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~~June 30, ~~2021~~2022

☐	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)		~~(I.R.S. Employer~~ Identification No.)

666 Burrard Street

Suite 3210

Vancouver, BC

V6C 2X8

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (604)

806-3366

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~~

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 August

~~October 29~~2

, ~~2021~~2022 was ~~43,554,375.~~41,572,870

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, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Assets
Real estate properties
Land		$	169,984		$	204,289		$	200,686		$	204,801
Building and improvement			744,818			777,184			1,230,702			1,244,177
Tenant improvement			102,683			104,694			129,496			119,011
Furniture, fixtures and equipment			664			642			664			664

			1,018,149			1,086,809			1,561,548			1,568,653
Accumulated depreciation			(149,901	)		(131,220	)		(170,569	)		(157,356	)

			868,248			955,589			1,390,979			1,411,297

Cash and cash equivalents			17,697			25,305			26,352			21,321
Restricted cash			52,484			20,646			43,044			20,945
Rents receivable, net			29,221			32,968			37,501			30,415
Deferred leasing costs, net			18,415			16,829			21,213			20,327
Acquired lease intangible assets, net			30,183			44,143			61,762			68,925
Other assets			17,753			15,758			30,526			28,283
Assets held for sale			118,382			46,054

Total Assets		$	1,152,383		$	1,157,292		$	1,611,377		$	1,601,513

Liabilities and Equity
Liabilities:
Debt		$	603,334		$	677,242		$	654,366		$	653,648
Accounts payable and accrued liabilities			32,096			25,414			33,136			27,101
Deferred rent			10,460			7,295			10,089			11,600
Tenant rent deposits			5,542			4,801			6,856			6,165
Acquired lease intangible liabilities, net			3,868			6,035			10,042			10,872
Other liabilities			47,662			18,099			20,895			21,532
Liabilities related to assets held for sale			2,873			531

Total Liabilities			705,835			739,417			735,384			730,918

Commitments and Contingencies (Note 9)	0				0				0			0
Equity:
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 shares issued and outstanding as of September 30, 2021 and December 31, 2020			112,000			112,000
Common stock, $0.01 par value per share, 100,000,000 shares authorized, 43,554,375 and 43,397,117 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively			435			433
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 June 30, 2022 and December 31, 2021									112,000			112,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 43,330,831 and 43,554,375 shares issued and outstanding as of June 30, 2022 and December 31, 2021									433			435
Additional paid-in capital			481,345			479,411			479,057			482,061
Accumulated deficit			(146,930	)		(172,958	)
Accumulated other comprehensive loss			(1,063	)		(1,960	)
Retained earnings									281,735			275,502
Accumulated other comprehensive income/(loss)									1,885			(382	)

Total Stockholders’ Equity			445,787			416,926			875,110			869,616
Non-controlling interests in properties			761			949			883			979

Total Equity			446,548			417,875			875,993			870,595

Total Liabilities and Equity		$	1,152,383		$	1,157,292		$	1,611,377		$	1,601,513

Subsequent Events (Note 11)

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

City Office REIT, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

Three Months Ended

September 30,

Nine Months Ended

September 30,


2021

2020

2021

2020

Rental and other revenues
   $ 44,889 $ 41,261 $ 124,369 $ 121,000
Operating expenses:

Property operating expenses
   15,180 14,886 43,477 43,666
General and administrative
   7,900 2,546 13,768 8,025
Depreciation and amortization
   14,648 15,189 44,017 45,222


Total operating expenses
   37,728 32,621 101,262 96,913


Operating income
   7,161 8,640 23,107 24,087
Interest expense:

Contractual interest expense
   (5,650 ) (6,620 ) (17,533 ) (19,773 )
Amortization of deferred financing costs and debt fair value
   (267 ) (328 ) (869 ) (993 )


   (5,917 ) (6,948 ) (18,402 ) (20,766 )
Net gain on sale of real estate property
   —   1,347 47,400 1,347


Net income
   1,244 3,039 52,105 4,668
Less:

Net income attributable to
non-controlling
interests in properties
   (378 ) (153 ) (760 ) (514 )


Net income attributable to the Company
   866 2,886 51,345 4,154
Preferred stock distributions
   (1,855 ) (1,855 ) (5,565 ) (5,565 )


Net (loss)/income attributable to common stockholders
   $ (989 ) $ 1,031 $ 45,780 $ (1,411 )


Net (loss)/income per common share:

Basic
   $ (0.02 ) $ 0.02 $ 1.05 $ (0.03 )


Diluted
   $ (0.02 ) $ 0.02 $ 1.04 $ (0.03 )


Weighted average common shares outstanding:

Basic
   43,554 43,593 43,478 48,508


Diluted
   43,554 44,014 44,091 48,508


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


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Rental and other revenues	$	45,498		$	39,964		$	90,350		$	79,480
Operating expenses:
Property operating expenses		16,836			14,179			33,325			28,297
General and administrative		3,614			3,068			7,070			5,868
Depreciation and amortization		15,701			14,954			31,516			29,369

Total operating expenses		36,151			32,201			71,911			63,534

Operating income		9,347			7,763			18,439			15,946
Interest expense:
Contractual interest expense		(5,982	)		(5,639	)		(11,729	)		(11,883	)
Amortization of deferred financing costs and debt fair value		(302	)		(272	)		(614	)		(602	)

		(6,284	)		(5,911	)		(12,343	)		(12,485	)
Net gain on sale of real estate property		—			—			21,658			47,400

Net income		3,063			1,852			27,754			50,861
Less:
Net income attributable to non-controlling interests in properties		(164	)		(190	)		(335	)		(382	)

Net income attributable to the Company		2,899			1,662			27,419			50,479
Preferred stock distributions		(1,855	)		(1,855	)		(3,710	)		(3,710	)

Net income/(loss) attributable to common stockholders	$	1,044		$	(193	)	$	23,709		$	46,769

Net income/(loss) per common share:
Basic	$	0.02		$	0.00		$	0.54		$	1.08

Diluted	$	0.02		$	0.00		$	0.53		$	1.06

Weighted average common shares outstanding:
Basic		43,632			43,482			43,593			43,440

Diluted		44,482			43,482			44,445			44,080

Dividend distributions declared per common share	$	0.20		$	0.15		$	0.40		$	0.30

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

Table of Contents

City Office REIT, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,


2021

2020

2021

2020

Net income
   $ 1,244 $ 3,039 $ 52,105 $ 4,668
Other comprehensive income/(loss):

Unrealized cash flow hedge (loss)/gain
   (22 ) (7 ) 458 (3,091 )
Amounts reclassified to interest expense
   150 141 439 186


Other comprehensive income/(loss)
   128 134 897 (2,905 )


Comprehensive income
   1,372 3,173 53,002 1,763
Less:

Comprehensive income attributable to
non-controlling
interests in properties
   (378 ) (153 ) (760 ) (514 )


Comprehensive income attributable to the Company
   $ 994 $ 3,020 $ 52,242 $ 1,249


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net income	$	3,063		$	1,852		$	27,754		$	50,861
Other comprehensive income:
Unrealized cash flow hedge gain/(loss)		450			(47	)		2,064			480
Amounts reclassified to interest expense		63			147			203			289

Other comprehensive income		513			100			2,267			769

Comprehensive income		3,576			1,952			30,021			51,630
Less:
Comprehensive income attributable to non-controlling interests in properties		(164	)		(190	)		(335	)		(382	)

Comprehensive income attributable to the Company	$	3,412		$	1,762		$	29,686		$	51,248

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

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

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, 2019
4,480 $ 112,000 54,591 $ 545 $ 577,131 $ (142,383 ) $ 715 $ 548,008 $ 1,124 $ 549,132
Restricted stock award grants and vesting
—   —   35 —   599 (79 ) —   520 —   520
Common stock repurchased
—   —   (1,451 ) (14 ) (11,608 ) —   —   (11,622 ) —   (11,622 )
Common stock dividend distribution declared
—   —   —   —   —   (7,771 ) —   (7,771 ) —   (7,771 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Contributions
—   —   —   —   —   —   —   —   3 3
Distributions
—   —   —   —   —   —   —   —   (200 ) (200 )
Net income
—   —   —   —   —   824 —   824 182 1,006
Other comprehensive loss
—   —   —   —   —   —   (2,741 ) (2,741 ) —   (2,741 )

Balance—March 31, 2020
4,480 $ 112,000 53,175 $ 531 $ 566,122 $ (151,264 ) $ (2,026 ) $ 525,363 $ 1,109 $

526,472

Restricted stock award grants and vesting
—   —   135 2 659 (66 ) —   595 —   595
Common stock repurchased
—   —   (8,799 ) (88 ) (77,961 ) —   —   (78,049 ) —   (78,049 )
Common stock dividend distribution declared
—   —   —   —   —   (6,649 ) —   (6,649 ) —   (6,649 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Distributions
—   —   —   —   —   —   —   —   (184 ) (184 )
Net income
—   —   —   —   —   444 —   444 179 623
Other comprehensive loss
—   —   —   —   —   —   (298 ) (298 ) —   (298 )

Balance—June 30, 2020
4,480 $ 112,000 44,511 $ 445 $ 488,820 $ (159,390 ) $ (2,324 ) $ 439,551 $ 1,104 $ 440,655

Restricted stock award grants and vesting
—   —   —   —   636 (49 ) —   587 —   587
Common stock repurchased
—   —   (1,114 ) (12 ) (10,682 ) —   —   (10,694 ) —   (10,694 )
Common stock dividend distribution declared
—   —   —   —   —   (6,509 ) —   (6,509 ) —   (6,509 )
Preferred stock dividend distribution declared
—   —   —   —   —   (1,855 ) —   (1,855 ) —   (1,855 )
Distributions
—   —   —   —   —   —   —   —   (239 ) (239 )
Net income
—   —   —   —   —   2,886 —   2,886 153 3,039
Other comprehensive income
—   —   —   —   —   —   134 134 —   134

Balance—September 30, 2020
4,480 $ 112,000 43,397 $ 433 $ 478,774 $ (164,917 ) $ (2,190 ) $ 424,100 $ 1,018 $ 425,118


	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


	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

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

Table of Contents

City Office REIT, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Cash Flows from Operating Activities:
Net income	$	52,105		$	4,668		$	27,754		$	50,861
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,017			45,222			31,516			29,369
Amortization of deferred financing costs and debt fair value		869			993			614			602
Amortization of above and below market leases		281			(70	)		80			301
Straight-line rent/expense		428			(2,354	)		(4,356	)		85
Non-cash stock compensation		1,976			1,745			1,895			1,310
Receipts from sales-type lease								43,549			—
Net gain on sale of real estate property		(47,400	)		(1,347	)		(21,658	)		(47,400	)
Changes in non-cash working capital:
Rents receivable, net		635			(235	)		(4,109	)		635
Other assets		(560	)		(110	)		(764	)		(1,048	)
Accounts payable and accrued liabilities		8,558			(151	)		1,268			(2,757	)
Deferred rent		3,468			(490	)		(1,511	)		2,850
Tenant rent deposits		1,354			(240	)		691			877

Net Cash Provided By Operating Activities		65,731			47,631			74,969			35,685

Cash Flows from/(to) Investing Activities:
Cash Flows (to)/from Investing Activities:
Additions to real estate properties		(12,431	)		(17,105	)		(16,462	)		(9,499	)
Acquisition of real estate		(43,256	)		—			—			(43,256	)
Net proceeds from sale of real estate		122,103			6,340			—			93,303
Deferred leasing costs		(6,830	)		(4,479	)		(4,786	)		(3,131	)

Net Cash Provided By/(Used In) Investing Activities		59,586			(15,244	)
Net Cash (Used In)/Provided By Investing Activities								(21,248	)		37,417

Cash Flows to Financing Activities:
Proceeds from borrowings		106,000			130,000			31,000			98,000
Repayment of borrowings		(180,806	)		(59,707	)		(30,941	)		(163,363	)
Dividend distributions paid to stockholders		(25,117	)		(32,814	)		(21,132	)		(16,729	)
Repurchases of common stock								(5,000	)		—
Distributions to non-controlling interests in properties		(960	)		(623	)		(434	)		(424	)
Shares withheld for payment of taxes on restricted stock unit vesting		(216	)		(43	)		(87	)		(216	)
Contributions from non-controlling interests in properties		12			3			3			2
Repurchases of common stock		—			(100,365	)

Net Cash Used In Financing Activities		(101,087	)		(63,549	)		(26,591	)		(82,730	)

Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash		24,230			(31,162	)		27,130			(9,628	)
Cash, Cash Equivalents and Restricted Cash, Beginning of Period		45,951			87,523			42,266			45,951

Cash, Cash Equivalents and Restricted Cash, End of Period	$	70,181		$	56,361		$	69,396		$	36,323

Reconciliation of Cash, Cash Equivalents and Restricted Cash:
Cash and Cash Equivalents, End of Period		17,697			38,399			26,352			13,394
Restricted Cash, End of Period		52,484			17,962			43,044			22,929

Cash, Cash Equivalents and Restricted Cash, End of Period	$	70,181		$	56,361		$	69,396		$	36,323

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	17,568		$	19,681		$	10,850		$	11,955
Purchase of additions in real estate properties included in accounts payable	$	4,804		$	9,778		$	10,301		$	4,233
Purchase of deferred leasing costs included in accounts payable	$	1,351		$	797		$	2,926		$	2,164

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 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, ~~2020.~~2021.

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,

~~(“ASU~~

~~2021-01”),~~

~~Topic 848,~~ Reference Rate Reform (Topic 848) (“~~Topic 848”~~ASU

2021-01”).

ASU

2021-01

clarifies 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. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. The Company has not yet adopted the standard and continues to evaluate the impact of ASU

2020-04

and ASU

2021-01

on its ~~condensed~~ 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 ~~Update~~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 ~~has not yet~~ adopted ~~the standard and continues to evaluate the impact~~ASU

2021-05

prospectively on January 1, 2022. The adoption of ASU

2021-05

did not have a material impact on ~~its condensed~~the Company’s consolidated financial ~~statements and may elect to adopt the standard in future periods as the Company enters into or modifies leases that meet the criteria under the standard.~~statements.

3. Real Estate Investments

Acquisitions

During the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 the Company acquired the following properties:


Property	Date Acquired		Percentage Owned
5910 Pacific Center and 9985 Pacific Heights ~~(1)~~		May 2021		100	%

~~(1)~~

~~5910 Pacific Center and 9985 Pacific Heights have been added to the existing Sorrento Mesa portfolio of properties (collectively “Sorrento Mesa”).~~

heThe 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~~six months ended ~~September~~June 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


	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

million net of 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

million.

On 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.

On July 23, 2020, the Company sold a land parcel at the Circle Point property in Denver, Colorado for $6.5 million, resulting in an aggregate gain of $1.3 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~~

~~Assets Held for Sale~~

~~On August 19, 2021, the Company entered into a~~ ~~purchase and sale agreement~~ to sell the Sorrento Mesa buildings consisting of 10390 Pacific Center Court, 10394 Pacific Center Court, 10398 Pacific Center Court, 10421 Pacific Center Court, 10445 Pacific Center Court and 5910 Pacific Center Boulevard (the “North Disposition”). The gross sales price of the North Disposition is

~~$395.1~~

~~million. The sale is scheduled to close in the fourth quarter of 2021, subject to customary closing conditions. As of September 30, 2021, the Company received a deposit of~~

~~$19.8~~

~~million, which was recorded in restricted cash along with a corresponding liability in other liabilities on the Company’s condensed consolidated balance sheet.~~

~~Also on August 19, 2021, the Company entered into a~~ ~~purchase and sale agreement~~ ~~to sell the Sorrento Mesa buildings consisting of 5975 Pacific Mesa Court and 9985 Pacific Heights Boulevard (the “South Disposition”). The gross sales price of the South Disposition is $180.9~~

million. The sale was initially scheduled to close in the first quarter of 2023, subject to customary closing conditions. The Company had the ability to accelerate the closing date with forty-five (45) days prior written notice thereof and subsequent to quarter end the Company exercised its option to accelerate the closing date to December 2021. As of September 30, 2021, the Company received a deposit of

~~$9.0 million, which was recorded in restricted cash along with a corresponding liability in other liabilities on the Company’s condensed consolidated balance sheet~~

~~The company determined that both the North Disposition and South Disposition met the criteria for classification as an asset held for sale as of September 30, 2021 (in thousands):~~

Sorrento Mesa

North
Disposition

South
Disposition

Total

Real estate properties, net

$
77,870

$
30,717
   $ 108,587
Deferred leasing costs, net

3,308

—

   3,308
Acquired lease intangible assets, net

2,225

1,268
   3,493
Rents receivable, prepaid expenses and other assets

2,977

17
   2,994






Assets held for sale

$
86,380

$
32,002
   $

118,382






Acquired lease intangible liabilities, net

$
(1,005
)

$
—

   $ (1,005 )
Accounts payable, accrued expenses, deferred rent and tenant rent deposits

(1,502
)

(366
)

   (1,868 )






Liabilities related to assets held for sale

$
(2,507
)

$
(366
)

   $ (2,873 )

~~On November 18, 2020, the Company entered into a purchase and sale~~

~~agreement~~

~~to sell the Cherry Creek property for a gross sales price of $95.0 million. The Company determined that th~~

~~property met th~~

~~criteria for classification as held for sale as of December 31, 2020. On February 10, 2021, the Company completed the sale of the Cherry Creek property.~~

~~The property was classified as held for sale as of December 31, 2020 (in thousands):~~

Cherry Creek

December 31,
2020

Real estate properties, net
   $ 40,849
Deferred leasing costs, net
   150
Acquired lease intangible assets, net
   2,256
Rents receivable, prepaid expenses and other assets
   2,799


Assets held for sale
   $ 46,054


Accounts payable, accrued expenses, deferred rent and tenant rent deposits
   $ (531 )


Liabilities related to assets held for sale
   $ (531 )

Table of Contents

4. Lease Intangibles

Lease intangibles and th

the value of assumed lease obligations as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were comprised of the following (in thousands):

Lease Intangible Assets

Lease Intangible Liabilities

September 30, 2021

Above

Market
Leases

In Place

Leases

Leasing
Commissions

Total

Below
Market
Leases

Below
Market
Ground
Lease

Total

Cost
   $

14,135 $ 71,416 $ 27,847 $

113,398 $   (9,641 ) $ (138 ) $   (9,779 )
Accumulated amortization
   (9,240 ) (55,820 ) (18,155 ) (83,215 ) 5,864 47 5,911


   $ 4,895 $ 15,596 $ 9,692 $ 30,183 $ (3,777 ) $ (91 ) $ (3,868 )



Lease Intangible Assets

Lease Intangible Liabilities

December 31, 2020

Above

Market
Leases

In Place

Leases

Leasing
Commissions

Total

Below
Market
Leases

Below
Market
Ground
Lease

Total

Cost
   $ 14,894 $ 80,259 $ 30,284 $

125,437 $

(13,093 ) $ (138 ) $

(13,231 )
Accumulated amortization
   (8,497 ) (55,636 ) (17,161 ) (81,294 ) 7,152 44 7,196


   $ 6,397 $ 24,623 $ 13,123 $ 44,143 $ (5,941 ) $ (94 ) $ (6,035 )


	Lease Intangible Assets												Lease Intangible Liabilities
June 30, 2022	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	19,488		$	84,897		$	37,591		$	141,976		$	(16,605	)	$	(138	)	$	(16,743	)
Accumulated amortization		(8,877	)		(52,350	)		(18,987	)		(80,214	)		6,651			50			6,701

	$	10,611		$	32,547		$	18,604		$	61,762		$	(9,954	)	$	(88	)	$	(10,042	)



	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):

2021
   $ 2,381
2022
   7,699
2023
   5,281
2024
   2,994
2025
   2,751
Thereafter
   5,209


   $ 26,315

~~Table of Contents~~


2022	$	5,283
2023		9,028
2024		6,695
2025		6,507
2026		6,461
Thereafter		17,746

	$	51,720

5. Debt

The following table summarizes th

the indebtedness a

as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (dollars in thousands):


Property	September 30, 2021			December 31, 2020			Interest Rate as of September 30, 2021 (1)			Maturity		June 30, 2022		December 31, 2021		Interest Rate as of June 30, 2022 (1)			Maturity
Unsecured Credit Facility ~~(3)~~(4)	$	88,000		$	75,000			LIBOR +1.40	% (4)		March 2022	$	162,000	$	142,000		LIBOR +1.30	% (2)	November 2025
Term Loan (3)		50,000			50,000			LIBOR +1.25	% (4)		September 2024		50,000		50,000		LIBOR +1.25	% (2)	September 2024
Mission City		47,000			47,000			3.78	%		November 2027		47,000		47,000		3.78	%	November 2027
Canyon Park (5)		40,612			40,950			4.30	%		March 2027		40,031		40,381		4.30	%	March 2027
Circle Point													39,650		39,650		4.49	%	September 2028
190 Office Center		39,749			40,236			4.79	%		October 2025		39,239		39,581		4.79	%	October 2025
Circle Point		39,650			39,650			4.49	%		September 2028
SanTan		33,022			33,444			4.56	%		March 2027		32,477		32,807		4.56	%	March 2027
Intellicenter		32,026			32,442			4.65	%		October 2025		31,591		31,883		4.65	%	October 2025
The Quad		30,600			30,600			4.20	%		September 2028		30,600		30,600		4.20	%	September 2028
FRP Collection		27,719			28,263			3.10	%		September 2023		27,162		27,535		3.10	%	September 2023
2525 McKinnon		27,000			27,000			4.24	%		April 2027		27,000		27,000		4.24	%	April 2027
Greenwood Blvd		22,048			22,425			3.15	%		December 2025		21,660		21,920		3.15	%	December 2025
Cascade Station		21,676			21,952			4.55	%		May 2024		21,387		21,581		4.55	%	May 2024
5090 N. 40th St		21,337			21,640			3.92	%		January 2027
5090 N. 40 th St													21,024		21,233		3.92	%	January 2027
AmberGlen		20,000			20,000			3.69	%		May 2027		20,000		20,000		3.69	%	May 2027
Lake Vista Pointe		17,108			17,375			4.28	%		August 2024
Central Fairwinds		16,813			17,127			3.15	%		June 2024
FRP Ingenuity Drive		16,528			16,736			4.44	%		December 2024
Carillon Point		15,286			15,585			3.10	%		October 2023
Midland Life Insurance (6)		—			83,537			—			—

Total Principal		606,174			680,962
Deferred financing costs, net		(3,209	)		(4,195	)
Unamortized fair value adjustments		369			475

Total	$	603,334		$	677,242

Table of Contents


Property	June 30, 2022			December 31, 2021			Interest Rate as of June 30, 2022 (1)			Maturity
Central Fairwinds		16,491			16,707			3.15	%	June 2024
FRP Ingenuity Drive		16,312			16,457			4.44	%	December 2024
Carillon Point		14,981			15,185			3.10	%	October 2023
Lake Vista Pointe (6)		—			17,018			—		—

Total Principal		658,605			658,538
Deferred financing costs, net		(4,501	)		(5,223	)
Unamortized fair value adjustments		262			333

Total	$	654,366		$	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 ~~(the “Term Loan”)~~(as defined herein), as explained in footnotes 23 and 34 below.

(2)

~~In March 2018, the Company entered into the~~ ~~Credit Agreement~~ ~~for the Unsecured Credit Facility that provides for commitments~~As of ~~up to $250 million, which includes an accordion feature that allows~~June 30, 2022, the ~~Company to borrow up to $500 million, subject to customary terms and conditions. The Unsecured Credit Facility matures in~~ ~~March 2022~~ ~~and may be extended to~~ ~~March 2023~~ ~~at the Company’s option upon meeting certain conditions. Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the~~

one-month

LIBOR rate ~~plus a margin of between 140 to 225 basis points depending upon the Company’s consolidated leverage ratio. As of September 30, 2021, the Unsecured Credit Facility had $88.0 million drawn and~~

~~$4.2 million letter of credit to satisfy escrow requirements for mortgage lenders. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.~~

was 1.79%.

(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)

AsIn March 2018, the Company entered into the Credit Agreement for the Unsecured Credit Facility that provides for commitments of ~~September 30,~~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

~~one-month~~

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 rate ~~was 0.08%.~~plus a margin of between 125 to 225 basis points depending upon the Company’s consolidated leverage ratio. As of

June 30

, 2022, the Unsecured Credit Facility had $162.0 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.

(5)

The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD,

the 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)	~~The mortgage loan was cross-collateralized by Cherry Creek, City Center and 7595 Tech (formerly “DTC Crossroads”).~~ In ~~February 2021,~~June 2022, the loan balance of ~~$83.5~~ $ 16.8 million was repaid in full.

The scheduled principal repayments o

of debt a

as of ~~September~~June 30, ~~2021~~2022 are as follows (in thousands)

2021
   $ 1,524
2022
   94,539
2023
   48,539
2024
   124,736
2025
   91,997
Thereafter
   244,839


   $ 606,174

~~Table of Contents~~


2022	$	3,141
2023		48,149
2024		108,479
2025		253,997
2026		4,536
Thereafter		240,303

	$	658,605

6. Fair Value of Financial Instruments

Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:

Level 1 Inputs – quoted prices in active markets for identical assets or liabilities

Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities

Level 3 Inputs – unobservable inputs

In September 2019

, the Company entered into the Interest Rate Swap for a notional amount of $50 million. 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. Accordingly, the fair value of the Interest Rate Swap has been classified as a Level 2 fair value

measurement.

Table of Contents

The Interest

Rate Swap has been designated and qualifies as a cash flow hedge and has been recognized on the condensed consolidated balance sheets at fair value. Gains and losses resulting from changes in the fair value of derivatives that have been designated and qualify as cash flow hedges are reported as a component of other comprehensive income/(loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.

As of ~~September~~June 30, ~~2021,~~2022, the Interest Rate Swap was reported as a ~~liability~~

asset at its fair value of approximately ~~$1.1~~$1.9 million, which is included in other ~~liabilities~~assets on the Company’s condensed consolidated balance sheet. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, approximately ~~$0.4~~$0.2 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, approximately ~~$0.2~~$0.3 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty.

As of December 31, ~~2020,~~2021, the Interest Rate Swap was reported as a liability at its fair value of approximately ~~$2.0~~$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

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 ~~$474.0~~$436.7 million and ~~$573.6~~$478.1 million (compared to a carrying value of ~~$468.2~~$446.6 million and ~~$556.0~~$466.5 million) as of ~~September~~June 30, ~~2021~~2022, and December 31, ~~2020,~~2021, 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~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company earned ~~$0.5~~$0.3 million and ~~$0.5~~

$0.3 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.

~~Table of Contents~~

The Company recognized fixed and variable lease payments for operating leases for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,


2021

2020

2021

2020

Fixed payments
   $ 38,963    $

35,071    $

106,825    $

103,070
Variable payments
   5,868    6,151    17,404    17,864








   $ 44,831    $ 41,222    $ 124,229    $ 120,934


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Fixed payments	$	38,309	$	34,311	$	76,628	$	67,862
Variable payments		6,180		5,629		12,620		11,536

	$	44,489	$	39,940	$	89,248	$	79,398

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 three a

d six months ended June 30, 2022.

Future minimum lease payments t

to be received by the Company as of ~~September~~June 30, ~~2021~~2022 under

non-cancellable

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

2021
   $ 29,967
2022
   111,708
2023
   92,205
2024
   72,917
2025
   59,773
Thereafter
   182,296


   $ 548,866


2022	$	63,397
2023		117,160
2024		104,445
2025		92,922
2026		84,779
Thereafter		252,335

	$	715,038

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 ~~increases~~increase 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~~June 30, ~~2021,~~2022, these leases had remaining terms of under one year to 6766 years an

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, 2021

December 31, 2020

Right-of-use
asset – operating leases
   $ 14,238    $ 12,739
Lease liability – operating leases
   $ 9,374    $ 7,719
Right-of-use
asset – financing leases
   $ 37    $ 55
Lease liability – financing leases
   $ 37    $ 55


	June 30, 2022		December 31, 2021
Right-of-use asset – operating leases	$	13,858	$	14,114
Lease liability – operating leases	$	9,009	$	9,160
Right-of-use asset – financing leases	$	10,180	$	10,308
Lease liability – financing leases	$	1,450	$	1,425

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%~~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~~

.adjustments.

~~Table of Contents~~

Right-of-use

assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Table of Contents

Operating lease

expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were ~~$0.2~~$0.3 million and ~~$0.7~~$0.5 million, respectively. Operating lease expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were ~~$0.2~~$0.3 million and ~~$0.6~~$0.5 million, respectively. Financing lease expenses for the three and ~~nine~~six months ended ~~September~~June 30, 2022 were $0.1 million and $0.2 million, respectively. Financing lease expenses for the three and six months ended June 30, 2021 ~~and 2020~~ were

nominal.

Future minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of ~~September~~June 30, ~~2021~~2022 for the next five years and thereafter are as follows (in thousands):

Operating
Leases

Financing

Leases

2021
   $ 89    $ 7
2022
   971    27
2023
   836    4
2024
   770    —
2025
   770    —
Thereafter
   27,875    —




Total future minimum lease payments
   31,311    38
Discount
   (21,937 )    (1 )




Total
   $ 9,374    $ 37


	Operating Leases			Financing Leases
2022	$	290		$	17
2023		836			12
2024		770			7
2025		770			8
2026		724			8
Thereafter		27,151			6,946

Total future minimum lease payments		30,541			6,998
Discount		(21,532	)		(5,548	)

Total	$	9,009		$	1,450

9. Commitments and Contingencies

The Company is obligated under certain tenant leases t

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~~June 30, ~~2021,~~2022, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.

10. Stockholders’ Equity

Share Repurchase Plan

On March 9, 2020, the Company’s Board of Directors approved a share repurchase plan 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. 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.

Table of Contents

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 six months ended June 30, 2022, the Company completed the repurchase of 394,833 shares of its common stock for approximately $5.0 million. There were 0 shares repurchased during the ~~nine~~six months ended ~~September~~June 30, 2021. ~~During the nine months ended September 30, 2020, the Company completed the repurchase of 11,363,851 shares of its common stock for approximately $100.0 million.~~

Common Stock and Common Unit Distributions

On ~~September~~June 16, ~~2021,~~2022, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of ~~$0.15~~$0.20 per common share for the quarterly period ended ~~September~~June 30, ~~2021.~~2022. The dividend was paid subsequent to quarter end on ~~October~~July 22, ~~2021~~2022 to common stockholders and common unitholders of record as of the close of business on ~~October~~July 8, ~~2021,~~2022, resulting in an aggregate payment of ~~$6.5~~$8.6 million.

Preferred Stock Distributions

On ~~September~~June 16, ~~2021,~~2022, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $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~~June 30, ~~2021.~~2022. The dividend was paid subsequent to quarter end on ~~October~~July 22, ~~2021~~2022 to the holders of record of Series A Preferred Stock as of the close of business on ~~October~~July 8, ~~2021.~~

2022.

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), 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”). ~~2,263,580~~On May 4, 2022, the Company’s stockholders approved an amendment to the Equity Incentive Plan increasing the maximum number of shares of common stock that may be issued under the Equity Incentive ~~Plan.~~Plan from 2,263,580 shares to 3,763,580 shares. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.

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 ~~2020 and ending on December 31, 2022~~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 ~~companies~~first trading date in the ~~SNL US REIT Office index as~~year of ~~January 2, 2020 (the “2020 RSU Peer Group”).~~grant. The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the ~~2020 RSU~~ Peer Group would result in a 50% payout; TSR at the 50th percentile of the ~~2020 RSU~~ Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the ~~2020 RSU~~ 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~~earned.

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, ~~and Financial Condition,~~” contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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;

changes in local, regional, national and international economic conditions, including as a result of the ongoing coronavirus disease ~~2019~~

(“COVID-19”)

pandemic;

requests from tenants for rent deferrals, rent abatement or relief from other contractual obligations, or a failure to pay rent, as a result of changes in business behavior stemming from the ongoing

COVID-19

pandemic or the availability of government assistance programs;

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;

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

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;

changes in our business, financing or investment strategy or the markets in which we operate;

our failure to generate sufficient cash flows to service our outstanding indebtedness;

environmental uncertainties and risks related to adverse weather conditions and natural disasters;

our failure to ~~qualify and~~ maintain our ~~status~~qualification as a ~~real estate investment trust (“REIT”);~~REIT for U.S. federal income tax purposes;

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

COVID-19

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, ~~2020~~2021 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, ~~2020~~2021 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 ~~initial public offering (“IPO”)~~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~~June 30, ~~2021,~~2022, we owned 2425 properties comprised of 6460 office buildings with a total of approximately ~~5.6~~6.0 million square feet of net rentable area (“NRA”). As of ~~September~~June 30, ~~2021,~~2022, our properties were approximately ~~88.7%~~86.9% leased.

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,”~~“stop”, whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant recoveries. All tenants in ~~the Lake Vista Pointe,~~Canyon Park, Superior Pointe, The Terraces and 2525 McKinnon ~~and Canyon Park~~ 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 ~~and Sorrento Mesa~~ have leases on a triple net basis. We are also a lessor for a fee simple ground lease at the AmberGlen property. ~~Our~~All of our remaining leases are predominately full-service gross leases.

Factors That May Influence Our Operating Results and Financial Condition

COVID-19

During the first quarter of 2020, the World Health Organization declared the

COVID-19

outbreak a pandemic. There have been mandates from international, federal, state and local authorities requiring forced closures of businesses and other facilities, and most of the markets in which our buildings are located have been or are subject to some form of pandemic-related restrictions. These forced closures and restrictions have had a ~~material~~volatile adverse effect on the global economy and the regional U.S. economies in which we operate, including negatively impacting some of our tenants’ ability to pay their rent.

All of our buildings are open and continue to operate. We have adopted new policies and procedures to incorporate best practices for the safety of our tenants, our vendors and our employees. However, the usage of our assets in the ~~third~~second quarter ~~2021~~2022 was significantly lower than ~~normal.~~

pre-pandemic

usage. 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~~June 30, ~~2021,~~2022, as a result of

COVID-19

or governmental or tenant actions in response thereto, the Company granted rent relief to four tenants comprising approximately 0.1% of the Company’s occupied NRA, most often in the form of a rent abatement. Although the rent abatements granted to date did not have a material impact on our net rental revenue, 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.

We have collected over 99% of contractually required base rents from our tenants for the three months ended September 30, 2021 and granted rent relief for another approximately 0.1% of contractually required base rents from our tenants for the three months ended September 30, 2021. We may incur losses in future periods due to tenants that default on their leases, file for bankruptcy and/or otherwise experience significant financial difficulty as a result of the duration of the

~~COVID-19~~

~~pandemic, but the extent of those losses is impossible to predict given the fluidity of the pandemic and its uncertain impact on economic activity.~~

Leasing activity has ~~generally~~ been ~~slow, with the exception of the life science sector, and we believe leasing activity will continue to be~~ impacted by the

COVID-19

pandemic. We have experienced and we expect that we will continue to experience slower new leasing and there remains uncertainty over existing tenants’ long-term space requirements. Overall, this could reduce our anticipated rental revenues. In addition, certain tenants in our markets have and may explore opportunities to sublease all or a portion of their leased square footage to other tenants or third parties. While subleasing generally does not impact the ability to collect payment from the original lessee and will not result in any decrease in the rental revenues expected to be received from the primary tenant, this trend could reduce our ability to lease incremental square footage to new tenants, could increase the square footage of our properties that “goes dark,” could reduce anticipated rental revenue should tenants determine their long-term needs for square footage are lower than originally anticipated and ~~potentially~~could impact the pricing and competitiveness for ~~lease~~leasing office space in our markets.

We believe economic conditions, leasing activity and acquisition prospects have improved substantially since the initial ~~phase~~onset of the

COVID-19

pandemic and we will continue to actively evaluate business operations and strategies to optimally position ourselves. ~~For a discussion of the impact of the~~

~~COVID-19~~

~~pandemic on our liquidity and balance sheet, see “Liquidity and Capital Resources” below.~~

~~The situation surrounding the~~

~~COVID-19~~

pandemic and additional variants that may spread remains fluid and as certain restrictions are lifted in various geographical locations throughout the U.S., we will continue to monitor and actively manage our response in collaboration with tenants, government officials and other third parties to optimally position the Company.

Business and Strategy

We focus on owning and acquiring office properties in our ~~target markets.~~footprint of growth markets predominantly in the Sun Belt. Our ~~target~~ markets generally possess ~~what we believe are~~ growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally

low-cost

centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate ~~operators~~property and ~~our investment partners~~leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns. The long-term impact of the

~~COVID-19~~

~~pandemic on these markets is uncertain and impossible to estimate, and will depend on the scope, severity and duration of the~~

~~COVID-19~~

~~pandemic.~~

Rental Revenue and Tenant Recoveries

The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our portfolio of properties are generally

in-line

or slightly below the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants’ industries, including as a result of the

COVID-19

pandemic, that impair our ability to renew or

re-let

space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.

Our Properties

As of ~~September~~June 30, ~~2021,~~2022, we owned 2425 properties comprised of 6460 office buildings with a total of approximately ~~5.6~~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~~June 30, ~~2021.~~2022.

Metropolitan
Area

Property

Economic
Interest

NRA
(000s Square
Feet)

In Place
Occupancy

Annualized Base
Rent per Square
Foot

Annualized Gross
Rent per Square
Foot
(1)

Annualized Base Rent
(2)
($000s)

Phoenix, AZ

(21.8% of NRA)
   Pima Center    100.0 %    272    67.9 %    $ 28.21    $ 28.21    $ 5,208

SanTan
   100.0 %    267    97.5 %    $ 29.70    $ 29.70    $ 7,718

5090 N 40
th
St
   100.0 %    175    91.1 %    $ 30.33    $ 30.33    $ 4,842

Camelback Square
   100.0 %    172    78.4 %    $ 32.19    $ 32.19    $ 4,332

The Quad
   100.0 %    163    100.0 %    $ 30.61    $ 30.93    $ 4,990

Papago Tech
   100.0 %    163    96.3 %    $ 23.45    $ 23.45    $ 3,675
Tampa, FL

(18.7%)
   Park Tower    94.8 %    472    74.5 %    $ 26.42    $ 26.42    $ 9,295

City Center
   95.0 %    243 ��    89.3 %    $ 27.18    $ 27.18    $ 5,892

Intellicenter
   100.0 %    204    100.0 %    $ 25.09    $ 25.09    $ 5,105

Carillon Point
   100.0 %    124    88.0 %    $ 29.29    $ 29.29    $ 3,203
Denver, CO

(14.5%)
   Denver Tech
(3)
   100.0 %    383    93.8 %    $ 23.52    $ 27.64    $ 8,388

Circle Point
   100.0 %    272    83.6 %    $ 18.77    $ 32.64    $ 4,266

Superior Pointe
   100.0 %    152    94.0 %    $ 18.18    $ 31.18    $ 2,592
Orlando, FL

(12.9%)
   Florida Research Park
(4)
   96.6 %    397    91.5 %    $ 24.00    $ 27.57    $ 8,679

Central Fairwinds
   97.0 %    168    88.7 %    $ 25.72    $ 25.72    $ 3,838

Greenwood Blvd
   100.0 %    155    100.0 %    $ 23.75    $ 23.75    $ 3,682
Dallas, TX

(10.3%)
   190 Office Center    100.0 %    303    76.1 %    $ 26.63    $ 26.63    $ 6,146

Lake Vista Pointe
   100.0 %    163    100.0 %    $ 17.00    $ 26.00    $ 2,777

2525 McKinnon
   100.0 %    111    91.6 %    $ 29.32    $ 48.32    $ 2,992
Portland, OR

(5.9%)
   AmberGlen    76.0 %    203    98.4 %    $ 22.66    $ 25.20    $ 4,517

Cascade Station
   100.0 %    128    95.5 %    $ 27.85    $ 29.86    $ 3,391
San Diego, CA

(5.0%)
   Mission City    100.0 %    281    88.1 %    $ 37.46    $ 37.46    $ 9,284
Seattle, WA

(3.7%)
   Canyon Park    100.0 %    207    100.0 %    $ 22.49    $ 27.49    $ 4,650










Total / Weighted Average – Excluding Assets Held For Sale
(5)



5,178



89.0
%

$
25.94


$
28.77


$
119,462





San Diego, CA

(7.2%)
   Sorrento Mesa
(6)
   100.0 %    400    84.7 %    $ 31.50    $ 36.74    $ 10,678










Total / Weighted Average – September 30, 2021
(5)



5,578



88.7
%

$
26.32


$
29.31


$
130,140


Metropolitan Area	Property	Economic Interest			NRA (000s Square Feet)		In Place Occupancy			Annualized Base Rent per Square Foot		Annualized Gross Rent per Square Foot (1)		Annualized Base Rent (2) ($000s)
Phoenix, AZ (25.3% of NRA)	Block 23		100.0	%		307		94.0	%	$	29.63	$	31.88	$	8,552
	Pima Center		100.0	%		272		63.9	%	$	28.63	$	28.63	$	4,976
	SanTan		100.0	%		267		96.5	%	$	30.10	$	30.10	$	7,746
	5090 N. 40 th St		100.0	%		176		95.4	%	$	31.88	$	31.88	$	5,335
	Camelback Square		100.0	%		172		69.9	%	$	33.56	$	33.56	$	4,026
	The Quad		100.0	%		163		100.0	%	$	31.15	$	31.46	$	5,078
	Papago Tech		100.0	%		163		86.1	%	$	23.39	$	23.39	$	3,277
Tampa, FL (17.5%)	Park Tower		94.8	%		478		86.4	%	$	27.27	$	27.27	$	11,253
	City Center		95.0	%		245		85.0	%	$	27.84	$	27.84	$	5,791
	Intellicenter		100.0	%		204		100.0	%	$	25.64	$	25.64	$	5,219
	Carillon Point		100.0	%		124		100.0	%	$	29.52	$	29.52	$	3,666
Denver, CO (13.4%)	Denver Tech		100.0	%		381		93.2	%	$	23.98	$	28.08	$	8,425
	Circle Point		100.0	%		272		75.4	%	$	19.42	$	33.28	$	3,984
	Superior Pointe		100.0	%		152		91.3	%	$	18.77	$	31.77	$	2,609
Orlando, FL (12.0%)	Florida Research Park		96.5	%		393		80.7	%	$	25.37	$	27.34	$	7,973
	Central Fairwinds		97.0	%		168		94.6	%	$	27.26	$	27.26	$	4,337
	Greenwood Blvd		100.0	%		155		100.0	%	$	24.25	$	24.25	$	3,760
Dallas, TX (9.8%)	190 Office Center		100.0	%		303		75.5	%	$	27.11	$	27.11	$	6,210
	The Terraces		100.0	%		173		95.9	%	$	37.99	$	57.99	$	6,290
	2525 McKinnon		100.0	%		111		93.0	%	$	27.05	$	46.05	$	2,801
Portland, OR (5.5%)	AmberGlen		76.0	%		203		98.4	%	$	23.55	$	26.45	$	4,695
	Cascade Station		100.0	%		128		100.0	%	$	28.77	$	30.68	$	3,685
San Diego, CA (4.7%)	Mission City		100.0	%		281		88.0	%	$	38.24	$	38.24	$	9,466
Seattle, WA (3.5%)	Canyon Park		100.0	%		207		100.0	%	$	23.17	$	27.17	$	4,791

Total / Weighted Average – Excluding Acquisitions in Lease-Up (3)						5,498		88.6	%	$	27.54	$	30.49	$	133,945
Raleigh, NC (8.3%)	Bloc 83		100.0	%		495		68.3	%	$	37.03	$	37.12	$	12,527

Total / Weighted Average – June 30, 2022						5,993		86.9	%	$	28.16	$	30.92	$	146,472

(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~~June 30, ~~2021~~2022 by (ii) 12.

(3)	~~Denver Tech is comprised of 7601 Tech and 7595 Tech (formerly “DTC Crossroads”).~~

~~(4)~~

~~Florida Research Park is comprised of FRP Collection and FRP Ingenuity Drive.~~

~~(5)~~

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

~~(6)~~

~~Sorrento Mesa includes 5910 Pacific Center and 9985 Pacific Heights, which were acquired during the second quarter~~ Including contracted leases, occupancy was 85.2% at Bloc 83 as of ~~2021. The Sorrento Mesa property was under contract for sale as at September~~June 30, ~~2021.~~2022.

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 in our cities to continue, there is no way for us to predict whether these trends will continue, especially in light of the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the ~~recent~~potential impact that the

COVID-19

pandemic ~~has caused significant disruption in global financial markets and economies. This global disruption could~~will have ~~a material impact~~ on the ~~markets~~short- and long-term demand for office space in ~~which we operate,~~ our ~~tenants and our ability to successfully execute our business strategy. The extent to which~~

~~COVID-19~~

~~will impact the Company is highly uncertain and is not reasonably estimable at this time.~~markets.

~~Summary of Significant~~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, ~~2020~~2021 included in our Annual Report on Form

10-K

for the year ended December 31, ~~2020.~~2021.

Results of Operations

Comparison of Three Months Ended ~~September~~June 30, ~~2021~~2022 to Three Months Ended ~~September~~June 30, ~~2020~~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 ~~$3.6~~$5.5 million, or 9%14%, to ~~$44.9~~$45.5 million for the three months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$41.3~~$40.0 million for the three months ended ~~September~~June 30, ~~2020. The~~2021. Of this increase, can be attributed to our Park Tower and SanTan properties, which recorded significant termination fee income during the third quarter which increased revenue by $5.2 million and $0.6 million, respectively. A further increase of $0.7 million was attributable to the acquisitions of ~~two additional buildings adjacent to our Sorrento Mesa portfolio~~Block 23, The Terraces and Bloc 83 in ~~May 2021.~~December 2021 contributed increases of $2.5 million, $2.7 million and $3.9 million, respectively. Offsetting these increases, ~~was~~ the disposition of ~~Cherry Creek~~Sorrento Mesa in ~~February~~December 2021 decreased revenue by $3.1 million. Revenue also decreased at Park Tower by $0.6 million due to the downtime associated with a tenant departure in which ~~resulted in~~ a ~~$2.4 million decrease in revenue.~~replacement tenant did not take occupancy until the middle of the second quarter of 2022. 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 increased by ~~$5.1~~$4.0 million, or ~~16%~~12%, to ~~$37.7~~$36.2 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$32.6~~$32.2 million for the three months ended ~~September~~June 30, ~~2020. General and administrative expenses increased by $5.4 million over the prior year 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~~Of this increase, ~~of $0.7 million was attributable to~~ the acquisitions of ~~two additional buildings adjacent to our Sorrento Mesa portfolio~~Block 23, The Terraces and Bloc 83 in ~~May 2021.~~December 2021 contributed increases of $1.6 million, $1.8 million and $2.5 million, respectively. Offsetting these increases, the disposition of ~~Cherry Creek~~Sorrento Mesa resulted in a ~~$1.3~~$1.8 million decrease in total operating expenses. The remaining properties’ expenses were ~~marginally higher~~relatively unchanged 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. 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 ~~$0.3~~$2.6 million, or 2%19%, to ~~$15.2~~$16.8 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$14.9~~$14.2 million infor the ~~same period in the prior year.~~three months ended June 30, 2021. Of this increase, ~~$0.3~~the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $0.7 million, $0.9 million and $0.7 million, respectively. An increase of $0.2 million was attributable to the ~~acquisitions of two additional buildings adjacent~~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 ~~our Sorrento Mesa portfolio in May 2021.~~the tenants. Offsetting ~~this increase was~~these increases, the disposition of ~~Cherry Creek which~~Sorrento Mesa resulted in a ~~$0.7~~$0.6 million decrease in property operating expenses. The ~~majority of the~~ remaining properties’ expenses ~~were marginally higher in comparison to the prior period resulting in~~increased a ~~total increase of~~combined $0.7 million.

General and Administrative.

General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and ~~board~~Board of ~~directors,~~Directors, as well as

non-cash

stock-based compensation expenses. General and administrative expenses increased ~~$5.4~~$0.5 million, or ~~210%~~18%, to ~~$7.9~~$3.6 million for the three months ended ~~September~~June 30, ~~2021,~~2022, from ~~$2.5~~$3.1 million for the three months ended June 30, 2021. General and administrative expenses increased primarily due to higher stock-based compensation expense and higher professional fees.

Depreciation and Amortization.

Depreciation and amortization increased $0.7 million, or 5%, to $15.7 million for the three months ended June 30, 2022, from $15.0 million reported for the same period in ~~2020. General~~2021. Of this increase, the acquisitions of Block 23, The Terraces and ~~administrative expenses increased due to a~~

~~one-time~~

~~$5.0~~Bloc 83 in December 2021 contributed increases of $0.9 million, ~~bonus accrual incurred as a result of the Sorrento Mesa sale transaction announced during the third quarter of 2021. The remaining increase is due to higher professional fees.~~

~~Depreciation~~$0.9 million and ~~Amortization~~

~~. Depreciation and amortization decreased $0.6~~$1.7 million, ~~or 4%, to $14.6 million for the three months ended September 30, 2021, from $15.2 million reported for the same period in the prior year. The decrease was primarily attributable to~~respectively. Offsetting these increases, the disposition of ~~Cherry Creek which~~Sorrento Mesa resulted in a ~~$0.6~~$1.2 million decrease and the disposition of Lake Vista Pointe resulted in a further decrease of $0.2 million. Also contributing to the decrease, depreciation and ~~amortization.~~amortization for Pima Center decreased by $0.5 million from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining ~~properties~~properties’ depreciation expenses were ~~relatively unchanged.~~marginally lower in comparison to the prior period.

Other Expense (Income)

Interest Expense.

Interest expense ~~decreased $1.0~~increased $0.4 million, or ~~15%~~6%, to $6.3 million for the three months ended June 30, 2022, from $5.9 million for the three months ended ~~September~~June 30, ~~2021, from $6.9 million for the three months ended September 30, 2020.~~2021. The ~~decrease~~increase was primarily attributable to the ~~sale of Cherry Creek during~~increase in the ~~period as the proceeds of the sale were used to repay~~amount drawn and interest rates on our floating rate debt.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~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 ~~$3.4~~$10.8 million, or 3%14%, to ~~$124.4~~$90.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$121.0~~$79.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $5.0 million, $5.3 million and $7.4 million, respectively. A further increase can be attributed to ~~our Park Tower and~~the SanTan ~~properties,~~property, which recorded ~~significant~~higher termination fee income during ~~the third quarter~~2022, which increased revenue by $5.3 million and $1.4 million, respectively. Revenue also increased by $0.8 million at our 7595 Tech property within the Denver Tech portfolio, $1.2 million at our existing Sorrento Mesa property and $0.3 million at City Center due to significant leasing transactions which lifted occupancy and rental income. A further increase of $1.1 million was attributable to the acquisitions of two additional buildings adjacent to our Sorrento Mesa portfolio in May 2021.$0.6 million. Offsetting ~~this increase,~~these increases, the disposition of Cherry Creek in February 2021 ~~contributed $5.6~~and Sorrento Mesa in December 2021 decreased revenue by $0.8 million ~~to the decrease in revenue.~~and $5.8 million, respectively. Revenue also decreased at ~~190 Office Center and Pima Center~~Park Tower by ~~$0.6~~$1.0 million ~~and $0.8 million, respectively,~~ due to the downtime associated with a ~~decrease~~tenant departure in which a replacement tenant did not take occupancy ~~year over year.~~until the middle of the second quarter of 2022. 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 ~~$4.4~~$8.4 million, or 4%13%, to ~~$101.3~~$71.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$96.9~~$63.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020. General and administrative expenses increased by $5.8 million over the prior year 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~~Of this increase, ~~of $1.2 million was attributable to~~ the acquisitions of ~~two additional buildings adjacent to our Sorrento Mesa portfolio~~Block 23, The Terraces and Bloc 83 in ~~May~~December 2021 contributed increases of $3.0 million, $3.5 million and ~~an increase of $0.7~~$5.0 million, ~~was attributable to the Denver Tech portfolio due to a combination of higher property operating expenses and depreciation and amortization.~~respectively. Offsetting these increases, the disposition of Cherry Creek resulted in a ~~$3.4~~$0.3 million decrease and the disposition of Sorrento Mesa resulted in a $3.2 million decrease in total operating expenses. The remaining properties’ expenses ~~were marginally higher in comparison to the prior period.~~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~~Board of ~~directors,~~Directors, as well as

non-cash

stock-based compensation expenses. General and administrative expenses increased ~~$5.8~~$1.2 million, or ~~72%~~20%, to ~~$13.8~~$7.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$8.0~~$5.9 million reported for the same period in ~~2020.~~2021. 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. The remaining increase is due to~~higher stock-based compensation expense and higher professional fees.

Depreciation and Amortization.

Depreciation and amortization ~~decreased $1.2~~increased $2.1 million, or 3%7%, to ~~$44.0~~$31.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$45.2~~$29.4 million reported for the same period in ~~2020.~~2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $1.7 million, $1.8 million and $3.4 million, respectively. Offsetting these increases, the disposition of ~~Cherry Creek~~Sorrento Mesa resulted in a ~~$1.8~~$2.1 million decrease and the disposition of Lake Vista Pointe resulted in a further decrease of $0.4 million. Also contributing to the decrease, depreciation and amortization ~~which was offset~~for Pima Center decreased by $1.0 million from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining properties’ depreciation ~~related~~expenses were marginally lower in comparison to the ~~acquisitions of two additional buildings adjacent to our Sorrento Mesa portfolio in May 2021. The remaining properties were relatively unchanged.~~prior period.

Other Expense (Income)

Interest Expense.

Interest expense ~~decreased $2.4~~was relatively unchanged decreasing by $0.2 million, or ~~11%~~1%, to ~~$18.4~~$12.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, from ~~$20.8~~$12.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020. The decrease was primarily attributable to the sale of Cherry Creek in February 2021 as the proceeds of the sale were used to repay debt.~~2021.

Net Gain on the Sale of Real Estate Property.

WeDuring 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~~six months ended ~~September~~June 30, 2021 related to the sale of our Cherry Creek property in February 2021.

Cash Flows

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Cash, cash equivalents and restricted cash were ~~$70.2~~$69.4 million and ~~$56.4~~$36.3 million as of ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, respectively.

Cash flow from operating activities.

Net cash provided by operating activities increased by ~~$18.1~~$39.3 million to ~~$65.7~~$75.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$47.6~~$35.7 million for the same period in ~~2020.~~2021. The increase in cash provided by operating activities was primarily ~~attributable~~due to ~~changes~~receipts received from the sales-type lease at the Lake Vista Pointe property, which was sold in ~~working capital.~~June 2022.

Cash flow ~~from~~to investing activities.

Net cash ~~provided by~~used in investing activities increased by ~~$74.8~~$58.6 million to ~~$59.6~~$21.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$15.2~~$37.4 million ~~used in~~provided by investing activities for the same period in ~~2020.~~2021. The increase in cash ~~provided by~~used in investing activities was primarily due to ~~the~~a decrease in proceeds from sale of real estate for the six months ended June 30, 2022 compared to the same period in 2021. The higher proceeds from sale of real estate in 2021 was attributable to the sale of the Cherry Creek property in ~~February 2021 and deposits received for the anticipated sale of the Sorrento Mesa portfolio in the third quarter of 2021, which were recorded in restricted cash,~~2021.

This decrease was partially offset by ~~the~~higher acquisition of ~~two additional buildings adjacent~~real estate in 2021 compared to ~~our Sorrento Mesa portfolio in May 2021.~~2022.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately ~~$17.7~~$26.4 million of cash and cash equivalents and ~~$52.5~~$43.0 million of restricted cash as of ~~September~~June 30, ~~2021.~~2022.

On March 15, 2018, the Company entered into a credit agreement for the Unsecured Credit Facility ~~(our “Unsecured Credit Facility”)~~ that provided for commitments of up to $250 million, which ~~includes~~included an accordion feature that ~~allows~~allowed the Company to borrow up to $500 million, subject to customary terms and conditions. ~~The Company’s previous secured credit facility was replaced~~On November 16, 2021, the Company entered into an Amended and ~~repaid in full from~~Restated Credit Agreement (the “Amended and Restated Credit Agreement”) that provides for commitments of up to $300 million on the ~~proceeds of our~~ Unsecured Credit Facility. Our Unsecured Credit Facility matures in ~~March 2022~~November 2025 and may be extended ~~to March 2023~~12 months at the Company’s option upon meeting certain conditions. Borrowings under our Unsecured Credit Facility bear an interest at a rate equal to the LIBOR rate plus a margin of between ~~140~~125 to 225 basis points depending upon the Company’s consolidated leverage ratio. Combined with the Term Loan, the total authorized borrowings increased from $300 million to $350 million. As of ~~September~~June 30, ~~2021,~~2022, we had approximately ~~$88.0~~$162.0 million outstanding under our Unsecured Credit Facility and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender.

On September 27, 2019, the Company entered into the five-year $50 million Term Loan, ~~(the “Term Loan”),~~ increasing its authorized borrowings under the Company’s 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 the ~~five-year interest rate swap for a notional amount of $50 million (the “Interest~~Interest Rate ~~Swap”).~~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.

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 ~~Agreements with D.A. Davidson & Co., which termination became~~Agreement, effective on 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~~six months ended ~~September~~June 30, ~~2021.~~2022.

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,~~cash. We have further sources such as proceeds from our public offerings, including under our at the market issuance program, and borrowings under our mortgage loans and our Unsecured Credit Facility.

Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions 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.

Table of Contents

We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot assure you that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We ~~have used, and will~~ use derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. 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 Financial Conduct Authority (the authority that regulates LIBOR) has announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR by June 30, 2023. The Alternative Reference Rates Committee (“AARC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for future use in derivatives and other financial contracts that are currently indexed to LIBOR. 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. We currently consider our interest rate exposure to be ~~minimal,~~moderate because as of ~~September~~June 30, ~~2021,~~2022, approximately ~~$468.2~~$446.6 million, or ~~77.2%~~67.8%, of our debt had fixed interest rates and approximately ~~$138.0~~$212.0 million, or ~~22.8%~~32.2%, had variable interest rates. Of the ~~$138.0~~$212.0 million variable rate debt, $50.0 million relates to the Term Loan against which we have applied the Interest Rate Swap. The Interest Rate Swap effectively fixes the

30-day

LIBOR rate at approximately 1.27% until maturity of the Term Loan. When factoring in the Term Loan as fixed rate debt through the Interest Rate Swap, approximately ~~85.5%~~75.4% of our debt was fixed rate debt and ~~14.5%~~24.6% was variable rate debt as of ~~September~~June 30, ~~2021. A 10%~~2022. An increase of 1% in LIBOR would result in a ~~nominal~~$1.6 million increase to our annual interest costs on debt outstanding as of ~~September~~June 30, ~~2021,~~2022 and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility. A ~~10%~~1% decrease in LIBOR, assuming a rate floor of 0%, would result in a ~~nominal~~$1.6 million decrease to our annual interest costs on debt outstanding as of ~~September~~June 30, ~~2021~~2022 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 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. ~~In addition, the uncertainty that exists with respect to the economic impact of the~~

~~COVID-19~~

pandemic introduced significant volatility in global financial markets and economies during and subsequent to the nine months ended September 30, 2021. The long-term impacts of such volatility on the Company are uncertain and impossible to estimate, and will depend on the scope, severity and duration of the pandemic.

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~~June 30, ~~2021.~~2022.

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.

Table of Contents

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~~June 30, ~~2021,~~2022, 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

~~None.~~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

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. 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, the Company’s Board of Directors approved a share repurchase plan 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 program. 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. 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 ~~Securities and Exchange Commission~~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 by the amount that the purchase price for the shares of common stock repurchased exceed the par value.

Table of Contents

Share repurchase activity under our share repurchase plans, on a trade date basis, for the three months ended June 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)
April 1 – 30, 2022		—	$	—		—	$	50,000
May 1 – 31, 2022		—		—		—		50,000
June 1 – 30, 2022		394,833		12.64		394,833		45,008

Total		394,833	$	12.64		394,833	$	45,008

(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.

(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.

2728

Table of Contents

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 ~~with the SEC~~ 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 ~~with the SEC~~ 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 ~~SEC~~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 ~~SEC~~Commission on September 30, 2016).

~~10.1~~		Agreement of Purchase and Sale and Joint Escrow Instructions, dated August 19, 2021, by and among CIO Sorrento Mesa Holdings, LLC, CIO 5910 Pacific Center, LLC and North Buyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form ~~8-K~~ ~~filed with the SEC on August 20, 2021).~~

~~10.2~~		Agreement of Purchase and Sale and Joint Escrow Instructions, dated August 19, 2021, by and among CIO SM Land Holdings, LLC, CIO 9985 Pacific Heights, LLC and South Buyer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form ~~8-K~~ ~~filed with the SEC on August 20, 2021)~~.

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

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		INSTANCE DOCUMENT*

101.SCH		SCHEMA DOCUMENT*

101.CAL		CALCULATION LINKBASE DOCUMENT*

101.LAB		LABELS LINKBASE DOCUMENT*

101.PRE		PRESENTATION LINKBASE DOCUMENT*

101.DEF		DEFINITION LINKBASE 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.

2829

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CITY OFFICE REIT, INC.

~~Date: November 3, 2021~~


Date: August 4, 2022

	By:	/s/ James Farrar
		James Farrar

		Chief Executive Officer and Director (Principal Executive Officer)

Date: ~~November 3, 2021~~August 4, 2022

	By:	/s/ Anthony Maretic
		Anthony Maretic

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

2930


	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			—
Vested		—			—
Forfeited		—			—

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

Outstanding at June 30, 2022		413,686			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			—
Vested		—			—
Forfeited		—			—

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

Outstanding at June 30, 2021		336,920			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
2021		169,500		120,000	$	2,808	$	9.70
2022		237,986		90,000		5,753		17.54


	Payments Due by Period (in thousands)										Payments Due by Period (in thousands)
Contractual Obligations	Total		2021		2022-2023		2024-2025		More than 5 years		Total		2022		2023-2024		2025-2026		More than 5 years
Principal payments on mortgage loans	$	606,174	$	1,524	$	143,078	$	216,733	$	244,839	$	658,605	$	3,141	$	156,628	$	258,533	$	240,303
Interest payments (1)		94,531		5,455		40,503		30,751		17,822		94,099		12,307		45,770		28,211		7,811
Tenant-related commitments		24,147		19,930		4,217		—		—		23,620		23,620		—		—		—
Lease obligations		31,349		96		1,838		1,540		27,875		37,539		307		1,625		1,510		34,097

Total	$	756,201	$	27,005	$	189,636	$	249,024	$	290,536	$	813,863	$	39,375	$	204,023	$	288,254	$	282,211


PART I. FINANCIAL INFORMATION			1

Item 1. Financial Statements			1

Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021			1

Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			2

Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			3

Condensed Consolidated Statements of Changes in Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			4

Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			5

Notes to Condensed Consolidated Financial Statements			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16

Item 3. Quantitative and Qualitative Disclosures about Market Risk			26

Item 4. Controls and Procedures			26

PART II. OTHER INFORMATION			27

Item 1. Legal Proceedings			27

Item 1A. Risk Factors			27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27

~~Item 3. Defaults Upon Senior Securities~~			27

~~Item 4. Mine Safety Disclosures~~			27

Item ~~5. Other Information~~3. Defaults Upon Senior Securities			27

~~Item 6. Exhibits~~			28

Item 4. Mine Safety Disclosures			28

~~Signatures~~Item 5. Other Information			28

Item 6. Exhibits			29

Signatures			30


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Rental and other revenues	$	44,889		$	41,261		$	124,369		$	121,000
Operating expenses:
Property operating expenses		15,180			14,886			43,477			43,666
General and administrative		7,900			2,546			13,768			8,025
Depreciation and amortization		14,648			15,189			44,017			45,222

Total operating expenses		37,728			32,621			101,262			96,913

Operating income		7,161			8,640			23,107			24,087
Interest expense:
Contractual interest expense		(5,650	)		(6,620	)		(17,533	)		(19,773	)
Amortization of deferred financing costs and debt fair value		(267	)		(328	)		(869	)		(993	)

		(5,917	)		(6,948	)		(18,402	)		(20,766	)
Net gain on sale of real estate property		—			1,347			47,400			1,347

Net income		1,244			3,039			52,105			4,668
Less:
Net income attributable to non-controlling interests in properties		(378	)		(153	)		(760	)		(514	)

Net income attributable to the Company		866			2,886			51,345			4,154
Preferred stock distributions		(1,855	)		(1,855	)		(5,565	)		(5,565	)

Net (loss)/income attributable to common stockholders	$	(989	)	$	1,031		$	45,780		$	(1,411	)

Net (loss)/income per common share:
Basic	$	(0.02	)	$	0.02		$	1.05		$	(0.03	)

Diluted	$	(0.02	)	$	0.02		$	1.04		$	(0.03	)

Weighted average common shares outstanding:
Basic		43,554			43,593			43,478			48,508

Diluted		43,554			44,014			44,091			48,508

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


	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


	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, 2019		4,480	$	112,000		54,591		$	545		$	577,131		$	(142,383	)	$	715		$	548,008		$	1,124		$	549,132
Restricted stock award grants and vesting		—		—		35			—			599			(79	)		—			520			—			520
Common stock repurchased		—		—		(1,451	)		(14	)		(11,608	)		—			—			(11,622	)		—			(11,622	)
Common stock dividend distribution declared		—		—		—			—			—			(7,771	)		—			(7,771	)		—			(7,771	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Contributions		—		—		—			—			—			—			—			—			3			3
Distributions		—		—		—			—			—			—			—			—			(200	)		(200	)
Net income		—		—		—			—			—			824			—			824			182			1,006
Other comprehensive loss		—		—		—			—			—			—			(2,741	)		(2,741	)		—			(2,741	)

Balance—March 31, 2020		4,480	$	112,000		53,175		$	531		$	566,122		$	(151,264	)	$	(2,026	)	$	525,363		$	1,109		$	526,472

Restricted stock award grants and vesting		—		—		135			2			659			(66	)		—			595			—			595
Common stock repurchased		—		—		(8,799	)		(88	)		(77,961	)		—			—			(78,049	)		—			(78,049	)
Common stock dividend distribution declared		—		—		—			—			—			(6,649	)		—			(6,649	)		—			(6,649	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Distributions		—		—		—			—			—			—			—			—			(184	)		(184	)
Net income		—		—		—			—			—			444			—			444			179			623
Other comprehensive loss		—		—		—			—			—			—			(298	)		(298	)		—			(298	)

Balance—June 30, 2020		4,480	$	112,000		44,511		$	445		$	488,820		$	(159,390	)	$	(2,324	)	$	439,551		$	1,104		$	440,655

Restricted stock award grants and vesting		—		—		—			—			636			(49	)		—			587			—			587
Common stock repurchased		—		—		(1,114	)		(12	)		(10,682	)		—			—			(10,694	)		—			(10,694	)
Common stock dividend distribution declared		—		—		—			—			—			(6,509	)		—			(6,509	)		—			(6,509	)
Preferred stock dividend distribution declared		—		—		—			—			—			(1,855	)		—			(1,855	)		—			(1,855	)
Distributions		—		—		—			—			—			—			—			—			(239	)		(239	)
Net income		—		—		—			—			—			2,886			—			2,886			153			3,039
Other comprehensive income		—		—		—			—			—			—			134			134			—			134

Balance—September 30, 2020		4,480	$	112,000		43,397		$	433		$	478,774		$	(164,917	)	$	(2,190	)	$	424,100		$	1,018		$	425,118


Sorrento Mesa	North Disposition			South Disposition			Total
Real estate properties, net	$	77,870		$	30,717		$	108,587
Deferred leasing costs, net		3,308			—			3,308
Acquired lease intangible assets, net		2,225			1,268			3,493
Rents receivable, prepaid expenses and other assets		2,977			17			2,994

Assets held for sale	$	86,380		$	32,002		$	118,382

Acquired lease intangible liabilities, net	$	(1,005	)	$	—		$	(1,005	)
Accounts payable, accrued expenses, deferred rent and tenant rent deposits		(1,502	)		(366	)		(1,868	)

Liabilities related to assets held for sale	$	(2,507	)	$	(366	)	$	(2,873	)


Cherry Creek	December 31, 2020
Real estate properties, net	$	40,849
Deferred leasing costs, net		150
Acquired lease intangible assets, net		2,256
Rents receivable, prepaid expenses and other assets		2,799

Assets held for sale	$	46,054

Accounts payable, accrued expenses, deferred rent and tenant rent deposits	$	(531	)

Liabilities related to assets held for sale	$	(531	)


	Lease Intangible Assets												Lease Intangible Liabilities
September 30, 2021	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	14,135		$	71,416		$	27,847		$	113,398		$	(9,641	)	$	(138	)	$	(9,779	)
Accumulated amortization		(9,240	)		(55,820	)		(18,155	)		(83,215	)		5,864			47			5,911

	$	4,895		$	15,596		$	9,692		$	30,183		$	(3,777	)	$	(91	)	$	(3,868	)


	Lease Intangible Assets												Lease Intangible Liabilities
December 31, 2020	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	14,894		$	80,259		$	30,284		$	125,437		$	(13,093	)	$	(138	)	$	(13,231	)
Accumulated amortization		(8,497	)		(55,636	)		(17,161	)		(81,294	)		7,152			44			7,196

	$	6,397		$	24,623		$	13,123		$	44,143		$	(5,941	)	$	(94	)	$	(6,035	)


2021	$	2,381
2022		7,699
2023		5,281
2024		2,994
2025		2,751
Thereafter		5,209

	$	26,315


2021	$	29,967
2022		111,708
2023		92,205
2024		72,917
2025		59,773
Thereafter		182,296

	$	548,866

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company