City Office REIT's Q1 2025: Key Contradictions in Occupancy Guidance, Sunbelt Strategy, and Leasing Demand

Occupancy guidance and expectations, Sunbelt market focus and investment strategy, occupancy recovery and timing, leasing demand and tenant demographics are the key contradictions discussed in City Office REIT's latest 2025Q1 earnings call.



Office Leasing Activity:
- City Office REIT completed 144,000 square feet of new and renewal leasing in Q1 2025, with the largest lease being a 34,000 square foot deal at Papago Tech in Phoenix.
- The growth in leasing activity was driven by strong demand for office spaces in Sunbelt markets, particularly in Phoenix, where a significant portion of the leasing occurred.

Waldorf Astoria Project and Development:
- City Office REIT entered into an agreement with Property Markets Group (PMG) to lead the development of a luxury residential and mixed-use tower on its City Center property in St. Petersburg, Florida.
- The project, expected to be sold under the luxury Waldorf Astoria Residences brand, is anticipated to have a three-year construction period and will capitalize on the strong demand for luxury condos in the area.

Occupancy Trends and Lease Renewals:
- The company's portfolio occupancy ended the quarter at 84.9%, with expectations for it to decrease in the second quarter due to known vacates.
- Occupancy is expected to increase as signed leases take occupancy, aiming for an end-year occupancy within the 85% to 87% range.
- Successful lease renewals and new tenancies, such as the 10-year lease signed at Greenwood Boulevard in Orlando, will contribute positively to long-term cash flow stability.

Financial Metrics and Operational Efficiency:
- City Office REIT reported a net operating income (NOI) of $26.0 million in Q1 2025, which is $500,000 higher than the previous quarter.
- The increase in NOI was driven by higher revenue and lower operating expenses, with positive same-store cash NOI growth of 4.4% year-on-year.
- Operational efficiency was improved by the completion of several property renovation projects and amenity upgrades, leading to a decrease in property renovation spending relative to the previous year.