City Office REIT(CIO) - 2024 Q2 - Quarterly Report

Property Portfolio - As of June 30, 2024, the company owned 23 properties comprising 56 office buildings with a total of approximately 5.6 million square feet of net rentable area, and properties were approximately 83.0% leased[58] - As of June 30, 2024, 12.7% of net rentable area under the company's portfolio was vacant, a slight decrease from 13.0% as of June 30, 2023[61] - Approximately 17.3% of the net rentable area in the company's portfolio is subject to early termination provisions[64] - The overall occupancy rate across properties was 83.0% as of June 30, 2024[70] Financial Performance - For the three months ended June 30, 2024, rental and other revenues decreased by $2.3 million, or 5$42.3 million compared to $44.6 million for the same period in 2023[75] - Rental and other revenues decreased by$3.8 million, or 4%, to $86.8 million for the six months ended June 30, 2024, compared to$90.6 million for the same period in 2023[82] - Total operating expenses decreased by $0.7 million, or 2$36.0 million for the three months ended June 30, 2024, from $36.7 million for the same period in 2023[76] - Total operating expenses decreased by$0.9 million, or 1%, to $72.6 million for the six months ended June 30, 2024, from$73.5 million for the same period in 2023[84] - Interest expense increased by $0.3 million, or 2$16.9 million for the six months ended June 30, 2024, from $16.6 million for the same period in 2023[86] - The company recognized a loss on deconsolidation of$1.5 million for the six months ended June 30, 2024, compared to a loss of $0.1 million for the same period in 2023[87] - Net cash provided by operating activities increased by$4.1 million to $31.7 million for the six months ended June 30, 2024, compared to$27.6 million for the same period in 2023[90] Leasing Activity - The company recorded a termination fee of $0.9 million during the period ended March 31, 2024, due to WeWork rejecting a lease totaling 46,000 square feet[65] - 3.9$25.95, while for renewal leasing it was $25.52, resulting in a total average of$25.78[68] - The retention rate for tenants was reported at 44%[68] - The company experienced a 4.3% increase in renewal cash rent compared to expiring leases[68] Economic and Industry Challenges - The company expects to face challenges in retaining and attracting new tenants due to potential business layoffs and industry slowdowns[59] - The company has experienced slower new leasing activity and uncertainty over existing tenants' long-term space requirements, which could reduce anticipated rental revenues[62] - The broader economic environment has led to increased levels of inflation and higher interest rates, impacting the company's cost of capital and financing arrangements[59] Debt and Interest Rate Management - The company had approximately $205.0 million outstanding under its Unsecured Credit Facility as of June 30, 2024[92] - Cash, cash equivalents, and restricted cash were$43.3 million as of June 30, 2024, down from $52.7 million as of June 30, 2023[89] - As of June 30, 2024, approximately$587.4 million, or 90.0%, of the company's debt had fixed interest rates, while $65.0 million, or 10.0$0.7 million increase in annual interest costs on debt outstanding as of June 30, 2024[106] - A 1% decrease in SOFR would result in a $0.7 million decrease in annual interest costs on debt outstanding as of June 30, 2024[106] - The company uses derivative financial instruments to manage interest rate risks related to borrowings, but does not use derivatives for trading or speculative purposes[105] - The fixed rate debt includes loans against which the company has applied interest rate swaps to effectively fix the SOFR component of borrowing rates[106] - The company's interest rate risk estimates are based on its capital structure and hypothetical interest rates, without considering changes in overall economic activity[107] - The company considers its interest rate exposure to be moderate as of June 30, 2024[106] - The fair value of outstanding debt would decrease with a 1% increase in SOFR[106] - The company may take actions to further mitigate exposure to changes in interest rates, but specific actions and their effects are uncertain[107] - The company only enters into contracts with major financial institutions based on their credit rating and other factors[105] Strategic Operations - The company focuses on owning and acquiring office properties in growth markets predominantly in the Sun Belt, which are characterized by growing populations and above-average employment growth forecasts[63] - The company will continue to evaluate business operations and strategies to optimally position itself given current economic and industry conditions[62]