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City Office REIT Inc (CIO) Q3 2020 Earnings Call Transcript

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CIO earnings call for the period ending September 30, 2020.

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City Office REIT Inc ( CIO 2.49% )
Q3 2020 Earnings Call
Nov 5, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the City Office REIT, Inc. Third Quarter 2020 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 chief -- the company's Chief Financial Officer, Treasurer and Corporate Secretary. Thank you. Mr. Maretic, you may now begin.

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Good morning. Before we begin, I would like to direct you to our website at cityofficereit.com, where you can view our third quarter earnings press release and 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 company believes 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 press release and the company's filings with the 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 our quarter's operational highlights.

I will now turn the call over to Jamie.

James Thomas Farrar -- Chief Executive Officer & Director

Good morning. Thank you for joining us today. Before discussing our results for the quarter, I'd like to start with an update on what we are seeing in the office market and our cities in particular. Prior to COVID, our investment thesis was that our chosen markets in the Southern and Western U.S. would provide outsized returns over time due to population and employment growth trends. We believe that our cities continue to be poised to outperform and that COVID has accelerated the desirability of our high quality of life and lower cost of doing business markets.

The latest data from the Bureau of Labor Statistics for employees on a nonfarm payrolls highlights the impact that COVID continues to have on the national economy. It is noteworthy that our cities have been some of the strongest performers. The number of employees on nonfarm payrolls nationally declined 6.7% in September 2020 relative to September 2019. Gateway markets have seen an even greater employment reduction year-over-year at a 9.3% decline. In City Office's markets, employment has held up much better experiencing an average decline of 5.3%. We're encouraged that our markets continue to benefit from strong relative employment trends. The effects of COVID and requirements of social distancing continue to impact utilization of office buildings in our markets.

In a recent internal survey, utilization levels at our properties remained under 25% with large corporate tenants reporting the lowest levels of usage. Despite lower utilization levels, leasing activity has shown signs of stabilizing in many of our markets. Nationally, in the third quarter, new and renewal office leasing activity was up 14% over the prior quarter. In our own portfolio, we've seen strong renewal activity. Our largest upcoming expiration is in January 2022 at our Lake Vista property in Dallas, and renewal discussions are progressing. While there's no certainty that a transaction will be completed based on the current pace of discussions, we could see a long-term renewal signed by the end of the fourth quarter of 2020.

In terms of new leasing activity, tenant inquiries in many of our markets have been rising, albeit modestly. However, life science continues to be a particularly strong sector, and we're engaged in a lease discussion at our remaining Sorrento Mesa vacancy in San Diego. We are in discussions with a prospect for approximately 59,000 square feet. Should we come to terms with them, a lease could be signed early in the New Year with a late 2021 lease commencement date. Moving on to our third quarter performance. Our results were some of the strongest we've had since our IPO in 2014. To date, we've collected 99% of third quarter and October rents. This ongoing high rate of collections allowed us to reduce our fourth quarter guidance provision for uncollectible rents, which I'll discuss shortly.

Our diverse tenant mix with a high proportion of life science, healthcare, tech, government and professional services tenants has underpinned our collection success. During the third quarter, we completed 189,000 square feet of new and renewal leases with a weighted average lease term of 8.1 years. These are encouraging numbers, and they're largely driven by the life science tenant at our Sorrento Mesa property in San Diego that we discussed last quarter. Upon full occupancy in 2021, that lease will generate approximately $2.8 million of incremental base rental revenue per year as compared to the expiring rents. In addition, as part of this deal, we will benefit from a further mark-to-market on a 59,000 square-foot building in 2026.

That building's lease was also extended to 2032, and the rental rate will automatically reset to market rental rates in 2026. Today, that building is receiving net rents of just $25 per square foot annually. A good indication of the potential increase is the sister building with the same tenant where we just reset net rents to $54 per square foot annually. If this $54 rate were achieved in 2026, we pick up a further $1.7 million of base rental revenue per year as compared to the rent we are receiving today. At the corporate level, we completed the $100 million share repurchase program during the quarter, which has been accretive to our per share results.

As we execute on our business plan, we intend to continue to operate conservatively with lower levels of leverage and higher liquidity. The net impact of the significant leasing transactions, healthy rent collections, the share repurchase program and continued operational execution is a sizable increase in core FFO per share this quarter. Notably, our AFFO per share also produced healthy dividend coverage. Taking a step back and comparing our third quarter 2020 results to our pre-COVID third quarter 2019 results, we've made positive strides. Our core FFO per share has increased, our leverage has decreased on a net debt-to-EBITDA basis, our dividend is covered on an AFFO basis, our occupancy is higher and our rent collections are similar.

We don't believe this strong performance is reflected in our stock price today, with our assets trading at an implied cap rate of over 9% based on Q3 annualized cash NOI. Further, almost 15% of our Q3 NOI was derived from our Sorrento Mesa and Canyon Park buildings that primarily cater to the life sciences industry. These are extremely valuable properties, and the private market valuations for these types of tenants remain very strong today. At this point, we believe we have good visibility for the remainder of the year, which is why we've increased and tightened our guidance ranges.

We expect core FFO to be higher than our prior guidance, primarily due to the impact of the reduced provision for uncollectible rents and the impact of the substantial mark-to-market lease renewal at Sorrento Mesa discussed earlier. We also expect same-store cash NOI growth and occupancy to be higher than our prior estimates. As we move into the end of the year and begin 2021, we continue to focus on advancing strategic lease renewals, maintaining our diverse tenant base and finding opportunities to unlock value in our portfolio. We're confident that we'll be successful with this plan. Our strong liquidity position and focus on driving future cash flow positions us well despite the challenging macro environment caused by COVID.

I'll now turn it over to Tony to provide further details on our financial results.

Good morning. Thank you for joining us today. Before discussing our results for the quarter, I'd like to start with an update on what we are seeing in the office market and our cities in particular. Prior to COVID, our investment thesis was that our chosen markets in the Southern and Western U.S. would provide outsized returns over time due to population and employment growth trends. We believe that our cities continue to be poised to outperform and that COVID has accelerated the desirability of our high quality of life and lower cost of doing business markets.

The latest data from the Bureau of Labor Statistics for employees on a nonfarm payrolls highlights the impact that COVID continues to have on the national economy. It is noteworthy that our cities have been some of the strongest performers. The number of employees on nonfarm payrolls nationally declined 6.7% in September 2020 relative to September 2019. Gateway markets have seen an even greater employment reduction year-over-year at a 9.3% decline. In City Office's markets, employment has held up much better experiencing an average decline of 5.3%. We're encouraged that our markets continue to benefit from strong relative employment trends. The effects of COVID and requirements of social distancing continue to impact utilization of office buildings in our markets.

In a recent internal survey, utilization levels at our properties remained under 25% with large corporate tenants reporting the lowest levels of usage. Despite lower utilization levels, leasing activity has shown signs of stabilizing in many of our markets. Nationally, in the third quarter, new and renewal office leasing activity was up 14% over the prior quarter. In our own portfolio, we've seen strong renewal activity. Our largest upcoming expiration is in January 2022 at our Lake Vista property in Dallas, and renewal discussions are progressing. While there's no certainty that a transaction will be completed based on the current pace of discussions, we could see a long-term renewal signed by the end of the fourth quarter of 2020.

In terms of new leasing activity, tenant inquiries in many of our markets have been rising, albeit modestly. However, life science continues to be a particularly strong sector, and we're engaged in a lease discussion at our remaining Sorrento Mesa vacancy in San Diego. We are in discussions with a prospect for approximately 59,000 square feet. Should we come to terms with them, a lease could be signed early in the New Year with a late 2021 lease commencement date. Moving on to our third quarter performance. Our results were some of the strongest we've had since our IPO in 2014. To date, we've collected 99% of third quarter and October rents. This ongoing high rate of collections allowed us to reduce our fourth quarter guidance provision for uncollectible rents, which I'll discuss shortly.

Our diverse tenant mix with a high proportion of life science, healthcare, tech, government and professional services tenants has underpinned our collection success. During the third quarter, we completed 189,000 square feet of new and renewal leases with a weighted average lease term of 8.1 years. These are encouraging numbers, and they're largely driven by the life science tenant at our Sorrento Mesa property in San Diego that we discussed last quarter. Upon full occupancy in 2021, that lease will generate approximately $2.8 million of incremental base rental revenue per year as compared to the expiring rents. In addition, as part of this deal, we will benefit from a further mark-to-market on a 59,000 square-foot building in 2026.

That building's lease was also extended to 2032, and the rental rate will automatically reset to market rental rates in 2026. Today, that building is receiving net rents of just $25 per square foot annually. A good indication of the potential increase is the sister building with the same tenant where we just reset net rents to $54 per square foot annually. If this $54 rate were achieved in 2026, we pick up a further $1.7 million of base rental revenue per year as compared to the rent we are receiving today. At the corporate level, we completed the $100 million share repurchase program during the quarter, which has been accretive to our per share results.

As we execute on our business plan, we intend to continue to operate conservatively with lower levels of leverage and higher liquidity. The net impact of the significant leasing transactions, healthy rent collections, the share repurchase program and continued operational execution is a sizable increase in core FFO per share this quarter. Notably, our AFFO per share also produced healthy dividend coverage. Taking a step back and comparing our third quarter 2020 results to our pre-COVID third quarter 2019 results, we've made positive strides. Our core FFO per share has increased, our leverage has decreased on a net debt-to-EBITDA basis, our dividend is covered on an AFFO basis, our occupancy is higher and our rent collections are similar.

We don't believe this strong performance is reflected in our stock price today, with our assets trading at an implied cap rate of over 9% based on Q3 annualized cash NOI. Further, almost 15% of our Q3 NOI was derived from our Sorrento Mesa and Canyon Park buildings that primarily cater to the life sciences industry. These are extremely valuable properties, and the private market valuations for these types of tenants remain very strong today. At this point, we believe we have good visibility for the remainder of the year, which is why we've increased and tightened our guidance ranges.

We expect core FFO to be higher than our prior guidance, primarily due to the impact of the reduced provision for uncollectible rents and the impact of the substantial mark-to-market lease renewal at Sorrento Mesa discussed earlier. We also expect same-store cash NOI growth and occupancy to be higher than our prior estimates. As we move into the end of the year and begin 2021, we continue to focus on advancing strategic lease renewals, maintaining our diverse tenant base and finding opportunities to unlock value in our portfolio. We're confident that we'll be successful with this plan. Our strong liquidity position and focus on driving future cash flow positions us well despite the challenging macro environment caused by COVID.

I'll now turn it over to Tony to provide further details on our financial results.

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Thanks, Jamie. I'll address the third quarter's results and then turn to our updated outlook for the remainder of the year. On a GAAP basis, our net operating income in the third quarter was $26.4 million, which was $0.9 million higher than the $25.5 million we reported in the second quarter. We benefited from the amortization of a lease termination fee payment at our Cherry Creek property. As we discussed on our last call, the State of Colorado is expanding to occupy an additional 37,000 square feet of space. We terminated an existing tenant, generated a termination fee of $0.9 million and create an expansion space for the state.

We previously recorded $0.4 million of this termination fee income in the second quarter and the remaining $0.5 million in the third quarter as the prior tenant departed on September 30. That space will remain vacant in the fourth quarter at a loss of approximately $200,000 in rental revenue until the state commences occupancy on January 1, 2021. Therefore, the total positive impact of the transaction is a net $700,000 to our 2020 results. We also benefited from the straight-line rent increase at Sorrento Mesa for the lease renewal we signed in July that Jamie mentioned. That tenant's lease will begin on December 1, 2020, for 51,000 square feet of renewal space. And on September 1, 2021, for the 26,000 square feet of expansion space. For GAAP reporting purposes, we adjusted our straight-line calculations for the renewal space as of the lease execution date, which added $0.6 million to our third quarter NOI.

We recorded a minimal AR provision that totaled approximately $100,000 in the third quarter. We reported core FFO of $15.3 million or $0.35 per share, which was $1.2 million higher than in the second quarter for the same reasons that NOI was higher as well as marginally lower G&A and interest costs. The lower interest costs were due to our decision to pay down $25 million on our line of credit from existing cash reserves. Our third quarter AFFO was $9.9 million or $0.22 per share as we return to dividend coverage, as we had previously indicated we expected for the third quarter. 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.

Should some of the leasing activity occur that Jamie mentioned earlier, we could see elevated leasing commissions paid in the fourth quarter of 2020 or first quarter of 2021.

Our third quarter same-store cash NOI was negative 1.9% versus the third quarter last year. While GAAP NOI increased significantly due to the start of the AECOM lease at Denver Tech and the Sorrento Mesa lease renewal at a significant increase in rates, cash NOI did not benefit as the Denver Tech tenant is under a free rent period for the balance of 2020 and the Sorrento Mesa tenant new cash rents will not begin, as I just mentioned, until later this year. As a result, we are expecting to return to positive same-store cash NOI growth beginning in Q1 2021.

The Phoenix and San Diego markets contribute the largest to the decrease due to lower occupancy. Moving on to our balance sheet. Our cash and restricted cash at September 30 totaled $56 million. As I mentioned, we decided to pay down our line of credit by $25 million earlier in the quarter. Our total debt at September 30 was $679 million. Our net debt, including restricted cash to EBITDA, was 6.4 times. At quarter end, our total debt had a weighted average maturity of 4.5 years, and 89% of our debt was effectively fixed. We have no debt maturities in 2020 and only one maturity in May of 2021.

We expect to have ample refinancing opportunities as these properties have a relative low level of leverage. Last, we have provided an updated full year 2020 guidance in our press release. As the impact of COVID-19 on our business in 2020 comes more into focus, we have been pleased with our execution and high rate of collections and, therefore, have raised our guidance for the balance of the year. The press release covers guidance ranges updates in more detail than I will highlight here. The main driver of our revised guidance range is our estimates of bad debt provisions. As our third quarter provision for bad debts and total rent abatements was less than 0.5%, we have lowered our general provision for the balance of the year for uncollectible rents to 0.5% of revenue. The guidance was previously based on 0.5% to 2% provision.

Guidance now also reflects the significant impact from the lease renewal we announced at Sorrento Mesa at substantially higher rates. Based on these revised operating assumptions, our net operating income, same-store cash NOI change and core FFO expectations have all been increased. Our revised guidance estimates core FFO per share between $1.20 and $1.22 for the full year ending December 31, 2020. It is worth noting that these levels exceeded our original pre-COVID guidance. Our implied Q4 2020 guidance for core FFO per share is between $0.30 and $0.32.

One of the main drivers behind the lower expectation for the fourth quarter is that the third quarter benefited from the Cherry Creek termination fee income whereas the fourth quarter will not have that termination fee income, and the State of Colorado will not occupy that space until January 1, 2021. We also have a few other previously discussed known move-outs in Q4, which will bring occupancy lower. That concludes our prepared remarks, and we will open up the line for questions. Operator?

Questions and Answers:

Operator

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

Rob Stevenson -- Janney -- Analyst

Guys. Tony, just to follow up on your comments there at the end, how significant should we be viewing the fourth quarter, first quarter tenanting cost spend that you were talking about?

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Good morning, Rob. Good question. So Q4, currently, we don't have any significant TIs in progress. And so we're not expecting significant costs in Q4 from TIs. However, leasing commissions could be impacted if some of the leasing activity that Jamie mentioned comes to fruition in Q4 and Q1. So they're a little bit of an unknown at this point. But if those leases, because they are so large, are significant. It could have a significant impact on Q4 and Q1. They're just not known today because those -- that activity hasn't been concluded.

Rob Stevenson -- Janney -- Analyst

Okay. And how are you guys thinking about tenants wanting shorter-term leases given the uncertainty versus potentially smaller TI improvements and leasing commission cost and the sort of trade-off versus longer-term leases? How is that sort of matrix sort of flushing out as you guys have discussions with tenants these days?

James Thomas Farrar -- Chief Executive Officer & Director

Yes, Rob, that's a good question, it's Jamie here. I think as a general macro theme across the board, a lot of tenants, particularly larger ones, are trying to kick the can on making decisions. And so from our perspective, and we've said this consistently quarter-after-quarter, the best thing we can do is secure long-term stable cash flow, and that's been a focus.

Now having said that, if you were to evaluate your alternatives at the time on each of these transactions and alternative is they're moving out and kicking the can and continuing to work with them for better days and some stability, sure, that's something we will consider. But our overall preference is locking down long-term cash flow, and would we be prepared to give a better deal to do that? Absolutely.

Rob Stevenson -- Janney -- Analyst

Okay. And then Jamie, you guys bought back stock earlier this year and recently renewed your authorization. But with the equity market cap now down to around $300 million, how do you think about future repurchases at $6 in change, given the 9% implied cap rate that you talked about versus size and liquidity or illiquidity, if you go much smaller size-wise, if you continue to shrink the company? How is that -- how are you and the Board thinking about that sort of matrix as well?

James Thomas Farrar -- Chief Executive Officer & Director

It's been a robust conversation at our Board meetings. I mean, we're not happy at all, Rob, with where our share price is. And we think there's a number of things we can do that we're focused on that ultimately is going to drive that. So we continue to evaluate it. But at the same point, as you mentioned, going into the end of the year, next year, having liquidity, so keeping dry powder.

And making sure we're keeping our equity base as large as possible, it's a priority. So we haven't bought any stock as of today under that plan. It's a tool that's available, and it's one we're looking at. But we really are factoring liquidity and keeping our equity base as large as we can as a top priority.

Rob Stevenson -- Janney -- Analyst

Okay. Thanks guys, appreciate it.

James Thomas Farrar -- Chief Executive Officer & Director

Thanks, Rob.

Operator

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

Barry Oxford -- D.A. Davidson -- Analyst

Great, guys. Tony, a question for you. When we're also looking at a line item of straight-line rent, how should we think about that going forward? And how is that going to ramp?

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Yes. So good question, Barry. I provided some guidance in the press release that you'll see that kind of outlines where we see straight-line rent for the balance of the year. If you want to look a little bit forward to...

Barry Oxford -- D.A. Davidson -- Analyst

Yes, I'm talking about -- as I'm looking at 2021, yes.

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Yes.20'21. Yes, expected to come down because the big straight-line rent adjustments that you're seeing right now are related to that, at least at Sorrento Mesa. They start paying rent in December. And so as soon as they start paying their higher rent, that straight-line rent will come down, and our base rent will offset it and go up. So our cash rents are going up.

And that was my comment with respect to same-store sales, which is why I expect an increase for 2021. And the other one is that is at -- pardon me, in Denver Tech, which is the AECOM lease that I talked about. They're likewise starting to pay rent in beginning of Q1. So roughly, if you're talking rough numbers, expect that straight-line rent calculation to be cut in half in 2021.

Barry Oxford -- D.A. Davidson -- Analyst

Got it. Perfect. Now that absolutely makes sense. And then a question for you, Jamie. When you look at the office, a couple of different theories about the office, but one good and one bad. But how are you seeing that effect on cap rates? And are you seeing a little more opportunities when it comes to acquisitions and cap rates that you can buy at or look, Barry, the cap rates have really not moved in our markets?

James Thomas Farrar -- Chief Executive Officer & Director

It's an interesting dynamic right now, Barry. When you look at what's happening in the markets, the deals -- if you just look purely at the numbers, you'd say cap rates and kind of thoughts around valuations really haven't moved. And I think that's a major factor around the sort of assets that are transacting. So you're seeing life science being pretty prevalent, and you're seeing really high-quality, low-risk office assets trading still at very attractive cap rates.

And then you got a pretty wide kind of gap where you're not seeing a lot of transactions in ones that are core plus or value add. And so there's still, I think, a bid-ask spread there. So in terms of our own views on acquisitions, I think you're probably going to see some better opportunities in 2021 and beyond. We just really aren't seeing compelling opportunities today.

Barry Oxford -- D.A. Davidson -- Analyst

Great, thanks for the color, guys.

James Thomas Farrar -- Chief Executive Officer & Director

You're welcome.

Operator

[Operator Instructions] The next question comes from Michael Carroll from RBC Capital Markets. Please go ahead.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. Jamie, in your prepared remarks, you talked about some renewal discussions that you're having with a tenant right now. Can you provide some additional color on that? I guess, is that one of the large expirations that we expect in 2021? Was that at the Florida Research Park or Carillon Point? I guess, which lease are we talking about?

James Thomas Farrar -- Chief Executive Officer & Director

So I really highlighted on two. And the first one is at our Lake Vista, which is with our tenant Ally Financial. And basically summarized, we're having good dialogue on a long-term lease renewal. No certainty that we're ultimately going to get there, but we're feeling good, and I gave kind of my own indication that if it comes together, I think it's a Q4 event. I'm sorry, and can you get -- round out that question, though, Mike, you asked the second piece, which was the other one I mentioned, we've got a vacancy at Sorrento Mesa, which is about 59,000 feet with a life science tenant.

That's one that we've been looking for a while for the right tenant, someone who will take it down as an entire block as opposed to breaking it up. A tenant that's potentially going to put a significant investment into it as well for the life science build-out. And so that's one that I think is the first time we've said on our call where we're actively in discussions. And if that transaction comes together, we think it's probably in early 2021, possible it could come together a little sooner than that, but it's something that if it comes together, we're very excited about.

Michael Carroll -- RBC Capital Markets -- Analyst

And then can you talk a little bit about the two larger expirations you had in '21? I believe you have a Florida Research Park and Carillon Point. I mean, how are those discussions going?

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Mike, I'll answer that. So just as a reminder, yes, Carillon, we have 74,000 square feet that expires at the end of August of 2021. And then we have another one at Florida Research Park that has a May 31,20'21 expiry. And the short answer is there's no update. We can say we're having constructive discussions on both of them. The discussions are just taking a little bit longer, and we're hoping that it to have an update on the next call. But at this point, it's kind of the status quo, constructive discussions, but nothing has been concluded.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then, I guess, excluding those two large lease expirations, I mean, you have, what, about 400,000 square feet expiring next year. Can you kind of talk a little bit about, I guess, where are those tenants and what's the expected retention ratio or progress that you've made on some of those discussions?

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

Yes, sure. So I think we've basically covered all of the large ones. We do have one expiry at -- right at the end of the year, December 31. That's at our Florida Research Park, one of the buildings. We used to call it ingenuity drive in our stats. That's 125,000 square foot building. It's leased, as I mentioned, all through the next year. But at the end of the year, the main tenant is departing and the subtenant we'll take occupancy of 79,000 square feet.

So we are expecting to get back 46,000 square feet of space that we're already actively leasing and have 15 months to try to backfill that. That's the last of the -- of any space that's larger than 30,000 square feet. Everything else is, frankly, probably normal course, and I would expect our renewal rates to be -- and we've actually just completed our budgeting process, and we're kind of budgeting similar renewal rates that we've had historically on the rest of the leases.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And I know, Tony, you had, obviously, in the past few quarters, which you reduced your bad debt expectations for 2020. I mean, going into '21, I mean, how should we think about bad expectations moving forward? Is it going to be more in line with that historical run rate? Or are we kind of away from those pretty conservative estimates that you had in the beginning of the year?

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

I think the reason we became more conservative is the time frame got shortened. And so my answer would be, in the short term, yes. Q4, Q1, I would expect it to be in that lower range. But the longer we go out here, I just don't have a lens, and I think the range of possibilities is still quite wide. Until there's a vaccine, until we have clarity, frankly, even with election, we think there's a lot of unknowns out there. And so I think likely, when we do provide guidance, the further out we go, we'll maintain a conservative outlook. So Q4 will likely have a more conservative set, but that's just -- just because we don't have good clarity.

James Thomas Farrar -- Chief Executive Officer & Director

Just to put some ranges around that, though, Mike. I think when we initially gave our overall guidance, this was right in the height of the pandemic, we had some pretty wide ranges of bad debt provisions and proved out that we've had great collections with only minimal loss. So I think when you look into next year, we're still finalizing kind of what we think in tenant by tenant. But that range probably isn't going to be as wide as it was at the height of the pandemic. We're feeling better overall about what we're seeing. We're feeling better about our tenant base, how things are starting to come back as far as utilization levels, and we're feeling good about the future as we've kind of delve through each of our assets and reunderwritten them.

And we're feeling good, frankly, about our own ability without any sort of additional growth or equity raises to drive substantial core FFO growth over the medium to long term here. And so we've spent a lot of time kind of looking internally at our assets, at our tenants and what we can do to help kind of unlock value and drive cash flow, and that's what our focus is today.

Michael Carroll -- RBC Capital Markets -- Analyst

Great, thank you.

Operator

As there are no additional questions, I will turn the call back over to Mr. Farrar to conclude.

James Thomas Farrar -- Chief Executive Officer & Director

Thanks for joining today. If we did miss any of your questions, please feel free to reach out to us directly. Goodbye.

Operator

[Operator Closing Remarks].

Duration: 29 minutes

Call participants:

Anthony Maretic -- Chief Financial Officer, Secretary & Treasurer

James Thomas Farrar -- Chief Executive Officer & Director

Rob Stevenson -- Janney -- Analyst

Barry Oxford -- D.A. Davidson -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

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