City Office REIT, Inc.

good morning and welcome to the te rate of city office rate inc second quarter 2022 earnings conference air call at this time all participants are in listen only mode a brief question and answer session will follow the formal presentation to ask a question you may press star then one on your touch tone phone if you're using a speakerphone please pick up your hands headset before pressing the keys to withdraw your question please press Star then two as a reminder. This conference call is being recorded. If you require operator assistance, please press star then zero. It is now my pleasure to introduce you to Tony Maretic, the company's Chief Financial Officer, Treasurer and Corporate Secretary. Thank you, Mr. Maretic. You may begin.

Good morning. Before we begin, I'd like to direct you to our website at cioreet.com. where you can view our second quarter earnings press release and supplemental information package. The earnings release and supplemental package both include a reconciliation of non-GAAP measures that will be discussed today to their most directly comparable GAAP financial measures. Certain statements made today that discuss the company's beliefs or expectations or that are not based on historical fact may constitute forward-looking statements within the meaning of the federal securities laws. Although the company believes that these expectations reflect in such forward-looking statements are based upon reasonable assumptions, we can give no assurance these expectations will be achieved. Please see the forward-looking statements disclaimer in our second quarter earnings press release and the company's filings at the SEC for factors that could cause material differences between forward-looking statements and actual results. The company undertakes no obligation to update any forward-looking statements that may be made in the course of this call. I will review our financial results After Jamie Farrar, our Chief Executive Officer, discusses some of the quarter's operational highlights, I will now turn the call over to Jamie.

Good morning and thanks for joining today. We believe the companies that are going to be most successful in the office sector are those focused on growth markets with high-quality assets that align with today's tenant desires. From a big-picture perspective, we are very well positioned in this regard. Our predominantly Sunbelt locations are the right markets, and they are poised for long-term growth in rental rates and demand. Cities like Phoenix, Raleigh, Tampa, Dallas, and Orlando provide a lower cost of doing business, higher quality of life, and a growing talent pool. For these reasons, among others, they have been the beneficiaries of labor force migration and corporate relocations. We believe these trends will continue. Further, there continues to be a flight to quality with companies seeking differentiated, amenitized, and well-located office spaces for their employees. Our portfolio is principally invested in high-quality, amenitized assets that are consistent with what tenants are looking for. While we have a solid core portfolio that aligns with this opportunity, we are advancing and executing plans that we've discussed on prior calls to elevate several of our properties. We also continue to build out spec suites across the country to drive leasing appeal and accelerate occupancy timelines. Our spec suite program is proven and effective at yielding results. Year-to-date in 2022, we have leased 17 of our spec suites, totaling 64,000 square feet. We've also leased three spaces totaling 38,000 square feet where we had completed substantial space conditioning. To provide some larger context on this program, despite the pandemic's impact on leasing, since 2019 we built out over 200,000 square feet of spec suite inventory. We've leased approximately 84% of it to date with a typical lease-up period of approximately six months. Our remaining inventory of spec suites is 33,000 square feet across our portfolio. We intend to commence construction on over 100,000 additional square feet of spec suites during the remainder of 2022, plus another 150,000 square feet of conditioned space. We believe these planned investments will position us with attractive, ready-to-lease inventory that will drive results. In terms of overall leasing, it was generally healthy in the second quarter. We executed a total of 254,000 square feet of leases consisting of 126,000 square feet of new leases and 128,000 square feet of renewals. We are also pleased to report that we signed 23,000 square feet of new leases at Block 83 in Raleigh during the quarter. That brings the property's occupancy to 85% with including signed leases that have not yet commenced. Our remaining inventory at Block 83 is approximately 45,000 square feet of office space and 28,000 square feet of retail space. We remain confident in our ability to lease these spaces on attractive terms given the property's tremendous amenities, new and modern construction, and great location. It fits perfectly with what tenants are looking for. Today we were in lease negotiations for approximately 17,000 square feet of the space with a number of additional prospects beyond that. Overall tenant retention rates in the quarter were approximately 60% with a strong 4.8% increase in renewal cash rental rates. These results are generally in line with our overall leasing results during the trailing 12 months. However, looking forward over the next 12 months, we do expect to have several larger tenants vacate or downsize, which will lower retention rates and require us to backfill some space. We've previously discussed Toyota vacating at the end of August at our Santan property in Phoenix. Subsequent to quarter end, we came to a conclusion on a major tenant at our 190 office property in Dallas. Effectively, our largest tenant there, a healthcare company, will reduce its footprint from 173,000 square feet to 43,000 square feet when their lease rolls in June of next year. Their renewal space has been extended by three years through June of 2026. We were aware this tenant had implemented a work-from-home strategy and potentially didn't require all of its space. To mitigate that scenario, we commenced a property upgrade earlier in the year, which was completed during the quarter. The renovation positioned us to retain as much of the existing tenant as was feasible and set us up to backfill the balance of the space. The project included enhancing the lobby and adding a modern conference center, an upscale tenant lounge, a high-end fitness facility, and connected outdoor space. The renovations looked spectacular and completely transformed the property for an investment of just over $2 million or a modest $7 per square foot. We've included before and after renovation photos in our most recent investor presentation posted on our website. We've already experienced the benefits of these upgrades. After quarter end, we've come to terms with two tenants that we expect will backfill approximately 49,000 square feet at the property, and we have over 10 months of lead time to find replacement tenants for the balance. Other notable activity during the quarter included the completion of the sale of Lake Vista Point in Dallas for $44 million. The sale generated us a $22 million gain on sale and was completed at a 6.1 cash cap rate. On the capital markets front, during the quarter and subsequent to quarter end, we've been executing a share repurchase program. While we remain sensitive to reducing the number of common shares outstanding, the disconnect between our stock price and our view of its value is a great opportunity. To help investors understand our rationale on the buyback, we included a new slide in our investor presentation. The average repurchase price to date, including purchases after quarter end, is $13.11 per share. This effectively means that we're buying our own portfolio at approximately a blended 8% cap rate. That is tremendous value and we would not be able to acquire comparable high quality office properties in the private markets anywhere near that valuation. we've also provided segmented information on that slide which may be helpful. When you consider the value inherent in our three most recent acquisitions in raleigh phoenix and Dallas purchased for $614 million the implied metrics associated with our other 22 properties is even more compelling. Today, newly constructed and highly amenitized office buildings with long in-place lease terms remain desirable for investors. Our three recent acquisitions fit this segment perfectly and are highly discounted by our implied valuation. To help illustrate this further, JLL released a report last month that provided current construction and replacement costs across Metro Denver and its five major submarkets. The estimated costs ranged from a low of $490 per square foot to a high of $835 per square foot, with an average of $650 per foot. We believe this range is indicative of replacement costs across each of our markets as well. Contrasting this to our stock buyback, we purchased our own portfolio at a blended $221 per foot, including our three most recent acquisitions, which should be more equivalent to premium new construction today. Bottom line, we know our portfolio and our tenants better than anyone, and we believe repurchasing stock at these deeply discounted levels will be strongly accretive to earnings per share and net asset value over time. As we navigate the noise in the office sector and the markets broadly, we will continue to focus on creative ways to unlock value and grow cash flow. This approach has served us well, and has led us to achieve the second highest total shareholder return in the office sector since our IPO in 2014, second only to Alexandria Real Estate. I look forward to updating you further next quarter, and will hand the call over to Tony Moretto to discuss our financial results.