City Office REIT Inc ((CIO)) has held its Q4 earnings call. Read on for the main highlights of the call.
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City Office REIT’s recent earnings call reflected a cautiously optimistic sentiment, as the company displayed strong leasing momentum, notable property upgrades, and a strategic focus on the Sunbelt regions. Despite these positive developments, financials were impacted by non-cash impairment charges and increased interest expenses. The company’s outlook remains positive, with a focus on growth in favorable markets.
Leasing Volume and Rent Growth
During the fourth quarter of 2024, City Office REIT achieved impressive leasing volumes, reaching over 90% of pre-pandemic levels, with Sunbelt markets achieving 95%. The company experienced a significant 35% increase in new and renewal leases compared to 2023, along with a 5.9% cash rent roll-up upon renewal.
Property Upgrades and Occupancy
City Office REIT completed major upgrades at nine properties and constructed 231,000 square feet of modern spec suites, with over 75% leased. These enhancements contributed to an increase in portfolio occupancy to 85.4%, marking a two percentage point rise from the previous quarter.
Financial Performance
The company’s net operating income for Q4 stood at $25.5 million, reflecting an increase of $900,000 from Q3. Core funds from operations rose by $600,000 to $11.7 million, while same-store cash net operating income grew by 3.3% compared to Q4 2023.
Disposition of Superior Point
City Office REIT strategically sold Superior Point in Denver for $12 million, a move aimed at exiting a challenging submarket and concentrating on value creation in stronger markets.
Redevelopment Plans in Saint Petersburg
The company received unanimous approval for a redevelopment site plan in downtown Saint Petersburg, which includes 164 residential condos and 78,000 square feet of retail and office space, signaling future growth opportunities.
Non-Cash Impairment Charge
An $8.5 million non-cash impairment charge was recorded, associated with the sale of Superior Point, impacting the financials.
Interest Expense Impact
The increase in interest expenses partially offset the net operating income gains realized in Q4 2024.
AFFO Impacted by Leasing Costs
The company’s AFFO was $4.3 million, affected by $2.3 million in lease commissions and $1.3 million in property renovation costs.
Vacancies in Non-Sunbelt Markets
City Office REIT anticipates two known vacancies in non-Sunbelt properties, totaling 102,000 square feet in the first half of 2025, which could impact future occupancy rates.
Forward-Looking Guidance
Looking ahead to 2025, City Office REIT aims to drive long-term cash flow growth, projecting a 2.5% to 4.5% increase in same-store cash NOI. They plan to focus on leasing, active asset management, and value creation opportunities, with core FFO per share expected to grow over time. Despite anticipated vacancies in non-Sunbelt regions, the company expects overall portfolio occupancy to increase, driven by leasing strength in the Sunbelt.
In summary, City Office REIT’s earnings call highlighted a cautiously optimistic outlook, with strong leasing performance and strategic market focus, particularly in the Sunbelt regions. While financial challenges were noted, the company remains committed to growth and value creation, with positive forecasts for 2025.
