City Office REIT(US:CIO)2023-11-08 16:00Financial Performance - Rental and other revenues decreased by $1.3 million, or 3%, to $44.2 million for the three months ended September 30, 2023, compared to $45.5 million for the same period in 2022[121]. - Total operating expenses decreased by $0.6 million, or 2%, to $35.9 million for the three months ended September 30, 2023, from $36.5 million for the same period in 2022[122]. - Interest expense increased by $1.3 million, or 19%, to $8.2 million for the three months ended September 30, 2023, from $6.9 million for the same period in 2022[125]. - Rental and other revenues decreased by $1.1 million, or 1%, to $134.8 million for the nine months ended September 30, 2023, compared to $135.9 million for the same period in 2022[126]. - Total operating expenses increased by $1.0 million, or 1%, to $109.4 million for the nine months ended September 30, 2023, from $108.4 million for the same period in 2022[127]. - General and administrative expenses increased by $0.4 million, or 4%, to $11.0 million for the nine months ended September 30, 2023, from $10.6 million for the same period in 2022[129]. - Net cash provided by operating activities decreased by $49.0 million to $48.2 million for the nine months ended September 30, 2023, compared to $97.2 million for the same period in 2022[132]. Lease and Property Information - For the nine months ended September 30, 2022, the company recognized interest income of $0.6 million and variable lease payments of $0.2 million from the sales-type lease at the Lake Vista Pointe property[93]. - As of September 30, 2023, the company reported total future minimum lease payments of $29.488 million for operating leases and $6.971 million for financing leases[96]. - Operating lease expense for the three and nine months ended September 30, 2023 was $0.2 million and $0.7 million, respectively, compared to $0.3 million and $0.8 million for the same periods in 2022[95]. - The company has a weighted average remaining lease term of 50 years for its ground and office leases as of September 30, 2023[94]. - The company’s total future minimum lease payments, after discounting, amount to $8.613 million for operating leases and $1.531 million for financing leases[96]. - The company owned 24 properties comprising 58 office buildings with a total of approximately 5.7 million square feet of net rentable area (NRA), with properties approximately 85.4% leased[138]. - The company’s properties in the Phoenix, AZ metropolitan area accounted for 26.7% of the total NRA, with an occupancy rate of 94.5%[144]. Debt and Financing - Approximately $614.3 million, or 91.1%, of the company's debt had fixed interest rates, while $60.0 million, or 8.9%, had variable interest rates as of September 30, 2023[162]. - A 1% increase in the Secured Overnight Financing Rate (SOFR) would result in a $0.6 million increase in annual interest costs on debt outstanding as of September 30, 2023[162]. - The company expects to meet long-term liquidity requirements through net cash from operations, long-term secured and unsecured indebtedness, and the issuance of equity and debt securities[159]. - The company may fund property acquisitions and non-recurring capital improvements using its Unsecured Credit Facility pending longer-term financing[159]. - The company considers its interest rate exposure to be moderate due to the high percentage of fixed-rate debt[162]. - The company has applied interest rate swaps to effectively fix the SOFR component of borrowing rates until maturity of the debt[162]. Legal and Risk Factors - As of September 30, 2023, the company believes that ongoing lawsuits will not have a material adverse effect on its financial position or results of operations[97]. - The company is subject to various risks including adverse economic developments in the office sector and increased interest rates affecting financing costs[108]. - The company may face challenges in meeting certain financial covenants due to the effects of the COVID-19 pandemic[158]. - The company has commitments under contractual obligations as of September 30, 2023, which do not reflect available debt extension options[160]. Equity and Incentives - The company has an equity incentive plan that allows for the issuance of up to 3,763,580 shares of common stock[100]. - Performance RSU Awards granted in January 2020 were earned at 150% of the target number of shares based on achieving a total shareholder return (TSR) at or above the 75th percentile of the peer group[101]. Cash and Liquidity - As of September 30, 2023, the company’s cash, cash equivalents, and restricted cash were $52.3 million as of September 30, 2023, compared to $41.7 million as of September 30, 2022[154]. - As of September 30, 2023, the total restricted cash for three properties was $9.7 million[135]. - As of September 30, 2023, the company had approximately $36.7 million in cash and cash equivalents and $15.6 million in restricted cash[156]. - Net cash used in financing activities decreased by $52.2 million to $9.3 million for the nine months ended September 30, 2023, compared to $61.5 million for the same period in 2022[155]. Market Strategy - The company is focusing on acquiring office properties in growth markets predominantly in the Sun Belt, which are characterized by growing populations and above-average employment growth forecasts[142]. - The company anticipates that economic conditions may impact leasing activity and rental revenues due to uncertainty over tenants' long-term space requirements[113]. - The company’s tenant-related commitments totaled $10.47 million, with $7.56 million due in 2023[137]. - The company’s total contractual obligations amounted to $812.96 million, with $17.39 million due in 2023[137].