City Office REIT, Inc. (CIO) | Investment Case

1. Company Snapshot

1.a. Company Description

City Office REIT, Inc.(NYSE: CIO) invests in high-quality office properties in 18-hour cities with strong economic fundamentals, primarily in the Southern and Western United States.At September 30, 2020, CIO owned office complexes comprising 5.8 million square feet of net rentable area (NRA).

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1.b. Last Insights on CIO

City Office REIT's recent performance was negatively driven by a decline in funds from operations (FFO) to $0.28 per share in Q4 2024, down from $0.33 per share in the same period last year. This decline, despite meeting estimates, highlights a slowdown in revenue growth. Additionally, the company's high debt load and manageable lease expirations may pose challenges to future occupancy gains.

1.c. Company Highlights

Last Price	6.94
Change Percentage	2.06%
Open	6.9
Previous Close	6.8
Market Cap ( Millions)	280
Volume	1702152
Year High	7.01
Year Low	4.19
M A 50	6.91
M A 200	5.97

FCF Yield	16.99%
Dividend Yield	5.76%
ROE	-18.39%
Debt / Equity	65.88%
Net Debt / EBIDTA	-1104.65%
Price To Book	0.46
Price Earnings Ratio	-2.27
Price To FCF	5.89
Price To sales	1.71
EV / EBITDA	-19.18

2. City Office REIT Delivers Steady Q1 Performance Amid Strategic Redevelopment

City Office REIT reported a solid first quarter, with financial metrics aligning closely with expectations. The company posted core funds from operations (FFO) of $12.3 million, or $0.30 per share, slightly outpacing the consensus estimate of $0.28. Adjusted FFO (AFFO) came in at $6.5 million, or $0.16 per share, reflecting the company's ability to maintain profitability despite macroeconomic uncertainties. Net operating income (NOI) for the quarter was $26.0 million, up $0.5 million from the previous quarter, driven by higher revenues and disciplined expense management. The company's net debt-to-EBITDA ratio stood at 6.7x, with $42 million in undrawn credit facility capacity, providing a cushion for near-term obligations, including two property loans maturing in Q4 2025.

Publication Date: May -03

                                    📋 Highlights
                                    Partnership with PMG:
                                                - $17 million investment for 50% interest in a luxury condo redevelopment project.
Leasing Activity:
                                                - 144,000 sq ft of new and renewal leases signed, with an additional 66,000 sq ft post-quarter-end.
Financial Performance:
                                                - Q1 NOI of $26.0 million, up $0.5 million from Q4, with core FFO of $12.3 million.
Debt and Liquidity:
                                                - Net debt-to-EBITDA ratio of 6.7x, with $42 million in undrawn credit facility capacity.
Occupancy Outlook:
                                                - Portfolio occupancy at 84.9%, expected to remain in the 85-87% range by year-end.

                                

Operational Highlights: Leasing Momentum and Strategic Redevelopment

City Office REIT showcased strong operational execution, with 144,000 square feet of new and renewal leases signed during the quarter. Notably, a 34,000-square-foot lease at Papago Tech in Phoenix highlighted the continued demand for high-quality office space in Sun Belt markets. Post-quarter-end, an additional 66,000-square-foot lease was secured at Greenwood Boulevard in Orlando, with the tenant extending part of their lease until 2033. Same-store cash NOI grew by 4.4% year-over-year, underscoring the company's ability to drive organic growth. Portfolio occupancy ended the quarter at 84.9%, though it is expected to dip slightly in Q2 due to known vacates before rebounding by year-end.

Strategic Partnership and Redevelopment Ambitions

The company's most significant announcement was its partnership with Property Markets Group (PMG) to redevelop its City Center property in St. Petersburg, Florida, into a 49-story luxury residential condominium under the Waldorf Astoria Residences brand. The project, requiring a $17 million investment, positions City Office REIT to capitalize on the strong demand for luxury condos in the region. PMG will handle predevelopment activities, with presales expected to commence soon and construction anticipated to take three years. Management emphasized the project's potential for long-term value creation, with a four-year timeline including presales and construction. Alternative parking arrangements are being implemented to minimize disruption during redevelopment.

Valuation Analysis: Undervalued with Attractive Yield

City Office REIT's stock currently trades at a price-to-book (P/B) ratio of 0.28, indicating significant undervaluation relative to its book value. The dividend yield of 8.05% stands out as one of the highest in its peer group, offering investors attractive income potential. The EV/EBITDA ratio of 2.08 suggests the market may not be fully pricing in the company's growth prospects, particularly from its redevelopment initiatives. While the net debt-to-EBITDA ratio of 6.7x remains elevated, the company's liquidity position, including $42 million in undrawn credit capacity, provides flexibility to navigate upcoming debt maturities. Analysts remain optimistic, with estimates pointing to a 3.6% revenue growth for the next year.

3. NewsRoom

3 REITs That Big Money Might Snap Up Soon

Dec -04

Source: seekingalpha.com

T-bill and chill: Robinhood CIO on what to do after the selloff and the danger markets are ignoring

Nov -19

Source: marketwatch.com

Increased M&A Bodes Well For Discounted Infrastructure

Nov -11

Source: seekingalpha.com

Robinhood's CIO Steph Guild on Investing, Tokenization & Prediction Markets

Nov -03

Source: youtube.com

Fed Cuts, Yields Jump, REITs Dip

Nov -02

Source: seekingalpha.com

Bank of the James Announces CFO–CIO Transition and Appointment of New Chief Financial Officer

Oct -30

Source: globenewswire.com

City Office REIT Preferreds: A Replacement For Cash In Your 401(k)

Oct -22

Source: seekingalpha.com

Gold's traditional inverse link to stocks has broken down, says Breakout Capital CIO Ruchir Sharma

Oct -20

Source: youtube.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.50%)

6. Segments

Commercial Real Estate

Expected Growth: 3.5%

Growing demand for urban office spaces, increasing popularity of coworking spaces, and a strong economy drive the growth of City Office REIT's portfolio, with a focus on diversified commercial real estate assets in urban areas.

7. Detailed Products

Office Properties

City Office REIT, Inc. owns and operates a portfolio of office properties, providing high-quality, amenity-rich spaces for businesses and organizations.

Industrial Properties

The company's industrial properties offer flexible, functional spaces for light manufacturing, logistics, and distribution operations.

Data Center Properties

City Office REIT, Inc. owns and operates data center properties, providing secure, reliable, and high-performance infrastructure for data storage and processing.

Land and Development Properties

The company owns and develops land parcels and properties for future development, providing opportunities for growth and expansion.

8. City Office REIT, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for City Office REIT, Inc. is medium due to the availability of alternative office spaces and flexible work arrangements.

Bargaining Power Of Customers

The bargaining power of customers for City Office REIT, Inc. is low due to the fragmented nature of the office space market and the lack of concentration among tenants.

Bargaining Power Of Suppliers

The bargaining power of suppliers for City Office REIT, Inc. is medium due to the presence of multiple suppliers of office space and the company's ability to negotiate favorable terms.

Threat Of New Entrants

The threat of new entrants for City Office REIT, Inc. is high due to the relatively low barriers to entry in the office space market and the increasing trend of coworking spaces.

Intensity Of Rivalry

The intensity of rivalry for City Office REIT, Inc. is high due to the competitive nature of the office space market and the presence of multiple established players.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	46.44%
Debt Cost	3.95%
Equity Weight	53.56%
Equity Cost	13.03%
WACC	8.81%
Leverage	86.70%

11. Quality Control: City Office REIT, Inc. passed 3 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Postal Realty Trust

A-Score: 7.4/10

Value: 4.3

Growth: 6.8

Quality: 6.9

Yield: 10.0

Momentum: 7.0

Volatility: 9.7

1-Year Total Return ->

City Office REIT

A-Score: 6.3/10

Value: 8.7

Growth: 3.4

Quality: 4.2

Yield: 9.0

Momentum: 7.5

Volatility: 5.0

1-Year Total Return ->

Easterly Government Properties

A-Score: 5.8/10

Value: 5.5

Growth: 4.8

Quality: 5.4

Yield: 10.0

Momentum: 1.0

Volatility: 8.3

1-Year Total Return ->

Orion Office REIT

A-Score: 5.0/10

Value: 7.8

Growth: 4.2

Quality: 3.6

Yield: 10.0

Momentum: 1.5

Volatility: 3.0

1-Year Total Return ->

Franklin Street Properties

A-Score: 4.8/10

Value: 8.2

Growth: 0.6

Quality: 3.1

Yield: 7.0

Momentum: 5.0

Volatility: 5.0

1-Year Total Return ->

Hudson Pacific Properties

A-Score: 3.2/10

Value: 6.6

Growth: 2.0

Quality: 2.2

Yield: 4.0

Momentum: 1.5

Volatility: 2.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

-4.79%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

8.81%

City Office REIT, Inc. - US1785871013

1. Company Snapshot

1.a. Company Description

City Office REIT, Inc.(NYSE: CIO) invests in high-quality office properties in 18-hour cities with strong economic fundamentals, primarily in the Southern and Western United States.At September 30, 2020, CIO owned office complexes comprising 5.8 million square feet of net rentable area (NRA).

1.b. Last Insights on CIO

1.c. Company Highlights

Cheaper

More Volatile

Average Yield

Earnings Miss

Revenues Beats

Higher Growth

Revenues Miss

Earnings Beats

Medium Volatility

Strong Momentum

Average Quality

2. City Office REIT Delivers Steady Q1 Performance Amid Strategic Redevelopment

Operational Highlights: Leasing Momentum and Strategic Redevelopment

Strategic Partnership and Redevelopment Ambitions

Valuation Analysis: Undervalued with Attractive Yield

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.50%)

6. Segments

Commercial Real Estate

Expected Growth: 3.5%

7. Detailed Products

Office Properties

Industrial Properties

Data Center Properties

Land and Development Properties

8. City Office REIT, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: City Office REIT, Inc. passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

6.94$

Current Price

6.94$

Potential

-0.00%

Expected Cash-Flows

City Office REIT, Inc.(NYSE: CIO) invests in high-quality office properties in 18-hour cities with strong economic fundamentals, primarily in the Southern and Western United States.At September 30, 2020, CIO owned office complexes comprising 5.8 million square feet of net rentable area (NRA).

12.e Scoring ^Insights

12.f DCF ^BETA