UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,June 30, 2019
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:001-36409
CITY OFFICE REIT, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 98-1141883 | |
(State or other jurisdiction of
| (I.R.S. Employer Identification No.) |
666 Burrard Street
Suite 3210
Vancouver, BC
V6C 2X8
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (604)806-3366
Former name, former address and former fiscal year, if changed since last report: N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of each Exchange on Which Registered |
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Common Stock, $0.01 par value | “CIO” | New York Stock Exchange | ||||
| 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share | “CIO.PrA” | New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☒ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ ☒ No
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at April 30,July 29, 2019 was 39,635,793.39,647,063.
Quarterly Report on Form10-Q
For the Quarter Ended March 31,June 30, 2019
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Item 1. | 3 | ||||||
Condensed Consolidated Balance Sheets as of | 3 | ||||||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | |||||
Item 3. | 24 | ||||||
Item 4. | 25 | ||||||
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Item 1. | 26 | ||||||
Item 1A. | 26 | ||||||
Item 2. | 26 | ||||||
Item 3. | 26 | ||||||
Item 4. | 26 | ||||||
Item 5. | 26 | ||||||
Item 6. | 27 | ||||||
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| Item 1. | Financial Statements |
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value and share data)
| March 31, | December 31, | June 30, | December 31, | |||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Assets | ||||||||||||||||
Real estate properties | ||||||||||||||||
Land | $ | 224,837 | $ | 223,789 | $ | 224,837 | $ | 223,789 | ||||||||
Building and improvement | 735,403 | 704,113 | 762,537 | 704,113 | ||||||||||||
Tenant improvement | 81,960 | 77,426 | 86,374 | 77,426 | ||||||||||||
Furniture, fixtures and equipment | 270 | 319 | 285 | 319 | ||||||||||||
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| 1,042,470 | 1,005,647 | 1,074,033 | 1,005,647 | |||||||||||||
Accumulated depreciation | (78,263 | ) | (70,484 | ) | (86,475 | ) | (70,484 | ) | ||||||||
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| 964,207 | 935,163 | 987,558 | 935,163 | |||||||||||||
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Cash and cash equivalents | 15,314 | 16,138 | 11,581 | 16,138 | ||||||||||||
Restricted cash | 21,713 | 17,007 | 19,295 | 17,007 | ||||||||||||
Rents receivable, net | 27,524 | 26,095 | 31,008 | 26,095 | ||||||||||||
Deferred leasing costs, net | 10,865 | 10,402 | 11,039 | 10,402 | ||||||||||||
Acquired lease intangible assets, net | 74,651 | 75,501 | 71,972 | 75,501 | ||||||||||||
Other assets | 14,419 | 2,755 | 17,141 | 2,755 | ||||||||||||
Assets held for sale | 15,932 | 17,370 | — | 17,370 | ||||||||||||
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Total Assets | $ | 1,144,625 | $ | 1,100,431 | $ | 1,149,594 | $ | 1,100,431 | ||||||||
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Liabilities and Equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Debt | $ | 694,989 | $ | 645,354 | $ | 709,670 | $ | 645,354 | ||||||||
Accounts payable and accrued liabilities | 23,408 | 25,892 | 22,960 | 25,892 | ||||||||||||
Deferred rent | 5,079 | 5,331 | 5,625 | 5,331 | ||||||||||||
Tenant rent deposits | 5,531 | 4,564 | 5,780 | 4,564 | ||||||||||||
Acquired lease intangible liabilities, net | 9,610 | 8,887 | 9,249 | 8,887 | ||||||||||||
Other liabilities | 19,352 | 11,148 | 19,512 | 11,148 | ||||||||||||
Liabilities related to assets held for sale | 270 | 878 | — | 878 | ||||||||||||
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Total Liabilities | 758,239 | 702,054 | 772,796 | 702,054 | ||||||||||||
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Commitments and Contingencies (Note 9) | ||||||||||||||||
Equity: | ||||||||||||||||
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding | 112,000 | 112,000 | 112,000 | 112,000 | ||||||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,635,793 and 39,544,073 shares issued and outstanding | 396 | 395 | ||||||||||||||
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,647,063 and 39,544,073 shares issued and outstanding | 396 | 395 | ||||||||||||||
Additionalpaid-in capital | 377,428 | 377,126 | 377,937 | 377,126 | ||||||||||||
Accumulated deficit | (104,449 | ) | (92,108 | ) | (114,565 | ) | (92,108 | ) | ||||||||
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Total Stockholders’ Equity | 385,375 | 397,413 | 375,768 | 397,413 | ||||||||||||
Non-controlling interests in properties | 1,011 | 964 | 1,030 | 964 | ||||||||||||
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Total Equity | 386,386 | 398,377 | 376,798 | 398,377 | ||||||||||||
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Total Liabilities and Equity | $ | 1,144,625 | $ | 1,100,431 | $ | 1,149,594 | $ | 1,100,431 | ||||||||
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Subsequent Events (Note 11) | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
| Three Months Ended | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| March 31, | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||
Rental and other revenues | $ | 37,120 | $ | 31,534 | $ | 41,171 | $ | 30,236 | 78,291 | 61,770 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Property operating expenses | 13,844 | 11,625 | 14,526 | 11,748 | 28,370 | 23,374 | ||||||||||||||||||
General and administrative | 2,299 | 1,978 | 3,362 | 1,966 | 5,660 | 3,943 | ||||||||||||||||||
Depreciation and amortization | 14,417 | 11,893 | 14,604 | 11,771 | 29,022 | 23,665 | ||||||||||||||||||
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Total operating expenses | 30,560 | 25,496 | 32,492 | 25,485 | 63,052 | 50,982 | ||||||||||||||||||
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Operating income | 6,560 | 6,038 | 8,679 | 4,751 | 15,239 | 10,788 | ||||||||||||||||||
Interest expense: | ||||||||||||||||||||||||
Contractual interest expense | (7,143 | ) | (5,188 | ) | (7,502 | ) | (5,081 | ) | (14,645 | ) | (10,269 | ) | ||||||||||||
Amortization of deferred financing costs | (337 | ) | (632 | ) | ||||||||||||||||||||
Amortization of deferred financing costs and debt fair value | (334 | ) | (354 | ) | (671 | ) | (986 | ) | ||||||||||||||||
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| (7,480 | ) | (5,820 | ) | (7,836 | ) | (5,435 | ) | (15,316 | ) | (11,255 | ) | |||||||||||||
Net gain on sale of real estate property | — | 46,980 | 478 | — | 478 | 46,980 | ||||||||||||||||||
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Net (loss)/income | (920 | ) | 47,198 | |||||||||||||||||||||
Net income/(loss) | 1,321 | (684 | ) | 401 | 46,513 | |||||||||||||||||||
Less: | ||||||||||||||||||||||||
Net income attributable tonon-controlling interests in properties | (169 | ) | (135 | ) | (165 | ) | (114 | ) | (334 | ) | (249 | ) | ||||||||||||
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Net (loss)/income attributable to the Company | (1,089 | ) | 47,063 | |||||||||||||||||||||
Net income/(loss) attributable to the Company | 1,156 | (798 | ) | 67 | 46,264 | |||||||||||||||||||
Preferred stock distributions | (1,855 | ) | (1,855 | ) | (1,855 | ) | (1,855 | ) | (3,710 | ) | (3,710 | ) | ||||||||||||
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Net (loss)/income attributable to common stockholders | $ | (2,944 | ) | $ | 45,208 | $ | (699 | ) | $ | (2,653 | ) | $ | (3,643 | ) | $ | 42,554 | ||||||||
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Net (loss)/income per common share: | ||||||||||||||||||||||||
Basic | $ | (0.07) | $ | 1.25 | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.09 | ) | $ | 1.18 | |||||||||
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Diluted | $ | (0.07) | $ | 1.24 | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.09 | ) | $ | 1.17 | |||||||||
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Weighted average common shares outstanding: | ||||||||||||||||||||||||
Basic | 39,565 | 36,073 | 39,640 | 36,132 | 39,603 | 36,103 | ||||||||||||||||||
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Diluted | 39,565 | 36,432 | 39,640 | 36,132 | 39,603 | 36,452 | ||||||||||||||||||
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Dividend distributions declared per common share | $ | 0.235 | $ | 0.235 | $ | 0.235 | $ | 0.235 | $ | 0.470 | $ | 0.470 | ||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(In thousands)
| Number of shares of preferred stock | Preferred stock | Number of shares of common stock | Common stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | Non- controlling interests in properties | Total equity | Number of shares of preferred stock | Preferred stock | Number of shares of common stock | Common stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | Non- controlling interests in properties | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance - December 31, 2018 | 4,480 | $ | 112,000 | 39,544 | $ | 395 | $ | 377,126 | $ | (92,108 | ) | $ | 397,413 | $ | 964 | $ | 398,377 | 4,480 | $ | 112,000 | 39,544 | $ | 395 | $ | 377,126 | $ | (92,108 | ) | $ | 397,413 | $ | 964 | $ | 398,377 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award grants and vesting | — | — | 92 | 1 | 302 | (83 | ) | 220 | — | 220 | — | — | 92 | 1 | 302 | (83 | ) | 220 | — | 220 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend distributions declared | — | — | — | — | — | (9,314 | ) | (9,314 | ) | — | (9,314 | ) | — | — | — | — | — | (9,314 | ) | (9,314 | ) | — | (9,314 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividend distributions declared | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Contributions | — | — | — | — | — | — | — | 12 | 12 | — | — | — | — | — | — | — | 12 | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | (134 | ) | (134 | ) | — | — | — | — | — | — | — | (134 | ) | (134 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | (1,089 | ) | (1,089 | ) | 169 | (920 | ) | — | — | — | — | — | (1,089 | ) | (1,089 | ) | 169 | (920 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance - March 31, 2019 | 4,480 | $ | 112,000 | 39,636 | $ | 396 | $ | 377,428 | $ | (104,449 | ) | $ | 385,375 | $ | 1,011 | $ | 386,386 | 4,480 | $ | 112,000 | 39,636 | $ | 396 | $ | 377,428 | $ | (104,449 | ) | $ | 385,375 | $ | 1,011 | $ | 386,386 | ||||||||||||||||||||||||||||||||||||||
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Restricted stock award grants and vesting | — | — | 11 | — | 509 | (99 | ) | 410 | — | 410 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend distributions declared | — | — | — | — | — | (9,318 | ) | (9,318 | ) | — | (9,318 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividend distributions declared | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions | — | — | — | — | — | — | — | 10 | 10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | (156 | ) | (156 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,156 | 1,156 | 165 | 1,321 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance - June 30, 2019 | 4,480 | $ | 112,000 | 39,647 | $ | 396 | $ | 377,937 | $ | (114,565 | ) | $ | 375,768 | $ | 1,030 | $ | 376,798 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Number of shares of preferred stock | Preferred stock | Number of shares of common stock | Common stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | Non- controlling interests in properties | Total equity | Number of shares of preferred stock | Preferred stock | Number of shares of common stock | Common stock | Additional paid-in capital | Accumulated deficit | Total stockholders’ equity | Non- controlling interests in properties | Total equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – December 31, 2017 | 4,480 | $ | 112,000 | 36,012 | $ | 360 | $ | 334,241 | $ | (86,977 | ) | $ | 359,624 | $ | 208 | $ | 359,832 | 4,480 | $ | 112,000 | 36,012 | $ | 360 | $ | 334,241 | $ | (86,977 | ) | $ | 359,624 | $ | 208 | $ | 359,832 | ||||||||||||||||||||||||||||||||||||||
Restricted stock award grants and vesting | — | — | 120 | 1 | 356 | (72 | ) | 285 | — | 285 | — | — | 120 | 1 | 356 | (72 | ) | 285 | — | 285 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend distributions declared | — | — | — | — | — | (8,491 | ) | (8,491 | ) | — | (8,491 | ) | — | — | — | — | — | (8,491 | ) | (8,491 | ) | — | (8,491 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividend distributions declared | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | (29 | ) | (29 | ) | — | — | — | — | — | — | — | (29 | ) | (29 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 47,063 | 47,063 | 135 | 47,198 | — | — | — | — | — | 47,063 | 47,063 | 135 | 47,198 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance - March 31, 2018 | 4,480 | $ | 112,000 | 36,132 | $ | 361 | $ | 334,597 | $ | (50,332 | ) | $ | 396,626 | $ | 314 | $ | 396,940 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance – March 31, 2018 | 4,480 | $ | 112,000 | 36,132 | $ | 361 | $ | 334,597 | $ | (50,332 | ) | $ | 396,626 | $ | 314 | $ | 396,940 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Restricted stock award grants and vesting | — | — | 1 | — | 412 | (80 | ) | 332 | — | 332 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock dividend distributions declared | — | — | — | — | — | (8,491 | ) | (8,491 | ) | — | (8,491 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred stock dividend distributions declared | — | — | — | — | — | (1,855 | ) | (1,855 | ) | — | (1,855 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions | — | — | — | — | — | — | — | 43 | 43 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions | — | — | — | — | — | — | — | (135 | ) | (135 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | (798 | ) | (798 | ) | 114 | (684 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance - June 30, 2018 | 4,480 | $ | 112,000 | 36,133 | $ | 361 | $ | 335,009 | $ | (61,556 | ) | $ | 385,814 | $ | 336 | $ | 386,150 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Three Months Ended March 31, | Six Months Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net (loss)/income | $ | (920 | ) | $ | 47,198 | |||||||||||
Adjustments to reconcile net (loss)/income to net cash provided by operating activities: | ||||||||||||||||
Net income | $ | 401 | $ | 46,513 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 14,417 | 11,893 | 29,022 | 23,665 | ||||||||||||
Amortization of deferred financing costs | 337 | 632 | ||||||||||||||
Amortization of deferred financing costs and debt fair value | 671 | 986 | ||||||||||||||
Amortization of above/below market leases | (27 | ) | (200 | ) | (92 | ) | (140 | ) | ||||||||
Increase in straight-line rent/expense | (1,454 | ) | (844 | ) | (3,424 | ) | (1,842 | ) | ||||||||
Non-cash stock compensation | 444 | 350 | 879 | 705 | ||||||||||||
Net gain on sale of real estate property | — | (46,980 | ) | (478 | ) | (46,980 | ) | |||||||||
Changes innon-cash working capital: | ||||||||||||||||
Rents receivable, net | (225 | ) | 322 | (1,677 | ) | (93 | ) | |||||||||
Other assets | (1,710 | ) | (1,741 | ) | (1,082 | ) | (3,034 | ) | ||||||||
Accounts payable and accrued liabilities | (7,506 | ) | (6,890 | ) | (5,241 | ) | (6,467 | ) | ||||||||
Deferred rent | (485 | ) | (2,124 | ) | 53 | (2,042 | ) | |||||||||
Tenant rent deposits | (45 | ) | 189 | (394 | ) | 89 | ||||||||||
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Net Cash Provided By Operating Activities | 2,826 | 1,805 | 18,638 | 11,360 | ||||||||||||
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Cash Flows (to)/from Investing Activities: | ||||||||||||||||
Additions to real estate properties | (2,292 | ) | (2,753 | ) | (9,881 | ) | (9,156 | ) | ||||||||
Acquisition of real estate | (51,070 | ) | — | (61,012 | ) | (55,453 | ) | |||||||||
Net proceeds from sale of real estate | 17,426 | 84,839 | 33,941 | 84,839 | ||||||||||||
Deferred leasing costs | (811 | ) | (1,071 | ) | (1,598 | ) | (2,057 | ) | ||||||||
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Net Cash (Used In)/Provided By Investing Activities | (36,747 | ) | 81,015 | (38,550 | ) | 18,173 | ||||||||||
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Cash Flows from/(to) Financing Activities: | ||||||||||||||||
Debt issuance and extinguishment costs | (516 | ) | (1,896 | ) | (648 | ) | (1,942 | ) | ||||||||
Proceeds from mortgage loans payable | 40,950 | — | 40,950 | — | ||||||||||||
Repayment of mortgage loans payable | (1,137 | ) | (33,134 | ) | (2,327 | ) | (34,121 | ) | ||||||||
Proceeds from credit facility | 35,000 | 18,500 | 55,000 | 82,000 | ||||||||||||
Repayment of credit facility | (25,000 | ) | (52,000 | ) | (52,500 | ) | (57,000 | ) | ||||||||
Shares withheld for payment of taxes on restricted stock unit vesting | (224 | ) | (64 | ) | (246 | ) | (86 | ) | ||||||||
Contributions fromnon-controlling interests in properties | 12 | — | 22 | 43 | ||||||||||||
Distributions tonon-controlling interests in properties | (134 | ) | (29 | ) | (290 | ) | (165 | ) | ||||||||
Dividend distributions paid to stockholders and Operating Partnership unitholders | (11,148 | ) | (10,318 | ) | (22,318 | ) | (20,664 | ) | ||||||||
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Net Cash Provided By/(Used In) Financing Activities | 37,803 | (78,941 | ) | 17,643 | (31,935 | ) | ||||||||||
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Net Increase in Cash, Cash Equivalents and Restricted Cash | 3,882 | 3,879 | ||||||||||||||
Net Decrease in Cash, Cash Equivalents and Restricted Cash | (2,269 | ) | (2,402 | ) | ||||||||||||
Cash, Cash Equivalents and Restricted Cash, Beginning of Period | 33,145 | 35,014 | 33,145 | 35,014 | ||||||||||||
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Cash, Cash Equivalents and Restricted Cash, End of Period | $ | 37,027 | $ | 38,893 | $ | 30,876 | $ | 32,612 | ||||||||
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Reconciliation of Cash, Cash Equivalents and Restricted Cash: | ||||||||||||||||
Cash and Cash Equivalents, End of Period | 15,314 | 18,509 | $ | 11,581 | $ | 14,655 | ||||||||||
Restricted Cash, End of Period | 21,713 | 20,384 | 19,295 | 17,957 | ||||||||||||
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Cash, Cash Equivalents and Restricted Cash, End of Period | $ | 37,027 | $ | 38,893 | $ | 30,876 | $ | 32,612 | ||||||||
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Supplemental Disclosures of Cash Flow Information: | ||||||||||||||||
Cash paid for interest | $ | 6,679 | $ | 5,607 | $ | 14,696 | $ | 9,962 | ||||||||
Purchases of additions in real estate properties included in accounts payable | $ | 4,161 | $ | 3,503 | $ | 1,411 | $ | 3,380 | ||||||||
Purchases of deferred leasing costs included in accounts payable | $ | 192 | $ | 147 | $ | 160 | $ | 158 | ||||||||
Debt assumed on acquisition of real estate | $ | 22,473 | $ | — | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
1. Organization and Description of Business
City Office REIT, Inc. (the “Company”) was organized in the state of Maryland on November 26, 2013. On April 21, 2014, the Company completed its initial public offering (“IPO”) of shares of the Company’s common stock. The Company contributed the net proceeds of the IPO to City Office REIT Operating Partnership, L.P., a Maryland limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (“common units”).
The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of common units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the Operating Partnership’s partnership agreement to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.
The Company has elected to be taxed, and will continue to operate in a manner that will allow it to continue to qualify, as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to qualification as a REIT, the Company will be permitted to deduct dividend distributions paid to its stockholders, eliminating the U.S. federal taxation of income represented by such distributions at the Company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and, for tax years beginning before 2018, any applicable alternative minimum tax.
2. Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2018.
New Accounting Pronouncements
Adopted in the Current Year
In February 2016, the Financial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”)No. 2016-02, which requires lessors to classify leases as a sales-type, direct financing, or operating lease and requires lessees to recognize leaseson-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASUNo. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASUNo. 2018-10, Codification Improvements to Topic 842, Leases; and ASUNo. 2018-11, Targeted Improvements.
The Company adopted the new standard effective January 1, 2019 and elected the effective date method for the transition. The Company elected the following practical expedients:
Transition method practical expedient – permits the Company to use the effective date as the date of initial application. Upon adoption, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information and disclosures for periods before January 1, 2019 were not updated.
Package of practical expedients – permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. This allowed the Company to continue classifying its leases at transition in substantially the same manner.
Single component practical expedient – permits the Company to not separate lease andnon-lease components of leases. Upon transition, rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the condensed consolidated statement of operations.
Land easement practical expedient – permits the Company not to reassess under the new standard its prior conclusions about land easements.
Short-term lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months.
Lessor Accounting
The accounting for lessors under the new standard remained relatively unchanged with a few targeted updates impacting the Company, which included: (i) narrower definition of initial direct costs that requires certain costs to be expensed rather than capitalized, and (ii) provisions for uncollectible rents to be recorded as a reduction in revenue rather than as bad debt expense.
Lessee Accounting
The new standard requires lessees to recognize aright-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern and recording of expenses in the statement of operations. Upon transition the Company recognizedright-of use assets and lease liabilities principally for its ground and office leases.
3. Real Estate Investments
Acquisitions
During the six months ended June 30, 2019 and 2018 the Company acquired the following properties:
Property | Date Acquired | Percentage Owned | ||||||
Cascade Station | June 2019 | 100 | % | |||||
Canyon Park | February 2019 | 100 | % | |||||
Pima Center | April 2018 | 100 | % | |||||
Each of the foregoing acquisitions were accounted for as asset acquisitions.
The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the threesix months ended March 31,June 30, 2019 (in thousands):
| Canyon Park | Canyon Park | Cascade Station | Total June 30, 2019 | |||||||||||||
Land | $ | 7,098 | $ | 7,098 | $ | — | $ | 7,098 | ||||||||
Buildings and improvements | 36,619 | 36,619 | 25,141 | 61,760 | ||||||||||||
Tenant improvements | 1,797 | 1,797 | 2,080 | 3,877 | ||||||||||||
Acquired intangible assets | 8,109 | 8,109 | 3,134 | 11,243 | ||||||||||||
Prepaid expenses and other assets | 10 | |||||||||||||||
Other assets | 10 | 3,164 | 3,174 | |||||||||||||
Debt | — | (697 | ) | (697 | ) | |||||||||||
Accounts payable and other liabilities | (1,266 | ) | (1,266 | ) | (186 | ) | (1,452 | ) | ||||||||
Lease intangible liabilities | (1,297 | ) | (1,297 | ) | (220 | ) | (1,517 | ) | ||||||||
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Total consideration | $ | 51,070 | ||||||||||||||
Net assets acquired | $ | 51,070 | $ | 32,416 | $ | 83,486 | ||||||||||
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The acquisition of the Cascade Station property was partially funded through an assumption of debt in the amount of $22.5 million.
The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 2018 (in thousands):
| Pima Center | ||||
Buildings and improvements | $ | 42,235 | ||
Tenant improvements | 2,898 | |||
Acquired intangible assets | 10,691 | |||
Other assets | 95 | |||
Accounts payable and other liabilities | (337 | ) | ||
Lease intangible liabilities | (129 | ) | ||
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Net assets acquired | $ | 55,453 | ||
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Sale of Real Estate Property
On May 7, 2019, the Company sold the 10455 Pacific Center building of the Sorrento Mesa property in San Diego, California for $16.5 million, resulting in an aggregate gain of $0.5 million net of disposal-related costs, which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations.
On February 7, 2019, the Company sold the Plaza 25 property in Denver, Colorado for $17.9 million. No gain or loss was recognized on the sale as the property was carried at fair value less cost to sell on the date of disposition.
On March 8, 2018, the Company sold the Washington Group Plaza property in Boise, Idaho for $86.5 million, resulting in an aggregate net gain of $47.0 million, net of $1.7 million in costs, which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations. In connection with the sale of the property, certain debt repayments were made.
Assets Held for Sale
On February 27, 2019, the Company entered into a Purchase and Sale agreement to sell the 10455 Pacific Center Court building of the Sorrento Mesa property for $16.5 million. The Company determined that the property met the criteria for classification as held for sale as of March 31, 2019. The transaction is anticipated to close in the second quarter of 2019, subject to customary closing conditions. As of March 31, 2019, a $1.0 millionnon-refundable deposit has been received.
The property has been classified as held for sale as of March 31, 2019 (in thousands):
March 31, 2019 | 10455 Pacific Center Court | |||
Real estate properties, net | $ | 14,231 | ||
Acquired lease intangible assets, net | 1,350 | |||
Rents receivable, prepaid expenses and other assets | 351 | |||
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Assets held for sale | $ | 15,932 | ||
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Accounts payable, accrued expenses, deferred rent and tenant rent deposits | (270 | ) | ||
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Liabilities related to assets held for sale | $ | (270 | ) | |
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4. Lease Intangibles
Lease intangibles and the value of assumed lease obligations as of March 31,June 30, 2019 and December 31, 2018 were comprised as follows (in thousands):
| Lease Intangible Assets | Lease Intangible Liabilities | Lease Intangible Assets | Lease Intangible Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
March 31, 2019 | Above Market Leases | Below Market Ground Lease(1) | In Place Leases | Leasing Commissions | Total | Below Market Leases | Below Market Ground Lease(1) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
June 30, 2019 | Above Market Leases | Below Market Ground Lease(1) | In Place Leases | Leasing Commissions | Total | Below Market Leases | Below Market Ground Lease(1) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost | $ | 11,319 | $ | — | $ | 85,219 | $ | 34,526 | $ | 131,064 | $ | (14,222 | ) | $ | (138 | ) | $ | (14,360 | ) | $ | 11,924 | $ | — | $ | 86,640 | $ | 35,126 | $ | 133,690 | $ | (14,359 | ) | $ | (138 | ) | $ | (14,497 | ) | ||||||||||||||||||||||||||
Accumulated amortization | (5,292 | ) | — | (37,903 | ) | (13,218 | ) | (56,413 | ) | 4,713 | 37 | 4,750 | (5,784 | ) | — | (41,672 | ) | (14,262 | ) | (61,718 | ) | 5,210 | 38 | 5,248 | ||||||||||||||||||||||||||||||||||||||||
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| $ | 6,027 | $ | — | $ | 47,316 | $ | 21,308 | $ | 74,651 | $ | (9,509 | ) | $ | (101 | ) | $ | (9,610 | ) | $ | 6,140 | $ | — | $ | 44,968 | $ | 20,864 | $ | 71,972 | $ | (9,149 | ) | $ | (100 | ) | $ | (9,249 | ) | |||||||||||||||||||||||||||
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| Lease Intangible Assets | Lease Intangible Liabilities | Lease Intangible Assets | Lease Intangible Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2018 | Above Market Leases | Below Market Ground Lease(1) | In Place Leases | Leasing Commissions | Total | Below Market Leases | Below Market Ground Lease(1) | Total | Above Market Leases | Below Market Ground Lease(1) | In Place Leases | Leasing Commissions | Total | Below Market Leases | Below Market Ground Lease(1) | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
Cost | $ | 10,595 | $ | 1,855 | $ | 82,474 | $ | 31,706 | $ | 126,630 | $ | (12,925 | ) | $ | (138 | ) | $ | (13,063 | ) | $ | 10,595 | $ | 1,855 | $ | 82,474 | $ | 31,706 | $ | 126,630 | $ | (12,925 | ) | $ | (138 | ) | $ | (13,063 | ) | ||||||||||||||||||||||||||
Accumulated amortization | (4,800 | ) | (19 | ) | (34,273 | ) | (12,037 | ) | (51,129 | ) | 4,140 | 36 | 4,176 | (4,800 | ) | (19 | ) | (34,273 | ) | (12,037 | ) | (51,129 | ) | 4,140 | 36 | 4,176 | ||||||||||||||||||||||||||||||||||||||
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| $ | 5,795 | $ | 1,836 | $ | 48,201 | $ | 19,669 | $ | 75,501 | $ | (8,785 | ) | $ | (102 | ) | $ | (8,887 | ) | $ | 5,795 | $ | 1,836 | $ | 48,201 | $ | 19,669 | $ | 75,501 | $ | (8,785 | ) | $ | (102 | ) | $ | (8,887 | ) | |||||||||||||||||||||||||||
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| (1) | For the below market ground lease asset, the Company is the lessee, whereas, for the below market ground lease liability, the Company is the lessor. Upon the adoption of Topic 842 on January 1, 2019, the Company derecognized the below market ground lease intangible asset related to one of its lessee ground leases and included the net carrying value of the intangible asset within theright-of-use asset recognized upon transition to the new standard. |
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
2019 | $ | 14,962 | $ | 10,192 | ||||
2020 | 17,692 | 18,332 | ||||||
2021 | 14,416 | 15,022 | ||||||
2022 | 6,652 | 7,255 | ||||||
2023 | 3,789 | 4,393 | ||||||
Thereafter | 7,530 | 7,529 | ||||||
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| $ | 65,041 | $ | 62,723 | |||||
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5. Debt
The following table summarizes the indebtedness as of March 31,June 30, 2019 and December 31, 2018 (dollars in thousands):
Property | March 31, 2019 | December 31, 2018 | Interest Rate as of March 31, 2019(1) | Maturity | June 30, 2019 | December 31, 2018 | Interest Rate as of June 30, 2019 (1) | Maturity | ||||||||||||||||||||||
Unsecured Credit Facility (2) | $ | 157,500 | $ | 147,500 | LIBOR +1.60 | %(3) | March 2022 | $ | 150,000 | $ | 147,500 | LIBOR +1.60 | %(3) | March 2022 | ||||||||||||||||
Midland Life Insurance (4) | 86,560 | 86,973 | 4.34 | May 2021 | 86,142 | 86,973 | 4.34 | May 2021 | ||||||||||||||||||||||
Mission City | 47,000 | 47,000 | 3.78 | November 2027 | 47,000 | 47,000 | 3.78 | November 2027 | ||||||||||||||||||||||
190 Office Center | 41,250 | 41,250 | 4.79 | October 2025 | 41,152 | 41,250 | 4.79 | October 2025 | ||||||||||||||||||||||
Canyon Park(5) | 40,950 | — | 4.30 | March 2027 | 40,950 | — | 4.30 | March 2027 | ||||||||||||||||||||||
Circle Point | 39,650 | 39,650 | 4.49 | September 2028 | 39,650 | 39,650 | 4.49 | September 2028 | ||||||||||||||||||||||
SanTan | 34,492 | 34,682 | 4.56 | March 2027 | 34,347 | 34,682 | 4.56 | March 2027 | ||||||||||||||||||||||
Intellicenter | 33,350 | 33,481 | 4.65 | October 2025 | 33,227 | 33,481 | 4.65 | October 2025 | ||||||||||||||||||||||
The Quad | 30,600 | 30,600 | 4.20 | September 2028 | 30,600 | 30,600 | 4.20 | September 2028 | ||||||||||||||||||||||
FRP Collection | 29,439 | 29,589 | 3.85 | September 2023 | 29,288 | 29,589 | 3.85 | September 2023 | ||||||||||||||||||||||
2525 McKinnon | 27,000 | 27,000 | 4.24 | April 2027 | 27,000 | 27,000 | 4.24 | April 2027 | ||||||||||||||||||||||
Cascade Station | 22,474 | — | 4.55 | May 2024 | ||||||||||||||||||||||||||
Greenwood Blvd | 22,425 | 22,425 | 4.60 | December 2025 | 22,425 | 22,425 | 4.60 | December 2025 | ||||||||||||||||||||||
5090 N 40th St | 22,000 | 22,000 | 3.92 | January 2027 | ||||||||||||||||||||||||||
5090 N 40th St | 22,000 | 22,000 | 3.92 | January 2027 | ||||||||||||||||||||||||||
AmberGlen | 20,000 | 20,000 | 3.69 | May 2027 | 20,000 | 20,000 | 3.69 | May 2027 | ||||||||||||||||||||||
Lake Vista Pointe | 17,963 | 18,044 | 4.28 | August 2024 | 17,882 | 18,044 | 4.28 | August 2024 | ||||||||||||||||||||||
Central Fairwinds | 17,798 | 17,882 | 4.00 | June 2024 | 17,712 | 17,882 | 4.00 | June 2024 | ||||||||||||||||||||||
FRP Ingenuity Drive | 17,000 | 17,000 | 4.44 | December 2024 | 17,000 | 17,000 | 4.44 | December 2024 | ||||||||||||||||||||||
Carillon Point | 16,242 | 16,330 | 3.50 | October 2023 | 16,154 | 16,330 | 3.50 | October 2023 | ||||||||||||||||||||||
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Total Principal | 701,219 | 651,406 | 715,003 | 651,406 | ||||||||||||||||||||||||||
Deferred financing costs, net | (6,230 | ) | (6,052 | ) | (6,030 | ) | (6,052 | ) | ||||||||||||||||||||||
Unamortized fair value adjustments | 697 | — | ||||||||||||||||||||||||||||
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Total | $ | 694,989 | $ | 645,354 | $ | 709,670 | $ | 645,354 | ||||||||||||||||||||||
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| (1) | All interest rates are fixed interest rates with the exception of the unsecured credit facility (“Unsecured Credit Facility”) as explained in footnote 2 below. |
| (2) | As of |
| (3) | As of |
| (4) | The mortgage loan is cross-collateralized by DTC Crossroads, Cherry Creek and City Center. |
| (5) | The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD, |
The scheduled principal repayments of debt as of March 31,June 30, 2019 are as follows (in thousands):
2019 | $ | 3,712 | $ | 2,692 | ||||
2020 | 5,834 | 6,186 | ||||||
2021 | 88,754 | 89,125 | ||||||
2022 | 163,277 | 156,165 | ||||||
2023 | 47,415 | 47,822 | ||||||
Thereafter | 392,227 | 413,013 | ||||||
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| $ | 701,219 | $ | 715,003 | |||||
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6. Fair Value of Financial Instruments
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs – quoted prices in active markets for identical assets or liabilities
Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs – unobservable inputs
As of March 31,each of June 30, 2019 and December 31, 2018, the Company did not have any hedges or derivatives.
Cash, Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and Accrued Liabilities
The Company estimates that the fair value approximates carrying value due to the relatively short-term nature of these instruments.
Fair Value of Financial Instruments Not Carried at Fair Value
With the exception of fixed rate mortgage loans payable, the carrying amounts of the Company’s financial instruments approximate their fair value. The Company determines the fair value of its fixed rate mortgage loan payable based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments was $548.0$580.7 million and $503.3 million as of March 31,June 30, 2019 and December 31, 2018, respectively. Accordingly, the fair value of mortgage loans payable have been classified as Level 3 fair value measurements.
7. Related Party Transactions
Administrative Services Agreement
For the threesix months ended March 31,June 30, 2019 and 2018, the Company earned $0.1$0.3 million and $0.2$0.4 million, respectively, in administrative services performed for Second City Real Estate II Corporation and its affiliates (“Second(collectively, “Second City”). Also during the six months ended June 30, 2019, the Company was assigned a purchase contract which had been entered into by an entity affiliated with principals of Second City, which principals are also officers of the Company. The Company subsequently assigned the purchase contract to a third party during the six months ended June 30, 2019. The Company paid no consideration to the related party for the contract other than return of deposits which the Company subsequently recovered from a third party in addition to an assignment fee. The Company recognized income of $2.6 million on the assignment of the purchase contract to the third party, which was recorded in rental and other revenues on the condensed consolidated statement of operations.
8. Leases
Lessor Accounting
The Company is focused on acquiring, owning and operating high-quality office properties for lease to a stable and diverse tenant base. Our properties have both full-service gross and net leases which are generally classified as operating leases. Rental income related to such leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses. The Company elected the practical expedient to account for its lease andnon-lease components as a single combined operating lease component under the new leasing standard. As a result, rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the condensed consolidated statement of operations.
For the three and six months ended March 31,June 30, 2019, the Company recognized $37.1$38.5 million and $75.6 million, respectively, of rental and other revenue related to its operating leases (in thousands):
Three months ended June 30, 2019 | Six months ended June 30, 2019 | |||||||||||||
Fixed payments | $ | 32,199 | $ | 32,861 | $ | 65,060 | ||||||||
Variable payments | 4,880 | 5,646 | 10,526 | |||||||||||
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| $ | 37,079 | $ | 38,507 | $ | 75,586 | |||||||||
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Future minimum lease payments to be received by the Company as of March 31,June 30, 2019 undernon-cancellable operating leases for the next five years and thereafter are as follows (in thousands):
2019 | $ | 86,919 | $ | 60,208 | ||||
2020 | 108,063 | 113,808 | ||||||
2021 | 97,491 | 102,819 | ||||||
2022 | 79,821 | 85,402 | ||||||
2023 | 61,816 | 67,284 | ||||||
Thereafter | 136,400 | 143,674 | ||||||
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| $ | 570,510 | $ | 573,195 | |||||
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The Company’s leases may include various provisions such as scheduled rent increases, renewal options and termination options. The majority of the Company’s leases include defined rent increase rather than variable payments based on an index or unknown rate. NineSeven state government tenants currently have the exercisable right to terminate their leases if the applicable state legislature does not appropriate rent in its annual budget. The Company has determined that the occurrence of any government tenant not being appropriated the rent in the applicable annual budget is a remote contingency and accordingly recognizes lease revenue on a straight-line basis over the respective lease term. These tenants represent approximately 8.1%8.2% of the Company’s total future minimum lease payments as of March 31,June 30, 2019.
Lessee Accounting
As a lessee, the Company has ground and office leases which were classified as operating leases.leases and one office lease classified as a financing lease. Upon adoption of Topic 842, on January 1, 2019, the Company recognizedright-of-use assets of $9.2 million and lease liabilities of $7.2 million. The difference between the recordedright-of-use assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset, which was included within theright-of-use assets recognized upon transition. As of March 31,June 30, 2019, these leases had remaining terms of 2 to 70 years and a weighted average remaining lease term of 5756 years. Operating and financing
right-of-use assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):
| March 31, 2019 | As of June 30, 2019 | |||||||
Right-of-use asset – operating leases | $ | 10,256 | $ | 13,215 | ||||
Lease liability – operating leases | $ | 8,183 | $ | 8,250 | ||||
Right-of-use asset – financing leases | $ | 91 | ||||||
Lease liability – financing leases | $ | 90 | ||||||
Operating leaseLease liabilities are measured at the commencement date based on the present value of future lease payments. One of the Company’s operating ground leaseleases includes rental payment increases over the lease term based on increases in the Consumer Price Index (“CPI”). Changes in the CPI were not estimated as part of the measurement of the operating lease liability. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in
determining the present value of future payments. The Company used a weighted average discount rate of 6.31% in determining its lease liabilities. The discount rates were derived from the Company’s assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments.
Operating leaseright-of-useRight-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Operating lease expense for the three and six months ended March 31,June 30, 2019 was $0.2 million.million and $0.4 million, respectively. Financing lease expense for the three and six months ended June 30, 2019 was nominal.
Future minimum lease payments to be paid by the Company as a lessee for operating leases as of March 31,June 30, 2019 for the next five years and thereafter are as follows (in thousands):
| Operating Leases | Financing Leases | |||||||||||
2019 | $ | 360 | $ | 303 | $ | 13 | ||||||
2020 | 782 | 782 | 27 | |||||||||
2021 | 781 | 781 | 27 | |||||||||
2022 | 741 | 741 | 27 | |||||||||
2023 | 659 | 659 | 4 | |||||||||
Thereafter | 27,277 | 27,277 | — | |||||||||
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Total future minimum lease payments | 30,600 | 30,543 | 98 | |||||||||
Discount | (22,417 | ) | (22,293 | ) | (8 | ) | ||||||
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Total | $ | 8,183 | $ | 8,250 | $ | 90 | ||||||
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9. Commitments and Contingencies
The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
The Company believes that it is in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any suchnon-compliance, liability, claim or expenditure will not arise in the future.
The Company is involved from time to time in lawsuits and other disputes which arise in the ordinary course of business. As of March 31,June 30, 2019, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
10. Stockholders’ Equity
Common Stock and Common Unit Distributions
On March 15,June 14, 2019, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $0.235 per common share for the quarterly period ended March 31,June 30, 2019. The dividend was paid subsequent to quarter end on AprilJuly 25, 2019 to common stockholders and common unitholders of record as of the close of business on AprilJuly 11, 2019, resulting in an aggregate payment of $9.3 million.
Preferred Stock Distributions
On March 15,June 14, 2019, the Company’s Board of Directors approved and the Company declared a cash dividend of $0.4140625 per preferred share for an aggregate amount of $1.9 million for the quarterly period ended March 31,June 30, 2019. The dividend was paid subsequent to quarter end on AprilJuly 25, 2019 to preferred stockholders of record as of the close of business on AprilJuly 11, 2019.2019, resulting in an aggregate payment of $1.9 million.
Restricted Stock Units
The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certainnon-executive employees, and with approval of the Board of Directors, for subsidiaries and their respective affiliates. The Equity Incentive Plan provides for grants of restricted common stock, restricted stock units, phantom shares, stock options, dividend equivalent rights and other equity-based awards (including LTIP Units), subject to the total number of shares available for issuance under the plan. The Equity Incentive Plan is administered by the compensation committee of the Board of Directors (the “Plan Administrator”).
On May 2, 2019, the Company’s stockholders approved an amendment to the Equity Incentive Plan increasing the maximum number of shares of common stock that may be issued under the Equity Incentive Plan from 1,263,580 shares to 2,263,580 shares. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
During the threesix months ended March 31,June 30, 2019, 162,500 restricted stock units (“RSUs”) were granted to executive officers, directors and certainnon-executive employees with a fair value of $1.8 million. The awards will vest in three equal, annual installments on each of the first three anniversaries of the date of grant. For the three and six months ended March 31,June 30, 2019, the Company recognized net compensation expense of $0.4$0.5 million and $0.9 million, respectively, related to the RSUs. For the three and six months ended June 30, 2018 the Company recognized net compensation expense of $0.3 million and $0.7 million, respectively, related to the RSUs.
A RSU award represents the right to receive shares of the Company’s common stock in the future, after the applicable vesting criteria, determined by the Plan Administrator, has been satisfied. The holder of an award of RSU has no rights as a stockholder until shares of common stock are issued in settlement of vested RSUs. The Plan Administrator may provide for a grant of dividend equivalent rights in connection with the grant of RSU; provided, however, that if the RSUs do not vest solely upon satisfaction of continued employment or service, any payment in respect to the related dividend equivalent rights will be held by the Company and paid when, and only to the extent that, the related RSU vests.
11. Subsequent Events
On July 31, 2019, an indirect, wholly-owned subsidiary of the Company entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Clarity Real Estate III GP, Limited Partnership and Clarity Real Estate Ventures GP, Limited Partnership (together, “Clarity”), entities affiliated with principals of Second City and officers of the Company. Pursuant to the Administrative Services Agreement, the Company will provide various administrative services and support to the related entities managing the Clarity funds.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis is based on, and should be read in conjunction with, the condensed, consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form10-Q.
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to City Office REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including City Office REIT Operating Partnership L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership, except where it is clear from the context that the term only means City Office REIT, Inc.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form10-Q, including “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. These forward looking statements may be identified by the use of words including “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar terms and phrases. These forward looking statements are subject to a number of known and unknown risks, uncertainties and other factors that are difficult to predict and which could cause our actual future results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward looking statements. These risks, uncertainties and other factors include, among others:
adverse economic or real estate developments in the office sector or the markets in which we operate;
changes in local, regional, national and international economic conditions;
our inability to compete effectively;
our inability to collect rent from tenants or renew tenants’ leases on attractive terms if at all;
demand for and market acceptance of our properties for rental purposes;
defaults on ornon-renewal of leases by tenants;
increased interest rates and any resulting increase in financing or operating costs;
decreased rental rates or increased vacancy rates;
our failure to obtain necessary financing or access the capital markets on favorable terms or at all;
changes in the availability of acquisition opportunities;
availability of qualified personnel;
our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or at all;
our failure to successfully operate acquired properties and operations;
changes in our business, financing or investment strategy or the markets in which we operate;
our failure to generate sufficient cash flows to service our outstanding indebtedness;
environmental uncertainties and risks related to adverse weather conditions and natural disasters;
our failure to qualify and maintain our status as a real estate investment trust (“REIT”);
government approvals, actions and initiatives, including the need for compliance with environmental requirements;
outcome of claims and litigation involving or affecting us;
financial market fluctuations;
changes in real estate, taxation and zoning laws and other legislation and government activity and changes to real property tax rates and the taxation of REITs in general;
uncertaintly regarding the Company’s obligations under its floating rate debt instruments upon discontinuation of LIBOR;
a material increase in institutional ownership of real estate in secondary markets that could result in, among others, compression of cap rates and fewer acquisition opportunities being available to the Company; and
other factors described in our news releases and filings with the United States Securities and Exchange Commission (the “SEC”), including but not limited to those described in our Annual Report on Form10-K for the year ended December 31, 2018 under the heading “Risk Factors” and in our subsequent reports filed with the SEC.
The forward looking statements included in this report are made only as of the date of this report, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our initial public offering (“IPO”) of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.
Revenue Base
As of March 31,June 30, 2019, we owned 2627 properties comprised of 6465 office buildings with a total of approximately 5.7 million square feet of net rentable area (“NRA”). As of March 31,June 30, 2019, our properties were approximately 92.6%93.4% leased.
Office Leases
Historically, most leases for our properties were on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense “stop”, whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are
billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant recoveries. All tenants in our Lake Vista Pointe, FRP Ingenuity Drive, Sorrento Mesa, Superior Pointe, and Canyon Park properties have triple net leases. Certain tenants at AmberGlen, Superior Pointe, FRP Collection, 2525 McKinnon, Circle Point, and The Quad and Cascade Station have leases on a triple net basis. We are also a lessor for a fee simple ground lease at the AmberGlen property. All of our remaining leases are full-service gross leases.
Factors That May Influence Our Operating Results and Financial Condition
Business and Strategy
We focus on owning and acquiring office properties in our target markets. Our target markets generally possess what we believe are favorable economic growth trends, growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, are generallylow-cost centers for business operations, and exhibit favorable occupancy trends. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns.
Rental Revenue and Tenant Recoveries
The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our portfolio of properties are generallyin-line or slightly below the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants’ industries that impair our ability to renew orre-let space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.
Our Properties
As of March 31,June 30, 2019, we owned 2627 office complexes comprised of 6465 office buildings with a total of approximately 5.7 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of March 31,June 30, 2019 (properties listed by descending NRA by market).
Metropolitan Area | Property | Economic Interest | NRA (000s Square Feet) | In Place Occupancy | Annualized Base Rent per Square Foot | Annualized Gross Rent per Square Foot(1) | Annualized Base Rent(2) ($000s) | |||||||||||||||||||
Phoenix, AZ (21.4% of NRA) | Pima Center | 100.0 | % | 272 | 96.5 | % | $ | 27.14 | $ | 27.14 | $ | 7,119 | ||||||||||||||
SanTan | 100.0 | % | 267 | 98.6 | % | $ | 27.35 | $ | 27.35 | $ | 7,187 | |||||||||||||||
5090 N 40th St | 100.0 | % | 175 | 95.8 | % | $ | 28.89 | $ | 28.89 | $ | 4,837 | |||||||||||||||
Camelback Square | 100.0 | % | 173 | 81.1 | % | $ | 29.17 | $ | 29.17 | $ | 4,097 | |||||||||||||||
The Quad | 100.0 | % | 163 | 100.0 | % | $ | 27.98 | $ | 28.23 | $ | 4,561 | |||||||||||||||
Papago Tech | 100.0 | % | 163 | 100.0 | % | $ | 21.33 | $ | 21.33 | $ | 3,471 | |||||||||||||||
Denver, CO (18.4%) | Cherry Creek | 100.0 | % | 356 | 100.0 | % | $ | 18.53 | $ | 18.53 | $ | 6,591 | ||||||||||||||
Circle Point | 100.0 | % | 272 | 98.8 | % | $ | 17.43 | $ | 30.33 | $ | 4,684 | |||||||||||||||
DTC Crossroads | 100.0 | % | 189 | 53.7 | % | $ | 26.24 | $ | 26.24 | $ | 2,665 | |||||||||||||||
Superior Pointe | 100.0 | % | 151 | 92.8 | % | $ | 17.27 | $ | 29.27 | $ | 2,420 | |||||||||||||||
| Logan Tower | 100.0 | % | 71 | 80.1 | % | $ | 20.88 | $ | 20.88 | $ | 1,192 | |||||||||||||||
Tampa, FL (18.4%) | Park Tower | 94.8 | % | 471 | 91.9 | % | $ | 24.34 | $ | 24.34 | $ | 10,521 | ||||||||||||||
City Center | 95.0 | % | 241 | 94.9 | % | $ | 25.47 | $ | 25.47 | $ | 5,833 | |||||||||||||||
Intellicenter | 100.0 | % | 204 | 100.0 | % | $ | 23.44 | $ | 23.44 | $ | 4,771 | |||||||||||||||
Carillon Point | 100.0 | % | 124 | 100.0 | % | $ | 27.65 | $ | 27.65 | $ | 3,434 | |||||||||||||||
Orlando, FL (12.7%) | FRP Collection | 95.0 | % | 272 | 87.9 | % | $ | 24.30 | $ | 26.53 | $ | 5,802 | ||||||||||||||
| Central Fairwinds | 97.0 | % | 168 | 91.1 | % | $ | 24.77 | $ | 24.77 | $ | 3,795 | |||||||||||||||
| Greenwood Blvd | 100.0 | % | 155 | 100.0 | % | $ | 22.75 | $ | 22.75 | $ | 3,527 | |||||||||||||||
| FRP Ingenuity Drive | 100.0 | % | 125 | 100.0 | % | $ | 21.50 | $ | 29.50 | $ | 2,677 | |||||||||||||||
San Diego, CA (10.3%) | Sorrento Mesa | 100.0 | % | 296 | 85.3 | % | $ | 25.02 | $ | 31.02 | $ | 6,318 | ||||||||||||||
Mission City | 100.0 | % | 286 | 94.4 | % | $ | 34.90 | $ | 34.90 | $ | 9,416 | |||||||||||||||
Dallas, TX (10.2%) | 190 Office Center | 100.0 | % | 303 | 89.5 | % | $ | 25.05 | $ | 25.05 | $ | 6,801 | ||||||||||||||
Lake Vista Pointe | 100.0 | % | 163 | 100.0 | % | $ | 15.50 | $ | 23.50 | $ | 2,532 | |||||||||||||||
2525 McKinnon | 100.0 | % | 111 | 96.5 | % | $ | 27.47 | $ | 43.76 | $ | 2,952 | |||||||||||||||
Seattle, WA (3.6%) | Canyon Park | 100.0 | % | 207 | 100.0 | % | $ | 21.20 | $ | 29.20 | $ | 4,384 | ||||||||||||||
Portland, OR (3.5%) | AmberGlen | 76.0 | % | 201 | 96.9 | % | $ | 21.09 | $ | 23.68 | $ | 4,110 | ||||||||||||||
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Total / Weighted Average – Excluding Assets Held for Sale(3) |
| 5,579 | 93.4 | % | $ | 24.13 | $ | 26.71 | $ | 125,697 | ||||||||||||||||
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San Diego, CA (1.5%) | Sorrento Mesa – 10455 | 100.0 | % | 89 | 45.8 | % | $ | 22.11 | $ | 28.11 | $ | 897 | ||||||||||||||
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Total / Weighted Average – March 31, 2019(3) |
| 5,668 | 92.6 | % | $ | 24.12 | $ | 26.72 | $ | 126,594 | ||||||||||||||||
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Metropolitan Area | Property | Economic Interest | NRA (000s Square Feet) | In Place Occupancy | Annualized Base Rent per Square Foot | Annualized Gross Rent per Square Foot(1) | Annualized Base Rent(2) ($000s) | |||||||||||||||||||
Phoenix, AZ (21.3% of NRA) | Pima Center | 100.0 | % | 272 | 96.5 | % | $ | 27.15 | $ | 27.15 | $ | 7,122 | ||||||||||||||
| SanTan | 100.0 | % | 267 | 98.6 | % | $ | 27.67 | $ | 27.67 | $ | 7,272 | |||||||||||||||
| 5090 N 40th St | 100.0 | % | 175 | 95.8 | % | $ | 28.96 | $ | 28.96 | $ | 4,848 | |||||||||||||||
| Camelback Square | 100.0 | % | 173 | 80.8 | % | $ | 29.24 | $ | 29.24 | $ | 4,092 | |||||||||||||||
| The Quad | 100.0 | % | 163 | 100.0 | % | $ | 28.14 | $ | 28.39 | $ | 4,587 | |||||||||||||||
| Papago Tech | 100.0 | % | 163 | 100.0 | % | $ | 21.85 | $ | 21.85 | $ | 3,556 | |||||||||||||||
Denver, CO (18.3%) | Cherry Creek | 100.0 | % | 356 | 100.0 | % | $ | 18.53 | $ | 18.53 | $ | 6,591 | ||||||||||||||
| Circle Point | 100.0 | % | 272 | 98.8 | % | $ | 17.46 | $ | 30.36 | $ | 4,692 | |||||||||||||||
| DTC Crossroads | 100.0 | % | 189 | 53.7 | % | $ | 26.24 | $ | 26.24 | $ | 2,665 | |||||||||||||||
| Superior Pointe | 100.0 | % | 151 | 96.5 | % | $ | 17.66 | $ | 29.17 | $ | 2,579 | |||||||||||||||
| Logan Tower | 100.0 | % | 72 | 73.3 | % | $ | 21.62 | $ | 21.62 | $ | 1,139 | |||||||||||||||
Tampa, FL (18.2%) | Park Tower | 94.8 | % | 471 | 93.5 | % | $ | 24.45 | $ | 24.45 | $ | 10,761 | ||||||||||||||
| City Center | 95.0 | % | 241 | 94.7 | % | $ | 25.40 | $ | 25.40 | $ | 5,807 | |||||||||||||||
| Intellicenter | 100.0 | % | 204 | 100.0 | % | $ | 23.99 | $ | 23.99 | $ | 4,881 | |||||||||||||||
| Carillon Point | 100.0 | % | 124 | 100.0 | % | $ | 28.06 | $ | 28.06 | $ | 3,485 | |||||||||||||||
Orlando, FL (12.6%) | FRP Collection | 95.0 | % | 272 | 84.5 | % | $ | 24.29 | $ | 26.17 | $ | 5,575 | ||||||||||||||
| Central Fairwinds | 97.0 | % | 168 | 89.5 | % | $ | 24.49 | $ | 24.49 | $ | 3,685 | |||||||||||||||
| Greenwood Blvd | 100.0 | % | 155 | 100.0 | % | $ | 22.75 | $ | 22.75 | $ | 3,527 | |||||||||||||||
| FRP Ingenuity Drive | 100.0 | % | 125 | 100.0 | % | $ | 21.50 | $ | 29.50 | $ | 2,677 | |||||||||||||||
San Diego, CA (10.2%) | Sorrento Mesa | 100.0 | % | 296 | 85.3 | % | $ | 25.19 | $ | 31.19 | $ | 6,360 | ||||||||||||||
| Mission City | 100.0 | % | 286 | 95.6 | % | $ | 35.14 | $ | 35.14 | $ | 9,603 | |||||||||||||||
Dallas, TX (10.1%) | 190 Office Center | 100.0 | % | 303 | 89.5 | % | $ | 25.64 | $ | 25.64 | $ | 6,960 | ||||||||||||||
| Lake Vista Pointe | 100.0 | % | 163 | 100.0 | % | $ | 16.00 | $ | 24.00 | $ | 2,613 | |||||||||||||||
| 2525 McKinnon | 100.0 | % | 111 | 90.4 | % | $ | 28.04 | $ | 45.04 | $ | 2,822 | |||||||||||||||
Portland, OR (5.8%) | AmberGlen | 76.0 | % | 201 | 96.9 | % | $ | 21.30 | $ | 23.89 | $ | 4,151 | ||||||||||||||
| Cascade Station | 100.0 | % | 128 | 100.0 | % | $ | 26.37 | $ | 32.38 | $ | 3,363 | |||||||||||||||
Seattle, WA (3.5%) | Canyon Park | 100.0 | % | 207 | 100.0 | % | $ | 21.20 | $ | 29.20 | $ | 4,384 | ||||||||||||||
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Total / Weighted Average – June 30, 2019(3) | 5,708 | 93.4 | % | $ | 24.36 | $ | 27.00 | $ | 129,797 | |||||||||||||||||
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| (1) | For |
| (2) | Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended |
| (3) | Averages weighted based on the property’s NRA, adjusted for occupancy |
Operating Expenses
Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants’ base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.
Conditions in Our Markets
Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance.
Summary of Significant Accounting Policies
The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form10-K for the year ended December 31, 2018 except for the adoption of Accounting Standards Update (“ASU”)2016-02, Leases (Topic 842) as outlined in Note 2 of the condensed consolidated financial statements.
Results of Operations
Comparison of Three Months Ended March 31,June 30, 2019 to Three Months Ended March 31,June 30, 2018
Rental and Other Revenues. Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $5.6$11.0 million, or 18%36%, to $37.1$41.2 million for the three months ended March 31,June 30, 2019 compared to $31.5$30.2 million for the three months ended March 31,June 30, 2018. Of this increase, $1.8$2.1 million was attributable to the acquisition of Pima Center in April 2018, $2.0 million from the acquisition of Circle Point in July 2018, $1.4 million was from the acquisition of The Quad in July 2018, $1.2 million was from the acquisition of Greenwood Blvd in December 2018, $1.2 million was from the acquisition of Camelback Square in December 2018, and $0.6$1.4 million was from the acquisition of Canyon Park in February 2019 and $0.2 million was from the acquisition of Cascade Station in June 2019. Revenue from Central Fairwinds, Park Tower, Mission City and FRP Collection also increased by $0.1 million, $0.3 million, $0.3 million and $0.1$0.2 million, respectively, as a result of increased average occupancy over the prior year. Offsettingprior-year period. Partially offsetting these increases, Washington Group Plaza decreased by $1.7 million due to the sale of the property in March 2018 and Plaza 25 decreased by $0.4$0.7 million due to the sale of the property in February 2019. Revenue from DTC Crossroads decreased $0.3 million as a result of decreased occupancy over the prior year and Sorrento Mesa also decreased by $1.1 million as a result of the termination fee payment received in the prior year. The remaining properties’ revenues were modestly higher in comparison to the prior yearprior-year period primarily as a result of modestmark-to-market increases in rents upon renewal. Other revenues benefited from aone-time payment of $2.6 million received as consideration for the assignment of a purchase contract. The assignment fee originated through our administrative services relationship. Upon adoption of Topic 842, prior year amounts disclosed in rental income, expense reimbursement, and other have been combined into a single line to conform to current period presentation.
Operating Expenses
Total Operating Expenses. Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $5.1$7.0 million, or 20%27%, to $30.6$32.5 million for the three months ended March 31,June 30, 2019, from $25.5 million for the same period inthree months ended June 30, 2018, primarily due to the acquisitions described above. Total operating expenses increased by $1.9 million, $0.9 million, $0.8 million, $1.1 million, $0.7 million and $0.2 million, respectively, from the acquisitions of Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station properties. Park Tower operating expenses also increased by $0.3 million due to the higher occupancy at that property. Plaza 25 operating expenses decreased by $0.8 million due to its sale in February 2019. General and Administrative Expenses increased by approximately $1.4 million, of which $1.1 million was the result ofone-time expenses and accruals incurred as a result of the assignment fee income earned during the quarter and the balance related to higher payroll costs. The remaining operating expenses were modestly higher in comparison to the prior year primarily due to higher occupancy at the properties.
Property Operating Expenses. Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance andre-leasing costs. Property operating expenses increased $2.8 million, or 24%, to $14.5 million for the three months ended June 30, 2019 from $11.7 million for the three months ended June 30, 2018. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station contributed an additional $0.9 million, $0.3 million, $0.4 million, $0.4 million, $0.2 million and $0.1 million, respectively, in additional property operating expenses. Park Tower operating expenses also increased by $0.2 million due to the higher occupancy at that property. Plaza 25 decreased by $0.4 million due to the sale of that property in February 2019. The remaining property operating expenses aggregate to a net $0.7 million increase in comparison to the prior-year period.
General and Administrative. General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and board of directors as well asnon-cash stock-based compensation expenses. General and administrative expenses increased $1.4 million, or 71%, to $3.4 million for the three months ended June 30, 2019 compared to $2.0 million for the three months ended June 30, 2018. Of this increase, $1.1 million can be attributed to theone-time expenses and accruals incurred as a result of the assignment fee income earned during the quarter as described above and the balance of the increase is primarily attributable to higher payroll costs.
Depreciation and Amortization. Depreciation and amortization increased $2.8 million, or 24%, to $14.6 million for the three months ended June 30, 2019 compared to $11.8 million for the three months ended June 30, 2018, primarily due to the addition of the Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station properties partially offset by a decrease at Plaza 25 due to the sale of the property.
Other Expense (Income)
Interest Expense. Interest expense increased $2.4 million, or 44%, to $7.8 million for the three months ended June 30, 2019, compared to $5.4 million for the three months ended June 30, 2018. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Circle Point, The Quad, Greenwood Blvd, Canyon Park and Cascade Station property level debt increased by $0.5 million, $0.3 million, $0.3 million, $0.4 million and $0.1 million, respectively, and the interest on the line of credit increased by $1.1 million as a result of acquisitions funded by our $250 million Unsecured Credit Facility. These increases were partially offset by a $0.2 million decrease in the Plaza 25 debt as a result of its sale and the extinguishment of its property level debt.
Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018
Rental and Other Revenues. Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $16.5 million, or 27%, to $78.3 million for the six months ended June 30, 2019 compared to $61.8 million for the six months ended June 30, 2018. Of this increase, $1.8 million was attributable to the acquisition of Pima Center in April 2018, $4.1 million from the acquisition of Circle Point in July 2018, $2.8 million from the acquisition of The Quad in July 2018, $2.3 million from the acquisition of Greenwood Blvd in December 2018, $2.4 million from the acquisition of Camelback Square in December 2018, $2.0 million from the acquisition of Canyon Park in February 2019 and $0.2 million from the acquisition of Cascade Station in June 2019. Revenue from Central Fairwinds, Park Tower, Mission City and FRP Collection also increased by $0.4 million, $0.7 million, $0.4 million and $0.3 million, respectively, as a result of increased average occupancy over the prior year. Partially offsetting these increases, Washington Group Plaza decreased by $1.7 million due to the sale of the property in March 2018 and Plaza 25 decreased by $1.0 million due to the sale of the property in February 2019. Revenue from DTC Crossroads decreased $0.4 million as a result of decreased occupancy over the prior year and Sorrento Mesa also decreased by $1.2 million as a result of the termination fee payment received in the prior year. The remaining properties’ revenues were modestly higher in comparison to the prior year primarily as a result of modestmark-to-market increases in rents upon renewal. Other Revenues benefited from aone-time payment of $2.6 million received as consideration for the assignment of a purchase contract. The assignment fee originated through our administrative services relationship. Upon adoption of Topic 842, prior year amounts disclosed in rental income, expense reimbursement, and other have been combined into a single line to conform to current period presentation.
Operating Expenses
Total Operating Expenses. Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $12.1 million, or 24%, to $63.1 million for the six months ended June 30, 2019, from $51.0 million for the six months ended June 30, 2018, primarily due to the acquisitions described above. Total operating expenses increased by $1.8 million, $2.0$4.0 million, $0.9$1.9 million, $0.7$1.5 million, $2.1 million, $1.0 million and $0.3$0.2 million, respectively, from the acquisitions of Pima Center, Circle Point, The Quad, Greenwood Blvd, Camelback Square, and Canyon Park and Cascade Station properties. Park Tower operating expenses also increased by $0.5 million due to the higher occupancy at that property. Washington Group Plaza operating expenses decreased by $0.8 million due to its sale in March 2018 and Plaza 25 operating expenses decreased by $0.6$1.3 million due to its sale in February 2019. The remaining operating expenses were relatively unchangedmodestly higher in comparison to the prior year.prior-year period primarily due to higher occupancy at the properties.
Property Operating Expenses. Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and
marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance andre-leasing costs. Property operating expenses increased $2.2$5.0 million, or 19%21%, to $13.8$28.4 million for the threesix months ended March 31,June 30, 2019 from $11.6$23.4 million for the same period insix months ended June 30, 2018. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Pima Center, Circle Point, The Quad, Greenwood Blvd, Camelback Square, and Canyon Park and Cascade Station contributed an additional $0.6 million, $1.0$2.0 million, $0.4$0.7 million, $0.4$0.8 million, $0.7 million, $0.3 million and $0.1 million, respectively, in additional property operating expenses. Park Tower operating expenses respectively.also increased by $0.2 million due to the higher occupancy at that property. Washington Group Plaza decreased by $0.8 million due to the sale of that property in March 2018 and Plaza 25 decreased by $0.2$0.7 million due to the sale of that property in February 2019. The remaining property operating expenses aggregate to an overall $0.4$1.1 million increase in comparison to the prior year.prior-year period.
General and Administrative. General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and board of directors as well asnon-cash stock-based compensation expenses. General and administrative expenses increased $0.3$1.8 million, or 16%44%, to $2.3$5.7 million for the threesix months ended March 31,June 30, 2019 compared to $2.0$3.9 million for the same period insix months ended June 30, 2018. TheOf this increase, $1.1 million can be attributed to theone-time expenses and accruals incurred as a result of the assignment fee income earned during the six months ended June 30, 2019 as described above and the balance of the increase was primarily attributable to higher payroll costs.
Depreciation and Amortization. Depreciation and amortization increased $2.5$5.3 million, or 21%23%, to $14.4$29.0 million for the yearsix months ended March 31,June 30, 2019 compared to $11.9$23.7 million for the same period insix months ended June 30, 2018, primarily due to the addition of the Papago Tech, Pima Center, Circle Point, The Quad, Greenwood Blvd, Camelback Square, and Canyon Park and Cascade Station properties and partially offset by a decrease at Washington Group Plaza and Plaza 25 due to the sale of those properties.
Other Expense (Income)
Interest Expense. Interest expense increased $1.7$4.0 million, or 29%36%, to $7.5$15.3 million for the threesix months ended March 31,June 30, 2019, compared to $5.8$11.3 million for the corresponding period insix months ended June 30, 2018. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Circle Point, The Quad, Greenwood Blvd, and Canyon Park and Cascade Station property level debt increased by $0.9 million, $0.6 million, $0.5 million, $0.3 million, $0.3$0.6 million and $0.1 million, respectively, and the interest on the line of credit increased by $0.9$2.0 million as a result of acquisitions funded by our $250 million Unsecured Credit Facility (“Unsecured Credit Facility”).Facility. These increases were partially offset by a $0.2 million and $0.2$0.4 million, respective decrease in the Washington Group Plaza and Plaza 25 debt as a result of the sale of those properties and the extinguishment of its property level debt.
Cash Flows
Comparison of ThreeSix Months Ended March 31,June 30, 2019 to ThreeSix Months Ended March 31,June 30, 2018
Cash, cash equivalents and restricted cash were $37.0$30.9 million and $38.9$32.6 million as of March 31,June 30, 2019 and March 31,June 30, 2018, respectively.
Cash flow from operating activities.Net cash provided by operating activities increased by $1.0$7.2 million to $2.8$18.6 million for the threesix months ended March 31,June 30, 2019 compared to $1.8$11.4 million for the same period insix months ended June 30, 2018. The increase was primarily attributable to increased operating cash flows from acquisitions.acquired properties.
Cash flow to investing activities. Net cash used in investing activities increased by $117.7$56.8 million to $36.7$38.6 million for the threesix months ended March 31,June 30, 2019 compared to $81.0$18.2 million provided by investing activities for the same period insix months ended June 30, 2018. The increase in cash used in investing activities was primarily due to the acquisition of Canyon Park and Cascade Station in the first quarter 2019. Additionally, we realized lower proceeds from the sale of real estate in the first quarter 2019 compared to the first quarter 2018, which included proceeds from the sale of Washington Group Plaza in 2018.
Cash flow from financing activities.Net cash provided by financing activities increased by $116.7$49.5 million to $37.8$17.6 million for the threesix months ended March 31,June 30, 2019 compared to $78.9$31.9 million used in financing activities in the same period insix months ended June 30, 2018. Cash flow provided by financing activities increased primarily due to higher net proceeds from mortgage loans payable compared to 2018 and lower repayments of mortgage loans payable compared to 2018. The increase was partially offset by lower proceeds from credit facility borrowings in 2019 compared to 2018.
Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately $15.3$11.6 million of cash and cash equivalents and $21.7$19.3 million of restricted cash as of March 31,June 30, 2019.
On March 15, 2018 the Company entered into a $250 million Unsecured Credit Facility, which includes an accordion feature that allows the Company to borrow up to $500 million, subject to customary terms and conditions. The Company’s previous secured credit facility was replaced and repaid in full from the proceeds of our Unsecured Credit Facility. Our Unsecured Credit Facility matures in March 2022, whichand may be extended to March 2023 at the Company’s option upon meeting certain conditions. Borrowings under our Unsecured Credit Facility bear an interest at a rate equal to the LIBOR rate plus a margin of between 140 to 225 basis points depending upon the Company’s consolidated leverage ratio. As of March 31,June 30, 2019, we had approximately $157.5$150.0 million outstanding under our Unsecured Credit Facility and a $5.3 million letter of credit to satisfy escrow requirements for a mortgage lender.
The Company and the Operating Partnership previously entered into the amended equity distribution agreements (collectively, the “EDAs”) with the sales agents named therein (collectively, the “Sales Agents”), pursuant to which the Company may issue and sell from time to time up to 6,000,0008,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals. Pursuant to the EDAs, the shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange or, with the prior consent of the Company, in privately negotiated transactions. The Sales Agents will be entitled to compensation of up to 2.0% of the gross proceeds of shares sold through the Sales Agents from time to time under the EDAs. The Company has no obligation to sell any of the shares under the EDAs and may at any time suspend solicitations and offers under, or terminate, the EDAs. The Company did not make any sales of securities under the EDAs during the six months ended June 30, 2019.
Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, reserves established from existing cash, proceeds from our public offerings, including under our at the market issuance program, and borrowings under our mortgage loans and our Unsecured Credit Facility.
Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions andnon-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions andnon-recurring capital improvements using our Unsecured Credit Facility pending longer term financing.
We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot assure you that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of March 31,June 30, 2019, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.
| Payments Due by Period(in thousands) | Payments Due by Period(in thousands) | |||||||||||||||||||||||||||||||||||||||
Contractual Obligations | Total | 2019 | 2020-2021 | 2022-2023 | More than 5 years | Total | 2019 | 2020-2021 | 2022-2023 | More than 5 years | ||||||||||||||||||||||||||||||
Principal payments on mortgage loans | $ | 701,219 | $ | 3,712 | $ | 94,588 | $ | 210,692 | $ | 392,227 | $ | 715,003 | $ | 2,692 | $ | 95,311 | $ | 203,987 | $ | 413,013 | ||||||||||||||||||||
Interest payments(1) | 165,881 | 22,255 | 56,519 | 38,745 | 48,362 | 162,109 | 15,110 | 57,650 | 40,589 | 48,760 | ||||||||||||||||||||||||||||||
Tenant-related commitments | 13,583 | 12,468 | 516 | 599 | — | 10,907 | 5,890 | 4,418 | 599 | — | ||||||||||||||||||||||||||||||
Operating lease obligations | 30,600 | 360 | 1,563 | 1,400 | 27,277 | |||||||||||||||||||||||||||||||||||
Operating and financing lease obligations | 30,641 | 316 | 1,617 | 1,431 | 27,277 | |||||||||||||||||||||||||||||||||||
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Total | $ | 911,283 | $ | 38,795 | $ | 153,186 | $ | 251,436 | $ | 467,866 | $ | 918,660 | $ | 24,008 | $ | 158,996 | $ | 246,606 | $ | 489,050 | ||||||||||||||||||||
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| (1) | Contracted interest on the floating rate debt was calculated based on our Unsecured Credit Facility balance and interest rate at |
Off-Balance Sheet Arrangements
As of March 31,June 30, 2019, we had a $5.3 million letter of credit outstanding under our Unsecured Credit Facility to satisfy escrow requirements for a mortgage lender.
Inflation
Substantially all of our office leases provide for real estate tax and operating expense escalations. In addition, most of the leases provide for fixed annual rent increases. We believe that inflationary increases may be at least partially offset by these contractual rent increases and expense escalations.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We have used, and will use, derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. As of March 31,June 30, 2019, our Company did not have any outstanding derivatives.
The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. We consider our interest rate exposure to be minimal because as of March 31,June 30, 2019, approximately $543.7$565.0 million, or 77.5%79.0%, of our debt had fixed interest rates and approximately $157.5$150.0 million, or 22.5%21.0%, had variable interest rates. A
10% increase in LIBOR would increase our annual interest costs by approximately $0.4 million on debt outstanding as of March 31,June 30, 2019, and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility. A 10% decrease in LIBOR would decrease our annual interest costs by approximately $0.4 million on debt outstanding as of March 31,June 30, 2019, and would increase the fair value of our outstanding debt, as well as decrease interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility.
Interest rate risk amounts are our management’s estimates based on our Company’s capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company’s financial structure.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities and Exchange Act of 1934, as amended) were effective as of March 31,June 30, 2019.
Management’s Report on Internal Control Over Financial Reporting
There have been no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 1. | Legal Proceedings |
We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of business. As of March 31,June 30, 2019, management does not believe that any such litigation will have a material adverse effect, individually or in the aggregate, on our financial position or results of operations.
| Item 1A. | Risk Factors |
There have been no material changes fromThe following risk factor replaces the risk factorsfactor disclosed under a similar heading in the section entitled “Risk Factors” of our Annual Report onForm10-K for for the year ended December 31, 2018. Except as presented below, there have been no material changes from the risk factors set forth in such Annual Report.
Our commitments to Second City Real Estate II Corporation (“Second City”), Clarity Real Estate III GP, Limited Partnership (“Clarity RE”), Clarity Real Estate Ventures GP, Limited Partnership (together with Clarity RE, “Clarity”), and their respective affiliates may give rise to various conflicts of interest.
We are subject to conflicts of interest arising out of our relationship with Second City and Clarity. As a result of the internalization of our former external advisor on February 1, 2016, we agreed to allow our management to continue to provide services to Second City under the terms of an administrative services agreement. In addition, the terms of the administrative services agreement and the employment agreements we entered into with each of our executive officers permit, under certain circumstances and subject to the oversight of our Board of Directors, our executive officers to advise or oversee new or additional funds in the future. On July 31, 2019, we, through an indirect, wholly-owned subsidiary, entered into a separate administrative services agreement with Clarity to provide administrative services to Clarity similar to those provided to Second City. These arrangements with Second City and Clarity may create potential conflicts of interests, including competition for the time and services of personnel that work for us and our affiliates
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.On July 31, 2019, CIO Administrative Services, LLC (the “Service Provider”), an indirect, wholly-owned subsidiary of the Company, entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Clarity Real Estate III GP, Limited Partnership and Clarity Real Estate Ventures GP, Limited Partnership (collectively with their affiliates, “Clarity”), entities affiliated with the Company. James Farrar, the Company’s Chief Executive Officer, and Gregory Tylee, the Company’s President and Chief Operating Officer, are officers of the general partners of the Clarity funds and own equity interests in the Clarity funds. Pursuant to the Administrative Services Agreement, the Service Provider will provide various administrative services and support to Clarity as set forth in the Administrative Services Agreement. The annual payments made by Clarity to the Service Provider for these services under the Administrative Services Agreement will be a percentage of the management fees received by Clarity from Clarity’s managed funds and affiliates under Clarity’s governance documents according to a formula set forth in the Administrative Services Agreement.
In conjunction with the Company’s entry into the Administrative Services Agreement, on July 31, 2019, the Company, through a wholly-owned subsidiary, entered into an amendment to the Company’s employment agreements (collectively, the “Employment Agreement Amendments”) with each of James Farrar, the Company’s
Chief Executive Officer, Greg Tylee, the Company’s President and Chief Operating Officer, and Anthony Maretic, the Company’s Chief Financial Officer, Secretary and Treasurer. The Employment Agreement Amendments clarify that the Company’s executive officers may participate in the organization and administration of Clarity.
A committee consisting solely of the independent members of the Company’s Board of Directors approved the Company’s entry into the Administrative Services Agreement and the Employment Agreement Amendments. The foregoing descriptions of the Administrative Services Agreement and the Employment Agreement Amendments are not complete. Reference is made to the full text of the Administrative Services Agreement and each of the Employment Agreement Amendments filed as Exhibit 10.2, Exhibit 10.3, Exhibit 10.4, and Exhibit 10.5, respectively, to this Quarterly Report onForm 10-Q.
| Item 6. | Exhibits |
| † | Filed herewith. |
| * | Compensatory Plan or arrangement |
| ** | Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CITY OFFICE REIT, INC.
| Date: | ||||||
| By: | /s/ James Farrar | |||||
| James Farrar | ||||||
Chief Executive Officer and Director | ||||||
| (Principal Executive Officer) | ||||||
| Date: | ||||||
| By: | /s/ Anthony Maretic | |||||
| Anthony Maretic | ||||||
Chief Financial Officer, Secretary and Treasurer | ||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||
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