VANCOUVER, Feb. 22, 2024 /PRNewswire/ -- City Office REIT, Inc. (NYSE:CIO) (the "Company," "City Office," "we" or "our") today announced its results for the quarter and full year ended December 31, 2023.

Fourth Quarter Highlights

Rental and other revenues were $44.3 million. GAAP net loss attributable to common stockholders was approximately $4.5 million, or ($0.11) per fully diluted share;
Core FFO was approximately $13.5 million, or $0.33 per fully diluted share;
AFFO was approximately $9.3 million, or $0.23 per fully diluted share;
In-place occupancy was 84.5% as of quarter end;
Executed approximately 134,000 square feet of new and renewal leases during the quarter;
Declared a fourth quarter dividend of $0.10 per share of common stock, paid on January 24, 2024; and
Declared a fourth quarter dividend of $0.4140625 per share of Series A Preferred Stock, paid on January 24, 2024.

"We are seeing positive signs that leasing activity is gathering momentum, especially across our premium properties and locations," commented James Farrar, the Company's Chief Executive Officer. "The new leasing achieved in the fourth quarter was the most new leasing of any quarter in 2023, and those leases had a healthy eight-year average lease term. That strong leasing momentum carried over into the first quarter of 2024, and we currently have a pipeline of over 200,000 square feet of leasing prospects that we are actively pursuing."

"Operationally, we completed 2023 in line with our expectations, having ended the year with a Core FFO per share within the initial guidance range provided at the start of 2023. Of note, Same Store Cash NOI increased 3.0% in 2023 as compared to the prior year. Our new 2024 guidance is reflective of positive leasing trends for our high-quality market segment but also the assumed continued challenging macro conditions impacting the office real estate industry."

A reconciliation of certain non-GAAP financial measures, including FFO, Core FFO, AFFO, NOI, Same Store NOI, Same Store 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 December 31, 2023 contained 5.7 million net rentable square feet and was 84.5% occupied.

Same Store Cash NOI decreased 0.5% for the three months ended December 31, 2023 as compared to the same period in the prior year. Same Store Cash NOI increased 3.0% for the twelve months ended December 31, 2023 as compared to the prior year.

During the fourth quarter, the Company wrote off a combined $1.4 million of straight-line rent receivables and above market lease amortization related to WeWork's 46,000 square foot lease at the Company's Block 23 property in Phoenix. Subsequent to year end, in February 2024, this lease was terminated as part of WeWork's ongoing bankruptcy proceedings. The Company is in advanced discussions with a different co-working operator to occupy the former WeWork space at the Block 23 property.

During the fourth quarter, the Company recognized $1.5 million of income due to the reversal of an accrued liability for a tenant improvement reimbursement that was no longer owed as the claim period had expired. The net impact during the quarter of the WeWork write-off and this other income was an increase to NOI and Core FFO of $0.1 million.

Leasing Activity

The Company's total leasing activity during the fourth quarter of 2023 was approximately 134,000 square feet, which included 109,000 square feet of new leasing and 25,000 square feet of renewals. Approximately 112,000 square feet of leases signed within the quarter will commence subsequent to quarter end. The Company's total leasing activity during the twelve months ended December 31, 2023 was approximately 599,000 square feet.

New Leasing – New leases were signed with a weighted average lease term of 8.0 years at a weighted average annual rent of $38.04 per square foot and at a weighted average cost of $10.83 per square foot per year.

Renewal Leasing – Renewal leases were signed with a weighted average lease term of 2.5 years at a weighted average annual rent of $33.46 per square foot and at a weighted average cost of $1.17 per square foot per year.

Capital Structure

As of December 31, 2023, the Company had total principal outstanding debt of approximately $672.7 million. Approximately 91.1% of the Company's debt was fixed rate or effectively fixed rate due to interest rate swaps. City Office's total principal outstanding debt had a weighted average maturity of approximately 2.6 years and a weighted average interest rate of 4.8%.

Dividends

On December 15, 2023, the Company's Board of Directors approved and the Company declared a cash dividend of $0.10 per share of the Company's common stock for the three months ended December 31, 2023. The dividend was paid on January 24, 2024 to common stockholders and unitholders of record as of January 10, 2024.

On December 15, 2023, 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 December 31, 2023. The dividend was paid on January 24, 2024 to preferred stockholders of record as of January 10, 2024.

2024 Outlook

For 2024, the Company expects Core FFO per fully diluted share to be in the range of $1.18 to $1.22. The primary factors that are expected to cause a difference between the Company's 2023 actual Core FFO per share and the 2024 guidance Core FFO per share are (i) higher interest expense in 2024, as a result of higher assumed average interest rates on certain property level mortgages maturing and a higher average balance on the Company's unsecured credit facility, (ii) the assumed disposition of the Cascade Station property in mid-2024, and (iii) the departure of WeWork at the Company's Block 23 property, with an assumption that there is no income from a replacement tenant in 2024. On a combined basis, these three items are expected to reduce 2024 Core FFO per share by approximately $0.15 as compared to 2023 actual Core FFO per share.

Further, while the Company expects higher overall portfolio occupancy levels by the end of 2024, the anticipated commencement dates for new leases are weighted towards the end of the year. As a result, 2024 is expected to capture only a portion of this new leasing revenue with the bulk of the expected benefit from this new leasing occurring in 2025.

The outlook includes the following assumptions:


Full Year 2024 Guidance	Low	High
Acquisitions	$0.0M	$0.0M
Dispositions	$21.0M	$21.0M
Net Operating Income	$103.5M	$105.5M
General & Administrative Expenses	$14.5M	$15.5M
Interest Expense	$34.5M	$35.5M
2024 Core FFO per fully diluted share	$1.18	$1.22
Net Recurring Straight-Line Rent Adjustment	$2.0M	$3.0M
Same Store Cash NOI Change	(1.0 %)	1.0 %
December 31, 2024 Occupancy	84.5 %	86.5 %

Material Considerations:

The General & Administrative Expenses guidance includes approximately $4.3 million for stock-based compensation. Our Core FFO definition excludes stock-based compensation. Excluding stock-based compensation, General & Administrative Expenses guidance for Full Year 2024 would have been $10.2 million – $11.2 million.
Annual weighted average fully diluted shares of common stock outstanding are assumed to be approximately 41.3 million.
2024 guidance assumes no share issuances and no share repurchase activity.

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 timing and magnitude of future acquisitions and dispositions, if any, rental rates, occupancy levels, leasing activity, our ability to renew expiring leases, uncollectible rents, operating and general administrative expenses, weighted average diluted shares outstanding and rising interest rates. The Company reminds investors that the impacts of the work-from-home trend, inflation and general market conditions 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 February 22, 2024.

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 1-833-470-1428 for domestic callers and 1-404-975-4839 for international callers. The passcode for the conference call is 577879.

A replay of the call will be available later in the day on February 22, 2024, continuing through May 22, 2024 and can be accessed by dialing 1-866-813-9403 for domestic callers and 1-929-458-6194 for international callers. The passcode for the replay is 283096. 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 earn-outs, 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 certain first generation leasing costs, 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") – We define NOI as rental and other revenues less property operating expenses.

We consider NOI to be an appropriate supplemental performance measure to net income because we believe it provides 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 is calculated as the NOI attributable to the properties continuously owned and operated for the entirety of the reporting periods presented, and Same Store Cash NOI is calculated as Same Store NOI less non-recurring other income, termination fee income, straight-line rent / expense, deferred market rent and the non-controlling interest's share of cash NOI. The Company's definitions of Same Store NOI and Same Store Cash NOI exclude 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. 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, including the impact of inflation, estimated replacement costs of our properties, the Company's expectations regarding tenant occupancy, re-leasing periods, the Company's ability to renew expiring leases, tenant compliance with contractual lease obligations, projected capital improvements, expected sources of financing and ability to service existing 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, lower than expected yields, increased interest rates, operating costs and costs of capital, and changes in local, regional, national and international economic conditions, including as a result of the systemic and structural changes in the demand for commercial office space. 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, 2023 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 December 31, 2023 or relate to the quarter ended December 31, 2023. 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. Consolidated Balance Sheets (In thousands, except par value and share data)


		December 31, 2023		December 31, 2022
Assets
Real estate properties
Land	$	193,524	$	199,537
Building and improvement		1,194,819		1,215,000
Tenant improvement		152,540		139,365
Furniture, fixtures and equipment		820		689
		1,541,703		1,554,591
Accumulated depreciation		(218,628)		(175,720)
		1,323,075		1,378,871
Cash and cash equivalents		30,082		28,187
Restricted cash		13,310		16,075
Rents receivable, net		53,454		44,429
Deferred leasing costs, net		21,046		21,989
Acquired lease intangible assets, net		42,434		55,438
Other assets		27,975		29,450
Total Assets	$	1,511,376	$	1,574,439
Liabilities and Equity
Liabilities:
Debt	$	669,510	$	690,099
Accounts payable and accrued liabilities		29,070		35,753
Deferred rent		7,672		9,147
Tenant rent deposits		7,198		7,040
Acquired lease intangible liabilities, net		7,736		9,150
Other liabilities		17,557		20,076
Total Liabilities		738,743		771,265
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 December 31, 2023 and 2022		112,000		112,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,938,451 and 39,718,767 shares issued and outstanding as of December 31, 2023 and 2022		399		397
Additional paid-in capital		438,867		436,161
Retained earnings		221,213		251,542
Accumulated other comprehensive (loss)/income		(248)		2,731
Total Stockholders' Equity		772,231		802,831
Non-controlling interests in properties		402		343
Total Equity		772,633		803,174
Total Liabilities and Equity	$	1,511,376	$	1,574,439

City Office REIT, Inc. Consolidated Statements of Operations (In thousands, except per share data)

	Three Months Ended December 31,		Years Ended December 31,
	2023	2022	2023	2022

Rental and other revenues	$ 44,321	$ 44,613	$ 179,096	$ 180,485
Operating expenses:
Property operating expenses	17,387	17,003	69,997	67,739
General and administrative	3,878	3,207	14,841	13,782
Depreciation and amortization	17,192	15,423	62,987	62,495
Impairment of real estate	—	13,444	—	13,444
Total operating expenses	38,457	49,077	147,825	157,460

Operating income/(loss)	5,864	(4,464)	31,271	23,025
Interest expense:
Contractual interest expense	(8,069)	(7,473)	(31,876)	(25,784)
Amortization of deferred financing costs and debt fair value	(317)	(301)	(1,296)	(1,218)
	(8,386)	(7,774)	(33,172)	(27,002)
Net (loss)/gain on disposition of real estate property	—	—	(134)	21,658
Net (loss)/income	(2,522)	(12,238)	(2,035)	17,681
Less:
Net income attributable to non-controlling interests in properties	(141)	(181)	(647)	(691)
Net (loss)/income attributable to the Company	(2,663)	(12,419)	(2,682)	16,990
Preferred stock distributions	(1,855)	(1,855)	(7,420)	(7,420)
Net (loss)/income attributable to common stockholders	$ (4,518)	$ (14,274)	$ (10,102)	$ 9,570
Net (loss)/income per common share:
Basic	$ (0.11)	$ (0.36)	$ (0.25)	$ 0.23
Diluted	$ (0.11)	$ (0.36)	$ (0.25)	$ 0.22
Weighted average common shares outstanding:
Basic	39,938	39,719	39,922	42,052
Diluted	39,938	39,719	39,922	42,866

Dividend distributions declared per common share	$ 0.10	$ 0.20	$ 0.50	$ 0.80

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, 2023

Net loss attributable to common stockholders	$ (4,518)
(+) Depreciation and amortization	17,192
	12,674
Non-controlling interests in properties:
(+) Share of net income	141
(-) Share of FFO	(305)
FFO attributable to common stockholders	$ 12,510
(+) Stock based compensation	1,023
Core FFO attributable to common stockholders	$ 13,533
(-) Net recurring straight-line rent/expense adjustment	(503)
(+) Net amortization of above and below market leases	1,002
(+) Net amortization of deferred financing costs and debt fair value	315
(-) Net recurring tenant improvements and incentives	(1,772)
(-) Net recurring leasing commissions	(1,219)
(-) Net recurring capital expenditures	(2,083)
AFFO attributable to common stockholders	$ 9,273
FFO per common share	$ 0.31
Core FFO per common share	$ 0.33
AFFO per common share	$ 0.23

Dividends distributions declared per common share	$ 0.10
FFO Payout Ratio	33 %
Core FFO Payout Ratio	30 %
AFFO Payout Ratio	44 %

Weighted average common shares outstanding - diluted	40,813

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 December 31,		Years Ended December 31,
	2023	2022	2023	2022

Rental and other revenues	$ 44,321	$ 44,613	$ 179,096	$ 180,485
Property operating expenses	17,387	17,003	69,997	67,739
Net operating income ("NOI")	$ 26,934	$ 27,610	$ 109,099	$ 112,746
Less: NOI of properties not included in same store	(617)	(1,518)	(2,676)	(9,880)
Same store NOI	$ 26,317	$ 26,092	$ 106,423	$ 102,866
Less:
Non-recurring other income	(2,005)	-	(2,005)	-
Termination fee income	(22)	(26)	(394)	(953)
Straight-line rent/expense adjustment	(562)	(1,226)	(4,036)	(3,972)
Above and below market leases	1,009	33	1,114	180
NCI in properties – share in cash NOI	(434)	(443)	(1,764)	(1,660)
Same store cash NOI	$ 24,303	$ 24,430	$ 99,338	$ 96,461

City Office REIT, Inc. Reconciliation of Net Income to Core FFO Guidance (Unaudited) (In thousands, except per share data)

	Full Year 2024 Outlook
	Low	High

Net loss attributable to common stockholders	$ (15,150)	$ (14,400)
(+) Depreciation and amortization	60,000	61,000
(+) Net loss on disposition of real estate property	100	100
(-) Non-controlling interests in properties	(500)	(500)
FFO attributable to common stockholders	$ 44,450	$ 46,200
(+) Stock based compensation	4,300	4,300
Core FFO attributable to common stockholders	$ 48,750	$ 50,500

FFO per common share	$ 1.08	$ 1.12
Core FFO per common share	$ 1.18	$ 1.22

Weighted average shares of common stock	41,300	41,300

Contact

City Office REIT, Inc.

Anthony Maretic, CFO

+1-604-806-3366

investorrelations@cityofficereit.com

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SOURCE City Office REIT, Inc.

City Office REIT Reports Fourth Quarter and Full Year 2023 Results