City Office REIT(CIO)2024-02-22 21:29Financial Data and Key Metrics - Total debt as of December 31 was 43 million as of quarter-end [7] - Core FFO per share for 2023 was 26.9 million, 1.4 million write-off related to WeWork lease at Block 23 [30][69] - Same-store cash NOI grew by 3% for 2023 compared to the prior year, but Q4 same-store cash NOI was down 0.5% year-over-year [70] Business Line Data and Key Metrics - Executed 599,000 square feet of new and renewal leasing in 2023, with Q4 seeing 109,000 square feet of new leases, the highest in 2023 [23] - Portfolio occupancy ended the year at 84.5%, with 114,000 square feet of signed leases not yet commenced [32] - Retention rate in Q4 was 21%, significantly impacted by 70,000 square feet of lease departures in Portland [32] - Spec suite and vacancy conditioning program investments totaled 0.02 per share [31] Market Data and Key Metrics - Office market sales volumes in 2023 were down 57% year-over-year, with many transactions aided by seller financing or assumable debt [24] - New office construction in Q4 2023 was the lowest in over 20 years, with most projects being build-to-suit or pre-leased [25] - Subleasing is moderating, with Q4 indicating a decrease in sublease availability across many office markets [25] - 60% of total office vacancy is concentrated in just 10% of buildings, with demand highest for premier, well-located buildings [43] Company Strategy and Industry Competition - Focus on leasing to drive cash flow and enhance borrowing capacity [1] - Prioritizing liquidity, capital protection, and prudent debt maturity management [29] - Advancing spec suite and property renovation programs to align with market demands [46] - Exploring creative ways to unlock value at properties, including potential asset sales or unique buyer opportunities [82] Management Commentary on Operating Environment and Future Outlook - Corporate return-to-office policies are gaining momentum, with major companies requiring employees to attend the office at least three days a week [13][42] - Leasing momentum from Q4 2023 carried into 2024, with a pipeline exceeding 200,000 square feet, including larger corporate tenants [26] - Challenges in the investment sales market and frozen debt capital for new originations are being closely monitored [24] - 2024 guidance assumes no acquisitions, 1.18 to 1 million letter of credit being drawn against costs and lost income [6] - Negotiations with a high-quality co-working operator for Block 23 are in late stages [6] - WeWork withheld rent payments at Block 23 and Terraces, but agreed to repay overdue amounts by end of February [45] - Cascade Station property in Portland may transition back to the lender due to challenging market conditions [71] Q&A Session Summary Question: Cascade Station marketability and impact on occupancy [53] - Response: Cascade Station is a small asset (128,000 square feet), and its exit is expected mid-2024, with a slight uptick in occupancy by year-end [54] Question: Same-store cash NOI growth expectations for 2024 [55] - Response: Same-store cash NOI is expected to be flat in 2024, with new leasing offsetting negatives from lease departures [56][76] Question: Leasing momentum and market trends [9] - Response: Leasing momentum is driven by larger corporate tenants, with active negotiations for four leases averaging over 40,000 square feet each [26][58] Question: Potential transition of WeWork space at Block 23 to a corporate tenant [80] - Response: Transitioning to a corporate tenant is possible, but continuing as a co-working space is the logical choice due to existing build-out [62] Question: Asset sales and leverage reduction [63] - Response: Selling assets in the current environment is challenging due to limited buyers and frozen debt markets, but the company remains open to compelling opportunities [64][65] Question: Mortgage assumptions and market activity [66] - Response: Assumable mortgages are complex, and muted activity is expected until debt markets open up [83]