City Office REIT(CIO) - 2025 Q2 - Quarterly Results

Executive Summary & Key Developments City Office REIT reported a net loss in Q2 2025 but announced a definitive merger agreement and the sale of its Phoenix Portfolio post-quarter end Second Quarter 2025 Performance Highlights City Office REIT reported a net loss attributable to common stockholders of $107.2 million, or ($2.66) per fully diluted share, for Q2 2025, while achieving a 1.8% increase in Same Store Cash NOI year-over-year and maintaining an in-place occupancy of 82.5% Q2 2025 Performance Metrics | Metric | Q2 2025 Value | | :-------------------------------- | :------------------- | | Rental and other revenues | $42.3 million | | GAAP net loss attributable to common stockholders | ($107.2) million | | GAAP net loss per fully diluted share | ($2.66) | | Core FFO | $11.8 million | | Core FFO per fully diluted share | $0.28 | | AFFO | $3.0 million | | AFFO per fully diluted share | $0.07 | | In-place occupancy | 82.5% | | Same Store Cash NOI (YoY increase) | 1.8% | | Common Stock Dividend | $0.10 per share | | Series A Preferred Stock Dividend | $0.4140625 per share | - The company executed approximately 355,000 square feet of new and renewal leases during the quarter[6] Strategic Developments Post-Quarter End Subsequent to quarter end, City Office REIT entered into a definitive merger agreement to be acquired by MCME Carell Holdings, LP for $7.00 per common share, representing a significant premium, contingent on the sale of the Phoenix Portfolio for which an agreement has also been signed Phoenix Portfolio Sale Agreement City Office REIT entered into an agreement to sell its Phoenix Portfolio for $296.0 million, a key condition for the pending merger transaction - The Company entered into a purchase and sale agreement to sell all of its properties in Phoenix, Arizona for an aggregate sale price of $296.0 million[4] Pending Merger Transaction On July 23, 2025, City Office REIT entered into a definitive merger agreement with MCME Carell Holdings, LP to be acquired for $7.00 per share in cash, representing a 26% premium to the closing share price and a 39% premium to the 90-day volume weighted average share price, with the total transaction valued at approximately $1.1 billion including debt assumption/repayment and preferred stock redemption Merger Transaction Details | Metric | Value | | :------------------------------------------------ | :------------------- | | Acquisition Price per Common Share | $7.00 | | Premium to prior day closing price | 26% | | Premium to 90-day VWAP | 39% | | Preferred Stock Redemption Price | $25.00 per share + accrued distributions | | Total Transaction Value (incl. debt & preferred) | ~$1.1 billion | - The merger is subject to the satisfaction of conditions, including the sale of the Phoenix Portfolio[5] Operational Review The Company's portfolio maintained an 82.5% in-place occupancy with positive Same Store Cash NOI growth and significant leasing activity in Q2 2025 Portfolio Operations As of June 30, 2025, the Company's total portfolio comprised 5.4 million net rentable square feet with an in-place occupancy of 82.5%, increasing to 86.8% when including signed but not yet occupied leases, with Same Store Cash NOI showing positive growth both quarterly and year-to-date Portfolio Operational Metrics | Metric | Value | | :-------------------------------- | :------------------- | | Total Net Rentable Square Feet | 5.4 million | | In-place Occupancy (June 30, 2025) | 82.5% | | Occupancy (incl. signed leases) | 86.8% | | Same Store Cash NOI (Q2 2025 YoY increase) | 1.8% | | Same Store Cash NOI (YTD Q2 2025 YoY increase) | 3.1% | Leasing Activity During Q2 2025, City Office REIT executed approximately 355,000 square feet of leases, split between new leases and renewals, with new leases having a longer weighted average term and slightly lower effective annual rent compared to renewals Q2 2025 Leasing Activity | Leasing Type | Square Feet | Weighted Average Lease Term | Weighted Average Effective Annual Rent | Weighted Average Cost per Square Foot per Year | | :------------------- | :---------- | :-------------------------- | :----------------------------------- | :--------------------------------------------- | | Total Leasing Activity | 355,000 | N/A | N/A | N/A | | New Leasing | 163,000 | 8.4 years | $31.45 | $8.30 | | Renewal Leasing | 192,000 | 4.0 years | $33.02 | $3.91 | - Approximately 306,000 square feet of leases signed in Q2 2025 are expected to take occupancy after quarter end[9] Financial Position & Capital Management The Company's capital structure includes $649.2 million in debt, with a significant impairment charge related to the Phoenix Portfolio sale and a suspension of common stock dividends due to the pending merger Capital Structure As of June 30, 2025, the Company had approximately $649.2 million in outstanding debt, with 81.9% being fixed rate, a weighted average maturity of 1.4 years, and an average interest rate of 5.2%, further extending a loan for the Greenwood Blvd property with its interest rate effectively fixed at 6.34% through an interest rate swap Capital Structure Overview | Metric | Value | | :-------------------------------- | :------------------- | | Total Principal Outstanding Debt | ~$649.2 million | | % Fixed Rate Debt | 81.9% | | Weighted Average Maturity | 1.4 years | | Weighted Average Interest Rate | 5.2% | | Greenwood Blvd Loan Amendment Amount | $20.1 million | | Greenwood Blvd Loan Extended Maturity | May 2028 | | Greenwood Blvd Loan Fixed Interest Rate (via swap) | 6.34% | Real Estate Transactions The Company entered into an agreement to sell its Phoenix Portfolio for $296.0 million, classifying it as held for sale as of June 30, 2025, which resulted in an impairment charge of $102.2 million, with the sale expected to close in Q3 after receiving $20.0 million in non-refundable deposits Phoenix Portfolio Sale Details | Metric | Value | | :------------------------------------------------ | :------------------- | | Phoenix Portfolio Sale Price | $296.0 million | | Impairment Recognized (as of June 30, 2025) | $102.2 million | | Initial Deposit Received (as of June 30, 2025) | $2.0 million | | Additional Deposit Received (subsequent to June 30, 2025) | $18.0 million | | Total Non-refundable Deposits | $20.0 million | - The Phoenix Portfolio met the criteria for classification as held for sale as of June 30, 2025[13] - The sale is scheduled to close in the third quarter, subject to customary closing conditions, with some properties potentially closing later[15] Dividends The Board of Directors declared Q2 2025 dividends of $0.10 per common share and $0.4140625 per Series A Preferred Share, both paid on July 24, 2025, but future common stock dividend payments have been suspended due to the pending merger, while preferred stock dividends will continue until redemption at $25.00 per share plus accrued distributions immediately prior to the merger closing Q2 2025 Dividend Declarations | Dividend Type | Q2 2025 Amount per Share | | :-------------------------------- | :----------------------- | | Common Stock Dividend | $0.10 | | 6.625% Series A Preferred Stock Dividend | $0.4140625 | | Preferred Stock Redemption Price (pre-Merger) | $25.00 + accrued distributions | - Future quarterly common stock dividend payments have been suspended through the expected close of the Merger[18] - Regular quarterly dividends on Preferred Stock will continue as long as such Preferred Stock remains outstanding[18] Corporate Communications & Non-GAAP Measures City Office REIT suspended its 2025 guidance and conference call due to the pending merger, providing detailed definitions for non-GAAP financial measures 2025 Outlook Due to the pending merger, City Office REIT has suspended its 2025 guidance and will not be affirming past guidance - The Company will no longer provide guidance nor is it affirming past guidance in light of the pending Merger[20] Webcast and Conference Call Details The Company will not host a conference call to discuss its second quarter 2025 results due to the pending merger, but a supplemental financial information package is available on its investor relations website - The Company will not host a conference call with analysts and investors to discuss its second quarter 2025 results due to the pending Merger[21] Non-GAAP Financial Measures Definitions This section provides definitions and explanations for various non-GAAP financial measures used by City Office REIT, including FFO, Core FFO, AFFO, NOI, Same Store NOI, and Same Store Cash NOI, highlighting their utility as supplemental performance indicators for REITs while noting their limitations and potential incomparability with other REITs' calculations - FFO (Funds from Operations) is defined by NAREIT as net income plus real estate related depreciation and amortization, adjusted for gains/losses on property sales and impairments[22] - Core FFO adjusts NAREIT FFO for certain non-core items like acquisition costs, loss on early extinguishment of debt, and changes in fair value of earn-outs/contingent consideration[26] - AFFO (Adjusted Funds from Operations) is computed by adding non-cash amortization to Core FFO and subtracting cash paid for recurring tenant improvements, leasing commissions, and capital expenditures, while eliminating the net effect of straight-line rent/expense, deferred market rent, and debt fair value amortization[28] - NOI (Net Operating Income) is defined as rental and other revenues less property operating expenses, providing insight into core operations[30] - Same Store NOI and Same Store Cash NOI measure the operating results of properties continuously owned and operated for the entirety of presented reporting periods, excluding variations from acquisitions, dispositions, or repositionings[31][33] Consolidated Financial Statements The Company's Q2 2025 financial statements reflect a net loss driven by a real estate impairment, alongside reconciliations for FFO, Core FFO, AFFO, and NOI Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets from $1,455.7 million at December 31, 2024, to $1,328.1 million at June 30, 2025, primarily driven by a reclassification of assets to 'held for sale' and a reduction in real estate properties, while total liabilities remained relatively stable and total equity decreased from $734.5 million to $615.4 million Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $1,328,143 | $1,455,670 | | Real estate properties, net | $904,790 | $1,273,146 | | Assets held for sale | $296,167 | $12,588 | | Total Liabilities | $712,715 | $721,130 | | Debt | $647,188 | $646,972 | | Total Equity | $615,428 | $734,540 | | Retained earnings | $60,901 | $179,838 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, the Company reported rental and other revenues of $42.3 million, consistent with the prior year, but a significant impairment of real estate of $102.2 million led to an operating loss of $96.6 million and a net loss attributable to common stockholders of $107.2 million, a substantial increase from the $5.6 million loss in Q2 2024 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Rental and other revenues | $42,343 | $42,342 | $84,602 | $86,836 | | Property operating expenses | $16,314 | $17,492 | $32,585 | $35,237 | | Impairment of real estate | $102,229 | — | $102,229 | — | | Operating (loss)/income | ($96,590) | $6,307 | ($89,456) | $14,270 | | Net loss attributable to common stockholders | ($107,221) | ($5,607) | ($110,746) | ($8,051) | | Net loss per common share (Diluted) | ($2.66) | ($0.14) | ($2.75) | ($0.20) | Reconciliation of Net Income to FFO, Core FFO and AFFO Despite a GAAP net loss, the Company reported positive FFO, Core FFO, and AFFO for Q2 2025, after adjusting for non-cash items like depreciation and the significant real estate impairment, with Core FFO per share at $0.28 and AFFO per share at $0.07, resulting in an AFFO payout ratio of 141% Reconciliation of Net Income to FFO, Core FFO and AFFO (in thousands, except per share) | Metric | Three Months Ended June 30, 2025 (in thousands, except per share) | | :------------------------------------ | :----------------------------------------------------------------- | | Net loss attributable to common stockholders | ($107,221) | | FFO attributable to common stockholders | $10,921 | | Core FFO attributable to common stockholders | $11,765 | | AFFO attributable to common stockholders | $2,970 | | FFO per common share | $0.26 | | Core FFO per common share | $0.28 | | AFFO per common share | $0.07 | | Dividends distributions declared per common share | $0.10 | | FFO Payout Ratio | 38% | | Core FFO Payout Ratio | 36% | | AFFO Payout Ratio | 141% | Reconciliation of Net Income to NOI, Same Store NOI and Same Store Cash NOI For Q2 2025, Net Operating Income (NOI) was $26.0 million, an increase from $24.9 million in Q2 2024, with Same Store Cash NOI also increasing to $24.8 million from $24.3 million year-over-year, reflecting improved operational performance from stabilized properties Reconciliation of Net Income to NOI, Same Store NOI and Same Store Cash NOI (in thousands) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net loss | ($105,309) | ($3,627) | ($106,808) | ($4,081) | | Net operating income ("NOI") | $26,029 | $24,850 | $52,017 | $51,599 | | Same store NOI | $26,029 | $24,393 | $51,975 | $50,466 | | Same store cash NOI | $24,772 | $24,327 | $50,259 | $48,735 | Legal & Forward-Looking Statements This section outlines important information for shareholders regarding the proposed merger, identifies solicitation participants, and provides a disclaimer on forward-looking statements Additional Information and Where to Find It This section advises shareholders to read the Company's preliminary and definitive proxy statements, to be filed with the SEC, for a full description of the proposed merger and Phoenix Portfolio sale, as these documents will contain important information for voting on the merger and can be obtained from the Company's investor relations or the SEC's website - Shareholders are advised to read the Company's preliminary and definitive proxy statements for important information regarding the proposed merger[34] - Proxy statements will be available on the Company's website (www.cioreit.com) and the SEC's internet site (http://www.sec.gov)[34](index=34&type=chunk) Participants in Solicitation The Company's directors, executive officers, and certain management/employees may be considered participants in the solicitation of proxies for the proposed merger, with information regarding these participants detailed in the proxy statement and other relevant SEC filings, including the Annual Report on Form 10-K - Directors, executive officers, and certain other members of management and employees may be deemed 'participants' in the solicitation of proxies for the proposed Merger[35] - Information about participants will be set forth in the proxy statement and the Company's Annual Report on Form 10-K[35] Forward-looking Statements This section contains a standard disclaimer regarding forward-looking statements, emphasizing that actual results may differ materially from expectations due to various risks and uncertainties, including factors related to the pending merger, economic conditions, market changes, and operational challenges, many of which are beyond the Company's control, and the Company disclaims any obligation to update these statements - The press release contains forward-looking statements subject to risks and uncertainties, and actual results may vary materially from those anticipated[36][38] - Examples of forward-looking statements include expectations regarding financial performance, market rental rates, economic growth, occupancy, and financing[37] - Key factors that could cause actual results to differ include the termination of the Merger Agreement or Phoenix Sale Agreement, inability to complete the merger, and disruptions to operations[38]