City Office REIT(US:CIO)2023-02-23 17:34Financial Data and Key Metrics Changes - The company achieved a core FFO per share of $1.57 in 2022, marking a 15% increase from the previous year, driven by the integration of acquisitions in Raleigh, Phoenix, and Dallas [8][9] - Net operating income for Q4 was $27.6 million, a decrease of $500,000 from Q3, primarily due to the departure of Toyota from the San Tan property [22] - Core FFO for Q4 was $15.4 million or $0.38 per share, down $1.1 million from Q3, attributed to lower net operating income and higher interest rates [23] - AFFO for Q4 was $5 million or $0.12 per share, impacted by $700,000 in tenant improvement expenses [23] Business Line Data and Key Metrics Changes - Approximately 800,000 square feet of new and renewal leases were completed in 2022, with 108,000 square feet occurring in Q4 [10] - The spec suite program contributed positively, with 93,000 square feet of new leases signed for spec suites during 2022 [11] - The company recorded a non-cash impairment charge of $13.4 million in Q4, affecting two properties, which represents about half of the anticipated selective pruning of non-core assets [24] Market Data and Key Metrics Changes - The company continues to benefit from trends in the Sunbelt region, where population and employment growth are strong, although challenges include rising interest rates and volatile capital markets [14][18] - The investment sales market remains slow, with limited transactions for premium assets [49] Company Strategy and Development Direction - The company plans to grow quality net operating income by completing renovations and building spec suites, with 18,000 square feet currently available and over 150,000 square feet planned for 2023 [15] - A strategic focus on selectively pruning the portfolio includes targeting approximately 900,000 square feet for divestiture over the next few years, with expected dispositions between $25 million and $75 million in 2023 [17] - The company aims to maintain a strong liquidity position and leverage profile to capitalize on future opportunities [18] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the operating environment, highlighting the impact of rising interest rates and industry headwinds [14] - The company is not satisfied with its current stock price, believing it does not reflect the inherent value of the company [18][20] - Guidance for 2023 projects core FFO of $1.38 to $1.43 per share, reflecting a decline due to higher interest expenses and expected net dispositions [29] Other Important Information - The company announced planned succession changes within the Board, with John Sweet becoming Chairman and Michael Mazan appointed to the Board [12][13] - The company has over $95 million of undrawn availability on its credit facility and $44 million in cash and restricted cash as of quarter-end [27] Q&A Session All Questions and Answers Question: Impact of AFFO - The company indicated that the $10 million impact on AFFO for 2023 is a total figure, higher than 2022 spending [33] Question: AFFO Expectations - The company noted that spending on tenant improvements and leasing commissions will depend on leasing activity, with expectations for increased capital expenditures [34] Question: Occupancy Fluctuations - Management expects occupancy to remain within a narrow band throughout the year, balancing known move-outs with new leases [40] Question: Dividend Considerations - The Board is comfortable with the current dividend level but is assessing the impact of operating conditions and interest rates each quarter [37] Question: CapEx Budget for 2023 - The company plans to spend on renovations at San Tan and Pima, with a focus on adding amenities and spec suites [45] Question: Disposition Market Activity - The company has not brought any assets to market yet, noting a slow investment sales market [49] Question: Debt Maturities - Management is in preliminary discussions for refinancing upcoming debt maturities, anticipating rates in the low 6% range [50]