UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM

10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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		(I.R.S. Employer
of incorporation or organization)		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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of each Exchange on Which Registered
Common Stock, $0.01 par value 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share	“CIO” “CIO.PrA”	New York Stock Exchange New York Stock Exchange

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 Regulation

S-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, a

non-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 Rule

12b-2

of the Exchange Act.

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 Rule

12b-2

of the Exchange Act). Yes ☐ ☒ No

The number of shares of Common Stock, $0.01 par value, of the registrant

outstanding at ~~November~~May 2, ~~2022~~2023 was

~~was 39,718,767.~~39,938,451

Table of Contents

City Office REIT, Inc.

Quarterly Report on Form

10-Q

For the Quarter Ended ~~September 30, 2022~~March 31, 2023

Table of Contents


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements			1

~~Item 1. Financial Statements~~Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022			1

~~Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021~~			1

Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~			2

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~			3

Condensed Consolidated Statements of Changes in Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~			4

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~			5

Notes to Condensed Consolidated Financial Statements			6

~~Notes to Condensed Consolidated Financial Statements~~			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1715

Item 3. Quantitative and Qualitative Disclosures about Market Risk			2723

Item 4. Controls and Procedures			2724

PART II. OTHER INFORMATION			2825

Item 1. Legal Proceedings			2825

Item 1A. Risk Factors			2825

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2825

Item 3. Defaults Upon Senior Securities			2925

Item 4. Mine Safety Disclosures			2925

Item 5. Other Information			2925

Item 6. Exhibits			2925

Signatures			3127

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

City Office REIT, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value and share data)

September 30,

2022

December 31,
2021

Assets

Real estate properties

Land
   $ 200,686 $ 204,801
Building and improvement
   1,233,713 1,244,177
Tenant improvement
   134,785 119,011
Furniture, fixtures and equipment
   673 664


   1,569,857 1,568,653
Accumulated depreciation
   (178,237 ) (157,356 )


   1,391,620 1,411,297


Cash and cash equivalents
   22,012 21,321
Restricted cash
   19,669 20,945
Rents receivable, net
   39,700 30,415
Deferred leasing costs, net
   22,060 20,327
Acquired lease intangible assets, net
   58,580 68,925
Other assets
   30,638 28,283


Total Assets
   $ 1,584,279 $ 1,601,513


Liabilities and Equity

Liabilities:

Debt
   $ 676,116 $ 653,648
Accounts payable and accrued liabilities
   38,091 27,101
Deferred rent
   8,921 11,600
Tenant rent deposits
   7,014 6,165
Acquired lease intangible liabilities, net
   9,602 10,872
Other liabilities
   20,199 21,532


Total Liabilities
   759,943 730,918


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 as of September 30, 2022 and December 31, 2021
   112,000 112,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,718,767 and 43,554,375 shares issued and outstanding as of September 30, 2022 and December 31, 2021
   397 435
Additional
paid-in
capital
   435,086 482,061
Retained earnings
   273,843 275,502
Accumulated other comprehensive income/(loss)
   2,819 (382 )


Total Stockholders’ Equity
   824,145 869,616
Non-controlling
interests in properties
   191 979


Total Equity
   824,336 870,595


Total Liabilities and Equity
   $ 1,584,279 $ 1,601,513


	March 31, 2023			December 31, 2022
Assets
Real estate properties
Land	$	199,537		$	199,537
Building and improvement		1,217,036			1,215,000
Tenant improvement		142,188			139,365
Furniture, fixtures and equipment		689			689

		1,559,450			1,554,591
Accumulated depreciation		(186,143	)		(175,720	)

		1,373,307			1,378,871

Cash and cash equivalents		35,854			28,187
Restricted cash		16,385			16,075
Rents receivable, net		46,758			44,429
Deferred leasing costs, net		21,841			21,989
Acquired lease intangible assets, net		52,692			55,438
Other assets		29,039			29,450

Total Assets	$	1,575,876		$	1,574,439

Liabilities and Equity
Liabilities:
Debt	$	708,481		$	690,099
Accounts payable and accrued liabilities		29,527			35,753
Deferred rent		8,869			9,147
Tenant rent deposits		7,177			7,040
Acquired lease intangible liabilities, net		8,781			9,150
Other liabilities		21,522			20,076

Total Liabilities		784,357			771,265

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 as of March 31, 2023 and December 31, 2022		112,000			112,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,938,451 and 39,718,767 shares issued and outstanding as of March 31, 2023 and December 31, 2022		399			397
Additional paid-in capital		435,626			436,161
Retained earnings		242,318			251,542
Accumulated other comprehensive income		789			2,731

Total Stockholders’ Equity		791,132			802,831
Non-controlling interests in properties		387			343

Total Equity		791,519			803,174

Total Liabilities and Equity	$	1,575,876		$	1,574,439

The accompanying notes are an integral part of these condensed consolidated financial statements

Table of Contents

City Office REIT, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	Three Months Ended March 31,
	2023			2022
Rental and other revenues	$	45,957		$	44,852
Operating expenses:
Property operating expenses		17,720			16,489
General and administrative		3,765			3,456
Depreciation and amortization		15,304			15,815

Total operating expenses		36,789			35,760

Operating income		9,168			9,092
Interest expense:
Contractual interest expense		(7,972	)		(5,747	)
Amortization of deferred financing costs and debt fair value		(323	)		(312	)

		(8,295	)		(6,059	)
Net gain on sale of real estate property		—			21,658

Net income		873			24,691
Less:
Net income attributable to non-controlling interests in properties		(169	)		(171	)

Net income attributable to the Company		704			24,520
Preferred stock distributions		(1,855	)		(1,855	)

Net (loss)/income attributable to common stockholders	$	(1,151	)	$	22,665

Net (loss)/income per common share:
Basic	$	(0.03	)	$	0.52

Diluted	$	(0.03	)	$	0.51

Weighted average common shares outstanding:
Basic		39,873			43,554

Diluted		39,873			44,406

Dividend distributions declared per common share	$	0.20		$	0.20

The accompanying notes are an integral part of these condensed consolidated financial statements

Table of Contents

City Office REIT, Inc.

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

  Retained
earnings

Accumulated
other
comprehensive
(loss)/income

Total
stockholders’
equity

Non-controlling

interests in
properties

Total
equity

Balance—December 31, 2021
4,480 $ 112,000 43,554 $ 435 $ 482,061 $ 275,502 $ (382 ) $ 869,616 $ 979 $ 870,595
Restricted stock award grants and vesting
—   —   —   —   972 (68 ) —   904 —   904
Common stock dividend distribution declared
—   —   —   —   —   (8,711 ) —   (8,711 ) —   (8,711 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Contributions
—   —   —   —   —   —   —   —   3 3
Distributions
—   —   —   —   —   —   —   —   (254 ) (254 )
Net income
—   —   —   —   —   24,520 —   24,520 171 24,691
Other comprehensive income
—   —   —   —   —   —   1,754 1,754 —   1,754

Balance—March 31, 2022
4,480 $ 112,000 43,554 $ 435 $ 483,033 $ 289,388 $ 1,372 $ 886,228 $ 899 $ 887,127

Restricted stock award grants and vesting
—   —   171 2 1,020 (117 ) —   905 —   905
Common stock repurchased
—   —   (395 ) (4 ) (4,996 ) —   —   (5,000 ) —   (5,000 )
Common stock dividend distribution declared
—   —   —   —   —   (8,580 ) —   (8,580 ) —   (8,580 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Distributions
—   —   —   —   —   —   —   —   (180 ) (180 )
Net income
—   —   —   —   —   2,899 —   2,899 164 3,063
Other comprehensive income
—   —   —   —   —   —   513 513 —   513

Balance—June 30, 2022
4,480 $ 112,000 43,330 $ 433 $ 479,057 $ 281,735 $ 1,885 $ 875,110 $ 883 $ 875,993

Restricted stock award grants and vesting
—   —   —   —   1,075 (83 ) —   992 —   992
Common stock repurchased
—   —   (3,612 ) (36 ) (45,046 ) —   —   (45,082 ) —   (45,082 )
Common stock dividend distribution declared
—   —   —   —   —   (7,943 ) —   (7,943 ) —   (7,943 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Contributions
—   —   —   —   —   —   —   —   27 27
Distributions
—   —   —   —   —   —   —   —   (894 ) (894 )
Net income
—   —   —   —   —   1,989 —   1,989 175 2,164
Other comprehensive income
—   —   —   —   —   —   934 934 —   934

Balance—September 30, 2022
4,480 $ 112,000 39,718 $ 397 $ 435,086 $ 273,843    $ 2,819 $ 824,145 $ 191 $ 824,336


	Number of shares of preferred stock		Preferred stock		Number of shares of common stock		Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income			Total stockholders’ equity			Non-controlling interests in properties			Total equity
Balance—December 31, 2022		4,480	$	112,000		39,718	$	397	$	436,161		$	251,542		$	2,731		$	802,831		$	343		$	803,174
Restricted stock award grants and vesting		—		—		220		2		(535	)		(85	)		—			(618	)		—			(618	)
Common stock dividend distribution declared		—		—		—		—		—			(7,988	)		—			(7,988	)		—			(7,988	)
Preferred stock dividend distribution declared		—		—		—		—		—			(1,855	)		—			(1,855	)		—			(1,855	)
Contributions		—		—		—		—		—			—			—			—			110			110
Distributions		—		—		—		—		—			—			—			—			(235	)		(235	)
Net income		—		—		—		—		—			704			—			704			169			873
Other comprehensive loss		—		—		—		—		—			—			(1,942	)		(1,942	)		—			(1,942	)

Balance—March 31, 2023		4,480	$	112,000		39,938	$	399	$	435,626		$	242,318		$	789		$	791,132		$	387		$	791,519

Number
of shares
of
preferred
stock

Preferred
stock

Number
of
shares of
common
stock

Common
stock

Additional
paid-in

capital

Accumulated
deficit

Accumulated
other
comprehensive
loss

Total
stockholders’
equity

Non-controlling

interests in
properties

Total
equity

Balance—December 31, 2020
4,480 $ 112,000 43,397 $ 433 $ 479,411 $ (172,958 ) $ (1,960 ) $ 416,926 $ 949 $ 417,875
Restricted stock award grants and vesting
—   —   —   —   695 (50 ) —   645 —   645
Common stock dividend distribution declared
—   —   —   —   —   (6,510 ) —   (6,510 ) —   (6,510 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Distributions
—   —   —   —   —   —   —   —   (220 ) (220 )
Net income
—   —   —   —   —   48,817 —   48,817 192 49,009
Other comprehensive income
—   —   —   —   —   —   669 669 —   669

Balance—March 31, 2021
4,480 $ 112,000 43,397 $ 433 $ 480,106 $ (132,556 ) $ (1,291 ) $ 458,692 $ 921 $ 459,613

Restricted stock award grants and vesting
—   —   157 2 523 (76 ) —   449 —   449
Common stock dividend distribution declared
—   —   —   —   —   (6,533 ) —   (6,533 ) —   (6,533 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Contributions
—   —   —   —   —   —   —   —   2 2
Distributions
—   —   —   —   —   —   —   —   (204 ) (204 )
Net income
—   —   —   —   —   1,662 —   1,662 190 1,852
Other comprehensive income
—   —   —   —   —   —   100 100 —   100

Balance—June 30, 2021
4,480 $ 112,000 43,554 $ 435 $ 480,629 $ (139,358 ) $ (1,191 ) $ 452,515 $ 909 $ 453,424

Restricted stock award grants and vesting
—   —   —   —   716 (50 ) —   666 —   666
Common stock dividend distribution declared
—   —   —   —   —   (6,533 ) —   (6,533 ) —   (6,533 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Contributions
—   —   —   —   —   —   —   —   10 10
Distributions
—   —   —   —   —   —   —   —   (536 ) (536 )
Net income
—   —   —   —   —   866 —   866 378 1,244
Other comprehensive income
—   —   —   —   —   —   128 128 —   128

Balance—September 30, 2021
4,480 $ 112,000 43,554 $ 435 $ 481,345 $ (146,930 ) $ (1,063 ) $ 445,787 $ 761 $ 446,548

City Office REIT, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Nine Months Ended

September 30,


2022

2021

Cash Flows from Operating Activities:

Net income
   $ 29,918 $ 52,105
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   47,072 44,017
Amortization of deferred financing costs and debt fair value
   917 869
Amortization of above and below market leases
   70 281
Straight-line rent/expense
   (6,697 ) 428
Non-cash
stock compensation
   2,887 1,976
Receipts from sales-type lease
   43,549 —
Net gain on sale of real estate property
   (21,658 ) (47,400 )
Changes in
non-cash
working capital:

Rents receivable, net
   (3,895 ) 635
Other assets
   (158 ) (560 )
Accounts payable and accrued liabilities
   6,977 8,558
Deferred rent
   (2,679 ) 3,468
Tenant rent deposits
   849 1,354


Net Cash Provided By Operating Activities
   97,152 65,731


Cash Flows (to)/from Investing Activities:

Additions to real estate properties
   (28,533 ) (12,431 )
Acquisition of real estate
   —   (43,256 )
Net proceeds from sale of real estate
   —   122,103
Deferred leasing costs
   (7,698 ) (6,830 )


Net Cash (Used In)/Provided By Investing Activities
   (36,231 ) 59,586


Cash Flows to Financing Activities:

Proceeds from borrowings
   82,000 106,000
Repayment of borrowings
   (60,472 ) (180,806 )
Dividend distributions paid to stockholders
   (31,567 ) (25,117 )
Repurchases of common stock
   (50,082 ) —
Distributions to
non-controlling
interests in properties
   (1,328 ) (960 )
Shares withheld for payment of taxes on restricted stock unit vesting
   (87 ) (216 )
Contributions from
non-controlling
interests in properties
   30 12


Net Cash Used In Financing Activities
   (61,506 ) (101,087 )


Net (Decrease)/ Increase in Cash, Cash Equivalents and Restricted Cash
   (585 ) 24,230
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
   42,266 45,951


Cash, Cash Equivalents and Restricted Cash, End of Period
   $ 41,681 $ 70,181


Reconciliation of Cash, Cash Equivalents and Restricted Cash:

Cash and Cash Equivalents, End of Period
   22,012 17,697
Restricted Cash, End of Period
   19,669 52,484


Cash, Cash Equivalents and Restricted Cash, End of Period
   $ 41,681 $ 70,181


Supplemental Disclosures of Cash Flow Information:

Cash paid for interest
   $ 16,660 $ 17,568
Purchase of additions in real estate properties included in accounts payable
   $ 10,568 $ 4,804
Purchase of deferred leasing costs included in accounts payable
   $ 1,904 $ 1,351


	Three Months Ended March 31,
	2023			2022
Cash Flows from Operating Activities:
Net income	$	873		$	24,691
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,304			15,815
Amortization of deferred financing costs and debt fair value		323			312
Amortization of above and below market leases		9			63
Straight-line rent/expense		(2,801	)		(2,050	)
Non-cash stock compensation		1,024			904
Net gain on sale of real estate property		—			(21,658	)
Changes in non-cash working capital:
Rents receivable, net		539			(3,844	)
Other assets		(282	)		534
Accounts payable and accrued liabilities		(965	)		35
Deferred rent		(278	)		(436	)
Tenant rent deposits		137			293

Net Cash Provided By Operating Activities		13,883			14,659

Cash Flows to Investing Activities:
Additions to real estate properties		(11,383	)		(6,476	)
Net proceeds from sale of real estate		—			1,000
Deferred leasing costs		(1,037	)		(1,423	)

Net Cash Used In Investing Activities		(12,420	)		(6,899	)

Cash Flows from/(to) Financing Activities:
Debt issuance and extinguishment costs		(236	)		—
Proceeds from borrowings		25,000			14,000
Repayment of borrowings		(6,683	)		(5,564	)
Dividend distributions paid to stockholders		(9,799	)		(10,566	)
Distributions to non-controlling interests in properties		(235	)		(254	)
Shares withheld for payment of taxes on restricted stock unit vesting		(1,643	)		—
Contributions from non-controlling interests in properties		110			3

Net Cash Provided By/(Used In) Financing Activities		6,514			(2,381	)

Net Increase in Cash, Cash Equivalents and Restricted Cash		7,977			5,379
Cash, Cash Equivalents and Restricted Cash, Beginning of Period		44,262			42,266

Cash, Cash Equivalents and Restricted Cash, End of Period	$	52,239		$	47,645

Reconciliation of Cash, Cash Equivalents and Restricted Cash:
Cash and Cash Equivalents, End of Period		35,854			26,742
Restricted Cash, End of Period		16,385			20,903

Cash, Cash Equivalents and Restricted Cash, End of Period	$	52,239		$	47,645

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	7,256		$	5,374
Purchase of additions in real estate properties included in accounts payable	$	7,811		$	10,465
Purchase of deferred leasing costs included in accounts payable	$	1,207		$	3,627

The accompanying notes are an integral part of these condensed consolidated financial statements

City Office REIT, Inc.

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~~prior to 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 (“SEC”) 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 Form

10-K

for the year ended December 31, ~~2021.~~2022.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (the “FASB”) established Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)

No. 2020-04

(“ASU

2020-04”).

ASU

2020-04

provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU

No. 2021-01,

Reference Rate Reform (Topic 848) (“ASU

2021-01”).

ASU

2021-01

~~clarifies~~clarified the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.

ASU

2020-04

and ASU

2021-01

can be applied as of the beginning of the interim period that includes March 12, 2020, however, the guidance will only be available for optional use through December 31, 2022. In ~~October~~December 2022, the FASB issued ~~a tentative decision which would amend~~ASU

No. 2022-06,

Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU

2022-06”).

ASU

2022-06

amends the date the guidance will be available to December 31, 2024. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. ~~The~~During the first quarter of 2023, the Company transitioned its LIBOR-based contracts to SOFR and elected to apply the practical expedients to modifications of qualifying debt contracts and hedging relationships as continuations of the existing contracts, rather than as new contracts. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with past presentation and does not result in dedesignation of hedging relationships. Applying the expedients did not have a material impact on the consolidated financial statements. As of March 31, 2023, the Company has ~~not yet adopted the standard and continues to evaluate the impact of ASU~~

~~2020-04~~no remaining LIBOR-based contracts.

~~and ASU~~

~~2021-01~~

~~on its consolidated financial statements and may elect optional expedients in future periods as reference rate reform activities occur.~~

Table of Contents

~~In July 2021, the FASB issued ASU~~

~~No. 2021-05~~

~~(“ASU~~

~~2021-05”),~~

~~Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. ASU~~

~~2021-05~~

requires lessors to classify a lease with variable lease payments that do not depend on an index or rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under the

~~pre-ASU~~

classification criteria, and sales-type or direct financing classification would result in a Day 1 loss. The ASU is effective for fiscal years beginning after December 15, 2021. The ASU may be early adopted and can be applied either retrospectively to leases that commenced or were modified on or after the adoption of ASU

~~No. 2016-02~~

~~or prospectively to leases that commence or are modified on or after the date that an entity first applies the amendments. The Company adopted ASU~~

~~2021-05~~

~~prospectively on January 1, 2022. The adoption of ASU~~

~~2021-05~~

~~did not have a material impact on the Company’s consolidated financial statements.~~

3. Real Estate Investments

~~Acquisitions~~

~~During the nine months ended September 30, 2022 and 2021 the Company acquired the following properties:~~


~~Property~~	~~Date Acquired~~		~~Percentage Owned~~
~~5910 Pacific Center and 9985 Pacific Heights~~		~~May 2021~~		~~100~~	%

~~The foregoing acquisition was accounted for as an asset acquisition.~~

~~The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the nine months ended September 30, 2021 (in thousands):~~

5910 Pacific
Center and 9985
Pacific Heights

Land
   $ 37,294
Building and improvement
   2,979
Tenant improvement
   917
Lease intangible assets
   2,469
Other assets
   19
Accounts payable and other liabilities
   (319 )
Lease intangible liabilities
   (103 )


Net assets acquired
   $ 43,256

Sale of Real Estate Property

During the first quarter of 2022, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and the Company signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, the Company reassessed the ~~lease~~ classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of ~~$21.7~~ $

21.7

million net of ~~disposal related~~disposal-related costs. On June 15, 2022, the Company sold the Lake Vista Pointe property in Dallas, Texas for a gross sales price of ~~$43.8~~$

43.8

million.

~~February 10, 2021, the Company sold the Cherry Creek property in Denver, Colorado for a gross sales price of $~~

~~95.0~~

~~million, resulting in an aggregate gain of $~~

~~47.4~~

~~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.~~

~~Table of Contents~~

4. Lease Intangibles

Lease intangibles and the value of assumed lease obligations as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were comprised of the following (in thousands):

Lease Intangible Assets

Lease Intangible Liabilities

September 30, 2022

Above

Market
Leases

In Place

Leases

Leasing
Commissions

Total

Below
Market
Leases

Below
Market
Ground
Lease

Total

Cost
   $ 19,478 $ 80,788 $ 35,710 $ 135,976 $ (16,531 ) $ (138 ) $ (16,669 )
Accumulated amortization
   (9,298 ) (50,044 ) (18,054 ) (77,396 ) 7,016 51 7,067


   $ 10,180 $ 30,744 $ 17,656 $ 58,580 $ (9,515 ) $ (87 ) $ (9,602 )


	Lease Intangible Assets												Lease Intangible Liabilities
March 31, 2023	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	18,793		$	77,530		$	33,698		$	130,021		$	(15,091	)	$	(138	)	$	(15,229	)
Accumulated amortization		(9,447	)		(50,218	)		(17,664	)		(77,329	)		6,395			53			6,448

	$	9,346		$	27,312		$	16,034		$	52,692		$	(8,696	)	$	(85	)	$	(8,781	)


	Lease Intangible Assets												Lease Intangible Liabilities
December 31, 2022	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	18,793		$	78,720		$	34,123		$	131,636		$	(15,682	)	$	(138	)	$	(15,820	)
Accumulated amortization		(9,069	)		(49,772	)		(17,357	)		(76,198	)		6,618			52			6,670

	$	9,724		$	28,948		$	16,766		$	55,438		$	(9,064	)	$	(86	)	$	(9,150	)

Lease Intangible Assets

Lease Intangible Liabilities

December 31, 2021

Above

Market
Leases

In Place

Leases

Leasing
Commissions

Total

Below
Market
Leases

Below
Market
Ground
Lease

Total

Cost
   $ 21,147 $ 93,761 $ 39,345 $ 154,253 $ (16,743 ) $ (138 ) $ (16,881 )
Accumulated amortization
   (9,627 ) (56,987 ) (18,714 ) (85,328 ) 5,961 48 6,009


   $ 11,520 $ 36,774 $ 20,631 $ 68,925 $ (10,782 ) $ (90 ) $ (10,872 )

The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):

2022
   $ 2,542
2023
   9,027
2024
   6,695
2025
   6,507
2026
   6,461
Thereafter
   17,746


   $ 48,978


2023	$	6,484
2024		6,660
2025		6,479
2026		6,490
2027		5,217
Thereafter		12,581

	$	43,911

Table of Contents

5. Debt

On January 5, 2023, the Company transitioned the borrowing rate of

its

unsecured credit facility (the “Unsecured Credit Facility”) and $

million term loan from LIBOR to daily-simple SOFR. The Company applied the practical expedients available under the reference rate reform guidance and accounted for the modifications as continuations of the existing contracts.

The following table summarizes the indebtedness as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (dollars in thousands):


Property	September 30, 2022		December 31, 2021		Interest Rate as of September 30, 2022 (1)			Maturity		March 31, 2023			December 31, 2022			Interest Rate as of March 31, 2023 (1)			Maturity
Unsecured Credit Facility ~~(4)~~(5)	$	185,000	$	142,000		LIBOR +1.30	% (2)		November 2025	$	195,713		$	200,500			SOFR +1.40	% (2)		November 2025
Term Loan ~~(3)~~(4)		50,000		50,000		LIBOR +1.25	% (2)		September 2024		50,000			50,000			SOFR +1.35	% (2)		September 2024
Term Loan (5)											25,000			—			SOFR +2.10	% (2)		January 2026
Mission City		47,000		47,000		3.78	%		November 2027		46,646			46,859			3.78	%		November 2027
Canyon Park (5)		39,853		40,381		4.30	%		March 2027
Canyon Park (6)											39,490			39,673			4.30	%		March 2027
Circle Point		39,598		39,650		4.49	%		September 2028		39,280			39,440			4.49	%		September 2028
190 Office Center		39,071		39,581		4.79	%		October 2025
190 Office Center (7)											38,711			38,894			4.79	%		October 2025
SanTan		32,309		32,807		4.56	%		March 2027		31,968			32,140			4.56	%		March 2027
Intellicenter		31,447		31,883		4.65	%		October 2025		31,141			31,297			4.65	%		October 2025
The Quad		30,600		30,600		4.20	%		September 2028		30,600			30,600			4.20	%		September 2028
2525 McKinnon											27,000			27,000			4.24	%		April 2027
FRP Collection		26,974		27,535		3.10	%		September 2023		26,592			26,784			3.10	%		September 2023
Greenwood Blvd											21,263			21,396			3.15	%		December 2025
Cascade Station (8)											21,089			21,192			4.55	%		May 2024
5090 N. 40 th St											20,701			20,810			3.92	%		January 2027
AmberGlen											20,000			20,000			3.69	%		May 2027
Central Fairwinds											16,163			16,273			3.15	%		June 2024
FRP Ingenuity Drive (9)											16,088			16,165			4.44	%		December 2024
Carillon Point											14,668			14,773			3.10	%		October 2023

Total Principal											712,113			693,796
Deferred financing costs, net											(3,786	)		(3,887	)
Unamortized fair value adjustments											154			190

Total										$	708,481		$	690,099

~~Table of Contents~~

Property

September 30,

2022

December 31,

2021

Interest Rate as

of September 30,

2022
(1)

Maturity
2525 McKinnon

27,000

27,000

4.24
%

April 2027
Greenwood Blvd
21,529 21,920 3.15 % December 2025
Cascade Station
21,291 21,581 4.55 % May 2024
5090 N. 40
th
St
20,917 21,233 3.92 % January 2027
AmberGlen
20,000 20,000 3.69 % May 2027
Central Fairwinds
16,383 16,707 3.15 % June 2024
FRP Ingenuity Drive

(6)
16,240 16,457 4.44 % December 2024
Carillon Point
14,877 15,185 3.10 % October 2023
Lake Vista Pointe
(
7
)
— 17,018 — —

Total Principal
680,089 658,538
Deferred financing costs, net
(4,198 ) (5,223 )
Unamortized fair value adjustments
225 333

Total
$ 676,116 $ 653,648

(1)	All interest rates are fixed interest rates with the exception of the Unsecured Credit Facility ~~(the “Unsecured Credit Facility”)~~ and the ~~Term Loan (as defined herein),~~term loans, as explained in footnotes 3, 4 and 45 below.

(2)	As of ~~September 30, 2022,~~March 31, 2023, the ~~one-month~~ ~~LIBOR~~ daily-simple SOFR rate was ~~3.14%~~4.87%.

(3)

In September 2019, the Company entered into a five-year $50 million Term Loan (the “Term Loan”) increasing its authorized borrowings under the Unsecured Credit Facility from $250 million to $300 million. Borrowings under the Term Loan bear interest at a rate equal to the LIBOR rate plus a margin between ~~125~~ to ~~215~~ basis points depending upon the Company’s consolidated leverage ratio. In conjunction with the Term Loan, the Company also entered into a five-year interest rate swap for a notional amount of $50 million (the “Interest Rate Swap”). Pursuant to the Interest Rate Swap, the Company will pay a fixed rate of approximately 1.27% of the notional amount annually, payable monthly, and receive floating rate

~~30-day~~

~~LIBOR payments.~~

~~(4)~~

~~In March 2018, the Company entered into the~~ ~~Credit Agreement~~ for the Unsecured Credit Facility that provides for commitments of up to $250 million, which included an accordion feature that allowed the Company to borrow up to $500 million, subject to customary terms and conditions. On November 16, 2021, the Company entered into an ~~Amended and Restated Credit Agreement~~ for the Unsecured Credit Facility that provides for commitments of up to $300 million. Combined with the Company’s existing five-year Term Loan, the total authorized borrowings increased from $300 million to $350 million. The Unsecured Credit Facility matures in ~~November 2025~~ ~~and may be extended~~ ~~12 months~~ ~~at the Company’s option upon meeting certain conditions.~~ Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the ~~LIBOR~~daily-simple SOFR rate plus a margin of between ~~125~~135 to ~~225~~235 basis points depending upon the Company’s consolidated leverage ratio. On February 9, 2023, the Company entered into a three-year interest rate swap for a notional amount of $140 million, effective March 8, 2023, effectively fixing the SOFR component of the borrowing rate for $140 million of the Unsecured Credit Facility. As of ~~September 30, 2022,~~March 31, 2023, the Unsecured Credit Facility had ~~$185.0~~$195.7 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility matures in November 2025 and may be extended

months at the Company’s option upon meeting certain conditions. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.

(4)

Borrowings under the $50 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 225 basis points depending upon the Company’s consolidated leverage ratio. The SOFR component of the borrowing rate is effectively fixed by a $50 million interest rate swap.

(5)

On January 5, 2023, the Company entered into a second amendment to its amended and restated credit agreement,

dated November 16, 2021 (as amended, the “Amended and Restated Credit Agreement”) for the Unsecured Credit Facility and entered into a three-year

$25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. Borrowings under the $25 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of 210 basis points. In conjunction with the term loan, the Company also entered into a three-year interest rate swap for a notional amount of $25 million, effectively fixing the SOFR component of the borrowing rate of the term loan.

(6)

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 loan’s interest rate shall be adjusted to the greater of (i) the initial interest rate plus 200 basis points or (ii) the yield on the five year “on the run” treasury reported by Bloomberg market data service plus 450 basis points.

~~(6)~~(7)

In the fourth quarter of 2022, a ‘cash-sweep period’ began for the 190 Office Center loan due to the

non-renewal

of the minimum square footage of a major tenant in the building. Under a

‘cash-sweep period’

, property cash flows are directed into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. As of March 31, 2023 and December 31, 2022, total restricted cash for the property was $3.4 million and $3.8 million, respectively.

~~As of September 30, 2022, the Interest Rate Swap was reported as an asset at its fair value of approximately $2.8 million, which is included in other assets on~~

The following table summarizes the Company’s ~~condensed consolidated balance sheet.~~ derivative financial instruments as of March 31, 2023 and December 31, 2022 (in thousands):


	Notional Value		Effective Date		Maturity Date		Fair Value Assets/(Liabilities)
	Notional Value		Effective Date		Maturity Date		March 31, 2023			December 31, 2022
Interest Rate Swap	$	50,000		September 2019		September 2024	$	2,241		$	2,731
Interest Rate Swap		25,000		January 2023		January 2026		(94	)		—
Interest Rate Swap		140,000		March 2023		November 2025		(1,358	)		—

	$	215,000					$	789		$	2,731

For the ~~nine~~three months ended ~~September 30,~~March 31, 2023, approximately $0.5 million of realized gains were reclassified to interest expense due to payments received from the swap counterparty. For the three months ended March 31, 2022, approximately $0.1 million of realized losses were reclassified to interest expense due to payments made to

~~or received from~~

the swap counterparty. ~~For the nine months ended September 30, 2021, approximately $0.4 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty.~~

As of December 31, 2021, the Interest Rate Swap was reported as a liability at its fair value of approximately $0.4 million, which is included in other liabilities on the Company’s condensed consolidated balance sheet.

Cash, Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and ~~Accrued Liabilities~~Accr

ued Lia

bilities

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 ~~$420.4~~$425.6 million and ~~$478.1~~$420.7 million (compared to a carrying value of ~~$445.1~~$441.4 million and ~~$466.5~~$443.3 million) as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, 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 ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company earned ~~$0.4~~$0.1 million and ~~$0.5~~ $0.1

million, respectively, in administrative services performed for Second City Real Estate II Corporation, ~~(“Second City”),~~ Clarity Real Estate Ventures GP, Limited Partnership ~~(“Clarity”)~~ and their affiliates.

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.~~expenses as provided under the lease.

Table of Contents

The Company recognized fixed and variable lease payments for operating leases for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and the three and nine months ended September 30, 2021~~ as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Fixed payments	$	39,117	$	38,963	$	115,746	$	106,825	$	38,914	$	38,320
Variable payments		6,067		5,868		18,687		17,404		6,743		6,440

	$	45,184	$	44,831	$	134,433	$	124,229	$ 45,657		$	44,760

~~The Company recognized interest income of $0.6 million and variable lease payments of $0.2 million for the sales-type lease at the Lake Vista Pointe property for~~

~~the~~

~~nine months ended September 30, 2022.~~

Future minimum lease payments to be received by the Company as of ~~September 30, 2022~~March 31, 2023 under

non-cancellable

operating leases for the next five years and thereafter are as follows (in thousands):


2022	$	31,795
2023		121,218	$	94,066
2024		111,347		118,908
2025		99,896		107,742
2026		91,616		98,598
2027				82,242
Thereafter		285,667		223,165

	$	741,539	$	724,721

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~~

increases rather than variable payments based on an index or unknown rate.

Lessee Accounting

As a lessee, the Company has ground and office leases which are classified as operating and financing leases. As of ~~September 30, 2022,~~March 31, 2023, these leases had remaining terms of under one year to 6665 years and a weighted average remaining lease term of 50 years.

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):


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Right-of-use asset – operating leases	$	13,734	$	14,114
Right-of-use asset – operating leases					$	12,825	$	12,935
Lease liability – operating leases	$	8,937	$	9,160	$	8,738	$	8,802
Right-of-use asset – financing leases	$	10,117	$	10,308
Right-of-use asset – financing leases					$	9,991	$	10,054
Lease liability – financing leases	$	1,463	$	1,425	$	1,491	$	1,475

Lease liabilities are measured at the commencement date based on the present value of future lease payments. One of the Company’s operating ground leases 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 6.2% 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.

Future

minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of ~~September 30, 2022~~March 31, 2023 for the next five years and thereafter are as follows (in thousands):

Operating
Leases


Financing

Leases

2022
   $ 83    $ 9
2023
   836    12
2024
   770    7
2025
   770    8
2026
   724    8
Thereafter
   27,151    6,946




Total future minimum lease payments
   30,334    6,990
Discount
   (21,397 )    (5,527 )




Total
   $ 8,937    $ 1,463


	Operating Leases			Financing Leases
2023	$	459		$	5
2024		770			7
2025		770			8
2026		724			8
2027		587			8
Thereafter		26,563			6,938

Total future minimum lease payments		29,873			6,974
Discount		(21,135	)		(5,483	)

Total	$	8,738		$	1,491

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 such

non-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 ~~September 30, 2022,~~March 31, 2023, 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.

~~Table of Contents~~

10. Stockholders’ Equity

Share Repurchase Plan

On March 9, 2020, the Company’s Board of Directors (the “Board of Directors”) approved a share repurchase plan authorizing the Company to repurchase up to ~~$100~~$

100

million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase plan. On August 5, 2020, the ~~Company’s~~ Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of ~~$50~~$

million of its outstanding shares of common stock.

In September 2022, the Company completed the full August 2020 share repurchase plan. Under the share repurchase programs, the shares may be repurchased from time to time using a variety of methods, which may include open market transactions, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements.

Repurchased shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional

paid-in

capital by the amount that the purchase price for the shares of common stock repurchased exceed the par value.

~~During the nine months ended September 30, 2022, the Company completed the repurchase of 4,006,897 shares of its common stock for approximately $50.0 million.~~

There were no shares repurchased during the ~~nine~~three months ended ~~September 30, 2021.~~

March 31, 2023 and 2022.

Common Stock and Common Unit Distributions

On ~~September 15, 2022,~~ March 14, 2023,

the ~~Company’s~~ Board of Directors approved and the Company declared a cash dividend distribution of ~~$0.20~~$

0.20 per common share for the quarterly period ended ~~September 30, 2022.~~March 31, 2023. The dividend was paid subsequent to quarter end on ~~October 21, 2022~~April 25, 2023 to common stockholders and common unitholders of record as of the close of business on ~~October 7, 2022,~~April 11, 2023, resulting in an aggregate payment of ~~$7.9~~$8.0 million.

Preferred Stock Distributions

On ~~September 15, 2022,~~ March 14, 2023,

the ~~Company’s~~ Board of Directors approved and the Company declared a cash dividend distribution of ~~$0.4140625~~$

0.4140625 per share of the Company’s 6.625% Series A Preferred Stock (“Series A Preferred Stock”) for an aggregate amount of $1.9 million for the quarterly period ended ~~September 30, 2022.~~March 31, 2023. The dividend was paid subsequent to quarter end on ~~October 21, 2022~~April 25, 2023 to the holders of record of Series A Preferred Stock as of the close of business on ~~October 7, 2022.~~

April 11, 2023.

Equity Incentive Plan

The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certain

non-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)~~the grant of Operating Partnership long-term incentive plan 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”~~“Compensation Committee”). ~~On May 4, 2022, the Company’s stockholders approved an amendment to the~~

The Equity Incentive Plan ~~increasing~~provides for the ~~maximum number~~issuance of up to

3,763,580

shares of common ~~stock that may be issued under the Equity Incentive Plan from 2,263,580 shares to 3,763,580 shares.~~stock. 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.

On January 27, 2020, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement ~~(the “Performance RSU Award Agreement”)~~ that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”)

pursuant to the Equity Incentive Plan. The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a

three-year

measurement period beginning January 1 of the year of grant (the “Measurement Period”) relative to the TSR of a defined peer group list of other US Office REIT companies (the “Peer

Group”) as of the first trading date in the year of grant.

The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum.

To the extent earned, the payouts of the Performance RSU Awards are intended to be settled in the form of shares of the Company’s common stock, pursuant to the Equity Incentive Plan. Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Company’s common stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of the Company’s common stock that are earned.

The following table summarizes the activity of the awards under the Equity Incentive Plan for the three ~~and nine~~ months ended ~~September 30, 2022:~~March 31, 2023:

Number
of RSUs

Number of
Performance
RSUs

Outstanding at December 31, 2021
   342,159    217,500
Granted
   237,986    90,000
Issuance of dividend equivalents
   3,902    —




Outstanding at March 31, 2022
   584,047    307,500
Issuance of dividend equivalents
   7,451    —
Vested

   (177,812 )    —




Outstanding at June 30, 2022
   413,686    307,500
Issuance of dividend equivalents
   6,185    —




Outstanding at September 30, 2022
   419,871    307,500


	Number of RSUs			Number of Performance RSUs
Outstanding at December 31, 2022		428,320			307,500
Granted		198,022			214,888
Issuance of dividend equivalents		9,485			—
Vested		(216,520	)		(97,500	)

Outstanding at March 31, 2023		419,307			424,888

The following table summarizes the activity of the awards under the Equity Incentive Plan for the three ~~and nine~~ months ended ~~September 30, 2021:~~March 31, 2022:

Number
of RSUs

Number of
Performance
RSUs

Outstanding at December 31, 2020
   332,435    97,500
Granted
   169,500    120,000
Issuance of dividend equivalents
   5,139    —




Outstanding at March 31, 2021
   507,074    217,500
Issuance of dividend equivalents
   6,884    —
Vested
   (177,038 )    —




Outstanding at June 30, 2021
   336,920    217,500
Issuance of dividend equivalents
   3,963    —




Outstanding at September 30, 2021
   340,883    217,500


	Number of RSUs		Number of Performance RSUs
Outstanding at December 31, 2021		342,159		217,500
Granted		237,986		90,000
Issuance of dividend equivalents		3,902		—

Outstanding at March 31, 2022		584,047		307,500

During the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ the Company granted the following restricted stock units (“RSUs”) and Performance RSU Awards to directors, executive officers and certain

non-executive

employees:


	Units Granted				Fair Value (in thousands)		Weighted Average Grant Fair Value Per Share
	RSUs		Performance RSUs		Fair Value (in thousands)		Weighted Average Grant Fair Value Per Share

2023		198,022		214,888	$	3,729	$	9.03
2022		237,986		90,000		5,753		17.54

~~Table of Contents~~

Units Granted

Fair Value

(in thousands)

Weighted Average
Grant Fair Value
Per Share


RSUs

Performance
RSUs

2022
   237,986    90,000    $ 5,753 $ 17.54
2021
   169,500    120,000    2,808 9.70

The RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the grant date. The Performance RSU Awards will vest on the last day of the three-year measurement period.

During the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022, ~~and September 30, 2021,~~ the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):

RSUs

Performance
RSUs

Total

2022
   $ 652    $ 340    $ 992
2021
   457    208    665

~~During the nine months ended September 30, 2022 and September 30, 2021, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):~~

RSUs

Performance
RSUs

Total

2022
   $ 1,902    $ 985    $ 2,887
2021
   1,377    599    1,976


	RSUs		Performance RSUs		Total

2023	$	643	$	381	$	1,024
2022		599		305		904

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 Form

10-Q

(this “Report”).

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 Report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:

adverse economic or real estate developments in the office sector or the markets in which we operate;

increased interest rates, any resulting increase in financing or operating costs, ~~and~~ the impact of ~~inflation;~~

inflation and a stall in economic growth or an economic recession;

changes in local, regional, national and international economic conditions, including as a result of the ~~ongoing~~ coronavirus disease

(“COVID-19”)

pandemic;

~~requests~~the extent to which “work from ~~tenants for rent deferrals, rent abatement or relief from other contractual obligations, or a failure to pay rent,~~home” and hybrid work policies continue as a result of ~~changes in business behavior stemming from~~ the ~~ongoing~~

COVID-19

~~pandemic or the availability of government assistance programs;~~pandemic;

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, including as a result of near-term market fluctuations or long-term trends that result in an overall decrease in the demand for office space;

~~defaults on or~~

~~non-renewal~~

~~of leases by tenants, including as a result of the ongoing~~

~~COVID-19~~

~~pandemic;~~

decreased rental rates or increased vacancy rates, including as a result of the ongoing

COVID-19

pandemic;

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;

government approvals, actions and initiatives, including the need for compliance with environmental ~~requirements, vaccine mandates or actions in response to the~~

~~COVID-19~~requirements;

~~pandemic;~~

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; and

other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form

10-K

for the year ended December 31, ~~2021~~2022 under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in our subsequent reports filed with the SEC.

The forward-looking statements contained in this Report are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form

10-K

for the year ended December 31, ~~2021~~2022 under the heading “Risk Factors” and in our subsequent reports filed with the SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.

Overview

Company

We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our 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 ~~September 30, 2022,~~March 31, 2023, we owned 25 properties comprised of 60 office buildings with a total of approximately 6.0 million square feet of net rentable area (“NRA”). As of ~~September 30, 2022,~~March 31, 2023, our properties were approximately ~~85.8%~~84.9% leased.

1816

Office Leases

Historically, most leases for our properties have been 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 inwithin rental and other revenues on our condensed consolidated 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 inas tenant recoveries. All tenants in Canyon Park, Superior Pointe, The Terraces and 2525 McKinnon properties have triple net leases. Certain tenants at AmberGlen, Block 23, Bloc 83, Florida Research Park, Circle Point, The Quad, Cascade Station and Denver Tech 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 predominately full-service gross leases.~~

Factors That May Influence Our Operating Results and Financial Condition

Economic Environment and Inflation

~~Over the last quarter, the economic~~Economic conditions in the U.S. and globally ~~have deteriorated,~~continue to be volatile, primarily due to rising inflation. As inflation continued to reach new highs, it set off a chain reaction of events, beginning with the U.S. Federal Reserve taking and signaling severe tightening measures, interest rates rising across the yield curve, volatility and losses in the public equity and debt markets, and now increasing concerns that the U.S. economy may experience a recession. The banking and lending sector in particular has been impacted by the interest rate environment. This evolving operating environment impacts our operating activities as:

business leaders may generally become more reticent to make large capital allocation decisions, such as entry into a new lease, given the uncertain economic environment;

our cost of capital ~~costs have~~has increased due to higher interest rates and credit spreads, and private market debt financing is significantly more challenging to arrange; and

retaining and attracting new tenants has become increasingly challenging due to potential business layoffs, downsizing and industry slowdowns.

Despite the challenging economic environment, there is increasing evidence that many businesses have or will tighten up

in-person

work policies as economic conditions worsen. Many of these companies increased their workforce during the pandemic without increasing their available space. We expect these factors to help offset, at least partially, the recessionary headwinds to space demand.

COVID-19

Our business has been and ~~is continuing~~will likely continue to be impacted by the

COVID-19

pandemic. In addition, our business has been and ~~is continuing~~will likely continue to be impacted by tenant uncertainty regarding office space needs given the evolving remote and hybrid working trends as a result of the

COVID-19

pandemic. ~~Throughout the~~

~~COVID-19~~

pandemic, all of our buildings have remained open and continue to operate. We have adopted policies and procedures to incorporate best practices for the safety of our tenants, our vendors and our employees. However,While the usage of our assets in the ~~third~~first quarter ~~2022~~of 2023 was ~~significantly~~still lower than

pre-pandemic

~~usage.~~levels, usage has been increasing year over year. Usage of our assets in the near future depends on ~~the duration of the pandemic, the continued implementation and effectiveness of~~

~~COVID-19~~

~~vaccines and other therapeutics and~~ corporate and individual decisions regarding return to usage of office space, which is impossible to estimate.

~~We continue to closely monitor the impact of the~~

~~COVID-19~~

~~pandemic on all aspects of our business and geographies. While we did not experience any significant disruptions during the three months ended September 30, 2022, as a result of~~

~~COVID-19~~

or governmental or tenant actions in response thereto, the long-term impact of the pandemic on our tenants and the world-wide economy is uncertain and impossible to estimate, and will depend on the scope, severity and duration of the pandemic.

Our Properties

As of ~~September 30, 2022,~~March 31, 2023, we owned 25 properties comprised of 60 office buildings with a total of approximately 6.0 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of ~~September 30, 2022.~~March 31, 2023.


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)			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 (25.3% of NRA)	Block 23		100.0	%		307		94.0	%	$	29.63	$	31.88	$	8,552		Block 23		100.0	%		307		94.5	%	$	30.02	$	32.30	$	8,706
	Pima Center		100.0	%		272		43.7	%	$	27.99	$	27.99	$	3,324		Pima Center		100.0	%		272		45.8	%	$	29.06	$	29.06	$	3,618
	SanTan		100.0	%		267		46.3	%	$	31.60	$	31.60	$	3,899		SanTan		100.0	%		267		45.4	%	$	31.98	$	31.98	$	3,871
	5090 N. 40 th St		100.0	%		176		96.1	%	$	31.93	$	31.93	$	5,386		5090 N. 40 th St		100.0	%		176		68.1	%	$	34.03	$	34.03	$	4,068
	Camelback Square		100.0	%		172		77.9	%	$	33.87	$	33.87	$	4,533		Camelback Square		100.0	%		172		84.4	%	$	34.41	$	34.41	$	5,005
	The Quad		100.0	%		163		100.0	%	$	31.45	$	31.76	$	5,126		The Quad		100.0	%		163		100.0	%	$	32.40	$	32.72	$	5,282
	Papago Tech		100.0	%		163		86.1	%	$	23.57	$	23.57	$	3,302		Papago Tech		100.0	%		163		88.7	%	$	24.40	$	24.40	$	3,522
Tampa, FL (17.5%)	Park Tower		94.8	%		479		88.6	%	$	27.45	$	27.45	$	11,643		Park Tower		94.8	%		478		89.0	%	$	27.62	$	27.62	$	11,758
	City Center		95.0	%		245		89.4	%	$	27.24	$	27.24	$	5,956		City Center		95.0	%		244		85.5	%	$	28.27	$	28.27	$	5,895
	Intellicenter		100.0	%		204		100.0	%	$	25.64	$	25.64	$	5,219		Intellicenter		100.0	%		204		100.0	%	$	25.64	$	25.64	$	5,219
	Carillon Point		100.0	%		124		100.0	%	$	30.07	$	30.07	$	3,734		Carillon Point		100.0	%		124		100.0	%	$	30.25	$	30.25	$	3,757
Denver, CO (13.4%)	Denver Tech		100.0	%		381		93.2	%	$	24.10	$	28.21	$	8,465		Denver Tech		100.0	%		381		85.6	%	$	24.29	$	28.74	$	7,731
	Circle Point		100.0	%		272		82.6	%	$	19.51	$	33.38	$	4,383		Circle Point		100.0	%		272		89.3	%	$	19.84	$	34.71	$	4,816
	Superior Pointe		100.0	%		152		93.2	%	$	18.78	$	31.78	$	2,667		Superior Pointe		100.0	%		152		81.7	%	$	18.47	$	31.47	$	2,299
Orlando, FL (12.0%)	Florida Research Park		96.5	%		393		82.2	%	$	25.56	$	27.48	$	8,184		Florida Research Park		96.6	%		397		88.0	%	$	26.03	$	27.77	$	8,989
	Central Fairwinds		97.0	%		168		94.6	%	$	27.57	$	27.57	$	4,387		Central Fairwinds		97.0	%		168		89.0	%	$	27.87	$	27.87	$	4,172
	Greenwood Blvd		100.0	%		155		100.0	%	$	24.25	$	24.25	$	3,760		Greenwood Blvd		100.0	%		155		100.0	%	$	24.75	$	24.75	$	3,837
Dallas, TX (9.8%)	190 Office Center		100.0	%		303		75.5	%	$	27.11	$	27.11	$	6,210		190 Office Center		100.0	%		303		77.5	%	$	26.57	$	26.57	$	6,241
	The Terraces		100.0	%		173		99.0	%	$	38.45	$	58.45	$	6,569		The Terraces		100.0	%		173		99.0	%	$	38.68	$	58.68	$	6,609
	2525 McKinnon		100.0	%		111		94.8	%	$	29.98	$	48.98	$	3,165		2525 McKinnon		100.0	%		111		97.8	%	$	30.27	$	51.27	$	3,298
Raleigh, NC (8.3%)	Bloc 83		100.0	%		495		79.8	%	$	37.32	$	37.41	$	14,752		Bloc 83		100.0	%		495		83.5	%	$	37.41	$	37.63	$	15,459
Portland, OR (5.5%)	AmberGlen		76.0	%		203		98.4	%	$	23.55	$	26.45	$	4,695		AmberGlen		76.0	%		203		98.4	%	$	23.78	$	27.05	$	4,741
	Cascade Station		100.0	%		128		100.0	%	$	28.82	$	30.73	$	3,691		Cascade Station		100.0	%		128		100.0	%	$	29.22	$	31.14	$	3,743
San Diego, CA (4.7%)	Mission City		100.0	%		281		86.8	%	$	38.40	$	38.40	$	9,374		Mission City		100.0	%		281		75.3	%	$	39.21	$	39.21	$	8,301
Seattle, WA (3.5%)	Canyon Park		100.0	%		207		100.0	%	$	23.17	$	27.17	$	4,791		Canyon Park		100.0	%		207		100.0	%	$	23.86	$	29.86	$	4,934

Total / Weighted Average – September 30, 2022						5,994		85.8	%	$	28.40	$	31.29	$	145,767
Total / Weighted Average – March 31, 2023 (3)																Total / Weighted Average – March 31, 2023 (3)						5,996		84.9	%	$	28.71	$	31.84	$	145,871

(1)	Annualized gross rent per square foot includes adjustment for estimated expense reimbursements of triple net leases.

(2)	Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended ~~September 30, 2022~~March 31, 2023 by (ii) 12.

(3)	Averages weighted based on the property’s NRA, adjusted for occupancy.

2119

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. While we generally expect the trend of positive population and economic growth ~~outperformance~~ in our Sun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and rising interest rates as well as the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the potential impact that the

COVID-19

pandemic will have on the short- and long-term demand for office space in our markets.

Critical Accounting Policies and Estimates

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, ~~2021~~2022 included in our Annual Report on Form

10-K

for the year ended December 31, ~~2021~~2022 except for our election to apply the ~~adoption of Accounting Standards Update (“ASU”)~~

~~2021-05,~~

~~Leases~~practical expedients related to Reference Rate Reform (Topic ~~842)~~848) as outlined in Note 2 of the condensed consolidated financial statements.

Results of Operations

Comparison of Three Months Ended ~~September 30, 2022~~March 31, 2023 to Three Months Ended ~~September 30, 2021~~March 31, 2022

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 ~~$0.6~~$1.1 million, or 1%2%, to ~~$45.5~~$46.0 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to $44.9 million for the three months ended ~~September 30, 2021.~~March 31, 2022. Of this increase, the December 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation

lease-up

in ~~December 2021~~2022, contributed ~~increases of $2.7~~$0.6 million, ~~$2.7~~$0.2 million and ~~$4.8~~$1.3 million, respectively. In addition, revenues from Park Tower, Circle Point and FRP Collection increased $0.8 million, $0.5 million and $0.4 million, respectively, due to higher occupancy over the prior year. A further increase of $0.2 million can be attributed to our 190 Office Center property which recorded higher termination fee income in 2023 compared to 2022. Offsetting these increases, the disposition of ~~Sorrento Mesa in December 2021 and~~ Lake Vista Pointe in June 2022 decreased revenue by ~~$3.5 million and~~ $1.1 ~~million, respectively. Revenue also~~million. In addition, revenue decreased at ~~Park Tower~~SanTan by ~~$5.0~~$1.4 million due to a termination fee recognized in the prior year and lower resulting occupancy in the current period associated with an early tenant departure. Lower occupancy at Pima Center also decreased revenue by $0.5 million. The remaining properties’ rental and other revenues were relatively unchanged in comparison to the prior period.

Operating Expenses

Total Operating Expenses.

Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses ~~decreased~~increased by ~~$1.2~~$1.0 million, or 3%, to ~~$36.5~~$36.8 million for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$37.7~~$35.8 million for the three months ended ~~September 30, 2021. General and administrative expenses decreased by $4.4 million over~~March 31, 2022. Of this increase, the ~~prior period primarily due to a~~

~~one-time~~

$5.0 million bonus accrual incurred as a result of the Sorrento Mesa sale transaction announced during the third quarter of 2021. Further, the disposition of Sorrento Mesa and Lake Vista Pointe decreased total operating expenses by $2.1 million and $0.5 million, respectively. Offsetting these decreases, theDecember 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation

lease-up

in ~~December 2021~~2022, contributed ~~increases of $1.7~~$0.4 million, ~~$1.8~~$0.2 million and ~~$2.9~~$0.4 million, respectively. ~~The remaining properties’~~In addition, total operating expenses from Park Tower, FRP Collection and Circle Point increased $0.4 million, $0.3 million and $0.2 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. General and administrative expenses increased by $0.3 million over the prior period due primarily to higher payroll and stock-based compensation expense. Offsetting these increases, total operating expenses decreased ~~a combined~~at SanTan by $0.6 million due to lower occupancy at the property in comparison to the prior ~~period.~~

~~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.year. 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 and~~

~~re-leasing~~

costs. Property operating expenses increased by $2.2 million, or 15%, to $17.4 million for the three months ended September 30, 2022, from $15.2 million for the three months ended September 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $0.7 million, $0.8 million and $1.2 million, respectively. An increase of $0.2 million was attributable to the Ingenuity Drive property within the Florida Research Park portfolio as that property was converted from a single tenant property where the tenant paid for its own operating expenses into a multi-tenant property where expenses are paid by the landlord and reimbursements are charged to the tenants. Offsetting these increases,addition, the disposition of ~~Sorrento Mesa and Lake Vista Pointe decreased property operating expenses by $0.8 million and $0.3 million, respectively. The remaining properties’ expenses increased a combined $0.4 million.~~

~~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 as~~

~~non-cash~~

stock-based compensation expenses. General and administrative expenses decreased $4.4 million, or 56%, to $3.5 million for the three months ended September 30, 2022, from $7.9 million for the three months ended September 30, 2021. In the prior period, general and administrative expenses increased due to a

~~one-time~~

$5.0 million bonus accrual incurred as a result of the Sorrento Mesa sale transaction announced during the third quarter of 2021. Offsetting this decrease were higher stock-based compensation expense and higher professional fees.

~~Depreciation and Amortization.~~

Depreciation and amortization increased $1.0 million, or 6%, to $15.6 million for the three months ended September 30, 2022, from $14.6 million reported for the same period in 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $1.0 million, $0.9 million and $1.8 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa and Lake Vista Pointe decreased depreciation and amortization expense by $1.3 million and $0.2 million, respectively. Also contributing to the decrease, depreciation and amortization for Park Tower decreased by $0.5 million as a result of the accelerated depreciation for an early tenant departure in the prior period. The remaining properties’ depreciation expenses decreased a combined $0.7 million.

~~Other Expense (Income)~~

~~Interest Expense.~~

Interest expense increased $1.0 million, or 16%, to $6.9 million for the three months ended September 30, 2022, from $5.9 million for the three months ended September 30, 2021. The increase was primarily attributable to the increase in the amount drawn and interest rates on our floating rate debt.

~~Comparison of Nine Months Ended September 30, 2022 to Nine Months Ended September 30, 2021~~

~~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 $11.5 million, or 9%, to $135.9 million for the nine months ended September 30, 2022 compared to $124.4 million for the nine months ended September 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $7.6 million, $8.1 million and $12.2 million, respectively. Also contributing to this increase was Mission City which increased $0.9 million over the prior year due to higher occupancy. Offsetting these increases, the disposition of Cherry Creek in February 2021, Sorrento Mesa in December 2021 and Lake Vista Pointe in June 2022 decreased revenue by $0.8 million, $9.4 million and $1.4 million, respectively. Revenue also decreased at Park Tower by $6.0 million due to a termination fee recognized in the prior year associated with an early tenant departure and the associated downtime in which a replacement tenant did not take occupancy until the middle of the second quarter of 2022. The remaining properties’ rental and other revenues increased a combined $0.3 million in comparison to the prior period.

~~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 $7.1 million, or 7%, to $108.4 million for the nine months ended September 30, 2022, from $101.3 million for the nine months ended September 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $4.8 million, $5.2 million and $7.9 million, respectively. Offsetting these increases, the disposition of Cherry Creek, Sorrento Mesa and Lake Vista Pointe decreased total operating expenses by ~~$0.3 million, $5.3~~$0.5 million and ~~$1.0 million, respectively. General and administrative expenses decreased by $3.2 million over the prior period primarily due to a~~

~~one-time~~

~~$5.0 million bonus accrual incurred as a result of the Sorrento Mesa sale transaction announced during the third quarter of 2021. Also contributing to the decrease,~~lower depreciation and amortization ~~for Pima Center~~at Mission City decreased total operating expenses by ~~$1.1 million from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized.~~$0.3 million. The remaining properties’ expenses increased a combined ~~$0.1~~$0.2 million.

2320

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 and

re-leasing

costs. Property operating expenses increased by ~~$7.2~~$1.2 million, or ~~17%~~7%, to ~~$50.7~~$17.7 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$43.5~~$16.5 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. Of this increase, the December 2021 acquisitions of Block 23, The Terraces and Bloc 83, which were undergoing first generation

lease-up

in ~~December 2021~~2022, contributed ~~increases of $2.0~~$0.3 million, ~~$2.5~~$0.1 million and ~~$2.7~~$0.2 million, respectively. ~~An increase of $0.7 million was attributable to the Ingenuity Drive~~In addition, property ~~within the Florida Research Park portfolio as that property was converted from a single tenant property where the tenant paid for its own~~ operating expenses ~~into a multi-tenant property where expenses are paid by the landlord~~from FRP Collection and ~~reimbursements are charged to the tenants. An increase of $0.5 million was attributable to~~ Park Tower increased $0.3 million and $0.3 million, respectively, due to higher

~~non-recoverable~~

~~expenses and utilities.~~ operating costs associated with higher occupancy over the prior year. Offsetting these increases, the disposition of ~~Cherry Creek, Sorrento Mesa and~~ Lake Vista Pointe ~~decreased property operating expenses by~~resulted in a $0.3 million ~~$1.9 million and $0.5 million, respectively.~~decrease. The remaining properties’ expenses increased a combined ~~$1.5 million due to a combination of factors including higher utilization at our properties.~~$0.3 million.

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 as

non-cash

stock-based compensation expenses. General and administrative expenses ~~decreased $3.2~~increased $0.3 million, or ~~23%~~9%, to ~~$10.6~~$3.8 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$13.8~~$3.5 million reported ~~for the same period~~ in ~~2021. In~~ the prior ~~period, general~~period. General and administrative expenses increased primarily due to a

~~one-time~~

~~$5.0 million bonus accrual incurred as a result of the Sorrento Mesa sale transaction announced during the third quarter of 2021. Offsetting this decrease were~~ higher payroll and stock-based compensation ~~expense and higher professional fees.~~expense.

Depreciation and Amortization.

Depreciation and amortization ~~increased $3.1~~decreased by $0.5 million, or 7%3%, to ~~$47.1~~$15.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$44.0~~$15.8 million reported for the same period in ~~2021.~~2022. Of this ~~increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021~~decrease, our SanTan property contributed ~~increases of $2.8~~$0.5 million $2.8 million and $5.2 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa and Lake Vista Pointe decreased depreciation and amortization expense by $3.4 million and $0.6 million, respectively. Also contributing to the decrease depreciation and amortization for Pima Center decreased by $1.1 million from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining properties’ depreciation and amortization expense decreased a combined $2.6 million compared to the prior year, mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at ~~SanTan, Park Tower~~the property. The disposition of Lake Vista Pointe also contributed $0.2 million to the decrease. Depreciation and amortization for Mission City decreased by $0.4 million as the amortization expense associated with ~~early~~acquired lease ~~terminations at those properties.~~intangible assets were fully amortized in 2022. Offsetting these decreases, Block 23, Bloc 83 and Circle Point incurred higher depreciation and amortization expense of $0.2 million, $0.2 million and $0.1 million, respectively, related to tenanting costs. The remaining properties’ depreciation expenses were marginally lower in comparison to the prior year.

Other Expense (Income)

Interest Expense.

Interest expense increased ~~$0.8~~$2.2 million, or 4%37%, to ~~$19.2~~$8.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, from ~~$18.4~~$6.1 million for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily attributable to ~~the increase in the amount~~higher amounts drawn and higher interest rates on our floating rate debt.

~~Net Gain on the Sale of Real Estate Property.~~

During the first quarter of 2022, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and we signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, we reassessed the lease classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of $21.7 million net of disposal related costs. The Lake Vista Pointe property was sold in June 2022. In the prior year, we recorded a net gain on the sale of real estate property of $47.4 million for the nine months ended September 30, 2021 related to the sale of our Cherry Creek property in February 2021.

On February 26, 2020, the Company and the Operating Partnership entered into equity distribution agreements (collectively, the “Agreements”) with each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc., BMO Capital Markets Corp., RBC Capital Markets, LLC, B. Riley FBR, Inc., D.A. Davidson & Co. and Janney Montgomery Scott LLC (the “Sales Agents”) pursuant to which the Company may issue and sell from time to time up to 15,000,000 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 (the “ATM Program”). On May 7, 2021 the Company delivered to D.A. Davidson & Co. a notice of termination of the Agreement, effective May 7, 2021. The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

After considering the effect of the

COVID-19

pandemic on our consolidated operations, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders’ remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations.

As of March 31, 2023, the lenders for three of our mortgage borrowings have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. For these three properties, the total restricted cash as of March 31, 2023 was $6.9 million.

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 and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our ATM 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 and

non-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 and

non-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, interest rates, 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 ~~September 30, 2022,~~March 31, 2023, 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		2022		2023-2024		2025-2026		More than 5 years		Total		2023		2024-2025		2026-2027		More than 5 years
Principal payments on mortgage loans	$	680,089	$	1,623	$	156,630	$	281,533	$	240,303	$	712,113	$	46,084	$	396,190	$	205,719	$	64,120
Interest payments (1)		98,121		6,942		52,207		31,161		7,811		96,359		23,857		54,540		15,880		2,082
Tenant-related commitments		18,026		17,138		888		—		—		14,723		14,723		—		—		—
Lease obligations		37,324		92		1,625		1,510		34,097		36,847		464		1,555		1,327		33,501

Total	$	833,560	$	25,795	$	211,350	$	314,204	$	282,211	$	860,042	$	85,128	$	452,285	$	222,926	$	99,703

(1)

Contracted interest on the floating rate borrowings under our Unsecured Credit Facility was calculated based on the balance and interest rate at ~~September 30, 2022.~~March 31, 2023. Contracted interest on our term loans and part of the ~~Term Loan was~~Unsecured Credit Facility were calculated based on the ~~Interest Rate Swap~~interest rate swap rates fixing the ~~LIBOR~~SOFR component of the borrowing ~~rate to approximately 1.27%.~~rates.

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. However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.

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 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. See Note 6 to our condensed consolidated financial statements in Item 1 of this Report for more information regarding our 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. The

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) ~~has~~ announced that it ~~intends~~intended to stop compelling banks to submit rates for the calculation of LIBOR by June 30, 2023. The Alternative Reference Rates Committee (“ARRC”) ~~has~~ proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR, ~~for future use~~and in ~~derivatives and other financial contracts that are currently indexed to LIBOR.~~some cases, the forward-looking term rate based on SOFR published by CME Group Benchmark Administration Ltd. ARRC ~~has~~ proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry-wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR being an overnight rate while LIBOR reflects term rates at different maturities.

We expect that all LIBOR settings relevant to us will cease to be published or will no longer be representative after June 30, 2023. The differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our results. Although SOFR is the ARRC’s recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher borrowing costs for us. As of March 31, 2023, our LIBOR-based borrowings and the $50 million interest rate swap have been transitioned to SOFR.

We currently consider our interest rate exposure to be moderate because as of ~~September 30, 2022,~~March 31, 2023, approximately ~~$445.1~~$656.4 million, or ~~65.4%~~92.2%, of our debt had fixed interest rates, or effectively fixed rates when factoring in interest rate swaps, and ~~approximately $235.0~~$55.7 million, or ~~34.6%~~7.8%, had variable interest rates. ~~Of the $235.0~~The $656.4 million ~~variable~~fixed rate debt ~~$50.0~~includes a $50 million ~~relates to~~term loan, a $25 million term loan, and $140 million of the ~~Term Loan~~Unsecured Credit Facility against which we have applied interest rate swaps. The interest rate swaps effectively fix the ~~Interest Rate Swap. The Interest Rate Swap effectively fixes~~SOFR component of the

~~30-day~~

~~LIBOR rate at approximately 1.27%~~ borrowing rates until maturity of the ~~Term Loan. When factoring~~debt. A 1% increase in the Term Loan as fixed rate debt through the Interest Rate Swap, approximately 72.8% of our debt was fixed rate debt and 27.2% was variable rate debt as of September 30, 2022. An increase of 1% in LIBORSOFR would result in a ~~$1.9~~$0.6 million increase to our annual interest costs on debt outstanding as of ~~September 30, 2022~~March 31, 2023 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 1% decrease in ~~LIBOR~~SOFR would result in a ~~$1.9~~$0.6 million decrease to our annual interest costs on debt outstanding as of ~~September 30, 2022~~March 31, 2023 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 Rules

13a-15(e)

and

15d-15(e)

under the Securities and Exchange Act of 1934, as amended) were effective as of ~~September 30, 2022.~~March 31, 2023.

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.

2724

PART II. OTHER INFORMATION

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 ~~September 30, 2022,~~March 31, 2023, 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

~~The following risk factor supplements the risk factors disclosed in the section entitled “Risk Factors” of our Annual Report on Form~~

~~10-K~~

for the year ended December 31, 2021. Except as presented below or in the section titled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report, there have been no material changes from the risk factors set forth in such Annual Report.

~~Inflation and price volatility in the global economy could negatively impact our tenants and our results of operations~~

None.

Inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates, wages and currency volatility. During the twelve months ended September 30, 2022, the consumer price index rose by approximately 8.2% compared to the twelve months ended September 30, 2021. These increases and any fiscal or other policy interventions by the U.S. government in reaction to such events could negatively impact our results of operations, and could also negatively impact our tenants’ businesses. While our leases generally provide for fixed annual rent increases, high levels of inflation could outpace our contractual rent increases. The leases at our properties are either full-service gross or net lease basis. Our full-service gross leases generally have 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. Additionally, our

~~triple-net~~

leases require the lessee to pay all property operating expenses. Therefore, increases in property-level expenses resulting from inflation could have an adverse impact on our lessees if increases in their operating expenses exceed increases in their revenue, which may adversely affect our lessees’ ability to pay rent or other obligations owed to us. An increase in our lessees’ expenses and a failure of their revenues to increase at least with inflation could adversely affect our lessees’ and our financial condition and our results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On ~~March 9, 2020,~~May 4, 2023, the ~~Company’s~~ Board of Directors approved a share repurchase plan (“Repurchase Program”) authorizing the Company to repurchase up to $100 million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase plan. On August 5, 2020, the Company’s Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of $50 million of its outstanding shares of common ~~stock. In September 2022, the Company completed the full August 2020 share repurchase plan.~~stock or Series A Preferred Stock. Under the ~~share repurchase programs,~~Repurchase Program, the shares may be repurchased from time to time using a variety of methods, which may include open market transactions, privately negotiated transactions or otherwise, or pursuant to any trading plan that may be adopted in accordance with Rule

10b5-1

of the Securities and Exchange Act of 1934, as amended, all in accordance with the rules of the SEC and other applicable legal requirements.

Repurchased shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock repurchased will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional

paid-in capital

~~capital~~ by the amount that the purchase price for the shares of common stock repurchased exceed the par value.

~~Share repurchase activity under our share repurchase plans, on a trade date basis, for the three months ended September 30, 2022, was as follows:~~

Issuer Purchases of Equity Securities
(1)

Period

Total

Number of

Shares of Common
Stock

Purchased

Average

Price Paid

per Share of

Common Stock
Repurchased

Total Number of

Shares of Common
Stock Purchased

as Part of Share
Repurchase Plans

Approximate Dollar

Value of Shares of
Common Stock that

May Yet Be

Purchased
Under the

Share Repurchase
Plans
(2)

(thousands)

July 1 – 31, 2022
   1,624,589    $ 13.06    1,624,589    $ 23,787
August 1 – 31, 2022
   927,285    12.95    927,285    11,781
September 1 – 30, 2022
   1,060,190    11.11    1,060,190    —








Total
   3,612,064    $ 12.46    3,612,064    $ —

~~(1)~~

The share repurchase plan was announced on August 5, 2020, approving the Company to repurchase an aggregate amount of $50 million of its outstanding shares of common stock. The share repurchase plan does not have an expiration date. In September 2022, the Company completed the full August 2020 share repurchase plan.

~~(2)~~

~~Represents approximate dollar value of shares that could have been purchased under the plans in effect at the end of the month.~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit Number		Description

3.1		Articles of Amendment and Restatement of City Office REIT, Inc., as amended and supplemented (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 1, 2018).

3.2		Second Amended and Restated Bylaws of City Office REIT, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 14, 2017).

4.1		Certificate of Common Stock of City Office REIT, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11/A filed with the Commission on February 18, 2014).

4.2		Form of certificate representing the 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Commission on September 30, 2016).

31.1		Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Rental and other revenues	$	45,522		$	44,889		$	135,871		$	124,369
Operating expenses:
Property operating expenses		17,412			15,180			50,736			43,477
General and administrative		3,506			7,900			10,575			13,768
Depreciation and amortization		15,555			14,648			47,072			44,017

Total operating expenses		36,473			37,728			108,383			101,262

Operating income		9,049			7,161			27,488			23,107
Interest expense:
Contractual interest expense		(6,582	)		(5,650	)		(18,311	)		(17,533	)
Amortization of deferred financing costs and debt fair value		(303	)		(267	)		(917	)		(869	)

		(6,885	)		(5,917	)		(19,228	)		(18,402	)
Net gain on sale of real estate property		—			—			21,658			47,400

Net income		2,164			1,244			29,918			52,105
Less:
Net income attributable to non-controlling interests in properties		(175	)		(378	)		(510	)		(760	)

Net income attributable to the Company		1,989			866			29,408			51,345
Preferred stock distributions		(1,855	)		(1,855	)		(5,565	)		(5,565	)

Net income/(loss) attributable to common stockholders	$	134		$	(989	)	$	23,843		$	45,780

Net income/(loss) per common share:
Basic	$	0.00		$	(0.02	)	$	0.56		$	1.05

Diluted	$	0.00		$	(0.02	)	$	0.55		$	1.04

Weighted average common shares outstanding:
Basic		41,351			43,554			42,838			43,478

Diluted		42,125			43,554			43,663			44,091

Dividend distributions declared per common share	$	0.20		$	0.15		$	0.60		$	0.45


	Three Months Ended March 31,
	2023			2022
Net income	$	873		$	24,691
Other comprehensive (loss)/income:
Unrealized cash flow hedge (loss)/gain		(1,465	)		1,614
Amounts reclassified to interest expense		(477	)		140

Other comprehensive (loss)/income		(1,942	)		1,754

Comprehensive (loss)/income		(1,069	)		26,445
Less:
Comprehensive income attributable to non-controlling interests in properties		(169	)		(171	)

Comprehensive (loss)/income attributable to the Company	$	(1,238	)	$	26,274


31.2		Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †


101.INS		INLINE XBRL INSTANCE DOCUMENT*DOCUMENT†

101.SCH		INLINE XBRL SCHEMA DOCUMENT*DOCUMENT†

101.CAL		INLINE XBRL CALCULATION LINKBASE DOCUMENT*DOCUMENT†

101.LAB		INLINE XBRL LABELS LINKBASE DOCUMENT*DOCUMENT†

101.PRE		INLINE XBRL PRESENTATION LINKBASE DOCUMENT*DOCUMENT†

101.DEF		INLINE XBRL DEFINITION LINKBASE DOCUMENT*DOCUMENT†

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* †

†		Filed herewith.

*		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.


Date: ~~November 7, 2022~~May 5, 2023

	By:	/s/ James Farrar
		James Farrar

		Chief Executive Officer and Director (Principal Executive Officer)
Date: ~~November 7, 2022~~May 5, 2023

	By:	/s/ Anthony Maretic
		Anthony Maretic

		Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)


	Number of shares of preferred stock		Preferred stock		Number of shares of common stock			Common stock			Additional paid-in capital			Retained earnings			Accumulated other comprehensive (loss)/income			Total stockholders’ equity			Non-controlling interests in properties			Total equity

Balance—December 31, 2021		4,480	$	112,000		43,554		$	435		$	482,061		$	275,502		$	(382	)	$	869,616		$	979		$	870,595
Restricted stock award grants and vesting		—		—		—			—			972			(68	)		—			904			—			904
Common stock dividend distribution declared		—		—		—			—			—			(8,711	)		—			(8,711	)		—			(8,711	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Contributions		—		—		—			—			—			—			—			—			3			3
Distributions		—		—		—			—			—			—			—			—			(254	)		(254	)
Net income		—		—		—			—			—			24,520			—			24,520			171			24,691
Other comprehensive income		—		—		—			—			—			—			1,754			1,754			—			1,754

Balance—March 31, 2022		4,480	$	112,000		43,554		$	435		$	483,033		$	289,388		$	1,372		$	886,228		$	899		$	887,127

Restricted stock award grants and vesting		—		—		171			2			1,020			(117	)		—			905			—			905
Common stock repurchased		—		—		(395	)		(4	)		(4,996	)		—			—			(5,000	)		—			(5,000	)
Common stock dividend distribution declared		—		—		—			—			—			(8,580	)		—			(8,580	)		—			(8,580	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Distributions		—		—		—			—			—			—			—			—			(180	)		(180	)
Net income		—		—		—			—			—			2,899			—			2,899			164			3,063
Other comprehensive income		—		—		—			—			—			—			513			513			—			513

Balance—June 30, 2022		4,480	$	112,000		43,330		$	433		$	479,057		$	281,735		$	1,885		$	875,110		$	883		$	875,993

Restricted stock award grants and vesting		—		—		—			—			1,075			(83	)		—			992			—			992
Common stock repurchased		—		—		(3,612	)		(36	)		(45,046	)		—			—			(45,082	)		—			(45,082	)
Common stock dividend distribution declared		—		—		—			—			—			(7,943	)		—			(7,943	)		—			(7,943	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Contributions		—		—		—			—			—			—			—			—			27			27
Distributions		—		—		—			—			—			—			—			—			(894	)		(894	)
Net income		—		—		—			—			—			1,989			—			1,989			175			2,164
Other comprehensive income		—		—		—			—			—			—			934			934			—			934

Balance—September 30, 2022		4,480	$	112,000		39,718		$	397		$	435,086		$	273,843		$	2,819		$	824,145		$	191		$	824,336


	Number of shares of preferred stock		Preferred stock		Number of shares of common stock		Common stock		Additional paid-in capital		Retained earnings			Accumulated other comprehensive (loss)/income			Total stockholders’ equity			Non-controlling interests in properties			Total equity
Balance—December 31, 2021		4,480	$	112,000		43,554	$	435	$	482,061	$	275,502		$	(382	)	$	869,616		$	979		$	870,595
Restricted stock award grants and vesting		—		—		—		—		972		(68	)		—			904			—			904
Common stock dividend distribution declared		—		—		—		—		—		(8,711	)		—			(8,711	)		—			(8,711	)
Preferred stock dividend distribution declared		—		—		—		—		—		(1,855	)		—			(1,855	)		—			(1,855	)
Contributions		—		—		—		—		—		—			—			—			3			3
Distributions		—		—		—		—		—		—			—			—			(254	)		(254	)
Net income		—		—		—		—		—		24,520			—			24,520			171			24,691
Other comprehensive income		—		—		—		—		—		—			1,754			1,754			—			1,754

Balance—March 31, 2022		4,480	$	112,000		43,554	$	435	$	483,033	$	289,388		$	1,372		$	886,228		$	899		$	887,127


	5910 Pacific Center and 9985 Pacific Heights

Land	$	37,294
Building and improvement		2,979
Tenant improvement		917
Lease intangible assets		2,469
Other assets		19
Accounts payable and other liabilities		(319	)
Lease intangible liabilities		(103	)

Net assets acquired	$	43,256


2022	$	2,542
2023		9,027
2024		6,695
2025		6,507
2026		6,461
Thereafter		17,746

	$	48,978


Property	September 30, 2022			December 31, 2021			Interest Rate as of September 30, 2022 (1)			Maturity
2525 McKinnon		27,000			27,000			4.24	%	April 2027
Greenwood Blvd		21,529			21,920			3.15	%	December 2025
Cascade Station		21,291			21,581			4.55	%	May 2024
5090 N. 40 th St		20,917			21,233			3.92	%	January 2027
AmberGlen		20,000			20,000			3.69	%	May 2027
Central Fairwinds		16,383			16,707			3.15	%	June 2024
FRP Ingenuity Drive (6)		16,240			16,457			4.44	%	December 2024
Carillon Point		14,877			15,185			3.10	%	October 2023
Lake Vista Pointe ( 7 )		—			17,018			—		—

Total Principal		680,089			658,538
Deferred financing costs, net		(4,198	)		(5,223	)
Unamortized fair value adjustments		225			333

Total	$	676,116		$	653,648


	Operating Leases			Financing Leases
2022	$	83		$	9
2023		836			12
2024		770			7
2025		770			8
2026		724			8
Thereafter		27,151			6,946

Total future minimum lease payments		30,334			6,990
Discount		(21,397	)		(5,527	)

Total	$	8,937		$	1,463


	Number of RSUs			Number of Performance RSUs

Outstanding at December 31, 2021		342,159			217,500
Granted		237,986			90,000
Issuance of dividend equivalents		3,902			—

Outstanding at March 31, 2022		584,047			307,500
Issuance of dividend equivalents		7,451			—
Vested		(177,812	)		—

Outstanding at June 30, 2022		413,686			307,500
Issuance of dividend equivalents		6,185			—

Outstanding at September 30, 2022		419,871			307,500


	Number of RSUs			Number of Performance RSUs

Outstanding at December 31, 2020		332,435			97,500
Granted		169,500			120,000
Issuance of dividend equivalents		5,139			—

Outstanding at March 31, 2021		507,074			217,500
Issuance of dividend equivalents		6,884			—
Vested		(177,038	)		—

Outstanding at June 30, 2021		336,920			217,500
Issuance of dividend equivalents		3,963			—

Outstanding at September 30, 2021		340,883			217,500

	Units Granted				Fair Value (in thousands)		Weighted Average Grant Fair Value Per Share
	RSUs		Performance RSUs		Fair Value (in thousands)		Weighted Average Grant Fair Value Per Share

2022		237,986		90,000	$	5,753	$	17.54
2021		169,500		120,000		2,808		9.70


Issuer Purchases of Equity Securities (1)
Period	Total Number of Shares of Common Stock Purchased		Average Price Paid per Share of Common Stock Repurchased		Total Number of Shares of Common Stock Purchased as Part of Share Repurchase Plans		Approximate Dollar Value of Shares of Common Stock that May Yet Be Purchased Under the Share Repurchase Plans (2) (thousands)
July 1 – 31, 2022		1,624,589	$	13.06		1,624,589	$	23,787
August 1 – 31, 2022		927,285		12.95		927,285		11,781
September 1 – 30, 2022		1,060,190		11.11		1,060,190		—

Total		3,612,064	$	12.46		3,612,064	$	—

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company