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 June 30, 2019

2022

OR

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

For the transition period from
to

Commission File Number:
001-36409

CITY OFFICE REIT, INC.

(Exact name of registrant as specified in its charter)

Maryland
 
98-1141883

(State or other jurisdiction
(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

Former name, former address and former fiscal year, if changed since last report: N/A

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

Title of Each Class

 

Trading

Symbol(s)

 

Name of each Exchange

on Which Registered

Common Stock, $0.01 par value
“CIO”New York Stock Exchange
6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
 
“CIO”
“CIO.PrA”
 
New York Stock Exchange
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

    
Large accelerated filer   Accelerated filer 
Non-accelerated
filer
   Smaller reporting company 
 
  Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  

Indicate by check mark whether the registrant is a shell company (as defined in 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 July 29, 2019August
2
, 2022 was 39,647,063.

41,572,870
.


Table of Contents

City Office REIT, Inc.

Quarterly Report on Form
10-Q

For the Quarter Ended June 30, 2019

2022

Table of Contents

   31 

Financial Statements

   31 

   31 

   42 
3

   54 

5
   6 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   16 

Quantitative and Qualitative Disclosures about Market Risk

24

Item 4.

Controls and Procedures

25

PART II. OTHER INFORMATION

   26 

Legal Proceedings4. Controls and Procedures

   26 

Item 1A.

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

   27 

27
27
27
28
28
28
   29 
30


PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Item 1. Financial Statements
City Office REIT, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value and share data)

   June 30,  December 31, 
   2019  2018 

Assets

   

Real estate properties

   

Land

  $224,837  $223,789 

Building and improvement

   762,537   704,113 

Tenant improvement

   86,374   77,426 

Furniture, fixtures and equipment

   285   319 
  

 

 

  

 

 

 
   1,074,033   1,005,647 

Accumulated depreciation

   (86,475  (70,484
  

 

 

  

 

 

 
   987,558   935,163 
  

 

 

  

 

 

 

Cash and cash equivalents

   11,581   16,138 

Restricted cash

   19,295   17,007 

Rents receivable, net

   31,008   26,095 

Deferred leasing costs, net

   11,039   10,402 

Acquired lease intangible assets, net

   71,972   75,501 

Other assets

   17,141   2,755 

Assets held for sale

   —     17,370 
  

 

 

  

 

 

 

Total Assets

  $1,149,594  $1,100,431 
  

 

 

  

 

 

 

Liabilities and Equity

   

Liabilities:

   

Debt

  $709,670  $645,354 

Accounts payable and accrued liabilities

   22,960   25,892 

Deferred rent

   5,625   5,331 

Tenant rent deposits

   5,780   4,564 

Acquired lease intangible liabilities, net

   9,249   8,887 

Other liabilities

   19,512   11,148 

Liabilities related to assets held for sale

   —     878 
  

 

 

  

 

 

 

Total Liabilities

   772,796   702,054 
  

 

 

  

 

 

 

Commitments and Contingencies (Note 9)

   

Equity:

   

6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding

   112,000   112,000 

Common stock, $0.01 par value, 100,000,000 shares authorized, 39,647,063 and 39,544,073 shares issued and outstanding

   396   395 

Additional paid-in capital

   377,937   377,126 

Accumulated deficit

   (114,565  (92,108
  

 

 

  

 

 

 

Total Stockholders’ Equity

   375,768   397,413 

Non-controlling interests in properties

   1,030   964 
  

 

 

  

 

 

 

Total Equity

   376,798   398,377 
  

 

 

  

 

 

 

Total Liabilities and Equity

  $1,149,594  $1,100,431 
  

 

 

  

 

 

 

Subsequent Events (Note 11)

   

   
June 30,

2022
  
December 31,
2021
 
Assets
         
Real estate properties         
Land  $200,686  $204,801 
Building and improvement   1,230,702   1,244,177 
Tenant improvement   129,496   119,011 
Furniture, fixtures and equipment   664   664 
          
    1,561,548   1,568,653 
Accumulated depreciation   (170,569  (157,356
          
    1,390,979   1,411,297 
          
Cash and cash equivalents   26,352   21,321 
Restricted cash   43,044   20,945 
Rents receivable, net   37,501   30,415 
Deferred leasing costs, net   21,213   20,327 
Acquired lease intangible assets, net   61,762   68,925 
Other assets   30,526   28,283 
          
Total Assets  $1,611,377  $1,601,513 
          
Liabilities and Equity
         
Liabilities:
         
Debt  $654,366  $653,648 
Accounts payable and accrued liabilities   33,136   27,101 
Deferred rent   10,089   11,600 
Tenant rent deposits   6,856   6,165 
Acquired lease intangible liabilities, net   10,042   10,872 
Other liabilities   20,895   21,532 
          
Total Liabilities   735,384   730,918 
          
Commitments and Contingencies (Note 9)
   0   0 
Equity:
         
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding as of 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
   479,057   482,061 
Retained earnings   281,735   275,502 
Accumulated other comprehensive income/(loss)   1,885   (382
          
Total Stockholders’ Equity   875,110   869,616 
Non-controlling
interests in properties
   883   979 
          
Total Equity   875,993   870,595 
          
Total Liabilities and Equity  $1,611,377  $1,601,513 
          
Subsequent Events (Note 11)         
The accompanying notes are an integral part of these condensed consolidated financial statements.

1

City Office REIT, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2019  2018  2019  2018 
              

Rental and other revenues

  $41,171  $30,236   78,291   61,770 

Operating expenses:

     

Property operating expenses

   14,526   11,748   28,370   23,374 

General and administrative

   3,362   1,966   5,660   3,943 

Depreciation and amortization

   14,604   11,771   29,022   23,665 
  

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

   32,492   25,485   63,052   50,982 
  

 

 

  

 

 

  

 

 

  

 

 

 

Operating income

   8,679   4,751   15,239   10,788 

Interest expense:

     

Contractual interest expense

   (7,502  (5,081  (14,645  (10,269

Amortization of deferred financing costs and debt fair value

   (334  (354  (671  (986
  

 

 

  

 

 

  

 

 

  

 

 

 
   (7,836  (5,435  (15,316  (11,255

Net gain on sale of real estate property

   478   —     478   46,980 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income/(loss)

   1,321   (684  401   46,513 

Less:

     

Net income attributable to non-controlling interests in properties

   (165  (114  (334  (249
  

 

 

  

 

 

  

 

 

  

 

 

 

Net income/(loss) attributable to the Company

   1,156   (798  67   46,264 

Preferred stock distributions

   (1,855  (1,855  (3,710  (3,710
  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss)/income attributable to common stockholders

  $(699 $(2,653 $(3,643 $42,554 
  

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss)/income per common share:

     

Basic

  $(0.02 $(0.07 $(0.09 $1.18 
  

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  $(0.02 $(0.07 $(0.09 $1.17 
  

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average common shares outstanding:

     

Basic

   39,640   36,132   39,603   36,103 
  

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

   39,640   36,132   39,603   36,452 
  

 

 

  

 

 

  

 

 

  

 

 

 

Dividend distributions declared per common share

  $0.235  $0.235  $0.470  $0.470 
  

 

 

  

 

 

  

 

 

  

 

 

 

   
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.

2

City Office REIT, Inc.

Condensed Consolidated Statements of Changes in Equity

Comprehensive Income

(Unaudited)

(In thousands)

   Number of
shares of
preferred
stock
   Preferred
stock
   Number of
shares of
common stock
   Common
stock
   Additional
paid-in capital
   Accumulated
deficit
  Total
stockholders’
equity
  Non-
controlling
interests in
properties
  Total equity 

Balance - December 31, 2018

   4,480   $112,000    39,544   $395   $377,126   $(92,108 $397,413  $964  $398,377 

Restricted stock award grants and vesting

   —      —      92    1    302    (83  220   —     220 

Common stock dividend distributions declared

   —      —      —      —      —      (9,314  (9,314  —     (9,314

Preferred stock dividend distributions declared

   —      —      —      —      —      (1,855  (1,855  —     (1,855

Contributions

   —      —      —      —      —      —     —     12   12 

Distributions

   —      —      —      —      —      —     —     (134  (134

Net income

   —      —      —      —      —      (1,089  (1,089  169   (920
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance - March 31, 2019

   4,480   $112,000    39,636   $396   $377,428   $(104,449 $385,375  $1,011  $386,386 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Restricted stock award grants and vesting

   —      —      11    —      509    (99  410   —     410 

Common stock dividend distributions declared

   —      —      —      —      —      (9,318  (9,318  —     (9,318

Preferred stock dividend distributions declared

   —      —      —      —      —      (1,855  (1,855  —     (1,855

Contributions

   —      —      —      —      —      —     —     10   10 

Distributions

   —      —      —      —      —      —     —     (156  (156

Net income

   —      —      —      —      —      1,156   1,156   165   1,321 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance - June 30, 2019

   4,480   $112,000    39,647   $396   $377,937   $(114,565 $375,768  $1,030  $376,798 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 
   Number of
shares of
preferred
stock
   Preferred
stock
   Number of
shares of
common stock
   Common
stock
   Additional
paid-in capital
   Accumulated
deficit
  Total
stockholders’
equity
  Non-
controlling
interests in
properties
  Total equity 

Balance – December 31, 2017

   4,480   $112,000    36,012   $360   $334,241   $(86,977 $359,624  $208  $359,832 

Restricted stock award grants and vesting

   —      —      120    1    356    (72  285   —     285 

Common stock dividend distributions declared

   —      —      —      —      —      (8,491  (8,491  —     (8,491

Preferred stock dividend distributions declared

   —      —      —      —      —      (1,855  (1,855  —     (1,855

Distributions

   —      —      —      —      —      —     —     (29  (29

Net income

   —      —      —      —      —      47,063   47,063   135   47,198 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance – March 31, 2018

   4,480   $112,000    36,132   $361   $334,597   $(50,332 $396,626  $314  $396,940 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Restricted stock award grants and vesting

   —      —      1    —      412    (80  332   —     332 

Common stock dividend distributions declared

   —      —      —      —      —      (8,491  (8,491  —     (8,491

Preferred stock dividend distributions declared

   —      —      —      —      —      (1,855  (1,855  —     (1,855

Contributions

   —      —      —      —      —      —     —     43   43 

Distributions

   —      —      —      —      —      —     —     (135  (135

Net income

   —      —      —      —      —      (798  (798  114   (684
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

Balance - June 30, 2018

   4,480   $112,000    36,133   $361   $335,009   $(61,556 $385,814  $336  $386,150 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

 

 

  

 

 

  

 

 

 

   
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.

3

City Office REIT, Inc.

Condensed Consolidated Statements of Cash Flows

Changes in Equity

(Unaudited)

(In thousands)

   Six Months Ended June 30, 
   2019  2018 

Cash Flows from Operating Activities:

   

Net income

  $401  $46,513 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Depreciation and amortization

   29,022   23,665 

Amortization of deferred financing costs and debt fair value

   671   986 

Amortization of above/below market leases

   (92  (140

Increase in straight-line rent/expense

   (3,424  (1,842

Non-cash stock compensation

   879   705 

Net gain on sale of real estate property

   (478  (46,980

Changes in non-cash working capital:

   

Rents receivable, net

   (1,677  (93

Other assets

   (1,082  (3,034

Accounts payable and accrued liabilities

   (5,241  (6,467

Deferred rent

   53   (2,042

Tenant rent deposits

   (394  89 
  

 

 

  

 

 

 

Net Cash Provided By Operating Activities

   18,638   11,360 
  

 

 

  

 

 

 

Cash Flows (to)/from Investing Activities:

   

Additions to real estate properties

   (9,881  (9,156

Acquisition of real estate

   (61,012  (55,453

Net proceeds from sale of real estate

   33,941   84,839 

Deferred leasing costs

   (1,598  (2,057
  

 

 

  

 

 

 

Net Cash (Used In)/Provided By Investing Activities

   (38,550  18,173 
  

 

 

  

 

 

 

Cash Flows from/(to) Financing Activities:

   

Debt issuance and extinguishment costs

   (648  (1,942

Proceeds from mortgage loans payable

   40,950   —   

Repayment of mortgage loans payable

   (2,327  (34,121

Proceeds from credit facility

   55,000   82,000 

Repayment of credit facility

   (52,500  (57,000

Shares withheld for payment of taxes on restricted stock unit vesting

   (246  (86

Contributions from non-controlling interests in properties

   22   43 

Distributions to non-controlling interests in properties

   (290  (165

Dividend distributions paid to stockholders and Operating Partnership unitholders

   (22,318  (20,664
  

 

 

  

 

 

 

Net Cash Provided By/(Used In) Financing Activities

   17,643   (31,935
  

 

 

  

 

 

 

Net Decrease in Cash, Cash Equivalents and Restricted Cash

   (2,269  (2,402

Cash, Cash Equivalents and Restricted Cash, Beginning of Period

   33,145   35,014 
  

 

 

  

 

 

 

Cash, Cash Equivalents and Restricted Cash, End of Period

  $30,876  $32,612 
  

 

 

  

 

 

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash:

   

Cash and Cash Equivalents, End of Period

  $11,581  $14,655 

Restricted Cash, End of Period

   19,295   17,957 
  

 

 

  

 

 

 

Cash, Cash Equivalents and Restricted Cash, End of Period

  $30,876  $32,612 
  

 

 

  

 

 

 

Supplemental Disclosures of Cash Flow Information:

   

Cash paid for interest

  $14,696  $9,962 

Purchases of additions in real estate properties included in accounts payable

  $1,411  $3,380 

Purchases of deferred leasing costs included in accounts payable

  $160  $158 

Debt assumed on acquisition of real estate

  $22,473  $—   

  
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.

statements

.

4
City Office REIT, Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
   
Six Months Ended

June 30,
 
   
2022
  
2021
 
Cash Flows from Operating Activities:
         
Net income  $27,754  $50,861 
Adjustments to reconcile net income to net cash provided by operating activities:         
Depreciation and amortization   31,516   29,369 
Amortization of deferred financing costs and debt fair value   614   602 
Amortization of above and below market leases   80   301 
Straight-line rent/expense   (4,356  85 
Non-cash
stock compensation
   1,895   1,310 
Receipts from sales-type lease   43,549   —   
Net gain on sale of real estate property   (21,658  (47,400
Changes in
non-cash
working capital:
         
Rents receivable, net   (4,109  635 
Other assets   (764  (1,048
Accounts payable and accrued liabilities   1,268   (2,757
Deferred rent   (1,511  2,850 
Tenant rent deposits   691   877 
          
Net Cash Provided By Operating Activities   74,969   35,685 
          
Cash Flows (to)/from Investing Activities:
         
Additions to real estate properties   (16,462  (9,499
Acquisition of real estate   —      (43,256
Net proceeds from sale of real estate   —      93,303 
Deferred leasing costs   (4,786  (3,131
          
Net Cash (Used In)/Provided By Investing Activities   (21,248  37,417 
          
Cash Flows to Financing Activities:
         
Proceeds from borrowings   31,000   98,000 
Repayment of borrowings   (30,941  (163,363
Dividend distributions paid to stockholders   (21,132  (16,729
Repurchases of common stock

   (5,000   
Distributions to non-controlling interests in properties

   (434  (424
Shares withheld for payment of taxes on restricted stock unit vesting

   (87)  (216)
Contributions from non-controlling interests in properties

   3   2 
          
Net Cash Used In Financing Activities   (26,591  (82,730
          
Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash
   27,130   (9,628
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
   42,266   45,951 
          
Cash, Cash Equivalents and Restricted Cash, End of Period
  $69,396  $36,323 
          
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
         
Cash and Cash Equivalents, End of Period   26,352   13,394 
Restricted Cash, End of Period   43,044   22,929 
          
Cash, Cash Equivalents and Restricted Cash, End of Period  $69,396  $36,323 
          
Supplemental Disclosures of Cash Flow Information:
         
Cash paid for interest  $10,850  $11,955 
Purchase of additions in real estate properties included in accounts payable  $10,301  $4,233 
Purchase of deferred leasing costs included in accounts payable  $2,926  $2,164 
The accompanying notes are an integral part of these condensed consolidated financial statements
.
5

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, 2018.

New2021.

Recent Accounting Pronouncements

Adopted in the Current Year

In February 2016,March 2020, the Financial Accounting Standards Board or FASB,(the “FASB”) established Topic 842, Leases,848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)
No. 2016-02, which 2020-04
(“ASU
2020-04”).
ASU
2020-04
provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) (“ASU
2021-01”).
ASU
2021-01
clarifies 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 consolidated financial statements and may elect optional expedients in future periods as reference rate reform activities occur.
6

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 leasesa 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 operating leasedirect 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 requires lesseescan be applied either retrospectively to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended bythat commenced or were modified on or after the adoption of ASU
No. 2018-01, Land Easement Practical Expedient for Transition2016-02
or prospectively to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.

leases that commence or are modified on or after the date that an entity first applies the amendments. The Company adopted the new standard effectiveASU

2021-05
prospectively on January 1, 2019 and elected the effective date method for the transition.2022. The Company elected the following practical expedients:

Transition method practical expedient – permits the Company to use the effective date as the dateadoption of initial application. Upon adoption, the Company ASU

2021-05
did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information and disclosures for periods before January 1, 2019 were not updated.

Package of practical expedients – permits the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. This allowed the Company to continue classifying its leases at transition in substantially the same manner.

Single component practical expedient – permits the Company to not separate lease and non-lease components of leases. Upon transition, rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenuesmaterial impact on the condensedCompany’s consolidated statement of operations.

financial statements.

Land easement practical expedient – permits the Company not to reassess under the new standard its prior conclusions about land easements.

Short-term lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months.

Lessor Accounting

The accounting for lessors under the new standard remained relatively unchanged with a few targeted updates impacting the Company, which included: (i) narrower definition of initial direct costs that requires certain costs to be expensed rather than capitalized, and (ii) provisions for uncollectible rents to be recorded as a reduction in revenue rather than as bad debt expense.

Lessee Accounting

The new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern and recording of expenses in the statement of operations. Upon transition the Company recognized right-of use assets and lease liabilities principally for its ground and office leases.

3. Real Estate Investments

Acquisitions

During the six months ended June 30, 20192022 and 20182021 the Company acquired the following properties:

Property

  
Date Acquired
   
Percentage Owned
 

Cascade Station

5910 Pacific Center and 9985 Pacific Heights
   June 2019100

Canyon Park

February 2019100

Pima Center

April 2018May 2021    100

Each of the

The foregoing acquisitions wereacquisition was accounted for as an asset acquisitions.

acquisition.

The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 20192021 (in thousands):

   Canyon Park       Cascade    
Station
   Total
June 30, 2019
 

Land

  $7,098   $—     $7,098 

Buildings and improvements

   36,619    25,141    61,760 

Tenant improvements

   1,797    2,080    3,877 

Acquired intangible assets

   8,109    3,134    11,243 

Other assets

   10    3,164    3,174 

Debt

   —      (697   (697

Accounts payable and other liabilities

   (1,266   (186   (1,452

Lease intangible liabilities

   (1,297   (220   (1,517
  

 

 

   

 

 

   

 

 

 

Net assets acquired

  $51,070   $32,416   $83,486 
  

 

 

   

 

 

   

 

 

 

The acquisition of the Cascade Station property was partially funded through an assumption of debt in the amount of $22.5 million.

The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 2018 (in thousands):

   Pima Center 

Buildings and improvements

  $42,235 

Tenant improvements

   2,898 

Acquired intangible assets

   10,691 

Other assets

   95 

Accounts payable and other liabilities

   (337

Lease intangible liabilities

   (129
  

 

 

 

Net assets acquired

  $55,453 
  

 

 

 

   
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 May 7, 2019,June 15, 2022, the Company sold the 10455 Pacific Center building of the Sorrento MesaLake Vista Pointe property in San Diego, CaliforniaDallas, Texas for $16.5a 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 $0.5$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 February 

7 2019, the Company sold the Plaza 25 property in Denver, Colorado for $17.9 million. No gain or loss was recognized on the sale as the property was carried at fair value less cost to sell on the date

4. Lease Intangibles

Lease intangibles and the value of assumed lease obligations as of June 30, 20192022 and December 31, 20182021 were comprised as followsof the following (in thousands):

   Lease Intangible Assets  Lease Intangible Liabilities 

June 30, 2019

  Above
Market
Leases
  Below Market
Ground
Lease
(1)
  In Place
Leases
  Leasing
Commissions
  Total  Below
Market
Leases
  Below Market
Ground
Lease
(1)
  Total 

Cost

  $11,924  $—    $86,640  $35,126  $133,690  $(14,359 $(138 $(14,497

Accumulated amortization

   (5,784  —     (41,672  (14,262  (61,718  5,210   38   5,248 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  $6,140  $—    $44,968  $20,864  $71,972  $(9,149 $(100 $(9,249
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Lease Intangible Assets  Lease Intangible Liabilities 

December 31, 2018

  Above
Market
Leases
  Below Market
Ground
Lease
(1)
  In Place
Leases
  Leasing
Commissions
  Total  Below
Market
Leases
  Below Market
Ground
Lease
(1)
  Total 

Cost

  $10,595  $1,855  $82,474  $31,706  $126,630  $(12,925 $(138 $(13,063

Accumulated amortization

   (4,800  (19  (34,273  (12,037  (51,129  4,140   36   4,176 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  $5,795  $1,836  $48,201  $19,669  $75,501  $(8,785 $(102 $(8,887
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

For the below market ground lease asset, the Company is the lessee, whereas, for the below market ground lease liability, the Company is the lessor. Upon the adoption of Topic 842 on January 1, 2019, the Company derecognized the below market ground lease intangible asset related to one of its lessee ground leases and included the net carrying value of the intangible asset within the right-of-use asset recognized upon transition to the new standard.

   
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):

2019

  $10,192 

2020

   18,332 

2021

   15,022 

2022

   7,255 

2023

   4,393 

Thereafter

   7,529 
  

 

 

 
  $62,723 
  

 

 

 

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 the indebtedness as of June 30, 20192022 and December 31, 20182021 (dollars in thousands):

Property

  June 30,
2019
   December 31,
2018
   Interest Rate as
of June 30,
2019 (1)
  Maturity

Unsecured Credit Facility (2)

  $150,000   $147,500    LIBOR +1.60%(3)  March 2022

Midland Life Insurance (4)

   86,142    86,973    4.34  May 2021

Mission City

   47,000    47,000    3.78  November 2027

190 Office Center

   41,152    41,250    4.79  October 2025

Canyon Park (5)

   40,950    —      4.30  March 2027

Circle Point

   39,650    39,650    4.49  September 2028

SanTan

   34,347    34,682    4.56  March 2027

Intellicenter

   33,227    33,481    4.65  October 2025

The Quad

   30,600    30,600    4.20  September 2028

FRP Collection

   29,288    29,589    3.85  September 2023

2525 McKinnon

   27,000    27,000    4.24  April 2027

Cascade Station

   22,474    —      4.55  May 2024

Greenwood Blvd

   22,425    22,425    4.60  December 2025

5090 N 40th St

   22,000    22,000    3.92  January 2027

AmberGlen

   20,000    20,000    3.69  May 2027

Lake Vista Pointe

   17,882    18,044    4.28  August 2024

Central Fairwinds

   17,712    17,882    4.00  June 2024

FRP Ingenuity Drive

   17,000    17,000    4.44  December 2024

Carillon Point

   16,154    16,330    3.50  October 2023
  

 

 

   

 

 

    

Total Principal

   715,003    651,406    

Deferred financing costs, net

   (6,030   (6,052   

Unamortized fair value adjustments

   697    —      
  

 

 

   

 

 

    

Total

  $709,670   $645,354    
  

 

 

   

 

 

    

                                                                                                                           
Property
 
June 30,

2022
  
December 31,

2021
  
Interest Rate as

of June 30,

2022
(1)
  
Maturity
Unsecured Credit Facility 
(3)(4)
  $ 162,000   $ 142,000    LIBOR +1.30
%
(2)
 
 November 2025
Term Loan 
(3)
   50,000    50,000    LIBOR +1.25
%
(2)
 
 September 2024
Mission City   47,000    47,000    3.78 November 2027
Canyon Park 
(5)
   40,031    40,381    4.30 March 2027
Circle Point   39,650    39,650    4.49 September 2028
190 Office Center   39,239    39,581    4.79 October 2025
SanTan   32,477    32,807    4.56 March 2027
Intellicenter   31,591    31,883    4.65 October 2025
The Quad   30,600    30,600    4.20 September 2028
FRP Collection   27,162    27,535    3.10 September 2023
2525 McKinnon   27,000    27,000    4.24 April 2027
Greenwood Blvd   21,660    21,920    3.15 December 2025
Cascade Station   21,387    21,581    4.55 May 2024
5090 N. 40
th
St
   21,024    21,233    3.92 January 2027
AmberGlen   20,000    20,000    3.69 May 2027
8

                                                                                                                           
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 (“Unsecured Credit Facility (the “Unsecured Credit Facility”) and the Term Loan (as defined herein), as explained in footnote 2footnotes 3 and 4 below.

(2)

As of June 30, 2022, the
one-month
LIBOR rate 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 hadfrom $250 million authorizedto $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 $150 million drawn andthe Term Loan, the Company also entered into a $5.3 million letter of credit to satisfy escrow requirementsfive-year interest rate swap for a mortgage lender. Onnotional amount of $50 million (the “Interest Rate Swap”). Pursuant to the Interest Rate Swap, the Company will pay a fixed rate of approximately 1.27% of the notional amount annually, payable monthly, and receive floating rate
30-day
LIBOR payments.
(4)
In March 15, 2018, the Company entered into a $250 millionthe Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $250 million, which includesincluded an accordion feature that will permitallowed the Company to borrow up to $500 million, subject to customary terms and conditions. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $300 million. Combined with the Company’s existing five-year Term Loan, the total authorized borrowings increased from $300 million to $350 million. The Unsecured Credit Facility matures in March 2022, whichNovember 2025 and may be extended to March 202312 months at the Company’s option upon meeting certain conditions. Borrowings under the Unsecured Credit Facility will bear interest at a rate equal to the LIBOR rate plus a margin of between 140125 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.

(3)

As of June 30, 2019, the one month LIBOR rate was 2.40%.

(4)

The mortgage loan is cross-collateralized by DTC Crossroads, Cherry Creek and City Center.

(5)

The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD,
the 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)
In June 2022, the loan balance of $
16.8
million was repaid in full.

The scheduled principal repayments of debt as of June 30, 20192022 are as follows (in thousands):

2019

  $2,692 

2020

   6,186 

2021

   89,125 

2022

   156,165 

2023

   47,822 

Thereafter

   413,013 
  

 

 

 
  $715,003 
  

 

 

 

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

As


In September 2019
, the Company entered into the Interest Rate Swap for a notional amount of each$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.
9

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 June 30, 2019 and2022, the Interest Rate Swap was reported as a
n
 asset at its fair value of approximately $1.9 million, which is included in other assets on the Company’s condensed consolidated balance sheet. For the six months ended June 30, 2022, approximately $0.2 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty. For the six months ended June 30, 2021, approximately $0.3 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty.
As of December 31, 2018,2021, the Company did not have any hedges or derivatives.

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

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

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 $580.7$436.7 million and $503.3$478.1 million (compared to a carrying value of $446.6 million and $466.5 million) as of June 30, 20192022, and December 31, 2018,2021, 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 six months ended June 30, 20192022 and 2018,2021, the Company earned $0.3 million and $0.4$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 its affiliates (collectively, “Second City”). Also during the six months ended June 30, 2019, the Company was assigned a purchase contract which had been entered into by an entity affiliated with principals of Second City, which principals are also officers of the Company. The Company subsequently assigned the purchase contract to a third party during the six months ended June 30, 2019. The Company paid no consideration to the related party for the contract other than return of deposits which the Company subsequently recovered from a third party in addition to an assignment fee. The Company recognized income of $2.6 million on the assignment of the purchase contract to the third party, which was recorded in rental and other revenues on the condensed consolidated statement of operations.

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.
The Company elected the practical expedient to accountrecognized fixed and variable lease payments for its lease and non-lease components as a single combined operating lease component under the new leasing standard. As a result, rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the condensed consolidated statement of operations.

Forleases for the three and six months ended June 30, 2019,2022 and the three and six months ended June 30, 2021 as follows (in thousands):

   
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 
                     
10

The Company recognized $38.5 interest income of
$0.6 
million and $75.6variable lease payments of $0.2 million respectively, of rental and other revenue related to its operating leases (in thousands):

 

Three months ended

    June 30, 2019    

Six months ended

    June 30, 2019    

Fixed payments

$    32,861$    65,060

Variable payments

 5,646 10,526

 

 

 

 

 

 
$    38,507$    75,586

 

 

 

 

 

 

for the sales-type lease at the Lake Vista Pointe property for the three a

n
d six months ended June 30, 2022.

Future minimum lease payments to be received by the Company as of June 30, 20192022 under
non-cancellable
operating leases for the next five years and thereafter are as follows (in thousands):

2019

  $ 60,208 

2020

   113,808 

2021

   102,819 

2022

   85,402 

2023

   67,284 

Thereafter

   143,674 
  

 

 

 
  $573,195 
  

 

 

 

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 increase rather than variable payments based on an index or unknown rate. Seven state government tenants currently have the exercisable right to terminate their leases if the applicable state legislature does not appropriate rent in its annual budget. The Company has determined that the occurrence of any government tenant not being appropriated the rent in the applicable annual budget is a remote contingency and accordingly recognizes lease revenue on a straight-line basis over the respective lease term. These tenants represent approximately 8.2% of the Company’s total future minimum lease payments as of June 30, 2019.

Lessee Accounting

As a lessee, the Company has ground and office leases which are classified as operating leases and one office lease classified as a financing lease. Upon adoption of Topic 842, on January 1, 2019, the Company recognized right-of-use assets of $9.2 million and lease liabilities of $7.2 million. The difference between the recorded right-of-use assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset, which was included within the right-of-use assets recognized upon transition.leases. As of June 30, 2019,2022, these leases had remaining terms of 2under one year to 7066 years and a weighted average remaining lease term of 5650 years. Operating and financing

right-of-useRight-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):

   As of
June 30, 2019
 

Right-of-use asset – operating leases

  $13,215 

Lease liability – operating leases

  $8,250 

Right-of-use asset – financing leases

  $91 

Lease liability – financing leases

  $90 

   
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 6.31%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.

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.

11

Operating lease expense
expenses for the three and six months ended June 30, 2019 was $0.22022 were $0.3 million and $0.4$0.5 million, respectively. FinancingOperating lease expenseexpenses for the three and six months ended June 30, 2019 was2021 were $0.3 million and $0.5 million, respectively. Financing lease expenses for the three and six months ended 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 were nominal.

Future minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of June 30, 20192022 for the next five years and thereafter are as follows (in thousands):

   Operating
Leases
   Financing
Leases
 

2019

  $303   $13 

2020

   782    27 

2021

   781    27 

2022

   741    27 

2023

   659    4 

Thereafter

   27,277    —   
  

 

 

   

 

 

 

Total future minimum lease payments

   30,543    98 

Discount

   (22,293   (8
  

 

 

   

 

 

 

Total

  $8,250   $90 
  

 

 

   

 

 

 

   
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 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 June 30, 2019,2022, 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.
12

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 six months ended June 30, 2021.
Common Stock and Common Unit Distributions

On June 14, 2019,16, 2022, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $0.235$0.20 per common share for the quarterly period ended June 30, 2019.2022. The dividend was paid subsequent to quarter end on July 25, 201922, 2022 to common stockholders and common unitholders of record as of the close of business on July 11, 2019,8, 2022, resulting in an aggregate payment of $9.3$8.6 million.

Preferred Stock Distributions

On June 14, 2019,16, 2022, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $0.4140625 per preferred 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 June 30, 2019.2022. The dividend was paid subsequent to quarter end on July 25, 201922, 2022 to preferred stockholdersthe holders of record of Series A Preferred Stock as of the close of business on July 11, 2019, resulting in an aggregate payment of $1.9 million.

Restricted Stock Units

8, 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”).

On May 2, 2019,4, 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 from 1,263,5802,263,580 shares to 2,263,5803,763,580 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 of the year of grant (the “Measurement Period”) relative to the TSR of a defined peer group list of other US Office REIT companies (the “Peer Group”) as of the first trading date in the year of grant. The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum. To the extent earned, the payouts of the Performance RSU Awards are intended to be settled in the form of shares of the Company’s common stock, pursuant to the Equity Incentive Plan. Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Company’s common stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of the Company’s common stock that are earned.
13

The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2022:
   
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 
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2021:
   
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 
During the six months ended June 30, 2019, 162,5002022 and June 30, 2021, the Company granted the following restricted stock units (“RSUs”) were grantedand Performance RSU Awards to directors, executive officers directors and certain
non-executive employees with a fair value
employees:
   
Units Granted
   
Fair Value

(in thousands)
  
Weighted Average
Grant Fair Value
Per Share
 
   
RSUs
   
Performance
RSUs
 
2021   169,500    120,000   $ 2,808  $9.70 
2022   237,986    90,000    5,753   17.54 
14

The awards
RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the dategrant date. The Performance RSU Awards will vest on the last day of grant. Forthe three-year measurement period.
During the three and six months ended June 30, 2019,2022 and June 30, 2021, the Company recognized net compensation expense of $0.5 millionfor the RSUs and $0.9 million, respectively, related toPerformance RSU Awards as follows (in thousands):
                                                            
   
RSUs
   
Performance
RSUs
   
Total
 
2021  $457   $208   $665 
2022   652    340    992 
During the RSUs. For the three and six months ended June 30, 20182022 and June 30, 2021, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
                                                            
   
RSUs
   
Performance
RSUs
   
Total
 
2021  $920   $391   $ 1,311 
2022   1,251    645    1,896 
11. Subsequent Events
Subsequent to quarter end through August 2, 2022, the Com
p
any completed the
repurchase of $0.3 million and $0.7 million, respectively, related to the RSUs.

A RSU award represents the right to receivean additional

 1,907,861 shares of the Company’sits common stock in the future, after the applicable vesting criteria, determined by the Plan Administrator, has been satisfied. The holderfor approximately $25.2 million.
15

11. Subsequent Events

On July 31, 2019, an indirect, wholly-owned subsidiary of the Company entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Clarity Real Estate III GP, Limited Partnership and Clarity Real Estate Ventures GP, Limited Partnership (together, “Clarity”), entities affiliated with principals of Second City and officers of the Company. Pursuant to the Administrative Services Agreement, the Company will provide various administrative services and support to the related entities managing the Clarity funds.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form10-Q.

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 quarterly report on Form 10-Q,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. These forward looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. These forward looking statements may be identified byWe have used the use of words including“approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “might,“outlook,” “plan,” “estimate,“potential,” “predict,” “project,” “seek,” “should,” “will,“target,“result”“will” and similar terms and phrases. These forward lookingphrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to a number of knownrisks and unknown risks, uncertainties and other factors that are difficult to predict and which couldmay cause our actual future results performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward looking statements. These risks, uncertainties and other factors include, among others:

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;

conditions, including as a result of the ongoing coronavirus disease
(“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;

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;

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;

rates, including as a result of the ongoing
COVID-19

pandemic;

our failure to obtain necessary financing or access the capital markets on favorable terms or at all;

changes in the availability of acquisition opportunities;

availability of qualified personnel;

our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or at all;

our failure to successfully operate acquired properties and operations;

16

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 statusqualification 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;

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

uncertaintly regarding the Company’s obligations under its floating rate debt instruments upon discontinuation of LIBOR;

a material increase in institutional ownership of real estate in secondary markets that could result in, among others, compression of cap rates and fewer acquisition opportunities being available to the Company; and

other factors described in our news releases and filings with the United States Securities and Exchange Commission (the “SEC”),SEC, including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 20182021 under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in our subsequent reports filed with the SEC.
The forward-looking statements contained in this Report are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 2021 under the heading “Risk Factors” and in our subsequent reports filed with the SEC.

The forward looking statements includedSEC, 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 are madeReport speaks only as of the date of this report,Report. Factors or events that could cause our actual results to differ may emerge from time to time, and except as otherwise required by federal securities law, we doit is not have anypossible 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 revise any forward looking statements to reflect subsequent events or circumstances.

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 June 30, 2019,2022, we owned 2725 properties comprised of 6560 office buildings with a total of approximately 5.76.0 million square feet of net rentable area (“NRA”). As of June 30, 2019,2022, our properties were approximately 93.4%86.9% leased.

17

Office Leases

Historically, most leases for our properties werehave been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense “stop”, whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are

billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant recoveries. All tenants in our Lake VistaCanyon Park, Superior Pointe, FRP Ingenuity Drive, Sorrento Mesa,The Terraces and Canyon Park2525 McKinnon properties have triple net leases. Certain tenants at AmberGlen, Superior Pointe, FRP Collection, 2525 McKinnon,Block 23, Bloc 83, Florida Research Park, Circle Point, The Quad, and Cascade Station and Denver Tech have leases on a triple net basis. We are also a lessor for a fee simple ground lease at the AmberGlen property. All of our remaining leases are predominately full-service gross leases.

Factors That May Influence Our Operating Results and Financial Condition

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 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 second quarter 2022 was significantly lower than
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 June 30, 2022, as a result of
COVID-19
or governmental or tenant actions in response thereto, the long-term impact of the pandemic on our tenants and the world-wide economy is uncertain and impossible to estimate, and will depend on the scope, severity and duration of the pandemic.
Leasing activity has been 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 could impact the pricing and competitiveness for leasing office space in our markets.
18

We believe economic conditions, leasing activity and acquisition prospects have improved substantially since the initial onset of the
COVID-19
pandemic and we will continue to actively evaluate business operations and strategies to optimally position ourselves.
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 favorable economic growth trends, growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, are generally
low-cost
centers for business operations and exhibit favorable occupancy trends.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 operatorsproperty and our investment partnersleasing 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.

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.

19

Our Properties

As of June 30, 2019,2022, we owned 27 office complexes25 properties comprised of 6560 office buildings with a total of approximately 5.76.0 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 June 30, 2019 (properties listed by descending NRA by market).

Metropolitan

Area

  Property Economic
Interest
  NRA
(000s Square
Feet)
   In Place
Occupancy
  Annualized Base
Rent per Square
Foot
   Annualized
Gross Rent per
Square Foot(1)
   Annualized Base
Rent(2)
($000s)
 

Phoenix, AZ

(21.3% of NRA)

  Pima Center  100.0  272    96.5 $27.15   $27.15   $7,122 
  SanTan  100.0  267    98.6 $27.67   $27.67   $7,272 
  5090 N 40th St  100.0  175    95.8 $28.96   $28.96   $4,848 
  Camelback Square  100.0  173    80.8 $29.24   $29.24   $4,092 
  The Quad  100.0  163    100.0 $28.14   $28.39   $4,587 
  Papago Tech  100.0  163    100.0 $21.85   $21.85   $3,556 

Denver, CO

(18.3%)

  Cherry Creek  100.0  356    100.0 $18.53   $18.53   $6,591 
  Circle Point  100.0  272    98.8 $17.46   $30.36   $4,692 
  DTC Crossroads  100.0  189    53.7 $26.24   $26.24   $2,665 
  Superior Pointe  100.0  151    96.5 $17.66   $29.17   $2,579 
  Logan Tower  100.0  72    73.3 $21.62   $21.62   $1,139 

Tampa, FL

(18.2%)

  Park Tower  94.8  471    93.5 $24.45   $24.45   $10,761 
  City Center  95.0  241    94.7 $25.40   $25.40   $5,807 
  Intellicenter  100.0  204    100.0 $23.99   $23.99   $4,881 
  Carillon Point  100.0  124    100.0 $28.06   $28.06   $3,485 

Orlando, FL

(12.6%)

  FRP Collection  95.0  272    84.5 $24.29   $26.17   $5,575 
  Central Fairwinds  97.0  168    89.5 $24.49   $24.49   $3,685 
  Greenwood Blvd  100.0  155    100.0 $22.75   $22.75   $3,527 
  FRP Ingenuity Drive  100.0  125    100.0 $21.50   $29.50   $2,677 

San Diego, CA

(10.2%)

  Sorrento Mesa  100.0  296    85.3 $25.19   $31.19   $6,360 
  Mission City  100.0  286    95.6 $35.14   $35.14   $9,603 

Dallas, TX

(10.1%)

  190 Office Center  100.0  303    89.5 $25.64   $25.64   $6,960 
  Lake Vista Pointe  100.0  163    100.0 $16.00   $24.00   $2,613 
  2525 McKinnon  100.0  111    90.4 $28.04   $45.04   $2,822 

Portland, OR

(5.8%)

  AmberGlen  76.0  201    96.9 $21.30   $23.89   $4,151 
  Cascade Station  100.0  128    100.0 $26.37   $32.38   $3,363 

Seattle, WA

(3.5%)

  Canyon Park  100.0  207    100.0 $21.20   $29.20   $4,384 
    

 

 

   

 

 

  

 

 

   

 

 

   

 

 

 

Total / Weighted Average – June 30, 2019 (3)

   5,708    93.4 $24.36   $27.00   $129,797 
    

 

 

        

 

 

 

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
(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)

For FRP Ingenuity Drive, Lake Vista Pointe, 2525 McKinnon, Sorrento Mesa, and Canyon Park the annualized base

Annualized gross rent per square foot on aincludes adjustment for estimated expense reimbursements of triple net basis was increased by $8, $8, $17, $6, and $8 respectively, to estimate a gross equivalent base rent. AmberGlen has a net lease for one tenant which has been grossed up by $7 on a pro rata basis. Superior Pointe has net leases for eight tenants which have been grossed up by $12 on a pro-rata basis. FRP Collection has net leases for five tenants which have been grossed up by $9 on a pro-rata basis. Circle Point has net leases for fourteen tenants which have been grossed up by $13 on a pro-rata basis. The Quad has one tenant with a net lease, which has been grossed up by $8 on a pro-rata basis. Cascade Station has net leases for six tenants which have been grossed up by $7 on a pro-rata basis.

leases.
(2)

Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 20192022 by (ii) 12.

(3)

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

was 85.2% at Bloc 83 as of June 30, 2022.

20

Operating Expenses

Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants’ base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.

Conditions in Our Markets

Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance.

Summary While we generally expect the trend of Significantpositive 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 potential impact that the

COVID-19
pandemic will have on the short- and long-term demand for office space in our markets.
Critical Accounting Policies

and Estimates

The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 20182021 included in our Annual Report on Form
10-K
for the year ended December 31, 2018 except for the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) as outlined in Note 2 of the condensed consolidated financial statements.

2021.

Results of Operations

Comparison of Three Months Ended June 30, 20192022 to Three Months Ended June 30, 2018

2021

Rental and Other Revenues.
Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $11.0$5.5 million, or 36%14%, to $41.2$45.5 million for the three months ended June 30, 20192022 compared to $30.2$40.0 million for the three months ended June 30, 2018.2021. Of this increase, $2.1 million was from the acquisitionacquisitions of Circle Point in July 2018, $1.4 million was from the acquisition ofBlock 23, The Quad in July 2018, $1.2 million was from the acquisition of Greenwood BlvdTerraces and Bloc 83 in December 2018, $1.22021 contributed increases of $2.5 million, was from$2.7 million and $3.9 million, respectively. Offsetting these increases, the acquisitiondisposition of Camelback SquareSorrento Mesa in December 2018, $1.4 million was from the acquisition of Canyon Park in February 2019 and $0.2 million was from the acquisition of Cascade Station in June 2019.2021 decreased revenue by $3.1 million. Revenue from Central Fairwinds,also decreased at Park Tower Mission City and FRP Collection also increased by $0.1 million, $0.3 million, $0.3 million and $0.2 million, respectively, as a result of increased average occupancy over the prior-year period. Partially offsetting these increases, Plaza 25 decreased by $0.7$0.6 million due to the saledowntime associated with a tenant departure in which a replacement tenant did not take occupancy until the middle of the property in February 2019.second quarter of 2022. The remaining properties’ rental and other revenues were modestly higherrelatively unchanged in comparison to the prior-year period primarily as a result of modest mark-to-market increases in rents upon renewal. Other revenues benefited from a one-time payment of $2.6 million received as consideration for the assignment of a purchase contract. The assignment fee originated through our administrative services relationship. Upon adoption of Topic 842, prior year amounts disclosed in rental income, expense reimbursement, and other have been combined into a single line to conform to current period presentation.

period.

Operating Expenses

Total Operating Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $7.0$4.0 million, or 27%12%, to $32.5$36.2 million for the three months ended June 30, 2019,2022, from $25.5$32.2 million for the three months ended June 30, 2018, primarily due to the acquisitions described above. Total operating expenses increased by $1.9 million, $0.9 million, $0.8 million, $1.1 million, $0.7 million and $0.2 million, respectively, from2021. Of this increase, the acquisitions of Circle Point,Block 23, The Quad, Greenwood Blvd, Camelback Square, Canyon ParkTerraces and Cascade Station properties. Park TowerBloc 83 in December 2021 contributed increases of $1.6 million, $1.8 million and $2.5 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa resulted in a $1.8 million decrease in total operating expenses also increased by $0.3 million due to the higher occupancy at that property. Plaza 25 operating expenses decreased by $0.8 million due to its sale in February 2019. General and Administrative Expenses increased by approximately $1.4 million, of which $1.1 million was the result of one-time expenses and accruals incurred as a result of the assignment fee income earned during the quarter and the balance related to higher payroll costs.expenses. The remaining operatingproperties’ expenses were modestly higherrelatively unchanged in comparison to the prior year primarily due to higher occupancy at the properties.

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 $2.8by $2.6 million, or 24%19%, to $14.5$16.8 million for the three months ended June 30, 20192022, from $11.7$14.2 million for the three months ended June 30, 2018.2021. Of this increase, 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 Ingenuity Drive property within the Florida Research Park portfolio as that property was converted from a single tenant property where the tenant paid for its own operating expenses into a multi-tenant property where expenses are paid by the landlord and reimbursements are charged to the tenants. Offsetting these increases, the disposition of Sorrento Mesa resulted in a $0.6 million decrease in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station contributed an additional $0.9 million, $0.3 million, $0.4 million, $0.4 million, $0.2 million and $0.1 million, respectively, in additional property operating expenses. Park Tower operating expenses also increased by $0.2 million due to the higher occupancy at that property. Plaza 25 decreased by $0.4 million due to the sale of that property in February 2019. The remaining property operatingproperties’ expenses aggregate toincreased a netcombined $0.7 million increase in comparison to the prior-year period.

million.

21

General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and boardBoard of directorsDirectors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $1.4$0.5 million, or 71%18%, to $3.4$3.6 million for the three months ended June 30, 2019 compared to $2.02022, from $3.1 million for the three months ended June 30, 2018. Of this increase, $1.1 million can be attributed to the one-time2021. General and administrative expenses and accruals incurred as a result of the assignment fee income earned during the quarter as described above and the balance of the increase isincreased primarily attributabledue to higher payroll costs.

stock-based compensation expense and higher professional fees.

Depreciation and Amortization.
Depreciation and amortization increased $2.8$0.7 million, or 24%5%, to $14.6$15.7 million for the three months ended June 30, 2019 compared2022, from $15.0 million reported for the same period in 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $0.9 million, $0.9 million and $1.7 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa resulted in a $1.2 million decrease and the disposition of Lake Vista Pointe resulted in a further decrease of $0.2 million. Also contributing to $11.8the decrease, depreciation and 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’ depreciation expenses were marginally lower in comparison to the prior period.
Other Expense (Income)
Interest Expense.
Interest expense increased $0.4 million, or 6%, to $6.3 million for the three months ended June 30, 2018, primarily due to the addition of the Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station properties partially offset by a decrease at Plaza 25 due to the sale of the property.

Other Expense (Income)

Interest Expense. Interest expense increased $2.4 million, or 44%, to $7.82022, from $5.9 million for the three months ended June 30, 2019, compared to $5.4 million for the three months ended June 30, 2018.2021. The increase was primarily dueattributable to interest expense related to acquisitions. Interest expense for the Circle Point, The Quad, Greenwood Blvd, Canyon Park and Cascade Station property level debt increased by $0.5 million, $0.3 million, $0.3 million, $0.4 million and $0.1 million, respectively, and the interest on the line of credit increased by $1.1 million as a result of acquisitions funded by our $250 million Unsecured Credit Facility. These increases were partially offset by a $0.2 million decreaseincrease in the Plaza 25 debt as a result of its saleamount drawn and the extinguishment of its property levelinterest rates on our floating rate debt.

Comparison of Six Months Ended June 30, 20192022 to Six Months Ended June 30, 2018

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 $16.5$10.8 million, or 27%14%, to $78.3$90.3 million for the six months ended June 30, 20192022 compared to $61.8$79.5 million for the six months ended June 30, 2018.2021. Of this increase, $1.8the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $5.0 million, was attributable$5.3 million and $7.4 million, respectively. A further increase can be attributed to the acquisitionSanTan property, which recorded higher termination fee income during 2022, which increased revenue by $0.6 million. Offsetting these increases, the disposition of Pima CenterCherry Creek in April 2018, $4.1 million from the acquisition of Circle Point in July 2018, $2.8 million from the acquisition of The Quad in July 2018, $2.3 million from the acquisition of Greenwood BlvdFebruary 2021 and Sorrento Mesa in December 2018, $2.4 million from the acquisition of Camelback Square in December 2018, $2.0 million from the acquisition of Canyon Park in February 2019 and $0.2 million from the acquisition of Cascade Station in June 2019. Revenue from Central Fairwinds, Park Tower, Mission City and FRP Collection also increased2021 decreased revenue by $0.4 million, $0.7 million, $0.4$0.8 million and $0.3$5.8 million, respectively, as a result of increased average occupancy over the prior year. Partially offsetting these increases, Washington Group Plazarespectively. Revenue also decreased by $1.7 million due to the sale of the property in March 2018 and Plaza 25 decreasedat Park Tower by $1.0 million due to the saledowntime associated with a tenant departure in which a replacement tenant did not take occupancy until the middle of the property in February 2019. Revenue from DTC Crossroads decreased $0.4 million as a resultsecond quarter of decreased occupancy over the prior year and Sorrento Mesa also decreased by $1.2 million as a result of the termination fee payment received in the prior year.2022. The remaining properties’ rental and other revenues were modestly higherrelatively unchanged in comparison to the prior year primarily as a result of modest mark-to-market increases in rents upon renewal. Other Revenues benefited from a one-time payment of $2.6 million received as consideration for the assignment of a purchase contract. The assignment fee originated through our administrative services relationship. Upon adoption of Topic 842, prior year amounts disclosed in rental income, expense reimbursement, and other have been combined into a single line to conform to current period presentation.

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 $12.1$8.4 million, or 24%13%, to $63.1$71.9 million for the six months ended June 30, 2019,2022, from $51.0$63.5 million for the six months ended June 30, 2018, primarily due to the acquisitions described above. Total operating expenses increased by $1.8 million, $4.0 million, $1.9 million, $1.5 million, $2.1 million, $1.0 million and $0.2 million, respectively, from2021. Of this increase, the acquisitions of Pima Center, Circle Point,Block 23, The Quad, Greenwood Blvd, Camelback Square, Canyon ParkTerraces and Cascade Station properties. Park TowerBloc 83 in December 2021 contributed increases of $3.0 million, $3.5 million and $5.0 million, respectively. Offsetting these increases, the disposition of Cherry Creek resulted in a $0.3 million decrease and the disposition of Sorrento Mesa resulted in a $3.2 million decrease in total operating expenses also increased by $0.5 million due to the higher occupancy at that property. Washington Group Plaza operating expenses decreased by $0.8 million due to its sale in March 2018 and Plaza 25 operating expenses decreased by $1.3 million due to its sale in February 2019.expenses. The remaining operatingproperties’ expenses were modestly higher in comparison to the prior-year period primarily due to higher occupancy at the properties.

increased a combined $0.4 million.

22

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 $5.0 million, or 21%18%, to $28.4$33.3 million for the six months ended June 30, 20192022, from $23.4$28.3 million for the six months ended June 30, 2018.2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $1.3 million, $1.6 million and $1.6 million, respectively. An increase of $0.4 million was attributable to the Ingenuity Drive property within the Florida Research Park portfolio as that property was converted from a single tenant property where the tenant paid for its own operating expenses into a multi-tenant property where expenses are paid by the landlord and reimbursements are charged to the tenants. Offsetting these increases, the disposition of Cherry Creek resulted in a $0.3 million decrease and the disposition of Sorrento Mesa resulted in a $1.1 million decrease in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Pima Center, Circle Point, The Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station contributed an additional $0.6 million, $2.0 million, $0.7 million, $0.8 million, $0.7 million, $0.3 million and $0.1 million, respectively, in additional property operating expenses. Park Tower operating expenses also increased by $0.2 million due to the higher occupancy at that property. Washington Group Plaza decreased by $0.8 million due to the sale of that property in March 2018 and Plaza 25 decreased by $0.7 million due to the sale of that property in February 2019. The remaining property operatingproperties’ expenses aggregate to an overall $1.1 million increase in comparison to the prior-year period.

increased a combined $1.5 million.

General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and boardBoard of directorsDirectors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $1.8$1.2 million, or 44%20%, to $5.7$7.1 million for the six months ended June 30, 2019 compared2022, from $5.9 million reported for the same period in 2021. General and administrative expenses increased primarily due to $3.9higher stock-based compensation expense and higher professional fees.
Depreciation and Amortization.
Depreciation and amortization increased $2.1 million, or 7%, to $31.5 million for the six months ended June 30, 2018.2022, from $29.4 million reported for the same period in 2021. Of this increase, $1.1the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $1.7 million, can be attributed$1.8 million and $3.4 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa resulted in a $2.1 million decrease and the disposition of Lake Vista Pointe resulted in a further decrease of $0.4 million. Also contributing to the one-time expenses and accruals incurred as a result of the assignment fee income earned during the six months ended June 30, 2019 as described above and the balance of the increase was primarily attributable to higher payroll costs.

Depreciation and Amortization. Depreciationdecrease, depreciation and amortization increased $5.3for 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 expenses were marginally lower in comparison to the prior period.

Other Expense (Income)
Interest Expense.
Interest expense was relatively unchanged decreasing by $0.2 million, or 23%1%, to $29.0$12.3 million for the six months ended June 30, 2019 compared to $23.72022, from $12.5 million for the six months ended June 30, 2018, primarily due2021.
Net Gain on the Sale of Real Estate Property.
 During the first quarter of 2022, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the additionbuilding 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 Papago Tech, Pima Center, Circle Point,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 Quad, Greenwood Blvd, Camelback Square, Canyon Park and Cascade Station properties and partially offset byLake Vista Pointe property was sold in June 2022. In the prior year, we recorded a decrease at Washington Group Plaza and Plaza 25 due tonet gain on the sale of those properties.

Other Expense (Income)

Interest Expense. Interest expense increased $4.0 million, or 36%, to $15.3real estate property of $47.4 million for the six months ended June 30, 2019, compared2021 related to $11.3the sale of our Cherry Creek property in February 2021.

Cash Flows
Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021
Cash, cash equivalents and restricted cash were $69.4 million and $36.3 million as of June 30, 2022 and June 30, 2021, respectively.
Cash flow from operating activities.
Net cash provided by operating activities increased by $39.3 million to $75.0 million for the six months ended June 30, 2018.2022 compared to $35.7 million for the same period in 2021. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Circle Point, The Quad, Greenwood Blvd, Canyon Park and Cascade Station property level debt increased by $0.9 million, $0.6 million, $0.5 million, $0.6 million and $0.1 million, respectively, and the interest on the line of credit increased by $2.0 million as a result of acquisitions funded by our $250 million Unsecured Credit Facility. These increases were partially offset by a $0.2 million and $0.4 million, respective decrease in the Washington Group Plaza and Plaza 25 debt as a result of the sale of those properties and the extinguishment of its property level debt.

Cash Flows

Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018

Cash, cash equivalents and restricted cash were $30.9 million and $32.6 million as of June 30, 2019 and June 30, 2018, respectively.

Cash flow from operating activities. Net cash provided by operating activities was primarily due to receipts received from the sales-type lease at the Lake Vista Pointe property, which was sold in June 2022.

Cash flow to investing activities.
Net cash used in investing activities increased by $7.2$58.6 million to $18.6$21.2 million for the six months ended June 30, 20192022 compared to $11.4 million for the six months ended June 30, 2018. The increase was primarily attributable to increased operating cash flows from acquired properties.

Cash flow to investing activities. Net cash used in investing activities increased by $56.8 million to $38.6 million for the six months ended June 30, 2019 compared to $18.2$37.4 million provided by investing activities for the six months ended June 30, 2018.same period in 2021. The increase in cash used in investing activities was primarily due to the acquisition of Canyon Park and Cascade Stationa decrease in 2019. Additionally, we realized lower 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 2019 compared2021 was attributable to 2018, which included proceeds from the sale of Washington Group Plazathe Cherry Creek property in 2018.

2021.

This decrease was partially offset by higher acquisition of real estate in 2021 compared to 2022.
23

Cash flow fromto financing activities.
Net cash provided byused in financing activities increaseddecreased by $49.5$56.1 million to $17.6$26.6 million for the six months ended June 30, 20192022 compared to $31.9$82.7 million for the same period in 2021. The decrease in cash used in financing activities in the six months ended June 30, 2018. Cash flow provided by financing activities increasedwas primarily due to higher proceeds from mortgage loans payable compared to 2018 and lower repaymentsrepayment of mortgage loans payable compared to 2018. The increase wasborrowings, partially offset by lower net proceeds from credit facility in 2019 compared to 2018.

borrowings.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $11.6$26.4 million of cash and cash equivalents and $19.3$43.0 million of restricted cash as of June 30, 2019.

2022.

On March 15, 2018, the Company entered into a $250 millioncredit agreement for the Unsecured Credit Facility that provided for commitments of up to $250 million, which includesincluded an accordion feature that allowsallowed the Company to borrow up to $500 million, subject to customary terms and conditions. The Company’s previous secured credit facility was replacedOn November 16, 2021, the Company entered into an Amended and repaid in full fromRestated 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 202312 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 140125 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 June 30, 2019,2022, we had approximately $150.0$162.0 million outstanding under our Unsecured Credit Facility and a $5.3$4.2 million letter of credit to satisfy escrow requirements for a mortgage lender.

The

On September 27, 2019, the Company entered into the five-year $50 million 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 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.
On February 26, 2020, the Company and the Operating Partnership previously entered into the amended equity distribution agreements (collectively, the “EDAs”“Agreements”) with the sales agents named therein (collectively, theeach 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 8,000,00015,000,000 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. Pursuantprincipals (the “ATM Program”). On May 7, 2021 the Company delivered to the EDAs, the shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the New York Stock Exchange or sales made to or throughD.A. Davidson & Co. a market maker other than on an exchange or, with the prior consentnotice of termination of the Company, in privately negotiated transactions. The Sales Agents will be entitled to compensation of up to 2.0% of the gross proceeds of shares sold through the Sales Agents from time to time under the EDAs. The Company has no obligation to sell any of the shares under the EDAs and may at any time suspend solicitations and offers under, or terminate, the EDAs.Agreement, effective May 7, 2021. The Company did not makeissue any salesshares of securitiescommon stock or Series A Preferred Stock under the EDAsATM Program during the six months ended June 30, 2019.

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.

24

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

Contractual Obligations and Other Long-Term Liabilities

The following table provides information with respect to our commitments as of June 30, 2019,2022, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.

   Payments Due by Period (in thousands) 

Contractual Obligations

  Total   2019   2020-2021   2022-2023   More than
5 years
 

Principal payments on mortgage loans

  $715,003   $2,692   $95,311   $203,987   $413,013 

Interest payments (1)

   162,109    15,110    57,650    40,589    48,760 

Tenant-related commitments

   10,907    5,890    4,418    599    —   

Operating and financing lease obligations

   30,641    316    1,617    1,431    27,277 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 918,660   $ 24,008   $ 158,996   $ 246,606   $ 489,050 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

   
Payments Due by Period
(in thousands)
 
Contractual Obligations
  
Total
   
2022
   
2023-2024
   
2025-2026
   
More than

5 years
 
Principal payments on mortgage loans
  $658,605   $3,141   $156,628   $258,533   $240,303 
Interest payments
(1)
   94,099    12,307    45,770    28,211    7,811 
Tenant-related commitments
   23,620    23,620    —      —      —   
Lease obligations
   37,539    307    1,625    1,510    34,097 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total
  $813,863   $39,375   $204,023   $288,254   $282,211 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
(1)

Contracted interest on the floating rate debtborrowings under our Unsecured Credit Facility was calculated based on our Unsecured Credit Facilitythe balance and interest rate at June 30, 2019.

2022. Contracted interest on the Term Loan was calculated based on the Interest Rate Swap rate fixing the LIBOR component of the borrowing rate to approximately 1.27%.

Off-Balance Sheet Arrangements

As of June 30, 2019, we had a $5.3 million letter of credit outstanding under our Unsecured Credit Facility to satisfy escrow requirements for a mortgage lender.

Inflation

Substantially all of our office leases provide for real estate tax and operating expense escalations. In addition, most of the leases provide for fixed annual rent increases. We believe that inflationary increases may be at least partially offset by these contractual rent increases and expense escalations.

However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.
25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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. AsSee Note 6 to our condensed consolidated financial statements in Item 1 of June 30, 2019,this Report for more information regarding our Company did not have any outstanding derivatives.

The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates. 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 minimalmoderate because as of June 30, 2019,2022, approximately $565.0$446.6 million, or 79.0%67.8%, of our debt had fixed interest rates and approximately $150.0$212.0 million, or 21.0%32.2%, had variable interest rates. A

Of the $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

10%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 75.4% of our debt was fixed rate debt and 24.6% was variable rate debt as of June 30, 2022. An increase of 1% in LIBOR would result in a $1.6 million increase to our annual interest costs by approximately $0.4 million on debt outstanding as of June 30, 2019,2022 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 $1.6 million decrease to our annual interest costs by approximately $0.4 million on debt outstanding as of June 30, 2019,2022 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 rate risk amounts are our management’s estimates based on our Company’s capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company’s financial structure.

Item 4.

Controls and Procedures

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 June 30, 2019.

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.

26

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

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 June 30, 2019,2022, 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

Item 1A. Risk Factors
The following risk factor replacessupplements the risk factorfactors disclosed under a similar heading in the section entitled “Risk Factors” of our Annual Report on Form
10-K
for
the year ended December 31, 2018.2021. 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 commitments to Second City Real Estate II Corporation (“Second City”)full-service gross leases generally have a base year expense “stop”, Clarity Real Estate III GP, Limited Partnership (“Clarity RE”), Clarity Real Estate Ventures GP, Limited Partnership (together with Clarity RE, “Clarity”), and their respective affiliates may give rise to various conflictswhereby we pay a stated amount of interest.

We are subject to conflicts of interest arising out of our relationship with Second City and Clarity. As a resultexpenses as part of the internalization of our former external advisor on February 1, 2016, we agreed to allow our management to continue to provide services to Second City underrent payment while future increases (above the terms of an administrative services agreement. In addition, the terms of the administrative services agreement and the employment agreements we entered into with each of our executive officers permit, under certain circumstances and subjectbase year stop) in property operating expenses are billed to the oversight of our Board of Directors, our executive officers to advise or oversee new or additional fundstenant based on such tenant’s proportionate square footage in the future. On July 31, 2019, we, throughproperty. 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 indirect, wholly-owned subsidiary, entered intoadverse 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 separate administrative services agreementfailure of their revenues to increase at least with Clarity to provide administrative services to Clarity similar to those provided to Second City. These arrangements with Second City and Clarity may create potential conflicts of interests, including competition for the time and services of personnel that work for usinflation could adversely affect our lessees’ and our affiliates

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 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.
27

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 
  
 
 
   
 
 
   
 
 
   
 
 
 
Item 2.(1)

Unregistered Sales

The share repurchase plan was announced on August 5, 2020, approving the Company to repurchase an aggregate amount of Equity Securities and Use$50 million of Proceeds

its outstanding shares of common stock. The share repurchase plan does not have an expiration date.

None.

(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

Item 3. Defaults Upon Senior Securities
None.

Item 4.

Mine Safety Disclosures

Item 4. Mine Safety Disclosures
Not applicable.

Item 5.

Other Information

On July 31, 2019, CIO Administrative Services, LLC (the “Service Provider”), an indirect, wholly-owned subsidiary

Item 5. Other Information
None.
28

Chief Executive Officer, Greg Tylee, the Company’s President and Chief Operating Officer, and Anthony Maretic, the Company’s Chief Financial Officer, Secretary and Treasurer. The Employment Agreement Amendments clarify that the Company’s executive officers may participate in the organization and administration of Clarity.

A committee consisting solely of the independent members of the Company’s Board of Directors approved the Company’s entry into the Administrative Services Agreement and the Employment Agreement Amendments. The foregoing descriptions of the Administrative Services Agreement and the Employment Agreement Amendments are not complete. Reference is made to the full text of the Administrative Services Agreement and each of the Employment Agreement Amendments filed as Exhibit 10.2, Exhibit 10.3, Exhibit 10.4, and Exhibit 10.5, respectively, to this Quarterly Report on Form 10-Q.

Item 6.

Exhibits

Item 6. Exhibits

Exhibit


Number

  

Description

    3.1  Articles of Amendment and Restatement of City Office REIT, Inc., as amended and supplemented (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 1, 2018).
    3.2  Second Amended and Restated Bylaws of City Office REIT, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 14, 2017).
    4.1  Certificate of Common Stock of City Office REIT, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11/A filed with the Commission on February 18, 2014).
    4.2  Form of certificate representing the 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Commission on September 30, 2016).
  10.1Amendment No.  1 to the City Officer REIT, Inc. Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6, 2019).
  10.2Administrative Services Agreement, dated July  31, 2019, by and among CIO Administrative Services, LLC, Clarity Real Estate III GP, Limited Partnership and Clarity Real Estate Ventures GP, Limited Partnership. †
  10.3Amendment No. 1 to Executive Employment Agreement, dated as of July 31, 2019, by and between City Office Management Ltd. and James Farrar.* †
  10.4Amendment No. 1 to Executive Employment Agreement, dated as of July 31, 2019, by and between City Office Management Ltd. and Gregory Tylee.* †
  10.5Amendment No. 1 to Executive Employment Agreement, dated as of July 31, 2019, by and between City Office Management Ltd. and Anthony Maretic.* †
  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*
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)*

Filed herewith.

*

Compensatory Plan or arrangement

**

Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

29

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: August 1, 20194, 2022   
  By: 

/s/ James Farrar

   James Farrar
   

Chief Executive Officer and Director

(Principal Executive Officer)
Date: August 1, 20194, 2022   
  By: 

/s/ Anthony Maretic

   Anthony Maretic

Chief Financial Officer, Secretary and Treasurer

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

28

30