City Office REIT(CIO) - 2024 Q3 - Quarterly Report

Property Portfolio and Occupancy - As of September 30, 2024, the company owned 23 properties comprising 56 office buildings with a total of approximately 5.6 million square feet of net rentable area, with an occupancy rate of 83.4%[68] - The company reported that 13.0% of net rentable area was vacant as of September 30, 2024, a slight decrease from 13.7% a year earlier[72] - 2.3% of the company's leases are scheduled to expire over the remainder of the calendar year, without regard to renewal options[76] - As of September 30, 2024, approximately 16.7% of the net rentable area in the portfolio had early termination provisions, but no tenants exercised these provisions in 2024[76] - The company owned 23 properties with a total of approximately 5.6 million square feet of net rentable area (NRA) as of September 30, 2024[81] Financial Performance - For the three months ended September 30, 2024, total rental and other revenues decreased by $1.8 million, or 4%, to$ 42.4 million compared to $44.2 million for the same period in 2023[86] - Rental and other revenues decreased by$ 5.6 million, or 4%, to $129.2 million for the nine months ended September 30, 2024, from$ 134.8 million for the same period in 2023[92] - The company experienced a decrease in revenue at properties such as Intellicenter and 2525 McKinnon, attributed to lower occupancy rates[86] - The company reported a decrease in revenue due to the disposition of Cascade Station, which reduced revenue by $1.0 million[86] Operating Expenses - Total operating expenses increased by$ 0.3 million, or 1%, to $36.2 million for the three months ended September 30, 2024, from$ 35.9 million for the same period in 2023[88] - Property operating expenses increased by $0.2 million, or 1%, to$ 17.8 million for the three months ended September 30, 2024[88] - Total operating expenses decreased by $0.6 million, or 1%, to$ 108.8 million for the nine months ended September 30, 2024, from $109.4 million for the same period in 2023[93] - Property operating expenses increased by$ 0.4 million, or 1%, to $53.0 million for the nine months ended September 30, 2024, from$ 52.6 million for the same period in 2023[95] - General and administrative expenses increased by $0.3 million, or 7%, to$ 3.8 million for the three months ended September 30, 2024, compared to $3.5 million in the prior year period[89] Rental Rates and Tenant Retention - The average effective rent per square foot increased to$ 33.44, with new leasing at $33.91 and renewal leasing at$ 32.87[80] - The annualized average effective rent per square foot across all properties was $29.01[81] - The retention rate for tenants was reported at 42%[80] - The company aims to maintain or increase rental rates through rent escalation provisions in its leases, which are designed to provide annual growth in rental income[76] Economic and Market Conditions - The company has experienced slower new leasing activity due to evolving work-from-home trends, impacting anticipated rental revenues[73] - The company anticipates that the current economic environment, including inflation and interest rates, will continue to impact its operating activities and tenant demand[70] - The company anticipates continued positive population and economic growth in its Sun Belt markets, despite potential economic uncertainties[84] - The company focuses on acquiring office properties in growth markets predominantly in the Sun Belt, which are characterized by growing populations and above-average employment growth forecasts[75] - The company is actively evaluating business operations and strategies to adapt to current economic and industry conditions[75] Debt and Interest Rate Exposure - As of September 30, 2024, approximately$ 536.0 million, or 82.3%, of the company's debt had fixed interest rates, while $115.0 million, or 17.7%, had variable interest rates[121] - A 1% increase in SOFR would lead to a$ 1.2 million increase in annual interest costs on debt outstanding as of September 30, 2024[121] - Conversely, a 1% decrease in SOFR would result in a $1.2 million decrease in annual interest costs on debt outstanding as of September 30, 2024[121] - The company considers its interest rate exposure to be moderate due to the current capital structure[121] - The company utilizes derivative financial instruments to manage or hedge interest rate risks related to borrowings[120] - The fixed rate debt includes loans against which interest rate swaps have been applied, effectively fixing the SOFR component of borrowing rates[121] - Future debt issuances or borrowings under the Unsecured Credit Facility would incur increased interest costs with a 1% increase in SOFR[121] - The fair value of outstanding debt would decrease with a 1% increase in SOFR[121] - The company may take further actions to mitigate exposure to changes in interest rates, although specific actions and their effects are uncertain[122] - Interest rate risk estimates are based on hypothetical interest rates and do not account for changes in overall economic activity[122] Cash Flow and Financial Position - Net cash provided by operating activities increased by$ 1.8 million to $50.0 million for the nine months ended September 30, 2024, compared to$ 48.2 million for the same period in 2023[101] - Cash, cash equivalents, and restricted cash were $43.0 million as of September 30, 2024, down from$ 52.3 million as of September 30, 2023[100] - Depreciation and amortization decreased by $1.4 million, or 3%, to$ 44.4 million for the nine months ended September 30, 2024, from $45.8 million for the same period in 2023[97] - The company recognized a loss on deconsolidation of$ 1.5 million for the nine months ended September 30, 2024, compared to a loss of $0.1 million for the same period in 2023[99] - Net cash used in financing activities increased by$ 11.3 million to $20.6 million for the nine months ended September 30, 2024, compared to$ 9.3 million for the same period in 2023[104]