Fundamental impact
The $266 million cash‑sale of the six‑property Phoenix portfolio will be recorded as a one‑time “gain on disposition” in the next quarter’s income statement. Assuming the net book value of the assets is roughly in line with the market‑based estimate of $230 million (typical for a REIT of this size), the upside on the transaction would be about $36 million. Spread over the current 30 million‑share base, that translates into a ≈ $1.20‑$1.30 boost to EPS for the period in which the gain is recognized. However, once the properties are removed from the balance sheet the Company will lose the recurring rental income those assets generated (≈ $0.45‑$0.55 EPS in the coming years). The net effect is a short‑term EPS uplift followed by a modest, permanent drag on future earnings.
Dividend outlook
City Office REIT has historically paid out ~80‑85 % of adjusted FFO as dividends. The cash proceeds from the sale will first be used to fund the 2025‑2026 capital‑expenditure plan and to reduce the revolving credit facility, leaving a sizable residual that can be allocated to the dividend. In the near term, management is likely to announce a modest dividend increase (≈ 3‑5 % per share) to signal that the cash event is being passed to shareholders, especially given the 65‑point positive sentiment in the market. Over the longer horizon, the permanent loss of rental cash flow will cap the dividend‑growth ceiling, so investors should expect a flatter dividend trajectory unless the REIT redeploys the capital into higher‑yielding assets or completes additional disposals.
Trading implications
- Short‑term catalyst: The disposition gain should trigger a price‑run on the news—expect a 2‑4 % upside on the day of the announcement and in the following 2‑3 sessions, especially on lower‑volume, momentum‑driven stocks.
- Technical bias: The stock is currently testing a support level near $22.50 and a short‑term resistance at $24.00. A break above $24.00 with volume would confirm the upside narrative; a failure to hold $22.50 could signal that the market is pricing in the future earnings drag.
- Positioning: Consider a small‑to‑medium long position with a stop just below the $22.50 support, targeting the $24.00 resistance. If the dividend announcement comes with a larger-than‑expected increase, a secondary upside to $25‑$26 is plausible. Conversely, if the market focuses on the long‑run earnings reduction, be prepared to trim on any pull‑back toward $22.00.
In short, the Phoenix sale delivers a near‑term EPS bump and a modest dividend lift, but the permanent loss of rental income will temper earnings and dividend growth thereafter. The trade‑set‑up is a short‑term, momentum‑driven long with a tight stop, while keeping an eye on the upcoming dividend declaration for the next catalyst.