The real estate investment fund City Office REIT Inc. (NYSE: CIO) recently announced the largest deal in its history. It will either provide debt coverage or provide the opportunity to acquire more profitable assets. CIO’s shares rose more than 23% last week after the announcement. In the August 24 trading session, the CIO share was trading for $16.06.
City Office REIT Inc. (CIO) announced on Friday, August 20, that it was selling all of its assets in the Sorrento Mesa submarket in San Diego. The deal is expected to bring the company about $576M over the next two years: $395M by the end of this year and $181M by February 2023.
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City Office REIT Inc. (CIO) owns office properties mainly in the US South and West, including San Diego, which represented 12% of the total net leased area as of June 30. It should be noted that the company acquired buildings in Sorrento Mesa for $116 million in 2017, meaning the sale will bring in about $450 million.
The amount that City Office REIT Inc. (CIO) will raise from the sale of several properties could almost entirely cover existing debt and improve the financial balance. Thus, at the end of July, the investment fund’s cash and cash equivalents amount to just $13 million, as well as its long-term debt of $612.5 million.
It is likely that the Sorrento Mesa deal will be the largest in the company’s history. The City Office REIT benefited from this since these properties had the lowest occupancy rates – 80.3% – out of all eight investment fund markets in the last quarter.
According to the CIO, the proceeds can be used to purchase real estate in fast-growing areas, which will increase profits and, therefore, dividends. In the case that the company is unable to reinvest all of the proceeds in acquisitions, it will most likely be paying the remaining proceeds in the form of special dividends to the shareholders.