Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- City Office REIT Inc (CIO, Financial) achieved the highest quarter of new leasing in the company's history with 162,000 square feet of new leases.
- The company is benefiting from a decline in new office construction and a decrease in sublease space, leading to reduced competition.
- City Office REIT Inc (CIO) is executing strategic property upgrades in key markets, enhancing the profile and competitive advantage of its properties.
- The company is exploring a value-enhancing redevelopment opportunity in St. Petersburg, potentially contributing to future development profits.
- City Office REIT Inc (CIO) has addressed all near-term debt maturities, improving its balance sheet stability.
Negative Points
- Net operating income decreased by $1.8 million compared to the first quarter, primarily due to lower occupancy.
- Core FFO was $2 million lower than the previous quarter, driven by the decrease in net operating income.
- The company's portfolio occupancy ended the quarter at 83.0%, indicating a gap between signed leases and actual occupancy.
- The office market continues to face challenges, particularly with a lack of liquidity in real estate transactions.
- City Office REIT Inc (CIO) is dealing with known move-outs, including a significant 72,000 square foot tenant departure at AmberGlen.
Q & A Highlights
Q: Tony, are there any additional known move-outs of consequence today, considering the gap between occupancy and signed leases not yet occupied?
A: Anthony Maretic, CFO: No, there are no new significant move-outs. The only known vacate is a 72,000 square foot tenant at AmberGlen scheduled to depart at the end of January. We are on track to hit our occupancy guidance of 84.5% or maybe a bit higher.
Q: How does the leasing pipeline look for the back half of the year compared to the last few quarters?
A: James Farrar, CEO: There is a natural slowdown over the summer, but the requirements and discussions remain strong. Phoenix, in particular, has turned the corner with significant leasing activity, and we expect continued traction there.
Q: What is the strategy behind paying off the term loan due in September, and how are you addressing debt in the current environment?
A: Anthony Maretic, CFO: Paying down the term loan is part of managing our exposure. We are exploring placing debt on unencumbered assets like Bloc 83. The CMBS market is improving, and we are evaluating options without rushing into decisions.
Q: What is driving the turnaround in the Phoenix market?
A: James Farrar, CEO: The turnaround is broad across various submarkets, except for the tech side, which still has sublease space. Other industries are picking up, and we are seeing constructive discussions for longer-term leases and larger spaces.
Q: How are the spec suites trending, and what are the expectations for year-end?
A: James Farrar, CEO: Spec suites are leasing well. We reduced inventory from 82,000 to 48,000 square feet, with 30,000 being larger suites. We plan to build another 32,000 square feet, mostly smaller suites, which are seeing significant activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
