Credit Rating For The Unrated REITs (Part 4): City Office REIT, Inc.

An analyst assigns City Office REIT (CIO) a B3 credit rating, citing weak liquidity and a challenging operating environment despite a reasonable asset base. The preferred stock (CIO.PR.A) receives a Caa2, reflecting its higher risk and limited downside protection. Consequently, the analyst advises against investing in CIO's preferred stock, maintaining a 'pass' stance due to its unfavorable risk-reward profile, low credit ratings, and insufficient fixed cost coverage, despite attractive yields.

Analysis

City Office REIT, Inc. (CIO) carries a speculative-grade B3 credit rating, reflecting a balance between its reasonable asset base and leverage against significant constraints from weak liquidity and a challenging operating environment. The company's preferred stock, CIO.PR.A, is rated even lower at Caa2, indicating a higher risk profile and limited downside protection due to its subordinate position in the capital structure. The core finding of the analysis is that despite potentially attractive yields, the risk-reward profile for the preferred shares is unfavorable. This conclusion is driven by the low credit ratings and, critically, insufficient coverage of fixed costs, which raises concerns about the durability of payments in a stressed scenario. Consequently, the analyst maintains a 'pass' stance, effectively advising against an investment in the preferred issue at this time.

Key Decisions for Investors

• Given the highly speculative Caa2 rating and an unfavorable risk-reward profile, investors should avoid initiating new positions in City Office REIT's preferred stock (CIO.PR.A).
• Current holders of CIO.PR.A should reconsider their position, as the analysis highlights insufficient fixed cost coverage and limited downside protection, suggesting a high probability of capital risk.
• For those monitoring the common stock (CIO), the key metrics to watch are improvements in corporate liquidity and fixed charge coverage ratios, as these are the primary factors currently constraining the company's credit profile.