• Net Operating Income (NOI): $25.5 million in Q4, $900,000 higher than Q3.
• Core FFO: $11.7 million or $0.28 per share for Q4, $600,000 higher than Q3.
• AFFO: $4.3 million or $0.10 per share for Q4.
• Same-Store Cash NOI: Increased by 3.3% or $760,000 compared to Q4 2023.
• Portfolio Occupancy: Ended Q4 at 85.4%, up 2 percentage points from the prior quarter.
• Total Debt: $647 million as of December 31.
• Net Debt to EBITDA: 6.9 times.
• Cash and Restricted Cash: $34 million at quarter end.
• 2025 Guidance: Anticipating 2.5% to 4.5% growth in same-store cash NOI.

• Warning! GuruFocus has detected 5 Warning Signs with CIO.

Release Date: February 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• City Office REIT Inc (NYSE:CIO) reported a positive net absorption of office space in the fourth quarter of 2024, with leasing volume reaching over 90% of pre-pandemic levels.
• The company completed significant property upgrades at nine properties since 2021, enhancing amenities and investing in ready-to-lease spec suites.
• City Office REIT Inc (NYSE:CIO) achieved a 35% increase in new and renewal leases signed during 2024 compared to 2023, with a robust 5.9% cash rent roll-up upon renewal.
• The company reported a $900,000 increase in net operating income in the fourth quarter compared to the third quarter, driven by higher occupancy.
• City Office REIT Inc (NYSE:CIO) anticipates an increase in overall portfolio occupancy by the end of 2025, driven largely by leasing momentum in Sun Belt markets.

Negative Points

• City Office REIT Inc (NYSE:CIO) reported an $8.5 million non-cash impairment of real estate charge in the fourth quarter due to the sale of Superior Pointe.
• The company's fourth-quarter AFFO was impacted by elevated tenant improvement costs and leasing commissions, including a $2.3 million leasing commission on a 60,000 square foot lease.
• City Office REIT Inc (NYSE:CIO) faces challenges in non-Sun Belt markets, with some properties experiencing high vacancy and slower leasing activity.
• The company has two property debt maturities in 2025, requiring ongoing discussions and potential refinancing.
• City Office REIT Inc (NYSE:CIO) did not include any additional acquisitions or dispositions beyond the sale of Superior Pointe in its 2025 guidance, indicating limited growth from new investments.

Q & A Highlights

Q: What was the reasoning behind the sale of Superior Pointe, and how is the current transaction market? A: James Farrar, CEO, explained that the decision to sell Superior Pointe was driven by the challenging submarket and high vacancy rates in Denver. The company opted to focus on markets with better growth potential, like the Sun Belt. The capital markets for office properties have improved, with increased liquidity and interest in top assets, indicating a positive trend.

Q: Why did you break out Sun Belt occupancy separately in this quarter's report? A: James Farrar, CEO, stated that the Sun Belt markets are expected to create the most value over time due to high growth potential. By providing separate occupancy data, the company aims to highlight the significant rent and occupancy growth expected in these markets.

Q: Are there any plans to sell assets in non-Sun Belt markets? A: James Farrar, CEO, mentioned that while no additional dispositions beyond Superior Pointe are included in the guidance, the company is considering exiting certain non-core markets like Portland and Seattle when the capital markets improve. However, there are no immediate plans for further sales.

Q: What are your expectations for the lease with the US Attorney's Office, given its expiration in 2026? A: James Farrar, CEO, noted that the US Attorney's Office heavily utilizes its space in Park Tower, making it logical for them to remain long-term. However, discussions are still in early stages, and there is some uncertainty until further progress is made.

Q: Are you seeing any distressed acquisition opportunities, and how do you balance acquisition cap rates with your cost of capital? A: James Farrar, CEO, indicated that while distressed sales have not been prevalent, they may increase in the future. Currently, the focus is on internal growth through capital work and leasing in existing assets. External growth will be considered if it aligns with strategic goals.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.