Good morning, and welcome to the City Office REIT, Incorporated Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] 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 cityofficereit.com, where you can download our fourth quarter earnings press release and the 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 third quarter earnings release and the company's filings with 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. I would like to start this call by reviewing the key acquisition, occupancy and same-store sales targets we had for 2018 and how we measured up against those expectations. We concluded the year with a number of significant transactions that helped us achieve many of our stated goals for 2018 and set us on a promising path for 2019.

While REIT stocks were quite volatile throughout the year, we continue to operate our business with discipline and focus. Beginning the year in 2018, we had just raised equity, providing us sufficient dry powder to take advantage of opportunities in our markets.

As our pipeline heated up in the third quarter, we raised additional capital through our ATM program at a price that set a new bar for our best cost of equity capital to date. This efficient and well-timed capital-raising allow us to exceed our target of $210 million to $240 million of acquisitions during 2018.

Despite our capital deployment being slower to start the year, we remain patient and ultimately uncovered $260 million of great acquisitions across our sought after 18-hour cities. This is the highest acquisition volume in any year of the Company's history and I'll discuss these properties in more detail shortly.

Another key target for 2018 was increasing our portfolio occupancy and returning our same-store cash NOI growth back to the strong numbers that we expect over a longer term basis. We began 2018 at 87.7% occupancy and ended the year at 90.4% or 91.5% if you exclude an asset that we sold at the start of 2019.

This is a substantial increase achieved primarily through the lease-up and back filling of some of our larger blocks of space. These results included a number of leases at FRP Collection in Orlando and Park Tower in Tampa. Combined, these two properties produced over 118,000 square feet of new leases during 2018.

This activity and occupancy gains in our portfolio helped us achieve positive same-store cash NOI growth in the fourth quarter, which we expect will accelerate into 2019. Tony will provide more detail on all of our 2019 targets in a few minutes. Next, I'd like to provide a more in depth update on our value-add program at Park Tower in downtown Tampa.

We now have completed the $11 million renovation and optimally positioned the property to take advantage of its great location. Park Tower was 92.1% leased as of year-end including signed leases not yet in occupancy, a 12% increase over the last six quarters.

We have completed 23 new leases since our acquisition of the property in November 2016 and significantly increased net operating income. With a renovated building exterior, modernize lobby and enhanced amenities, the image and functionality of the building has been transformed.

We expect to continue to achieve higher rental rates and leasing momentum throughout 2019. Turning to some of our specific investment transactions that have occurred since our last earnings call, we have now closed four acquisitions with a fifth purchase under contract.

In total, this represents $188 million of newly announced acquisitions which achieves our target ahead of the schedule we discussed last quarter. In December, we acquired Camelback Square in the Oldtown Scottsdale submarket of Phoenix for $53.2 million. This property has one of the best locations in our entire portfolio.

The Oldtown Scottsdale market is a dense and walkable pocket of mixed use properties that contains world-class amenities. Camelback Square is located directly across from Scottsdale Fashion Square, one of the highest grossing shopping centers in the U.S. and is currently undergoing a reported $200 million renovation.

Further, the property is located at the premier intersection on Camelback Road with over 1,000 feet of frontage. Some of you will be familiar with Mastro's City Hall Steakhouse, which is a tenant at our property and one of the top steakhouses in Arizona.

Camelback Square was 81% leased at year end and in place rental rates are approximately 20% below the expected rates post renovation. This dynamic presents us with a tremendous opportunity to significantly increased cash flow.

While we generally focus on core or core plus properties, we continue to believe that a small component of value add in our portfolio will generate higher returns for our shareholders over time, particularly in AAA urban locations. We have successfully executed value add programs in the past.

Most recently with Park Tower in Tampa and Camelback Square represents the latest iteration of this component of our portfolio.

To elevate rental rates and drive occupancy, we've planned a substantial renovation to add amenities, activate the courtyard and common areas, improve curb appeal in signage, and convert traditional office spaces into creative suites.

Camelback Square will stand out from the limited supply of office buildings in Oldtown and will be even more desirable property for the technology and professional services tenants that cover the sub market. We expect to stabilized yield on the renovated property will exceed 7%.

This compares to the expected initial year one cap rate of approximately 5.1% which uses the low in-place rents and occupancy, but conservatively assumes the full upfront renovation costs in the asset base. We are excited about Camelback Square and look forward to sharing our progress with you.

Also in December, we acquired Greenwood Boulevard in the Lake Mary submarket of Orlando, Florida for $34.5 million at an expected year, one cap rate of 7.4%. The Lake Mary submarket is known for its top tier employment presence, amenitized environment and affluent residential base.

Within Lake Mary, our building has excellent connectivity to I-4, the main Orlando thoroughfare. The property is 100% leased through 2028 to a strong and growing healthcare management services provider. Further in December, the company completed the strategic acquisition of a 20-acre development site in northwest Denver for $5.1 million.

We were uniquely positioned to acquire this land as it's contiguous to our Circle Point office buildings. Approximately half of the site is designated for office use and the other half is designated for mixed uses, including multifamily residential.

The acquisition of the office portion of the site benefits us through control of a potential competing site. It also offers upside through a potential build-to-suit development to capitalize on the strong office market demand in the Northwest Denver submarket.

We've already commenced the process to potentially divest the valuable mixed use and multifamily portion of the site, which has attracted strong interest from developers. Next on February 25, we acquired Canyon Park, a three building campus in the Eastside/Bothell submarket of Seattle for $63 million at a 7.1% cap rate.

While Seattle is officially a new market for us, we have pursued many other opportunities there in the past and we expect to selectively grow further as opportunities arise.

With its diversified economy anchored by 10 Fortune 500 companies, a well educated workforce, superior population and economic growth prospects and high quality of life, Seattle enhances our existing set of attractive markets. Canyon Park is 100% leased to a leading publicly traded biotech company.

The tenant is committing to a long-term location at Canyon Park and is making its own significant capital improvements to the property. Their lease extends through 2028 and provides strong cash flow and 3% annual rent step ups.

And finally we're also under contract to purchase a $32.5 million office property in Airport Way submarket of Portland, Oregon. The property is well leased and features immediate access to the Portland CBD and Portland International Airport.

The expected year one cap rate for this property is on the high-end of our recent acquisitions at approximately 8%. We've waived our due diligence conditions and made a nonrefundable deposit and expect to close on the property during the second quarter, subject to the assumption of an existing loan and customary closing conditions.

We'll provide further details on this planned acquisition on our next earnings call. In total our average acquisition cap rate for 2018 was 6.8% this is lower than our 7.3% historical average over the last five years. However, our acquisitions are all exceptionally well located with opportunities to increase cash flow.

In particular, Camelback Square and the Circle Point Land have tremendous real estate with compelling returns. We've successfully executed similar value-add strategies before and we're confident that our shareholders will be rewarded. However, the lower blended cap rate will impact near-term cash flow while the properties are being stabilized.

In terms of dispositions in February, we closed the sale of the Plaza 25 property in Denver and recorded an impairment loss in the fourth quarter as we wrote down the asset value to its contracted sale price.

Plaza 25 was the second smallest assets in our portfolio and after evaluating our strategic options including a significant renovation program, we concluded that our best alternative was to sell Plaza 25 and refocus our efforts elsewhere.

Despite this outcome, our track record remains very strong, combined the four property divestitures completed over the last five years including Plaza 25 has generated over $70 million of gains and a blended IRR of approximately 18%.

As we look at capital alternatives for the future, we continue to explore recycling opportunities across our portfolio. Should these opportunities advance, we will provide further details at that time. In conclusion, we are pleased with our 2018 results and believe that we are well positioned to execute our operational and growth initiatives in 2019.

With that, I'll turn the call over to Tony..

Thanks Jamie. On a GAAP basis, our net operating income in the fourth quarter was $20.9 million, this represents a $600,000 increase over the $20.3 million achieved in the third quarter.

The increase from the prior quarter was primarily attributable to the third quarter acquisitions Circle Point and The Quad which produced a full quarter of income in Q4. The acquisitions which Jamie referenced had minimal impact on the fourth quarter as they were acquired in late December or subsequent to quarter-end.

We reported core FFO of $10.4 million or 0.26 per share which was equal to the number we reported in the third quarter as the increase in income from the acquisitions was offset by slightly higher interest costs and G&A expenses that are typically elevated during the fourth quarter due to the additional costs associated with the year-end audit and filings.

Our fourth quarter AFFO was $7.4 million or $0.19 per share. Our fourth quarter AFFO was affected by the completion of our planned value enhancing capital program at DTC Crossroads.

Due to the relative size of our portfolio and the impact of significant leasing in any one quarter our AFFO numbers will continue to move around some from quarter-to-quarter.

Our core FFO and AFFO per share metrics were both affected by a higher weighted average share count in the fourth quarter as compared to the third quarter while no shares were issued in the fourth quarter.

The impact of the issuance of 3.4 million shares in the third quarter under our ATM program was only fully realized in a weighted average number this quarter. Our leasing activity and capital expenditures are provided on pages 19 and 21 of the supplemental package.

Consistent with our definition of AFFO, we have excluded some first generation leasing costs and the repositioning activities at several of our properties, the largest of which continues to relate to the Park Tower repositioning, which was completed subsequent to quarter-end.

Further details are disclosed on page 21 under nonrecurring capital expenditures. Our same-store cash NOI increased 0.7% for the quarter and we ended the full year with 0.7% same-store decrease which was within our 2018 guidance range of negative 2% to 0% that we provided at the beginning of the year.

We experienced headwinds related to the lower starting occupancy in 2018 for much of the year. As occupancy gains were achieved in later half of the year we saw same-store results turn positive, which we see accelerating into 2019. Moving onto our balance sheet, our total debt net of deferred financing costs at December 31 was $645 million.

Our net debt-to-enterprise value ratio was reported as 54.7%, but that figure is based on our stock price at December 3, which was trading near all time low. Using the consensus analyst estimate of NAV at year-end, our net debt-to-enterprise value ratio was 48%.

With the two acquisitions and one disposition after quarter-end that Jimmy discussed we expect our leverage to be approximately 51% using this same measure. At year-end fixed rate debt represented 77% of our total debt, with a weighted average interest rate of 4.1% and a weighted average maturity of 5.8 years.

We closed the Greenwood Blvd loan at the end of the quarter for approximately $22 million with a fixed interest rate of 4.6% at a seven-year term. Lastly, we have provided full year 2019 guidance in our press release.

Our guidance estimates include the acquisition of Canyon Park in Seattle, which closed earlier this week, the acquisition of the Portland asset, which is scheduled to close in the second quarter and the disposition of Plaza 25 which occurred in February, 2019. Our guidance does not include any capital rate assumptions.

We refer you to the material assumptions and considerations set forth in our earnings release. Based on these assumptions, we are estimating core FFO between $1.15 and $1.20 per share for the full year ending December 31, 2019.

Core FFO should increase towards the second half of the year as the full impact of the acquisitions that are closed or contracted take effect. The higher end of our 2019 full-year range can be achieved through further occupancy gains, recycling of assets or incremental acquisitions.

Previously we discussed a run rate core FFO once we were fully deployed between $0.31 to $0.34 per share on a quarterly basis and the near term for Q3 and Q4 2019 we expect to be on the bottom-end or slightly below that range.

This is primarily due to the lower year one cap rate, value-add acquisition of Camelback Square and the land acquisition in Denver. Together these two acquisitions impact our near-term cash flow by approximately $0.01 per quarter.

However, we expect to gravitate towards the $0.31 to $0.34 per share range in the near to medium term with cash flow increases associated with value-add programs, contractual rent step ups, below-market in place rental rates, further portfolio occupancy gain and modest recycling of capital.

Based on our 2019 fully deployed core FFO expectations, average dividend coverage on an AFFO basis will be close to 100%, depending on significant leasing transactions and capital projects in any one quarter.

We are comfortable with this interim dynamic given numerous planned increases and expected cash flow and the high-growth nature of our recent acquisitions.

On the operational side, we expect incremental and positive progress over our 2018 results, with same-store cash NOI growth expected to be between 2% and 4% and year-end occupancy to be between 91% to 94%. That concludes our prepared remarks, and we open up the line for questions.

Operator?.

We will now begin the question-and-answer session. [Operator Instructions] Our question comes from Rob Stevenson with Janney. Please go ahead..

Good morning guys. Great to see the leasing at FRP Collection thus far in the first quarter.

How should we be thinking about the bigger pieces of vacancy in the portfolio such as DTC Crossroads, Logan Tower and Sorrento Mesa in 2019?.

Thanks for the question, Rob. So if you look at where the biggest blocks are, it is Sorrento Mesa, which has effectively one full building. If you recall, we negotiated an early buyout, got paid 80% of the future rent. So we are working on that one. That is probably a 2020 beyond in our minds. We're hoping to accelerate that.

There is some other vacancies there that is in one building that we are contemplating as a potential divestiture candidate. So we are still focused on leasing that particular building, but that could be one that we ultimately exit. In terms of the other big blocks, DTC Crossroads, we're approximately 54%.

There's a phenomenal top-floor suite that we expect. So that one, we're assuming towards the end of the year in our own numbers. We do have some prospects for that, but that's very late in the year. The other suites as well, we're working on, but we've not assumed any income from that this year..

Okay.

And then any known move-outs of significance in 2019 or 2020 at this point?.

Hey Rob, this is Tony. For the next – for 2019, we have less than 7% of our portfolio set to expire. And within that group, we have no tenants that are over 25,000 square-foot expiring. So really, it's a lot of medium to smaller tenants, and we expect the typical renewal rate on that remainder..

Okay. In the quarter, the term on the renewals that you did was only 1.6 years. I assume that was heavily driven by one or two transactions.

Was somebody just renewed for a year in some case or something?.

Yes. So that's skewed, Rob. There is one tenant at our FRP Collection where we prenegotiated a longer-term transaction, but they have annual renewals effectively, it's with the Army Corps of Engineers.

So that really skewed the results for this quarter, but they've been in the property long term, and it's a requirement that we effectively reconfirm their occupancy each year..

Okay. And then last one for me. Tony, what – sitting here today given cash and availability of leverage mean, obviously, the stock at 11.25 is probably not attractive to you guys, hitting that repeatedly.

But how should we be thinking about what your dry powder is to be able to close pending and future deals? And then I guess, another question that sort of begs is, in the portfolio, if you guys decide to sell stuff, is the churn and the downtime, et cetera, between timing going to cause more sort of gaps in that dividend coverage issue?.

Yes, sure. So there’s two parts to that question.

In terms of the first part, in terms of dry powder, effectively, once we complete the transactions that we know about and are contracted, our leverage effectively will be just over 50% using, kind of, a net debt to our, kind of, asset cost basis or close to what the analyst estimates are consensus for NAV.

But our – we have the capacity to push beyond that. We have a line of credit that has a $250 million availability that still gives us significant dry powder.

So I think the way to think about it is while we do have dry powder, I don't anticipate leverage to go much higher beyond that, which kind of leads into the second part of your question in terms of the recycling. Generally, the assets that we're looking at potentially recycling are assets that are contributing very little to NOI.

They are either, Jamie alluded to your earlier question of building in Sorrento Mesa that has some existing vacancies that is not contributing a significant amount of NOI. We have some land parcels that we've talked about in the past. So effectively, the recycling shouldn't lead to any, kind of, downtimes in NOI.

If anything, the acquisition should just be immediately accretive..

Okay, perfect. Appreciate it guys..

Thanks Rob..

Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead..

Yes thanks. I was hoping you guys can talk a little bit about Camelback Square. It seems like a pretty, I guess, attractive acquisition, but there is some lease up there. And I know that you mentioned in your prepared remarks that there is some good activity.

But how should we think about the timing? And is this not more of 12-month stabilization? Or what you see the activity right now to lease that space?.

Thanks for the question Mike. So when you look at the location, again it's phenomenal AAA, Camelback and Goldwater, great frontage, across from Scottsdale Fashion Square. So just a phenomenal location.

When you go to the suites, there's been some creative build-out, about 40% of the building has already been done, getting great rents, the right sort of tenants you want in there. They've spent some money on trying to enhance it.

But our view is by putting in about $3 million into the asset, you can really transform it and make it one of the top buildings in that entire submarket. So we think we've been pretty conservative on what we're expecting as far as results. We think we'll be in the 7% return on cost, starting year three and moving to, kind of, mid-7s by year five.

We also think after putting the money that we planned to into the property, it really does have the potential for greater acceleration in rents, particularly with that location..

Great. And I know that you mentioned in the sub that there's about some really below-market rents in that asset right now.

What's the lease expiration schedule look like? And how long will it take to capture those rents?.

It’s pretty diverse. I think in year one, we have – just let me rustle – about 25,000 feet rolling that we can get access to right away. So we do think in our plan. We've been pretty conservative on the timing of leasing it up. But we think it's just a combination of the blocks of space that we have as well as getting access.

The next roll really is around 2022 and then beyond. But we're hitting that 7% range based on the vacancies that are there in the near-term roll..

Okay. And then we're looking at your occupancy year-end guidance of 91% to 94%, I am assuming the big lease-ups there to get that done is the DTC Crossroads and Sorrento Mesa.

Can you talk a little bit about the activity at those spaces? And when can we expect or should we expect leases to start commencing there?.

Sure Mike. This is Tony here. Jamie alluded to it a little bit earlier, but if you look at DTC Crossroads, the most attractive spaces, the top floor there, we're having good tour volume. In our own internal numbers, we see that getting leased up late in 2019 based on sort of the needs of the perspective tenants that have come through.

So that's, I think, the way to think about that one. Sorrento Mesa is the full building that is the primary vacancy there. This is the one that we had the local buyout, if you recall, a year ago. We recently white boxed and did some clean-up of that space and starting the tours.

But in our own estimates, it's a 2020 transaction with some hope that it could be earlier. But 2020 in our minds is most likely..

One thing we’ve done at both places is really invest in the property itself. So DTC Crossroads, we just finished a lobby refresh. We've built out a fitness facility. It looks phenomenal. That's over the last couple of weeks it was concluded.

We've built out a central tenant amenity lounge, so really elevated what that asset has at DTC, so it looks phenomenal. Sorrento Mesa, the same thing what we did was we built a central courtyard effectively that is an amenity for all of the buildings within our campus.

And so we think that's going to be really well received as well by prospective tenants. So, I think we're being conservative in our timing, realistic but hopeful that we can accelerate and be able to hit that..

Great.

And then I guess last question, Tony, can you talk a little bit about your G&A guidance, it looks like there's a pretty big uplift compared to 2018, what was driving that increase?.

So year-over-year G&A, there's a couple of factors driving that primarily, one as the burn-off from the reimbursement that we previously received from the second city group continues to decline that just leading to a natural increase in G&A, that will continue into 1990 – 2019 and 2020.

And then the other component is simply higher head count, with the higher portfolio we've been investing in asset management personnel and it's a combination of really those two factors..

Okay, great. Thank you..

Thanks. Mike..

Our next question comes from Barry Oxford with D.A. Davidson. Please go ahead..

Great, thanks guys.

When we look, Jamie as market that you may be getting into this year that you're currently in, which ones look the most attractive though? You say – was it Orlando or was it Tampa or do you continue to lean towards Phoenix as far as what you're seeing as far as pricing?.

In terms of pricing, I mean, we've really liked the fundamentals of Phoenix and that's where we've made such a large push there over the last 18 months, you look at the rental rates how they're moving, vacancies come in at 120 basis points, just looking like a really strong market and continuing to be and when you look at where we've concentrated our assets all in great locations that I think will continue to benefit from that.

As far as new markets, Barry you mentioned, Seattle is one we've spent a lot of time in the past trying to access and we found a way of getting into what we think is a great transaction that'll deliver long–term cash flow for us.

Seattle has been a great market as far as growth, employment, population and we think is really well positioned over the long-term..

Looking at Seattle and you guys have been trying to get in there and you guys did finally get in there.

Do you feel that this was more of a runoff type of situation or had cap rates maybe inch back up, making it more attractive for you to come into that market than let's say a year ago, what's kind of the change does Seattle do enable you guys to get into that market at this particular time?.

Well we've been really close on a number of deals and I wouldn't say that cap rates have moved up there. I think it's been fairly stable, for us it was finding the right opportunity and when we looked at this particular portfolio, initially included a couple of other buildings that were more of a value-add component.

And then the buildings we really liked with a three we acquired stabilize long-term.

And when a buyer emerged for the value-add assets, we really focused in on these three particular buildings, we came to terms pretty quickly, the broker was Kevin Shannon, who's one of the top in the west coast, we worked with him multiple times in the past and performed and so he's helped secure the opportunity for us and we're really excited about it..

Great. Thanks for the color guys..

Thank you..

Thanks Barry..

Our next question comes from Craig Kucera with B. Riley FBR, please go ahead..

Hey good morning guys. Wanted to circle back to Camelback just to, kind of, understand what the plans are there. It's about 19% vacant today, and I think you got another 15% rolling in 2019.

Are you going to keep that space off the market until you complete the renovations and then hope to get this 20% higher market rents? Or are you likely to aggressively lease that today and just sort of as things naturally roll in the future gradually rise to your sort of 7% plus stabilized cap rate?.

Craig, we're really focused on getting the renovation launched and so planning it right now, exactly what we want to do. I think we can communicate that fairly well to perspective tenants there.

There is one potential we have out there that could accelerate our leasing rates aren't going to be at the existing level, I think it would be trending towards what we're targeting, so we're debating that one internally right now and don't really have a solid answer..

Okay. And as far as the leases that you've signed both before this quarter and during the quarter that haven't quite commenced, it's about 150 basis points of occupancy.

Do you have a sense of when those leases are likely to take occupancy and begin paying?.

Hey, Craig, it's Tony here. They're really spread through the kind of, the first half of 2019 a lot of those gains are happening in Florida between Park Tower and FRP Collection and just thinking off the top of my head the kind of major ones are kind of occurring kind of early Q2..

Okay.

And as far as the leasing that you did, complete during the quarter, do you have a sense of what your rent spreads were relative to prior rents?.

Yes, I mean, it’s relatively small sample size Craig for the quarter, less than 8,000 square feet, so that number was 7% but again, that's a small sample size..

Okay. And one more for me, I feel like for a long time, you guys had said that Portland was a market that you liked but the pricing just wasn't quite there. But you found an asset that you're likely to close here at an 8.1% cap rate.

Is that more of a unique situation? Or are you seeing any change in that market that make it more attractive for future growth?.

No, it's, it's been a hard market to grow, there's a lot of demand. I think that was a particularly small asset at $32.5 million and came out few years ago.

We looked at it and it had a number of for-profit schools that vacated and so when you looked at it, it was a bit of a tough deal back then and ultimately the group that bought it, they did a great job.

They've signed a number of creative tenants they built out spaces really in a unique way, very desirable for a lot of the younger workforce in Portland and they've just done a great job leasing it up. And so when it came back out to smaller deal, you had to assume the debt.

There is a ground lease, which I'll talk about in a minute and a lot of buyers had looked at it, it just didn't get a lot of attention and when we went down there and looked at what they'd actually accomplished, we were really impressed and we could live with a smaller deal size.

We could live with the assumed debt and the ground lease really is unique.

It's an 80 year ground lease, but the first 66 years are prepaid, so there is no drag that conventionally you'd have with an institutional counterparty and so when we dug into it, we felt great and for us it was really just kind of being around and waiting for a good opportunity and hopefully we will find more importantly over time..

All right, thanks guys..

Thanks for the questions, Craig..

Our next question comes from Mitch Germain with JMP Securities. Please go ahead..

Good morning guys. You know Jamie, I wanted to circle back or maybe it was Tony, I apologize who said it in terms of the run rate, I think it was you Tony I think it was 31 to 34, it seems like, kind of my back of the envelope, I think you said it was around $0.01 for the acquisitions.

I get a little more, but just what – besides the acquisitions, are there anything else that you kind of changed in your model? Was it maybe some of the leasing of the value-add, was a little slower than you thought? Or I don’t know fixed cost higher or anything that might have caused that number to skew from the last time you presented it to us?.

Yes, I think that the acquisitions are the primary driving factor as I mentioned, it's about $0.01 it will be sort of $0.01 to $0.02 below. There isn't any single other factor that I can point to, other than occupancy.

If you look at occupancy, we provide a range of 90 to 93 at the beginning – last year was where we'd expect it to end the year, we ended up at the lower end of that range. And so that occupancy expectations makes up the bulk of the difference..

Great.

And is it safe to say you guys are – taken a bit of a pause in acquisitions now that you're, you want to focus in some of your efforts when some of the different value-add opportunities out there or how do you envision the kind of rest you're playing out?.

Yes, so we obviously had a really busy fourth quarter and that's rolled into the first quarter. So we're in digestion mode I would say right now and really focused on trying to optimally position the assets we have.

We're focused on driving occupancy and as we alluded to, we think there are some sales that we could potentially achieve in this year that we can potentially use to reinvest later in the year and have a significant impact of the bottom line. So we're really internally focused right now..

Very helpful. Thanks guys..

Thank you..

Thank you Mitch..

[Operator Instructions] At this time there are no further questions in the queue. I would now like to turn the conference back over to Mr. Jamie Farrar for any closing remarks..

Thanks for the time today. We really appreciate everybody's questions and we look forward to updating you on our progress throughout the year..

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect..