City Office REIT, Inc. Launches a Preferred Offering

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Small office REIT, City Office REIT, Inc. (NYSE:CIO)  has sold a new 4,000,000 share preferred stock offering with a coupon of 6.625%.  The offering also allows underwriters to purchase up to 600,000 over allotment shares.

CIO came public in 2013 and thus far owns 15 high quality office buildings in markets such as Phoenix, Austin, TX., Dallas,  Boise, Denver, Portland and Tampa and Orlando, Florida. Obviously being newly public CIO is still in the process of building their portfolio and this means that investors should expect a continual stream of offerings of equity and debt.  This new preferred stock offering will finance the acquisition of a couple of new office buildings. The company was originally externally managed, but recently internalized management.

As of June 30, 2016 CIO had $303 million in debt, which had an average maturity of 6 years and an average interest rate of 4.3%.  CIO had equity of $164 million giving them a debt to equity ratio of 1.84.  When including the new preferred offering the ratio falls to 1.16.


City Office falls a bit short of covering their common dividend with Funds from Operations (FFO) of 22.5 cents/share last quarter against a distribution of 23.5 cents.  It isn’t unusual for newer REITs to fall short of covering their distribution, but it not something that one wants to see continue on a long term basis.  CIO did recognize a large $15 million gain on the sale of a property last quarter so they were strongly cash positive.

The new preferred stock issue has the normal terms with a optional 5 year redemption period beginning in 2021. Shares are cumulative in respect to dividends and they will not qualify for preferential tax treatment as dividends of REITs do not qualify for the lower rate.

Further details of the issue can be found here.

Shares are now trading on the OTC Grey Market with the share price between $24.90 and $25.10.

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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