City Office REIT, Inc. (NYSE: CIO) (the “Company,” “City
Office,” “we” or “our”) today announced its results for the quarter
ended March 31, 2020.
First Quarter Highlights
- GAAP net loss attributable to common stockholders was
approximately $1.0 million, or ($0.02) per fully diluted
share;
- Core FFO was approximately $14.3 million, or $0.26 per fully
diluted share;
- AFFO was approximately $7.9 million, or $0.14 per fully diluted
share;
- Same Store Cash NOI increased 4.1% as compared to the first
quarter of 2019;
- In-place occupancy closed the quarter at 92.2%;
- Executed approximately 221,000 square feet of new and renewal
leases during the quarter;
- Repurchased 1,451,249 shares of common stock at an average
gross price of $7.99 per share for a total cost of approximately
$11.6 million;
- Declared a first quarter dividend of $0.15 per share of common
stock, paid on April 24, 2020; and
- Declared a first quarter dividend of $0.4140625 per share of
Series A Preferred Stock, paid on April 24, 2020.
Highlights Subsequent to Quarter End
- As of May 5, 2020, repurchased an additional 5,872,328 shares
of common stock. Including repurchases during the first quarter,
7,323,577 shares have been repurchased at an average gross price of
$8.26 per share for a total cost of approximately $60.5
million.
“We took early steps to position City Office ahead of feeling
the full impact of COVID-19,” commented James Farrar, the Company’s
Chief Executive Officer. “From the outset of the pandemic, we have
ensured that all of our properties have remained open and available
for our tenants. We have also halted our acquisition activity and
allocated capital to our previously announced common share
repurchase program, which we believe will be accretive to our
shareholders over the long term. In addition, we drew down a
portion of our unsecured credit facility to ensure ample cash and
liquidity, modified our business plan to operate with lower overall
leverage and adjusted our common stock dividend to a level we
believe will be defensive over the long term.”
“Even with our quality portfolio and a strong first quarter, the
uncertain operating environment has created challenges with
predicting near-term performance. While we are encouraged to see
early signs of the easing of business restrictions in many markets,
the potential damage to the economy and our tenants is difficult to
ascertain. That uncertainty is reflected in our updated guidance,
including the removal of future vacant space leasing assumptions
and the establishment of a provision for uncollectible rents. In
the coming months, our focus will be to continue to take
thoughtful, proactive measures to address near-term risks and to
optimally position ourselves for the long term.”
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 March 31,
2020 contained 5.8 million net rentable square feet and was 92.2%
occupied.
Within the Company’s first quarter results for the period ended
March 31, 2020, the Company has taken a provision of $0.1 million
for potential bad debts. This modest figure reflects that the
overwhelming majority of City Office’s tenants had already paid
rent before the impact of COVID-19 on the economy. In March and
subsequent to quarter end, the Company has received certain
requests for rent relief or deferral and is evaluating each request
independently.
Subsequent to quarter end, the Company has collected
approximately 98% of April contractual base rent payments. A
break-down of the Company’s exposure to select industries is
provided on page 15 of our supplemental financial information
package.
City Office’s NOI was approximately $25.4 million, or
approximately $24.7 million on an adjusted cash basis, during the
first quarter of 2020.
Same Store Cash NOI increased 4.1% for the three months ended
March 31, 2020 as compared to the same period in the prior
year.
Investment and Disposition Activity
The Company remains under contract to sell a land parcel at its
Circle Point property in Denver, Colorado at a sale price of $6.5
million, exclusive of closing costs. Including a deposit received
after quarter end, the Company has received $750,000 of
non-refundable deposits from the buyer and anticipates that the
transaction will close in the third quarter of 2020, subject to
customary closing conditions.
Leasing Activity
The Company’s total leasing activity during the first quarter of
2020 was approximately 221,000 square feet, which included 108,000
square feet of new leasing and 113,000 square feet of renewals.
Approximately 219,000 square feet of leases signed within the
quarter will commence subsequent to quarter end.
New Leasing – New leases were signed with a weighted average
lease term of 9.0 years at a weighted average annual rent of $28.79
per square foot and at a weighted average cost of $7.69 per square
foot per year.
Renewal Leasing – Renewal leases were signed with a weighted
average lease term of 2.6 years at a weighted average annual rent
of $30.68 per square foot and at a weighted average cost of $3.04
per square foot per year.
Capital Structure
As of March 31, 2020, the Company had total principal
outstanding debt of approximately $710.8 million. Approximately
$560.8 million or 78.9% of the Company’s outstanding debt was fixed
rate. When factoring in the $50 million term loan as fixed rate
debt due to an interest swap, which effectively fixes the 30-day
LIBOR rate, approximately 85.9% of the Company’s debt was
effectively fixed rate. City Office’s total principal outstanding
debt had a weighted average maturity of approximately 4.9 years and
a weighted average interest rate of 3.8%.
On March 9, 2020, the Company’s Board of Directors approved a
share repurchase plan authorizing the Company to repurchase up to
$100 million of its outstanding shares of common stock. During the
three months ended March 31, 2020, the Company repurchased
1,451,249 shares of its common stock at an average gross price of
$7.99 per share for a total cost of approximately $11.6 million.
Including incremental share repurchases completed after quarter
end, as of May 5, the Company had settled on the repurchase of
7,323,577 shares at an average gross price of $8.26 per share for
an aggregate cost of approximately $60.5 million.
Dividends
On March 25, 2020, the Company’s board of directors approved and
the Company declared a cash dividend of $0.15 per share of the
Company’s common stock for the three months ended March 31, 2020.
The dividend was paid on April 24, 2020 to common stockholders and
unitholders of record as of April 9, 2020.
On March 25, 2020, 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 24, 2020 to preferred stockholders of record as of April 9,
2020.
Revised 2020 Outlook
The Company is updating its full year 2020 guidance based on
year-to-date performance and its expectations for the remainder of
the year.
2020 Core FFO per diluted share expectations were lowered by
eliminating anticipated acquisition activity, removing future
leasing assumptions for vacant space and establishing a provision
for uncollectible rents associated with the anticipated impacts of
COVID-19. These changes were offset by lower interest expense and
lower expected weighted average fully diluted shares outstanding
due to the share repurchase program.
Full Year 2020 Guidance
Previous
Updated
Low
High
Low
High
Net Property Acquisitions
$340M
$380M
Nil
Nil
Net Operating Income
$110.0M
$115.0M
$96.0M
$99.0M
General & Administrative Expenses
$11.0M
$12.0M
$10.5M
$11.5M
Interest Expense
$30.0M
$32.0M
$27.0M
$28.0M
2020 Core FFO per diluted share
$1.13
$1.18
$1.07
$1.12
Net Recurring Straight-Line Rent
Adjustment
$2.0M
$3.0M
$1.5M
$2.5M
Same Store Cash NOI Change
1.0%
3.0%
(4.5%)
(1.5%)
December 31, 2020 Occupancy
92.0%
94.0%
88.5%
91.0%
This revised outlook reflects management’s view of current and
future market conditions, including assumptions on share
repurchases, future acquisitions and dispositions, rental rates,
occupancy levels, leasing activity, uncollectible rents, operating
and general administrative expenses, weighted average diluted
shares outstanding and interest rates.
Material Considerations:
- The General and Administrative Expenses guidance includes
approximately $2.4 million for stock-based compensation. Our Core
FFO definition excludes stock-based compensation. Excluding
stock-based compensation, General and Administrative Expenses
guidance would have been $8.1 – $9.1 million.
- Due to uncertainty created by COVID-19, Net Operating Income
has been lowered to remove future leasing assumptions for vacant
space and establishing a general provision for uncollectible rents
of between 1% and 3% of rental revenue. These provisions are also
reflected as decreased December 31, 2020 Occupancy and lower Same
Store Cash NOI Change.
- Annual weighted average fully diluted shares of common stock
outstanding are assumed to be approximately 47.2 – 47.6
million.
Webcast and Conference Call Details
City Office’s management will hold a conference call at 11:00 am
Eastern Time on May 7, 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 May
7, 2020, continuing through 11:59 pm Eastern Time on August 7, 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 10141900. 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 rent / expense, 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 rental and other revenues less property operating
expenses. We define Adjusted Cash NOI as NOI less the effect of
recurring straight-line rent / expense, 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 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 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 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 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. Forward-looking statements are
generally identifiable by use of forward-looking terminology such
as “approximately,” “anticipate,” “assume,” “believe,” “budget,”
“contemplate,” “continue,” “could,” “estimate,” “expect,” “future,”
“hypothetical,” “intend,” “may,” “outlook,” “plan,” “potential,”
“predict,” “project,” “seek,” “should,” “target,” “will” or other
similar words or expressions. 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, anticipated near-term acquisitions and
descriptions relating to these expectations, including, without
limitation, the anticipated net operating income yield and cap
rates, and changes in local, regional, national and international
economic conditions, including as a result of the recent COVID-19
pandemic. Forward-looking statements presented in this press
release are based on management’s beliefs and assumptions made by,
and information currently available to, management.
The forward-looking statements contained in this press release
are based on historical performance and management’s current plans,
estimates and expectations in light of information currently
available to us and are subject to uncertainty and changes in
circumstances. There can be no assurance that future developments
affecting us will be those that we have anticipated. Actual results
may differ materially from these expectations due to the factors,
risks and uncertainties described above, changes in global,
regional or local political, economic, business, competitive,
market, regulatory and other factors described in our news releases
and filings with the SEC, including but not limited to those
described in our Annual Report on Form 10-K for the year ended
December 31, 2019 under the heading “Risk Factors” and in our
subsequent reports filed with the SEC, many of which are beyond our
control. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove to be
incorrect, our actual results may vary in material respects from
what we may have expressed or implied by these forward-looking
statements. We caution that you should not place undue reliance on
any of our forward-looking statements. Any forward-looking
statement made by us in this press release speaks only as of the
date of this press release. Factors or events that could cause our
actual results to differ may emerge from time to time, and it is
not possible for us to predict all of them. The Company does not
guarantee that the assumptions underlying such forward-looking
statements contained in this press release are free from errors.
Unless otherwise stated, historical financial information and per
share and other data are as of March 31, 2020 or relate to the
quarter ended March 31, 2020. We undertake no obligation to
publicly update any forward-looking statement, whether as a result
of new information, future developments or otherwise, except as may
be required by applicable securities laws.
City Office REIT, Inc.
Condensed Consolidated Balance
Sheets
(Unaudited)
(In thousands, except par value
and share data)
March 31, 2020
December 31, 2019
Assets
Real estate properties
Land
$
230,034
$
230,034
Building and improvement
786,939
784,636
Tenant improvement
97,474
94,218
Furniture, fixtures and equipment
285
285
1,114,732
1,109,173
Accumulated depreciation
(111,177
)
(101,835
)
1,003,555
1,007,338
Cash and cash equivalents
146,509
70,129
Restricted cash
18,328
17,394
Rents receivable, net
32,875
32,112
Deferred leasing costs, net
14,249
12,393
Acquired lease intangibles assets, net
62,104
67,533
Other assets
16,054
17,061
Assets held for sale
4,543
4,514
Total Assets
$
1,298,217
$
1,228,474
Liabilities and Equity
Liabilities:
Debt
$
706,031
$
607,250
Accounts payable and accrued
liabilities
27,354
28,786
Deferred rent
5,298
6,593
Tenant rent deposits
5,660
5,658
Acquired lease intangible liabilities,
net
7,604
8,194
Other liabilities
19,711
22,794
Liabilities related to assets held for
sale
87
67
Total Liabilities
771,745
679,342
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, 53,175,051 and 54,591,047 shares issued and
outstanding
531
545
Additional paid-in capital
566,122
577,131
Accumulated deficit
(151,264
)
(142,383
)
Accumulated other comprehensive
(loss)/income
(2,026
)
715
Total Stockholders’ Equity
525,363
548,008
Non-controlling interests in
properties
1,109
1,124
Total Equity
526,472
549,132
Total Liabilities and Equity
$
1,298,217
$
1,228,474
City Office REIT, Inc.
Condensed Consolidated
Statements of Operations
(Unaudited)
(In thousands, except per share
data)
Three Months Ended March
31,
2020
2019
Rental and other revenues
$
40,122
$
37,120
Operating expenses:
Property operating expenses
14,694
13,844
General and administrative
2,783
2,299
Depreciation and amortization
14,953
14,417
Total operating expenses
32,430
30,560
Operating income
7,692
6,560
Interest expense:
Contractual interest expense
(6,362
)
(7,143
)
Amortization of deferred financing costs
and debt fair value
(324
)
(337
)
(6,686
)
(7,480
)
Net income/(loss)
1,006
(920
)
Less:
Net income attributable to non-controlling
interests in properties
(182
)
(169
)
Net income/(loss) attributable to the
Company
824
(1,089
)
Preferred stock distributions
(1,855
)
(1,855
)
Net loss attributable to common
stockholders
$
(1,031
)
$
(2,944
)
Net loss per common share:
Basic
$
(0.02
)
$
(0.07
)
Diluted
$
(0.02
)
$
(0.07
)
Weighted average common shares
outstanding:
Basic
54,458
39,565
Diluted
54,458
39,565
Dividends distributions declared per
common share
$
0.150
$
0.235
City Office REIT, Inc.
Reconciliation of Net Income
to Net Operating Income and Adjusted Cash NOI
(Unaudited)
(In thousands)
Three Months Ended
March 31, 2020
Net income
$
1,006
Adjustments to net income:
General and administrative
2,783
Contractual interest expense
6,362
Amortization of deferred financing costs
and debt fair value
324
Depreciation and amortization
14,953
Net Operating Income (“NOI”)
$
25,428
Net recurring straight line rent/expense
adjustment
(361)
Net amortization of above and below market
leases
16
Portfolio Adjusted Cash NOI
$
25,083
NCI in properties – share in cash NOI
(416)
Adjusted Cash NOI (CIO share)
$
24,667
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, 2020
Net loss attributable to common
stockholders
$
(1,031)
(+) Depreciation and amortization
14,953
13,922
Non-controlling interests in
properties:
(+) Share of net income
182
(-) Share of FFO
(342)
FFO attributable to common
stockholders
$
13,762
(+) Stock based compensation
569
Core FFO attributable to common
stockholders
$
14,331
(+) Net recurring straight line
rent/expense adjustment
(361)
(+) Net amortization of above and below
market leases
16
(+) Net amortization of deferred financing
costs and debt fair value
321
(-) Net recurring tenant improvements and
incentives
(2,475)
(-) Net recurring leasing commissions
(2,464)
(-) Net recurring capital expenditures
(1,455)
AFFO attributable to common
stockholders
$
7,913
Core FFO per common share
$
0.26
AFFO per common share
$
0.14
Dividends per common share
$
0.150
Core FFO Payout Ratio
58%
AFFO Payout Ratio
104%
Weighted average common shares outstanding
- diluted
54,966
City Office REIT, Inc.
Reconciliation of Rental and
Other Revenues to Same Store NOI and Same Store Cash NOI
(Unaudited)
(In thousands)
Three Months Ended March
31,
2020
2019
Rental and other revenues
$
40,122
$
37,120
Property operating expenses
14,694
13,844
Net operating income (“NOI”)
$
25,428
$
23,276
Less: NOI of properties not included in
same store
(3,398)
(1,684)
Same store NOI
$
22,030
$
21,592
Less:
Termination fee income
(380)
(203)
Straight line rent/expense adjustment
(56)
(772)
Above and below market leases
(95)
28
NCI in properties – cash NOI
(416)
(394)
Same store cash NOI
$
21,083
$
20,251
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
$
(14,850)
$
(11,950)
(+) Depreciation and amortization
63,600
63,200
(-) Non-controlling interests in
properties
(650)
(650)
(+) Stock based compensation
2,400
2,400
Core FFO attributable to common
stockholders
$
50,500
$
53,000
Core FFO per common share
$
1.07
$
1.12
Weighted average shares of common
stock
47,400
47,400
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507005250/en/
City Office REIT, Inc. Anthony Maretic, CFO +1-604-806-3366
investorrelations@cityofficereit.com
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