City Office REIT(CIO) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's net operating income for Q1 2020 was $25.4 million, an increase of $900,000 compared to Q4 2019, primarily due to increased occupancy [26] - Core FFO was reported at $14.3 million or $0.26 per share, also $900,000 higher than in the previous quarter [27] - AFFO for the quarter was $7.9 million or $0.14 per share, lower due to elevated costs related to tenant improvements and leasing commissions [27] Business Line Data and Key Metrics Changes - Rent collections in April totaled approximately 98%, with all of the largest 40 tenants, accounting for about 59% of occupied square footage, paying their rent [11][12] - The company has low exposure to industries severely impacted by COVID-19, with only 3.2% of the portfolio occupied by tenants in affected sectors [10] Market Data and Key Metrics Changes - Leasing activity has slowed across the portfolio, with renewal discussions remaining active but new leasing significantly reduced [18] - The company achieved renewal leasing spreads of 6.1% on a cash basis for the quarter, indicating strong same-store NOI growth [29] Company Strategy and Development Direction - The company paused its acquisition activity and reallocated capital to its common share repurchase program, believing in the inherent value of its portfolio [19] - A reduction in the common stock quarterly dividend from $0.023 per share to $0.15 per share was made to operate with lower leverage [22] - The company intends to maintain higher liquidity levels and lower leverage while continually reviewing capital allocation decisions [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's position heading into the economic downturn, citing ample liquidity and a diversified tenant portfolio [7][23] - There is significant uncertainty regarding the timing and extent of economic impacts from COVID-19, with expectations of further challenges ahead [16] - The company anticipates that the trend towards less dense, lower-cost markets will continue, supporting long-term success [24] Other Important Information - As of March 31, the company had approximately $147 million in unrestricted cash and $150 million undrawn under its unsecured credit facility [15] - The company has provided updated guidance for 2020, estimating core FFO per share between $1.07 and $1.12, with same-store cash NOI expectations ranging from negative 4.5% to negative 1.5% [33] Q&A Session Summary Question: Cap rates in the marketplace - Management noted that cap rates are difficult to assess due to the market being frozen, but they believe their own portfolio offers a mid- to high 8% cap rate [35][36] Question: Bad debt and AFFO recovery - Management indicated that while FFO remains stable, AFFO may see a catch-up effect in 2021 as rent deferrals are addressed [37][38] Question: Rent deferral expectations - Management reported that less than 20% of square footage has requested deferrals, with April collections remaining strong at sub-2% uncollectibility [40] Question: Remaining lease expirations for 2020 - Management provided updates on larger leases set to expire, indicating ongoing discussions and a high probability of renewals for some tenants [47][48] Question: Capital allocation and acquisitions - Management emphasized a commitment to lower leverage and indicated that any excess cash would likely be used to reduce leverage rather than pursue acquisitions [53]