City Office REIT(CIO) - 2023 Q1 - Quarterly Report

Property Portfolio and Leasing - As of March 31, 2023, the company owned 25 properties consisting of 60 office buildings with a total of approximately 6.0 million square feet of net rentable area (NRA) and was approximately 84.9% leased[85]. - The company focuses on acquiring office properties in growth markets predominantly in the Sun Belt, characterized by growing populations and above-average employment growth forecasts[94]. - The company expects slower new leasing activity due to tenant uncertainty regarding office space needs, which could reduce anticipated rental revenues[91]. - The company has experienced challenges in retaining and attracting new tenants due to potential business layoffs and industry slowdowns[92]. - The usage of the company's assets in Q1 2023 was still lower than pre-pandemic levels, but year-over-year usage has been increasing[90]. Financial Performance - Rental and other revenues increased by $1.1 million, or 2%, to $46.0 million for the three months ended March 31, 2023, compared to $44.9 million for the same period in 2022[104]. - Total operating expenses increased by $1.0 million, or 3%, to $36.8 million for the three months ended March 31, 2023, from $35.8 million for the same period in 2022[105]. - Property operating expenses rose by $1.2 million, or 7%, to $17.7 million for the three months ended March 31, 2023, compared to $16.5 million for the same period in 2022[107]. - Interest expense increased by $2.2 million, or 37%, to $8.3 million for the three months ended March 31, 2023, from $6.1 million for the same period in 2022[110]. Cash Flow and Liquidity - Cash, cash equivalents, and restricted cash were $52.2 million as of March 31, 2023, compared to $47.6 million as of March 31, 2022[111]. - Net cash provided by operating activities decreased by $0.8 million to $13.9 million for the three months ended March 31, 2023, compared to $14.7 million for the same period in 2022[112]. - Net cash used in investing activities increased by $5.5 million to $12.4 million for the three months ended March 31, 2023, compared to $6.9 million for the same period in 2022[113]. - Net cash provided by financing activities increased by $8.9 million to $6.5 million for the three months ended March 31, 2023, compared to $2.4 million used in financing activities for the same period in 2022[114]. - The company expects to meet its short-term liquidity requirements through net cash provided by operations and reserves established from existing cash, along with proceeds from public offerings and borrowings[120]. - Long-term liquidity needs are primarily for debt repayment, property acquisitions, and capital improvements, expected to be met through net cash from operations and the issuance of equity and debt securities[121]. Debt and Interest Rates - Total contractual obligations as of March 31, 2023, amount to $860.0 million, including $712.1 million in principal payments on mortgage loans and $96.4 million in interest payments[125]. - Approximately 92.2% of the Company's debt, or $656.4 million, had fixed interest rates as of March 31, 2023, with only 7.8% at variable rates[131]. - A 1% increase in SOFR would lead to a $0.6 million increase in annual interest costs on outstanding debt as of March 31, 2023[131]. - The Company has access to multiple sources of capital for long-term liquidity, including additional debt and equity securities, although future access is uncertain[123]. - The Company has increased its total authorized borrowings from $250 million to $375 million as of January 5, 2023, with approximately $195.7 million outstanding under the Unsecured Credit Facility as of March 31, 2023[116]. Economic Environment - The economic environment remains volatile, with rising inflation and interest rates impacting the company's operations and cost of capital[89]. - The company anticipates that many businesses will tighten in-person work policies, which may help offset recessionary headwinds to space demand[89]. - The company expects positive population and economic growth trends in its Sun Belt cities, although future conditions remain uncertain due to inflation and rising interest rates[102]. - Inflationary increases may be partially offset by contractual rent increases and expense escalations in office leases[126]. - The company is actively evaluating business operations and strategies to optimally position itself given current economic conditions[93].