City Office REIT, Inc. (NYSE: CIO) (the “Company” or “City
Office”), today announced its results for the quarter and full year
ended December 31, 2019.
Fourth Quarter Highlights
- GAAP net income attributable to common stockholders was
approximately $1.0 million, or $0.02 per fully diluted share;
- Core FFO was approximately $13.4 million, or $0.25 per fully
diluted share;
- AFFO was approximately $7.9 million, or $0.14 per fully diluted
share;
- In-place occupancy closed the quarter at 91.9%; the Company
executed approximately 331,000 square feet of new and renewal
leases during the quarter;
- Same Store Cash NOI increased 3.9% as compared to the fourth
quarter 2018;
- Closed the disposition of the Logan Tower property in Denver,
Colorado for $12.6 million;
- Issued 6,900,000 shares of common stock in a public follow-on
offering for aggregate gross proceeds of approximately $95.6
million;
- Declared a fourth quarter dividend of $0.235 per share of
common stock, paid on January 24, 2020;
- Declared a fourth quarter dividend of $0.4140625 per share of
Series A Preferred Stock, paid on January 24, 2020; and
- Gained entry into the MSCI US REIT Index (RMZ).
Highlights Subsequent to Quarter End
- Executed a 70,000 square foot lease at the Denver Tech property
with a 10.6 year term.
“2019 was an exceptional year for City Office REIT, in which the
total return for our common stock was 42.6%,” commented James
Farrar, the Company’s Chief Executive Officer. “We executed on our
strategy of expanding our footprint in 18-hour cities in the
southern and western United States and significantly grew the scale
of the Company. We accomplished this while our portfolio
demonstrated healthy operating fundamentals, with occupancy, rental
rates and same store cash NOI growth all strongly positive.”
“In 2020, we will continue to focus on driving property cash
flows and unlocking value at the property level. We remain focused
on deploying our acquisition capital prudently across our high
growth markets. Through these strategies, we can achieve accretion
to our run rate Core FFO and continue to reduce our overall
portfolio leverage levels.”
A reconciliation of certain non-GAAP financial measures,
including FFO, Core FFO, AFFO, NOI, Same Store NOI, Same Store Cash
NOI and Adjusted Cash NOI, to the most directly comparable
financial measure under U.S. generally accepted accounting
principles (“GAAP”) can be found at the end of this release.
Portfolio Operations
The Company reported that its total portfolio as of December 31,
2019 contained 5.8 million net rentable square feet and was 91.9%
occupied.
City Office’s NOI was approximately $24.5 million, or
approximately $24.1 million on an adjusted cash basis, during the
fourth quarter of 2019.
Fourth quarter Same Store Cash NOI increased 3.9% as compared to
the fourth quarter 2018 and full year Same Store Cash NOI increased
4.3% as compared to 2018.
Investment and Disposition Activity
During the quarter, the Company successfully completed the
previously announced disposition of the Logan Tower property in
Denver, Colorado for a sale price of $12.6 million. The sale
represents a gain of $2.9 million, and the Company expects to
recycle the disposition proceeds into its acquisition pipeline.
Leasing Activity
The Company’s total leasing activity during the fourth quarter
of 2019 was 331,000 square feet, which included 36,000 square feet
of new leasing and 295,000 square feet of renewals. 325,000 square
feet of leases signed within the quarter will commence subsequent
to quarter end.
Subsequent to quarter end, the Company signed a new 70,000
square foot lease with a credit tenant at the Denver Tech property
on a 10.6 year term. The lease is expected to increase the
property’s occupancy to 93.7% once the lease commences in the third
quarter of 2020.
New Leasing – New leases were signed with a weighted average
lease term of 5.4 years at a weighted average annual rent per
square foot of $26.78 and at a weighted average cost of $4.88 per
square foot per year.
Renewal Leasing – Renewal leases were signed with a weighted
average lease term of 2.1 years at a weighted average annual rent
per square foot of $24.26 and at a weighted average cost of $4.00
per square foot per year.
Capital Structure
As of December 31, 2019, the Company had total principal
outstanding debt of approximately $612.3 million with a weighted
average maturity of 5.6 years and a weighted average interest rate
of 4.0%. 100% of the Company’s outstanding debt was effectively
fixed rate at December 31, 2019 when factoring in a $50 million
term loan as fixed rate debt due to an interest swap.
During the quarter, the Company completed a public offering
pursuant to which it sold 6,900,000 shares of its common stock,
inclusive of the overallotment option. The Company raised $95.6
million in aggregate gross proceeds, resulting in aggregate net
proceeds to the Company of approximately $94.1 million after
deducting underwriting discounts and offering expenses.
Dividends
On December 13, 2019, 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 December 31,
2019. The dividend was paid on January 24, 2020 to common
stockholders and unitholders of record as of January 10, 2020.
On December 13, 2019, 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 January 24, 2020 to preferred stockholders of record as of
January 10, 2020.
2020 Outlook
For full year 2020, the Company expects Core FFO in the range of
$1.13 to $1.18 per diluted share based on current plans and
assumptions and subject to the risks and uncertainties more fully
described in the Company’s filings with the United States
Securities and Exchange Commission. This outlook reflects
management’s view of current and future market conditions,
including assumptions such as the pace of future acquisitions and
dispositions, rental rates, occupancy levels, operating and general
administrative expenses, weighted average diluted shares
outstanding and interest rates. Reconciliation items are noted
below.
Low
High
Full Year 2020
Guidance:
Net Property Acquisitions:
$340M
$380M
Net Operating Income:
$110.0M
$115.0M
General & Administrative Expenses
(“G&A”):
$11.0M
$12.0M
Interest Expense:
$30.0M
$32.0M
Core FFO per Diluted Share (Full
Year):
$1.13
$1.18
Net Recurring Straight Line Rent
Adjustment:
$2.0M
$3.0M
Same Store Cash NOI Growth:
1.0%
3.0%
December 31, 2020 Occupancy:
92.0%
94.0%
Fully Deployed
Guidance:
Core FFO per Diluted Share (Q4 2020):
$0.32
$0.34
The expected range of the Company’s Full Year 2020 Core FFO is
primarily driven by the pace and timing of future acquisitions. The
Company’s fourth quarter 2020 run rate Core FFO assumes that the
Company has completed Net Property Acquisitions within the guidance
range by the start of the fourth quarter of 2020. Further, the
Company is actively engaged in leasing its remaining blocks of
vacant space and these potential gains in occupancy and Same Store
Cash NOI could have a material impact on Core FFO.
Material Considerations:
- No dispositions have been assumed.
- The 2020 G&A guidance includes approximately $2.3 – $2.5
million for stock-based compensation. Our Core FFO definition
excludes stock-based compensation. Excluding stock-based
compensation, G&A guidance would have been $8.5 – $9.7
million.
- 2020 annual weighted average fully diluted shares of common
stock outstanding are assumed to be 55.1 – 55.3 million.
- No future capital offerings or share repurchases have been
assumed.
Webcast and Conference Call Details
City Office’s management will hold a conference call at 11:00 am
Eastern Time on February 26, 2020.
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
February 26, 2020, continuing through 11:59 pm Eastern Time on May
26, 2020 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 10138191. 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 information 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 Net Operating Income (“Same Store NOI”) and Same
Store Cash Net Operating Income (“Same Store Cash NOI”) – Same
Store NOI and Same Store Cash NOI are 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 NOI and 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 significant renovations.
We believe Same Store NOI and Same Store Cash NOI are important
measures of comparison, because each 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 NOI and
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 tenant
occupancy, re-leasing periods, projected capital improvements,
expected sources of financing, expectations as to the likelihood
and 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,
2019 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 December 31,
2019 or relate to the quarter ended December 31, 2019.
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.
Consolidated Balance
Sheets
(In thousands, except par value
and share data)
December 31, December 31,
2019
2018
Assets Real estate properties Land
$
230,034
$
223,789
Building and improvement
784,636
704,113
Tenant improvement
94,218
77,426
Furniture, fixtures and equipment
285
319
1,109,173
1,005,647
Accumulated depreciation
(101,835
)
(70,484
)
1,007,338
935,163
Cash and cash equivalents
70,129
16,138
Restricted cash
17,394
17,007
Rents receivable, net
32,112
26,095
Deferred leasing costs, net
12,393
10,402
Acquired lease intangible assets, net
67,533
75,501
Other assets
17,061
2,755
Assets held for sale
4,514
17,370
Total Assets
$
1,228,474
$
1,100,431
Liabilities and Equity Liabilities: Debt
$
607,250
$
645,354
Accounts payable and accrued liabilities
28,786
25,892
Deferred rent
6,593
5,331
Tenant rent deposits
5,658
4,564
Acquired lease intangible liabilities, net
8,194
8,887
Other liabilities
22,794
11,148
Liabilities related to assets held for sale
67
878
Total Liabilities
679,342
702,054
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,
54,591,047 and 39,544,073 shares issued and outstanding
545
395
Additional paid-in capital
577,131
377,126
Accumulated deficit
(142,383
)
(92,108
)
Accumulated other comprehensive income
715
-
Total Stockholders’ Equity
548,008
397,413
Non-controlling interests in properties
1,124
964
Total Equity
549,132
398,377
Total Liabilities and Equity
$
1,228,474
$
1,100,431
City Office REIT, Inc.
Consolidated Statements of
Operations
(In thousands, except per share
data)
Three Months Ended Years Ended December
31, December 31,
2019
2018
2019
2018
Rental and other revenues
$
39,061
$
34,167
$
156,297
$
129,484
Operating expenses: Property operating expenses
14,562
13,246
57,316
49,872
General and administrative
2,631
2,344
11,066
8,137
Depreciation and amortization
15,102
15,308
59,159
52,352
Impairment of real estate
-
3,497
-
3,497
Total operating expenses
32,295
34,395
127,541
113,858
Operating income/(loss)
6,766
(228
)
28,756
15,626
Interest expense: Contractual interest expense
(6,379
)
(6,132
)
(28,401
)
(22,316
)
Amortization of deferred financing costs and debt fair value
(333
)
(324
)
(1,325
)
(1,621
)
(6,712
)
(6,456
)
(29,726
)
(23,937
)
Net gain on sale of real estate property
2,934
-
3,412
46,980
Net income/(loss)
2,988
(6,684
)
2,442
38,669
Less: Net income attributable to non-controlling interests in
properties
(146
)
(117
)
(644
)
(501
)
Net income/(loss) attributable to the Company
2,842
(6,801
)
1,798
38,168
Preferred stock distributions
(1,855
)
(1,855
)
(7,420
)
(7,420
)
Net income/(loss) attributable to common stockholders
$
987
$
(8,656
)
$
(5,622
)
$
30,748
Net income/(loss) per common share: Basic
$
0.02
$
(0.22
)
$
(0.13
)
$
0.82
Diluted
$
0.02
$
(0.22
)
$
(0.13
)
$
0.82
Weighted average common shares outstanding: Basic
54,049
39,544
43,997
37,321
Diluted
54,416
39,544
43,997
37,670
Dividend distributions declared per common share
$
0.235
$
0.235
$
0.940
$
0.940
City Office REIT, Inc.
Reconciliation of Net
Operating Income and Adjusted Cash NOI to Net Income
(Unaudited)
(In thousands)
Three Months EndedDecember 31, 2019 Net income
$
2,988
Adjustments to net income: General and administrative
2,631
Contractual interest expense
6,379
Amortization of deferred financing costs and debt fair value
333
Depreciation and amortization
15,102
Net gain on sale of real estate property
(2,934
)
Net Operating Income ("NOI")
$
24,499
Net recurring straight line rent/expense adjustment
(52
)
Net amortization of above and below market leases
40
Portfolio Adjusted Cash NOI
$
24,487
NCI in properties - share in cash NOI
(381
)
Adjusted Cash NOI (CIO share)
$
24,106
City Office REIT, Inc.
Reconciliation of Net Income
to FFO, Core FFO and AFFO
(Unaudited)
(In thousands, except per share
data)
Three Months Ended December 31, 2019
Net income attributable to common stockholders
$
987
(+) Depreciation and amortization
15,102
(-) Net gain on sale of real estate property
(2,934
)
13,155
Non-controlling interests in properties: (+) Share of net income
146
(-) Share of FFO
(305
)
FFO attributable to common stockholders
$
12,996
(+) Stock based compensation
432
Core FFO attributable to common stockholders
$
13,428
(+) Net recurring straight line rent/expense adjustment
(52
)
(+) Net amortization of above and below market leases
40
(+) Net amortization of deferred financing costs and debt fair
value
330
(-) Net recurring tenant improvement and incentives
(3,147
)
(-) Net recurring leasing commissions
(1,521
)
(-) Net recurring capital expenditures
(1,221
)
AFFO attributable to common stockholders
$
7,857
Core FFO per common share
$
0.25
AFFO per common share
$
0.14
Dividends per common share
$
0.235
Core FFO Payout Ratio
95
%
AFFO Payout Ratio
163
%
Weighted average common shares outstanding - diluted
54,416
City Office REIT, Inc.
Reconciliation of Rental and
Other Revenues to Same Store NOI and Same Store Cash NOI
(Unaudited)
(In thousands)
Three Months EndedDecember 31, Years EndedDecember
31,
2019
2018
2019
2018
Rental and other revenues
$
39,061
$
34,167
$
156,297
$
129,484
Property operating expenses
14,562
13,246
57,316
49,872
Net operating income ("NOI")
$
24,499
$
20,921
$
98,981
$
79,612
Less: NOI of properties not included in same store
(4,045
)
(656
)
(21,530
)
(5,539
)
Same store NOI
$
20,454
$
20,265
$
77,451
$
74,073
Less: Non-recurring other income
-
-
(2,625
)
-
Termination fee income
(152
)
(131
)
(480
)
(1,258
)
Straight line rent/expense adjustment
337
(336
)
(634
)
(2,065
)
Above and below market leases
(83
)
(39
)
(57
)
(175
)
NCI in properties - cash NOI
(381
)
(343
)
(1,554
)
(1,471
)
Same store cash NOI
$
20,175
$
19,416
$
72,101
$
69,104
City Office REIT, Inc.
Reconciliation of Net Income
to Core FFO Guidance
(Unaudited)
(In thousands, except per share
data)
Full year 2020 Outlook Low High Net loss
attributable to common stockholders
$
(9,800
)
$
(7,250
)
(+) Depreciation and amortization
70,200
70,600
(-) Non-controlling interests in properties
(650
)
(650
)
(+) Stock based compensation
2,500
2,300
Core FFO attributable to common stockholders
$
62,250
$
65,000
Core FFO per common share
$
1.13
$
1.18
Weighted average shares of common stock
55,200
55,200
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200226005237/en/
City Office REIT, Inc. Anthony Maretic, CFO +1-604-806-3366
investorrelations@cityofficereit.com
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