ratio have helped to attract high
quality credit tenants to the property. Pima Center was 99%
occupied at close and is situated on a long-term ground lease with
over 70 years of remaining term.
As previously announced, the disposition of our Washington Group
Plaza property in Boise, Idaho
closed in March 2018 for a net gain
on sale of $47.0 million and a
disposition cap rate of 5.8% of in-place income at the time the
property was placed under contract for sale.
Leasing Activity
The Company's total leasing activity during the first quarter of
2018 was 130,000 square feet, which included 78,000 square feet of
new leasing and 52,000 square feet of renewals. 91,000 square feet
of leases signed within the quarter will commence subsequent to
quarter end. Of note, we executed seven new leases at our
Park Tower property, for
approximately 26,000 square feet.
New Leasing – New leases were signed with a weighted
average lease term of 6.3 years at a weighted average annual rent
per square foot of $26.00 and at a
weighted average cost of $5.44 per
square foot per year.
Renewal Leasing – Renewal leases were signed with a
weighted average lease term of 4.7 years at a weighted average
annual rent per square foot of $27.32
and at a weighted average cost of $5.81 per square foot per year.
Capital Structure
As of March 31, 2018, the Company
had total principal outstanding debt of approximately $427.8 million. 100% of the Company's
outstanding debt was fixed rate, with a weighted average maturity
of 6.8 years and a weighted average interest rate of 4.2%.
The Company replaced its secured credit facility with the new
Unsecured Credit Facility. The Unsecured Credit Facility
increases the Company's borrowing capacity to $250 million and contains an accordion feature
allowing for potential borrowing capacity of up to $500 million, subject to certain terms and
conditions. The Unsecured Credit Facility has a maturity date
of March 2022 and provides for one
twelve-month extension option. Borrowings under the Unsecured
Credit Facility bear interest on the outstanding principal at LIBOR
plus 1.40% to 2.25% depending on total leverage.
The Company did not issue or repurchase any shares during the
quarter.
Dividends
On March 21, 2018, the Company's
board of directors approved and the Company declared a cash
dividend of $0.235 per share of the
Company's common stock for the three months ended March 31, 2018. The dividend was paid on
April 25, 2018 to common stockholders
and unitholders of record as of April 11,
2018.
On March 21, 2018, the Company's
board of directors approved and the Company declared a cash
dividend of $0.4140625 per share of
the Company's 6.625% Series A Preferred Stock. The dividend was
paid on April 25, 2018 to preferred
stockholders of record as of April 11,
2018.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on May 4, 2018.
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
May 4, 2018, continuing through
11:59 pm Eastern Time on August 4, 2018 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
10119510. 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
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 the Company 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,
changes in fair value of contingent consideration, and the
amortization of stock based compensation.
We believe Core FFO provides a useful metric in comparing
operations between reporting periods and in assessing the
sustainability of our ongoing operating performance. Other equity
REITs may calculate Core FFO differently or not at all, and,
accordingly, the Company's Core FFO may not be comparable to such
other REITs' Core FFO.
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.
Along with FFO and Core FFO, we believe AFFO provides investors
with appropriate supplemental information to evaluate the ongoing
operations of the Company. Other equity REITs may calculate AFFO
differently, and, accordingly, the Company's AFFO may not be
comparable to such other REITs' AFFO.
Net Operating Income ("NOI"), Adjusted Cash NOI – We
define NOI as total revenues less property operating
expenses. We define Adjusted Cash NOI as NOI less the effect
of recurring straight-line rents, deferred market rent, and any
amounts which are funded by the selling entities.
We consider NOI and Adjusted Cash NOI to be appropriate
supplemental performance measures to net income because we believe
they provide information useful in understanding the core
operations and operating performance of our portfolio.
Same Store Cash Net Operating Income ("Same Store Cash
NOI") – Same Store Cash NOI is calculated as the NOI
attributable to the properties continuously owned and operated for
the entirety of the reporting periods presented. The Company's
definition of Same Store Cash NOI excludes properties that were not
stabilized during both of the applicable reporting periods. These
exclusions may include, but are not limited to, acquisitions,
dispositions and properties undergoing repositioning or
signification renovations.
We believe Same Store NOI is an important measure of comparison
because it allows for comparison of operating results of stabilized
properties owned and operated for the entirety of both applicable
periods and therefore eliminates variations caused by acquisitions,
dispositions or repositionings during such periods. Other REITs may
calculate Same Store Cash NOI differently and our calculation
should not be compared to that of other REITs.
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 NOI and FFO, market rental rates,
national or local economic growth, estimated replacement costs of
our properties, the Company's expectations regarding run-rate, pro
forma and future dividend coverage on a Core FFO and AFFO basis,
the Company's expectations regarding tenant occupancy, re-leasing
periods, 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 the Company's current properties and
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, 2017 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 are as of March 31,
2018.
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)
|
|
|
|
|
March
31,
|
|
December
31,
|
|
2018
|
|
2017
|
Assets
|
|
|
|
Real estate
properties
|
|
|
|
Land
|
$
188,110
|
|
$
188,110
|
Building and
improvement
|
537,131
|
|
534,473
|
Tenant
improvement
|
56,142
|
|
53,427
|
Furniture, fixtures
and equipment
|
291
|
|
291
|
|
781,674
|
|
776,301
|
Accumulated
depreciation
|
(53,772)
|
|
(48,234)
|
|
727,902
|
|
728,067
|
|
|
|
|
Cash and cash
equivalents
|
18,509
|
|
12,301
|
Restricted
cash
|
20,384
|
|
22,713
|
Rents receivable,
net
|
20,936
|
|
20,087
|
Deferred leasing
costs, net
|
8,653
|
|
7,793
|
Acquired lease
intangible assets, net
|
59,500
|
|
65,088
|
Prepaid expenses and
other assets
|
4,151
|
|
2,013
|
Assets held for
sale
|
-
|
|
38,427
|
Total
Assets
|
$
860,035
|
|
$
896,489
|
|
|
|
|
Liabilities and
Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$
421,789
|
|
$
489,509
|
Accounts payable and
accrued liabilities
|
15,451
|
|
17,605
|
Deferred
rent
|
3,792
|
|
4,223
|
Tenant rent
deposits
|
3,742
|
|
3,523
|
Acquired lease
intangible liabilities, net
|
7,975
|
|
8,649
|
Dividend
distributions payable
|
10,346
|
|
10,318
|
Liabilities related
to assets held for sale
|
-
|
|
2,830
|
Total
Liabilities
|
463,095
|
|
536,657
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
Equity:
|
|
|
|
6.625% Series A
Preferred stock, $0.01 par value per share,
5,600,000 shares authorized, 4,480,000 issued and
outstanding
|
112,000
|
|
112,000
|
|
|
|
|
Common stock, $0.01
par value, 100,000,000 shares authorized,
36,132,145 and 36,012,086 shares issued and outstanding
|
361
|
|
360
|
|
|
|
|
Additional paid-in
capital
|
334,597
|
|
334,241
|
Accumulated
deficit
|
(50,332)
|
|
(86,977)
|
Total
Stockholders' Equity
|
396,626
|
|
359,624
|
|
|
|
|
Non-controlling
interests in properties
|
314
|
|
208
|
Total
Equity
|
396,940
|
|
359,832
|
Total Liabilities
and Equity
|
$
860,035
|
|
$
896,489
|
|
|
|
|
City Office REIT,
Inc.
|
Condensed
Consolidated Statements of Operations
|
(Unaudited)
|
|
(In thousands,
except per share data)
|
|
|
Three Months
Ended
|
|
March
31,
|
|
2018
|
|
2017
|
|
|
|
|
Revenues:
|
|
|
|
Rental
income
|
$
27,014
|
|
$
22,314
|
Expense
reimbursement
|
3,545
|
|
2,294
|
Other
|
975
|
|
791
|
Total
Revenues
|
31,534
|
|
25,399
|
|
|
|
|
Operating
Expenses:
|
|
|
|
Property operating
expenses
|
11,625
|
|
9,612
|
General and
administrative
|
1,978
|
|
2,193
|
Depreciation and
amortization
|
11,893
|
|
10,498
|
Total Operating
Expenses
|
25,496
|
|
22,303
|
|
|
|
|
Operating
income
|
6,038
|
|
3,096
|
Interest
Expense:
|
|
|
|
Contractual interest
expense
|
(5,188)
|
|
(4,072)
|
Amortization of
deferred financing costs
|
(632)
|
|
(323)
|
|
(5,820)
|
|
(4,395)
|
Net gain on sale of
real estate property
|
46,980
|
|
-
|
Net
income/(loss)
|
47,198
|
|
(1,299)
|
Less:
|
|
|
|
Net income
attributable to non-controlling interests in properties
|
(135)
|
|
(168)
|
Net income/(loss)
attributable to the Company
|
47,063
|
|
(1,467)
|
Preferred stock
distributions
|
(1,855)
|
|
(1,846)
|
Net income/(loss)
attributable to common stockholders
|
$
45,208
|
|
$
(3,313)
|
|
|
|
|
Net income/(loss) per
common share:
|
|
|
|
Basic
|
$
1.25
|
|
$
(0.11)
|
Diluted
|
$
1.24
|
|
$
(0.11)
|
Weighted average
common shares outstanding:
|
|
|
|
Basic
|
36,073
|
|
29,511
|
Diluted
|
36,432
|
|
29,511
|
Dividend
distributions declared per common share
|
$
0.235
|
|
$
0.235
|
|
|
|
|
City Office REIT,
Inc.
|
Reconciliation of
Net Operating Income and Adjusted Cash NOI to Net
Income
|
(Unaudited)
|
|
(In
thousands)
|
|
|
|
Three Months
Ended
|
|
|
March 31,
2018
|
|
|
|
|
|
|
Net income
|
$
47,198
|
Adjustments to net
income:
|
|
|
General and
administrative
|
1,978
|
|
Contractual interest
expense
|
5,188
|
|
Amortization of
deferred financing costs
|
632
|
|
Depreciation and
amortization
|
11,893
|
|
Net gain on sale of
real estate property
|
(46,980)
|
Net Operating Income
("NOI")
|
$
19,909
|
|
Net recurring
straight line rent adjustment
|
(763)
|
|
Net amortization of
above and below market leases
|
(202)
|
Portfolio Adjusted
Cash NOI
|
$
18,944
|
|
NCI in properties -
share in cash NOI
|
(395)
|
Adjusted Cash NOI
(CIO share)
|
$
18,549
|
City Office REIT,
Inc.
|
Reconciliation of
Net Income to FFO, Core FFO and AFFO
|
(Unaudited)
|
|
(In thousands,
except per share data)
|
|
|
|
Three Months
Ended
|
|
|
March 31,
2018
|
|
|
|
Net income
attributable to common stockholders
|
$
45,208
|
|
(+) Depreciation and
amortization
|
11,893
|
|
(-) Net gain on
sale of real estate property
|
(46,980)
|
|
|
$
10,121
|
|
Non-controlling
interests in properties:
|
|
|
(+) Share of net
income
|
135
|
|
(-) Share of
FFO
|
(302)
|
FFO attributable to
common stockholders
|
$
9,954
|
|
(+) Stock based
compensation
|
350
|
Core FFO attributable
to common stockholders
|
$
10,304
|
|
(+) Net recurring
straight line rent adjustment
|
(763)
|
|
(+) Net amortization
of above and below market leases
|
(202)
|
|
(+) Net amortization
of deferred financing costs
|
626
|
|
(-) Net recurring
tenant improvement and incentives
|
(1,509)
|
|
(-) Net recurring
leasing commissions
|
(760)
|
|
(-) Net recurring
capital expenditures
|
(985)
|
AFFO attributable to
common stockholders
|
$
6,711
|
|
|
|
Core FFO per common
share
|
$
0.28
|
AFFO per common
share
|
$
0.18
|
|
|
|
Dividends per common
share
|
$
0.235
|
Core FFO Payout
Ratio
|
83%
|
AFFO Payout
Ratio
|
128%
|
|
|
|
Weighted average
common shares outstanding
|
36,432
|
City Office REIT,
Inc.
|
Reconciliation of
Same Store Cash NOI to Total Revenues
|
(Unaudited)
|
|
(In
thousands)
|
|
|
Three Months
Ended
March 31,
|
|
2018
|
|
2017
|
|
|
|
|
Total
revenues
|
$
31,534
|
|
$
25,399
|
Property operating
expenses
|
11,625
|
|
9,612
|
Net operating income
("NOI")
|
19,909
|
|
15,787
|
Less: NOI of
properties not included in same store
|
(8,482)
|
|
(4,206)
|
Same store net
operating income
|
11,427
|
|
11,581
|
Less:
|
|
|
|
Termination fee
income
|
(88)
|
|
-
|
Straight line rent
adjustment
|
(464)
|
|
(576)
|
Above and below
market leases
|
10
|
|
16
|
NCI in properties -
cash NOI
|
(321)
|
|
(305)
|
Same store cash
NOI
|
10,564
|
|
10,716
|
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
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content:http://www.prnewswire.com/news-releases/city-office-reit-reports-first-quarter-2018-results-300642648.html
SOURCE City Office REIT, Inc.