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| 8-K - FORM 8-K - City Office REIT, Inc. | d773180d8k.htm |
Exhibit 99.1
City Office REIT Announces Second Quarter 2014 Results
VANCOUVER—August 14, 2014—City Office REIT, Inc. (NYSE: CIO), today announced its results for the quarter ended June 30, 2014.
Second Quarter Highlights
| • | Achieved Core Funds From Operations (“Core FFO”) of $2.6 million, or $0.22 per fully diluted share; |
| • | Built a portfolio of 2.1 million square feet which was 92.5% leased at June 30, 2014, including recently signed leases not commenced; |
| • | Commenced new and renewal leases during the quarter totaling approximately 37,000 square feet, and executed approximately 12,000 square feet of new leases that will commence subsequent to the end of the second quarter; |
| • | Closed on the acquisition of Plaza 25 in Denver, Colorado, a three building 197,000 square foot office property in the exclusive Greenwood Village submarket, for $25.1 million; and |
| • | Declared a prorated dividend in the amount of $0.183 per share for the second quarter 2014, which was paid on July 17, 2014. |
“We are very pleased with our second quarter performance,” commented James Farrar, Chief Executive Officer. “Since completing our IPO in April, we have closed on two acquisitions in key target markets, built a robust pipeline of future opportunities while continuing to enhance the value of our existing portfolio. Our portfolio’s occupancy levels, including recently signed leases that have not commenced increased to 92.5% at quarter end. During the quarter we refinanced the existing debt on our Amberglen property with a 5 year mortgage. At the end of the quarter 100% of our debt was fixed rate with a weighted average maturity of 5.9 years. The stability of our portfolio combined with the strong performance of our targeted submarkets and our conservative capital structure enabled us to pay our inaugural quarterly dividend of $0.235, which was prorated to $0.183 per share for the period we were a publicly traded company. We believe that the strength of our existing properties together with the demand for office space in our markets positions us to increase net operating income and create value for our stockholders.”
Financial Results for the Second Quarter 2014
Core Funds From Operations (Core FFO) was $2.6 million or $0.22 per fully diluted share. Adjusted funds from operations (AFFO) was also $0.22 per fully diluted share. Net loss attributable to the Company since the IPO was $1.9 million, or ($0.24) per fully diluted share. The Company began operations upon completion of its formation transactions and initial public offering (“IPO”) in April 2014 and therefore had no comparative results for the second quarter of 2013. Second quarter results include the operations of the Predecessor Company for the period between April 1, 2014 and April 20, 2014. Results for this period reflect the Predecessor Company’s interest expense. A majority of the Predecessor Company’s debt was refinanced in conjunction with the IPO.
A reconciliation of Core FFO and AFFO to GAAP net income can be found at the bottom of this release.
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Portfolio Operations
The Company reported that its total portfolio as of June 30, 2014 contained 2.1 million net rentable square feet and was 92.5% occupied, including recently signed leases not commenced, at the end of the second quarter 2014. The occupancy level will increase to 93.1% based on the inclusion of the Lake Vista Pointe acquisition, which was completed on July 18, 2014.
Leasing
During the second quarter, the Company commenced 3 new leases and 2 renewals totaling 37,000 square feet, and executed 12,000 square feet of new leases that will commence subsequent to the end of the second quarter.
Acquisitions
The Company completed the acquisition of Plaza 25 in Denver, Colorado on June 4, 2014 for a purchase price of $25.1 million. Plaza 25 is a three building 197,000 square foot office property in the exclusive Greenwood Village submarket. The property was 93.3% occupied at closing and is anticipated to generate an initial full-year cash net operating income yield of approximately 8.1% based on the purchase price.
Subsequent Events
On July 18, 2014, the Company announced the completion of the acquisition of Lake Vista Pointe in Dallas, Texas for a purchase price of $28.4 million. Lake Vista Pointe is a 163,000 square foot office property in the growing Lewisville, Texas submarket. The property is leased to a single tenant through 2021, with a 5 year extension option. The acquisition is anticipated to generate an initial full-year cash net operating income yield of approximately 7.8% based on the purchase price, with contractual annual rent escalations. The acquisition was financed with an $18.5 million mortgage that has been fixed at a 4.28% interest rate for 10 years.
Capital Structure
During the quarter the Company completed its IPO resulting in net proceeds of approximately $72.5 million.
As of June 30, 2014, the Company had total outstanding debt of approximately $155.0 million. All of the Company’s outstanding debt is fixed rated with a weighted average maturity of 5.9 years. In June 2014, the Company increased the total borrowing capacity on its revolving credit facility from $15 million to $30 million with the addition of the Plaza 25 property to the borrowing base collateral.
Dividend
On May 12, 2014, the Company’s board of directors declared an initial, prorated cash dividend of $0.183 per share for the quarterly period from April 21, 2014 through June 30, 2014, which is equivalent to a full quarterly dividend of $0.235. The dividend was paid to stockholders and common unitholders on July 17, 2014.
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Webcast and Conference Call Details
City Office’s management will hold a conference call at 11:00 am Eastern Time on August 14, 2014.
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 1-888-317-6016 for domestic callers and 1-412-317-6016 for international callers.
A replay of the call will be available later in the day on August 14, 2014, continuing through midnight Eastern Time on October 14, 2014 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 10049830. A replay will also be available at “Webcasts & Events” in the “Investor Relations” section of the company’s website.
A supplemental financial package to accompany the discussion of the results will be posted on www.cityofficereit.com under the “Investor Relations” section.
Forward-looking Statements
This press release contains “forward looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements that are not statements of historical facts are, or may be deemed to be, forward looking statements. Forward looking statements reflect our current expectations concerning future results, objectives, plans and goals, and involve known and unknown risks, uncertainties and other factors that are difficult to predict and which may cause future results, performance or achievements to differ. These risks, uncertainties and other factors include factors described in our news releases and filings with the Securities and Exchange Commission. The Company does not have any obligation to publicly update any forward looking statements to reflect subsequent events or circumstances.
Non-GAAP Financial Measures
FFO, Core FFO and AFFO are supplemental 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 it 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
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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”) – Management believes that Core FFO is a useful measure of our operating performance. 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, the one-time loss on early extinguishment of Predecessor debt, changes in the fair value of the earn-out and the amortization of stock based compensation.
Adjusted Funds From Operations (“AFFO”) – Management believes that AFFO is a useful measure of our liquidity. We compute AFFO by adding to FFO the non-cash amortization of deferred financing fees, and non-real estate depreciation, and then subtracting cash paid for any tenant improvements, leasing commissions, and capital expenditures, and eliminating the net effect of straight-line rents, deferred market rent and debt fair value amortization. For the second quarter, 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.
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City Office REIT, Inc. and Predecessor
Condensed Consolidated and Combined Balance Sheets
(Unaudited)
| June 30, 2014 |
Predecessor December 31, 2013 |
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| Assets |
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| Real estate properties, cost |
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| Land |
$ | 57,673,760 | $ | 30,164,513 | ||||
| Building and improvement |
97,665,522 | 62,908,338 | ||||||
| Tenant improvement |
22,507,580 | 14,590,971 | ||||||
| Furniture, fixtures and equipment |
198,114 | 198,114 | ||||||
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| 178,044,976 | 107,861,936 | |||||||
| Accumulated depreciation |
(10,949,359 | ) | (7,735,450 | ) | ||||
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| 167,095,617 | 100,126,486 | |||||||
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| Investments in unconsolidated entity |
— | 4,337,899 | ||||||
| Cash and cash equivalents |
10,175,937 | 7,127,764 | ||||||
| Restricted cash |
12,809,664 | 7,368,124 | ||||||
| Rents receivable, net |
6,287,588 | 4,680,284 | ||||||
| Deferred financing costs, net of accumulated amortization |
2,734,641 | 1,167,666 | ||||||
| Deferred leasing costs, net of accumulated amortization |
2,482,529 | 2,302,841 | ||||||
| Acquired lease intangibles assets, net |
25,281,548 | 13,751,563 | ||||||
| Prepaid expenses and other assets |
2,386,945 | 296,572 | ||||||
| Deferred offering costs |
— | 1,830,950 | ||||||
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| Total Assets |
$ | 229,254,469 | $ | 142,990,149 | ||||
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| Liabilities and Equity |
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| Liabilities: |
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| Debt |
$ | 155,002,462 | $ | 109,916,430 | ||||
| Accounts payable and accrued liabilities |
4,817,775 | 2,347,999 | ||||||
| Deferred rent |
438,770 | 1,488,618 | ||||||
| Tenant rent deposits |
1,861,194 | 1,361,641 | ||||||
| Acquired lease intangibles liability, net |
692,085 | 167,346 | ||||||
| Dividends payable |
2,094,400 | — | ||||||
| Earn-out liability |
7,057,351 | — | ||||||
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| Total Liabilities |
171,964,037 | 115,282,034 | ||||||
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| Commitments and Contingencies (Note 9) |
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| Equity: |
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| Common stock, $0.01 par value, 100,000,000 shares authorized, 8,192,915 shares issued and outstanding |
81,939 | — | ||||||
| Additional paid in capital |
45,121,480 | — | ||||||
| Accumulated deficit |
(3,443,504 | ) | — | |||||
| Predecessor equity |
— | 26,624,375 | ||||||
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| Total Stockholders’ and Predecessor Equity |
41,759,915 | 26,624,375 | ||||||
| Operating Partnership noncontrolling interests |
16,274,888 | — | ||||||
| Noncontrolling interests in properties |
(744,371 | ) | 1,083,740 | |||||
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| Total Equity |
57,290,432 | 27,708,115 | ||||||
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| Total Liabilities and Equity |
$ | 229,254,469 | $ | 142,990,149 | ||||
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City Office REIT, Inc. and Predecessor
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
| Three Months Ended June 30, 2014 |
Six Months Ended June 30, 2014 |
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| Revenues: |
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| Rental income |
$ | 7,714,275 | $ | 14,951,033 | ||||
| Expense reimbursement |
502,772 | 952,814 | ||||||
| Other |
176,162 | 471,822 | ||||||
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| Total Revenues |
8,393,209 | 16,375,669 | ||||||
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| Operating Expenses: |
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| Property operating expenses |
2,267,612 | 4,522,074 | ||||||
| Insurance |
169,568 | 322,426 | ||||||
| Property taxes |
561,208 | 1,022,312 | ||||||
| Property management fees |
186,162 | 393,779 | ||||||
| Acquisition costs |
343,803 | 1,150,147 | ||||||
| Base management fee |
185,176 | 185,176 | ||||||
| Stock based compensation |
285,142 | 285,142 | ||||||
| General and administrative |
364,303 | 414,303 | ||||||
| Depreciation and amortization |
3,415,807 | 6,575,784 | ||||||
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| Total Operating Expenses |
7,778,781 | 14,871,143 | ||||||
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| Operating income/(loss) |
614,428 | 1,504,526 | ||||||
| Interest Expense: |
||||||||
| Contractual interest expense |
(1,785,288 | ) | (3,954,535 | ) | ||||
| Amortization of deferred financing costs |
(136,879 | ) | (1,129,046 | ) | ||||
| Loss on early extinguishment of Predecessor debt |
(1,654,826 | ) | (1,654,826 | ) | ||||
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| (3,576,993 | ) | (6,738,407 | ) | |||||
| Change in fair value of earn-out |
(104,865 | ) | (104,865 | ) | ||||
| Gain on equity investment |
— | 4,474,644 | ||||||
| Equity in income of unconsolidated entity |
— | — | ||||||
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| Net loss |
(3,067,430 | ) | (864,102 | ) | ||||
| Less: |
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| Net loss attributable to noncontrolling interests in properties |
69,044 | 78,970 | ||||||
| Net loss/(income) attributable to Predecessor |
240,057 | (1,973,197 | ) | |||||
| Net loss attributable to Operating Partnership unitholders’ noncontrolling interests |
814,127 | 814,127 | ||||||
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| Net loss attributable to stockholders |
$ | (1,944,202 | ) | $ | (1,944,202 | ) | ||
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| Net loss per share: |
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| Basic and diluted |
$ | (0.24 | ) | $ | (0.24 | ) | ||
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| Weighted average common shares outstanding: |
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| Basic and diluted |
8,057,521 | 8,057,521 | ||||||
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| Dividends/distributions declared per common share and unit |
$ | 0.18 | $ | 0.18 | ||||
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City Office REIT, Inc.
Reconciliation of Net Income to Adjusted Funds from Operations
(Unaudited)
| Three Months Ended June 30, 2014 |
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| Net loss attributable to stockholders1,2,3,4 |
$ | (1,944,202 | ) | |
| Depreciation and amortization |
3,415,807 | |||
| Operating Partnership unitholders’ noncontrolling interest |
(814,127 | ) | ||
| Net loss attributable to Predecessor |
(240,057 | ) | ||
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| 417,421 | ||||
| Non-controlling interests in properties: |
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| Share of net loss |
(69,044 | ) | ||
| Share of FFO |
(183,291 | ) | ||
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| Funds from Operations (“FFO”)1,2,3,4 |
$ | 165,086 | ||
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| Acquisition costs |
343,803 | |||
| Loss on early extinguishment of Predecessor debt |
1,654,826 | |||
| Change in fair value of earn-out |
104,865 | |||
| Stock based compensation |
285,142 | |||
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| Core FFO1,2,3,4 |
$ | 2,553,722 | ||
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| Straight line rent adjustment |
(416,847 | ) | ||
| Above and below market leases |
101,497 | |||
| Amortization of deferred financing costs |
136,879 | |||
| Net tenant improvement |
(65,430 | ) | ||
| Net leasing commissions |
(85,190 | ) | ||
| Net capital expenditures |
(85,836 | ) | ||
| Free rent funded at closing |
401,160 | |||
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| Adjusted Funds from Operations (“AFFO”)1,2,3,4 |
$ | 2,539,955 | ||
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| Total number of common stock and common units outstanding at June 30, 2014 |
11,797,091 | |||
| Core FFO per share |
$ | 0.22 | ||
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| AFFO per share |
$ | 0.22 | ||
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| (1) | The results of operations for the three months ended June 30, 2014 reflect the results of operations of the Predecessor from April 1, 2014 through April 20, 2014 and of City Office REIT, Inc. from April 21, 2014 to June 30, 2014. |
| (2) | Interest expense was approximately $148,000 higher due to larger debt balances and higher interest rates of the Predecessor prior to City Office REIT’s IPO on April 21, 2014. |
| (3) | Includes Plaza 25 results beginning at acquisition date on June 4, 2014. |
| (4) | Excludes the results of Lake Vista Pointe as the asset was acquired subsequent to quarter-end. |
Contact
City Office REIT, Inc.
Anthony Maretic
+1-604-806-3366
investorrelations@cityofficereit.com
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