VANCOUVER, May 5, 2022
/PRNewswire/ -- City Office REIT, Inc. (NYSE: CIO) (the "Company,"
"City Office," "we" or "our") today announced its results for the
quarter ended March 31, 2022.
First Quarter Highlights
- Rental and other revenues were $44.9
million. GAAP net income attributable to common
stockholders was approximately $22.7
million, or $0.51 per fully
diluted share;
- Core FFO was approximately $17.6
million, or $0.40 per fully
diluted share;
- AFFO was approximately $8.3
million, or $0.19 per fully
diluted share;
- Entered into an agreement to sell the Lake Vista Pointe
property in Dallas, Texas for a
gross sale price of $43.8
million;
- Same Store Cash NOI decreased 4.7% in the first quarter as
compared to the same period in 2021;
- In-place occupancy closed the quarter at 85.7%;
- Executed approximately 221,000 square feet of new and renewal
leases during the quarter;
- Declared a first quarter dividend of $0.20 per share of common stock, paid on
April 22, 2022;
- Declared a first quarter dividend of $0.4140625 per share of Series A Preferred Stock,
paid on April 22, 2022.
"During the first quarter, we continued to create value through
active asset management and capital recycling transactions,"
commented James Farrar, the
Company's Chief Executive Officer. "We entered into an
agreement to sell our Lake Vista Pointe property in Dallas for $43.8
million, which is expected to generate a gain on sale of
approximately $22 million. With
that expected gain, we have now generated approximately
$570 million of gains across ten
dispositions."
"As office usage continues to improve across our high-growth
sunbelt cities, we remain focused on executing strategic leasing
and capital investments to optimally position our portfolio.
We continue to experience the strongest leasing activity at our
best located and amenitized properties. By implementing a
property enhancement program at other well-located buildings across
our portfolio, we expect to drive leasing volume and cash flow
growth. This strategy involves refreshing tenant amenities
and creating a modern, move-in ready suite inventory that can be
immediately occupied. These strategic investments are part of
our focus on unlocking value across our portfolio."
A reconciliation of certain non-GAAP financial measures,
including FFO, Core FFO, AFFO, NOI, Same Store NOI, Same Store Cash
NOI, Adjusted Cash NOI and their equivalent per share measures, 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, 2022 contained 6.2 million net rentable
square feet and was 85.7% occupied. Occupancy was impacted by the
acquisition of two newly constructed properties that are in
lease-up phase and/or have signed leases that have not yet taken
occupancy. Excluding the recently acquired Bloc 83 and Block
23 properties, portfolio occupancy was 87.8% as of March 31, 2022.
Net Operating Income was approximately $28.4 million and Adjusted Cash NOI (CIO share)
was approximately $26.8 million for
the first quarter of 2022. Net Operating Income benefited from
$1.1 million of termination fee
income recognized in the quarter.
Same Store Cash NOI decreased 4.7% for the three months ended
March 31, 2022 as compared to the
same period in the prior year.
Investment and Disposition Activity
On March 7, 2022, the Company
entered into a definitive agreement to sell its Lake Vista Pointe
property in Dallas, Texas.
In 2020, the Company signed a ten-year lease renewal with the
property's single tenant for the entire property, with a renewal
rental rate 6% higher than the rate in place at the time of signing
the renewal lease. As part of the lease renewal, the Company
granted the tenant the option to purchase the property, which the
tenant subsequently exercised. The gross sale price is $43.8 million, inclusive of certain transaction
costs that the buyer is responsible for paying. The sale
represents an expected gain on sale of approximately $22 million and translates to a 6.1% cash
capitalization rate, including an adjustment for an unfunded tenant
improvement allowance. The disposition is scheduled to close
in June 2022.
Leasing Activity
The Company's total leasing activity during the first quarter of
2022 was approximately 221,000 square feet, which included 68,000
square feet of new leasing and 153,000 square feet of renewals.
Approximately 158,000 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 7.3 years at a weighted average annual rent
of $28.60 per square foot and at a
weighted average cost of $5.29 per
square foot per year.
Renewal Leasing – Renewal leases were signed with a
weighted average lease term of 6.9 years at a weighted average
annual rent of $28.51 per square foot
and at a weighted average cost of $2.70 per square foot per year.
Capital Structure
As of March 31, 2022, the Company
had total principal outstanding debt of approximately $667.0 million. Approximately $465.0 million, or 69.7%, 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, approximately 77.2% of the Company's debt was
effectively fixed rate. City Office's total principal outstanding
debt had a weighted average maturity of approximately 4.0 years and
a weighted average interest rate of 3.4%.
Dividends
On March 15, 2022, the Company's
board of directors approved and the Company declared a cash
dividend of $0.20 per share of the
Company's common stock for the three months ended March 31, 2022. The dividend was paid on
April 22, 2022 to common stockholders
and unitholders of record as of April 8,
2022.
On March 15, 2022, 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 for the three months
ended March 31, 2022. The dividend
was paid on April 22, 2022 to
preferred stockholders of record as of April
8, 2022.
2022 Outlook
Following City Office's performance for the first quarter of
2022, the Company is reiterating the components of full year 2022
guidance provided in the Company's fourth quarter 2021 earnings
report.
The Company's guidance is 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, leasing activity, uncollectible rents, operating
and general administrative expenses, weighted average diluted
shares outstanding and interest rates. The Company reminds
investors that the impacts of the COVID-19 pandemic are uncertain
and impossible to predict. See "Forward-looking Statements"
below.
Webcast and Conference Call Details
City Office's management will hold a conference call at
11:00 am Eastern Time on May 5, 2022.
The webcast will be available under the "Investor Relations"
section of the Company's website at www.cioreit.com. The
conference call can be accessed by dialing 1-844-200-6205 for
domestic callers and 1-929-526-1599 for international
callers. The passcode for the conference call is 486178.
A replay of the call will be available later in the day on
May 5, 2022, continuing through
August 3, 2022 and can be accessed by
dialing 1-866-813-9403 for domestic callers and 44-204-525-0658 for
international callers. The passcode for the replay is
308413. 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.cioreit.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 (CIO
share) – 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 and NCI in properties.
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 ongoing 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, 2021 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, 2022 or relate to the quarter ended
March 31, 2022. 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,
2022
|
|
December 31,
2021
|
Assets
|
|
|
|
Real estate properties
|
|
|
|
Land
|
$
200,686
|
|
$
204,801
|
Building and
improvement
|
1,228,976
|
|
1,244,177
|
Tenant improvement
|
122,604
|
|
119,011
|
Furniture, fixtures and
equipment
|
664
|
|
664
|
|
1,552,930
|
|
1,568,653
|
Accumulated
depreciation
|
(160,188)
|
|
(157,356)
|
|
1,392,742
|
|
1,411,297
|
Cash and cash equivalents
|
26,742
|
|
21,321
|
Restricted cash
|
20,903
|
|
20,945
|
Rents receivable, net
|
35,466
|
|
30,415
|
Deferred leasing costs, net
|
19,516
|
|
20,327
|
Acquired lease intangible assets, net
|
65,285
|
|
68,925
|
Sales-type lease receivable
|
42,599
|
|
—
|
Other assets
|
28,930
|
|
28,283
|
Total Assets
|
$
1,632,183
|
|
$
1,601,513
|
Liabilities and Equity
|
|
|
|
Liabilities:
|
|
|
|
Debt
|
$
662,462
|
|
$
653,648
|
Accounts payable and accrued liabilities
|
33,423
|
|
27,101
|
Deferred rent
|
11,164
|
|
11,600
|
Tenant rent deposits
|
6,458
|
|
6,165
|
Acquired lease intangible liabilities, net
|
10,463
|
|
10,872
|
Other liabilities
|
21,086
|
|
21,532
|
Total Liabilities
|
745,056
|
|
730,918
|
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
as of March 31, 2022 and December 31, 2021
|
112,000
|
|
112,000
|
Common stock, $0.01 par value, 100,000,000 shares authorized,
43,554,375 shares issued and
outstanding as of March 31, 2022
and December 31, 2021
|
435
|
|
435
|
Additional paid-in capital
|
483,033
|
|
482,061
|
Retained earnings
|
289,388
|
|
275,502
|
Accumulated other comprehensive income/(loss)
|
1,372
|
|
(382)
|
Total Stockholders'
Equity
|
886,228
|
|
869,616
|
Non-controlling interests in properties
|
899
|
|
979
|
Total Equity
|
887,127
|
|
870,595
|
Total Liabilities and
Equity
|
$
1,632,183
|
|
$
1,601,513
|
|
|
|
|
|
City Office REIT,
Inc
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
(In thousands,
except per share data)
|
|
Three Months Ended
March 31,
|
|
2022
|
|
2021
|
Rental and other revenues
|
$
44,852
|
|
$
39,516
|
Operating expenses:
|
|
|
|
Property operating expenses
|
16,489
|
|
14,118
|
General and administrative
|
3,456
|
|
2,801
|
Depreciation and amortization
|
15,815
|
|
14,415
|
Total operating
expenses
|
35,760
|
|
31,334
|
Operating
income
|
9,092
|
|
8,182
|
Interest
expense:
|
|
|
|
Contractual interest expense
|
(5,747)
|
|
(6,243)
|
Amortization of deferred financing costs and debt fair
value
|
(312)
|
|
(330)
|
|
(6,059)
|
|
(6,573)
|
Net gain on sale of
real estate property
|
21,658
|
|
47,400
|
Net income
|
24,691
|
|
49,009
|
Less:
|
|
|
|
Net
income attributable to non-controlling interests in
properties
|
(171)
|
|
(192)
|
Net income attributable to the
Company
|
24,520
|
|
48,817
|
Preferred stock distributions
|
(1,855)
|
|
(1,855)
|
Net income attributable to common
stockholders
|
$
22,665
|
|
$
46,962
|
Net income per common
share:
|
|
|
|
Basic
|
$
0.52
|
|
$
1.08
|
Diluted
|
$
0.51
|
|
$
1.07
|
Weighted average common
shares outstanding:
|
|
|
|
Basic
|
43,554
|
|
43,397
|
Diluted
|
44,406
|
|
44,043
|
Dividend distributions
declared per common share
|
$
0.20
|
|
$
0.15
|
|
|
|
|
City Office REIT,
Inc
Reconciliation of
Net Income to Net Operating Income and Adjusted Cash
NOI
(Unaudited)
|
|
(In
thousands)
|
|
Three Months Ended
March 31, 2022
|
Net income
|
$
24,691
|
Adjustments to net
income:
|
|
General and administrative
|
3,456
|
Contractual interest expense
|
5,747
|
Amortization of deferred financing costs and debt fair
value
|
312
|
Depreciation and amortization
|
15,815
|
Net
gain on sale of real estate property
|
(21,658)
|
Net Operating Income
("NOI")
|
$
28,363
|
Net
recurring straight-line rent/expense adjustment
|
(1,210)
|
Net
amortization of above and below market leases
|
62
|
Portfolio Adjusted Cash
NOI
|
$
27,215
|
NCI
in properties – share in cash NOI
|
(400)
|
Adjusted Cash NOI (CIO
share)
|
$
26,815
|
|
|
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, 2022
|
Net income attributable
to common stockholders
|
$
22,665
|
(+)
Depreciation and amortization
|
15,815
|
(-)
Net gain on sale of real estate property
|
(21,658)
|
|
16,822
|
Non-controlling interests in properties:
|
|
(+)
Share of net income
|
171
|
(-)
Share of FFO
|
(319)
|
FFO attributable to
common stockholders
|
$
16,674
|
(+)
Stock based compensation
|
904
|
Core FFO attributable
to common stockholders
|
$
17,578
|
(-)
Net recurring straight-line rent/expense adjustment
|
(1,210)
|
(+)
Net amortization of above and below market leases
|
62
|
(+)
Net amortization of deferred financing costs and debt fair
value
|
310
|
(-)
Net recurring tenant improvements and incentives
|
(3,759)
|
(-)
Net recurring leasing commissions
|
(2,217)
|
(-)
Net recurring capital expenditures
|
(2,513)
|
AFFO attributable to
common stockholders
|
$
8,251
|
FFO per common
share
|
$
0.38
|
Core FFO per common
share
|
$
0.40
|
AFFO per common
share
|
$
0.19
|
Dividends distributions
declared per common share
|
$
0.20
|
FFO Payout
Ratio
|
53%
|
Core FFO Payout
Ratio
|
51%
|
AFFO Payout
Ratio
|
108%
|
Weighted average common
shares outstanding - diluted
|
44,406
|
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,
|
|
2022
|
|
2021
|
Rental and other
revenues
|
$
44,852
|
|
$
39,516
|
Property operating
expenses
|
16,489
|
|
14,118
|
Net operating income
("NOI")
|
$
28,363
|
|
$
25,398
|
Less: NOI of properties
not included in same store
|
(7,280)
|
|
(4,082)
|
Same store
NOI
|
$
21,083
|
|
$
21,316
|
Less:
|
|
|
|
Termination fee income
|
(1,077)
|
|
(201)
|
Straight-line rent/expense adjustment
|
276
|
|
64
|
Above and below market leases
|
15
|
|
133
|
NCI
in properties – share in cash NOI
|
(400)
|
|
(425)
|
Same store cash
NOI
|
$
19,897
|
|
$
20,887
|
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
View original content to download
multimedia:https://www.prnewswire.com/news-releases/city-office-reit-reports-first-quarter-2022-results-301540270.html
SOURCE City Office REIT, Inc.