City Office REIT, Inc.

Good morning and welcome to the City Office Reit Inc first quarter 2023 earnings conference 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 touchtone phone. If you're using a speakerphone please pick up your headset before pressing the keys. To withdraw your question please press star followed by two and as a reminder this conference call is being recorded. If you require operator assistance, please press star and 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 would like to direct you to our website at cioreit.com, where you can review our first 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 reflected in such forward-looking statements are based upon reasonable assumptions we can give no assurance that these expectations will be achieved. Please see the forward-looking statements disclaimer in our first quarter earnings press release and the company's filings with 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'll review our financial results after Jamie Farrar, our Chief Executive Officer, discusses some of the quarter's operational highlights. I'll now turn the call over to Jamie.

Good morning and thanks for joining today. Since our last earnings call at the end of February, we've continued to track our expectations in terms of operations and per share performance. With our results this quarter, we have reiterated all aspects of our guidance, including strong core FFO per share expectations and positive same-store cash NOI growth. Despite considerable volatility in the broader markets and the banking sector, our premium Sunbelt platform provides an enduring competitive advantage. On our last call, I highlighted our Pima Centre property in Phoenix, which is benefiting from an adjacent new entertainment development. On this call, I want to focus on our City Centre property in downtown St. Petersburg, Florida. St. Petersburg continues to generate very strong population and economic growth metrics due to its vibrant lifestyle and its unique waterfront location. An influx of new restaurants and entertainment venues downtown, combined with limited available land, has driven real estate values. From an office market perspective, the St. Pete CBD has among the lowest vacancy rates in the country at approximately 7%. In addition, year over year in Q1, rents have increased by a healthy 8%. Our building, City Center, has direct water views and is situated near the waterfront and marina, various restaurants, shops, and mixed-use developments. It is 92% occupied today, including signed and committed leases. Our parking garage also sits on a prime location which may be suitable for future residential development. While we're at an early stage of unlocking that potential value, City Center is a great case study in the tailwinds associated with amenitized Sunbelt locations. Relating to the outperformance of our Sunbelt markets, next I would like to discuss space utilization across our portfolio, which continues to trend higher. At the end of March, Approximately 60% of our portfolio-wide tenant offices or workstations were being utilized. Both Raleigh and Tampa exceeded 70%. Overall, these levels have increased dramatically from the low 30% utilization range at the same time last year. To highlight this, we've provided a new chart in our May investor presentation that shows utilization levels over time. It is noteworthy that these results are trending towards the approximately 85% utilization that we estimate occurred pre pandemic when factoring in travel, vacation and sick days. Our expectation is that increasing utilization levels in our cities will translate to greater leasing activity over time. In terms of new leasing, newer and amenitized properties in the best locations are continuing to outperform. we're also seeing prospective tenants start to scrutinize the financial position of building ownership when evaluating their leasing options. Across our industry, many of the buildings that we compete with are owned by higher leveraged investors that are not as well capitalized. In today's environment, a growing share of these owners don't have the capability to fund required capital and tenant improvements. As the year progresses, we believe that our strong financial position will help to enhance occupancy levels. Also, to further advance leasing activity and property level cash flow, we continue to execute renovations and spec suites across our portfolio. During the last 12 months, we signed 87,000 square feet of new leases for spec suites. We currently have only 14,000 square feet of built spec suites in our inventory, but we're advancing over 100,000 square feet which is either under construction or will be later this year. We've started to benefit from these investments in this program, but the full extent will be realized over time as suites are leased and initial free rent periods burn off. While we continue to take active steps to optimally position our portfolio for long-term success, we are also very mindful of broader market volatility and headwinds. The combination of rising interest rates and the recent banking sector challenges has impacted debt availability across the commercial real estate industry and, in particular, the office sector. We anticipate that these challenging conditions will continue for smaller and regional banks that have been important capital providers to the commercial real estate industry. Given the backdrop of these conditions, we believe it's particularly important to operate conservatively. To that end, we announced today that we've reduced our quarterly dividend to 10 cents per share for an annualized rate of 40 cents per share. As I mentioned on our last earnings call, our board has been pragmatically reviewing the challenging operating conditions each quarter and assessing the appropriate direction. We did not take the decision to reduce the dividend lightly, and we continue to believe the dividend is an important component of total shareholder returns. This adjustment is expected to result in the retention of $16 million of incremental cash annually, which we will use strategically to best position ourselves. This may include investments into our portfolio to enhance value, leverage reduction, or share purchases. So, in summary, we will continue to evaluate market conditions and operate in a cautious and strategic manner. will ensure we maintain a premium core Sunbelt portfolio, enhance our liquidity, and provide us with the flexibility to pursue opportunities as they arise. I look forward to providing future updates on our progress, and we'll hand the call over to Tony Maretic to discuss our results.