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

☐	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, 2019~~August

, 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


PART I. FINANCIAL INFORMATION		31

Item 1.	Financial Statements		31

	Condensed Consolidated Balance Sheets as of June 30, ~~2019~~2022 and December 31, ~~2018~~2021		31

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2019~~2022 and ~~2018~~2021		42

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

Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, ~~2019~~2022 and ~~2018~~2021		54

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2019~~2022 and ~~2018~~2021		5

Notes to Condensed Consolidated Financial Statements		6

	~~Notes to Condensed Consolidated Financial Statements~~		7

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		24

~~Item 4.~~	~~Controls and Procedures~~		25

~~PART II. OTHER INFORMATION~~			26

Item 1.	~~Legal Proceedings~~4. Controls and Procedures		26

~~Item 1A.~~	~~Risk Factors~~PART II. OTHER INFORMATION		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

~~Signatures~~Item 1. Legal Proceedings		27

Item 1A. Risk Factors		27

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

Item 3. Defaults Upon Senior Securities		28

Item 4. Mine Safety Disclosures		28

Item 5. Other Information		28

Item 6. Exhibits		29

Signatures		30

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents
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

Table of Contents
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
Table of Contents
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.~~
~~New~~2021.
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
Table of Contents
In July 2021, the FASB issued ASU
No. 2021-05
(“ASU
2021-05”),
Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. ASU
2021-05
requires lessors to classify ~~leases~~a lease with variable lease payments that do not depend on an index or rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under the
pre-ASU
classification criteria, and sales-type or ~~operating lease~~direct financing classification would result in a Day 1 loss. The ASU is effective for fiscal years beginning after December 15, 2021. The ASU may be early adopted and ~~requires lessees~~can be applied either retrospectively to ~~recognize~~ leases ~~on-balance~~ ~~sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by~~that commenced or were modified on or after the adoption of ASU
No. ~~2018-01,~~ ~~Land Easement Practical Expedient for Transition~~2016-02
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 effective~~ASU
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 date~~adoption 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 revenues~~material impact on the ~~condensed~~Company’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, ~~2019~~2022 and ~~2018~~2021 the Company acquired the following properties:


Property	Date Acquired		Percentage Owned
~~Cascade Station~~ 5910 Pacific Center and 9985 Pacific Heights		~~June 2019~~		~~100~~	%
~~Canyon Park~~		~~February 2019~~		~~100~~	%
~~Pima Center~~		~~April 2018~~May 2021		100	%

~~Each of the~~

The foregoing ~~acquisitions were~~acquisition 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, ~~2019~~2021 (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 Mesa~~Lake Vista Pointe property in ~~San Diego, California~~Dallas, Texas for ~~$16.5~~a gross sales price of
$
43.8
million.

On February 10
, 2021, the Company sold the Cherry Creek property in Denver, Colorado for a gross sales price of $95.0 million, resulting in an aggregate gain of ~~$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~~
Table of ~~disposition.~~
On March 8, 2018, the Company sold the Washington Group Plaza property in Boise, Idaho for $86.5 million, resulting in an aggregate net gain of $47.0 million, net of $1.7 million in costs, which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations. In connection with the sale of the property, certain debt repayments were made.
Contents
4. Lease Intangibles
Lease intangibles and the value of assumed lease obligations as of June 30, ~~2019~~2022 and December 31, ~~2018~~2021 were comprised ~~as follows~~of 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, ~~2019~~2022 and December 31, ~~2018~~2021 (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 40^th 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
Table of Contents

Property

June 30,

2022

December 31,

2021

Interest Rate as

of June 30,

2022
(1)

Maturity
Central Fairwinds    16,491    16,707    3.15 % June 2024
FRP Ingenuity Drive    16,312    16,457    4.44 % December 2024
Carillon Point    14,981    15,185    3.10 % October 2023
Lake Vista Pointe
(6)
   —      17,018    —   —

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

Total    $ 654,366    $ 653,648

(1)
All interest rates are fixed interest rates with the exception of the ~~unsecured credit facility (“~~Unsecured Credit Facility (the “Unsecured Credit Facility”) and the Term Loan (as defined herein), as explained in ~~footnote 2~~footnotes 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 ~~had~~from $250 million ~~authorized~~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 ~~$150 million drawn and~~the Term Loan, the Company also entered into a ~~$5.3 million letter of credit to satisfy escrow requirements~~five-year interest rate swap for a ~~mortgage lender. On~~notional amount of $50 million (the “Interest Rate Swap”). Pursuant to the Interest Rate Swap, the Company will pay a fixed rate of approximately 1.27% of the notional amount annually, payable monthly, and receive floating rate
30-day
LIBOR payments.
(4)
In March ~~15,~~ 2018, the Company entered into ~~a $250 million~~the Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $250 million, which ~~includes~~included an accordion feature that ~~will permit~~allowed the Company to borrow up to $500 million, subject to customary terms and conditions. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $300 million. Combined with the Company’s existing five-year Term Loan, the total authorized borrowings increased from $300 million to $350 million. The Unsecured Credit Facility matures in ~~March 2022, which~~November 2025 and may be extended ~~to March 2023~~12 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 ~~140~~125 to 225 basis points depending upon the Company’s consolidated leverage ratio. As of
June 30
, 2022, the Unsecured Credit Facility had $162.0 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.
~~(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, ~~2019~~2022 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
Table of Contents
The Interest
Rate Swap has been designated and qualifies as a cash flow hedge and has been recognized on the condensed consolidated balance sheets at fair value. Gains and losses resulting from changes in the fair value of derivatives that have been designated and qualify as cash flow hedges are reported as a component of other comprehensive income/(loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
As of June 30, ~~2019 and~~2022, 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, ~~2019~~2022, 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, ~~2019~~2022 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 account~~recognized 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.
~~For~~leases 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
Table of Contents
The Company recognized ~~$38.5~~ interest income of
$0.6
million and ~~$75.6~~variable 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, ~~2019~~2022 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-use~~Right-of-use assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):

   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
Table of Contents
Operating lease ~~expense~~
expenses for the three and six months ended June 30, ~~2019 was $0.2~~2022 were $0.3 million and ~~$0.4~~$0.5 million, respectively. ~~Financing~~Operating lease ~~expense~~expenses for the three and six months ended June 30, ~~2019 was~~2021 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, ~~2019~~2022 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.

Table of Contents
Repurchased
shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional
paid-in
capital by the amount that the purchase price for the shares of common stock repurchased exceed the par value.
During the six months ended June 30, 2022, the Company completed the repurchase of 394,833 shares of its common stock for approximately $5.0 million. There were 0 shares repurchased during the 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, 2019~~22, 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, 2019~~22, 2022 to ~~preferred stockholders~~the 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 ~~1,263,580~~2,263,580 shares to ~~2,263,580~~3,763,580 shares. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.

On January
27, 2020, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement (the “Performance RSU Award Agreement”) that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Equity Incentive Plan. The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a three-year measurement period beginning January 1 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
Table of Contents
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, 162,500~~2022 and June 30, 2021, the Company granted the following restricted stock units (“RSUs”) ~~were granted~~and 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
Table of ~~$1.8 million.~~ Contents
The ~~awards~~
RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the ~~date~~grant date. The Performance RSU Awards will vest on the last day of ~~grant. For~~the 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 million~~for the RSUs and ~~$0.9 million, respectively, related to~~Performance 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, ~~2018~~2022 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 receive~~an additional
1,907,861 shares of ~~the Company’s~~its common stock ~~in the future, after the applicable vesting criteria, determined by the Plan Administrator, has been satisfied. The holder~~for approximately $25.2 million.
15
Table of an award of RSU has no rights as a stockholder until shares of common stock are issued in settlement of vested RSUs. The Plan Administrator may provide for a grant of dividend equivalent rights in connection with the grant of RSU; provided, however, that if the RSUs do not vest solely upon satisfaction of continued employment or service, any payment in respect to the related dividend equivalent rights will be held by the Company and paid when, and only to the extent that, the related RSU vests.
Contents

~~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 Form~~10-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 looking~~phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to ~~a number of known~~risks and ~~unknown risks,~~ uncertainties ~~and other factors~~ that ~~are difficult to predict and which could~~may 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;

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

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

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

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

government approvals, actions and initiatives, including the need for compliance with environmental ~~requirements;~~
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, ~~2018~~2021 under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in our subsequent reports filed with the SEC.

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

~~The forward looking statements included~~SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this ~~report are made~~Report 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 do~~it is not ~~have any~~possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or ~~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 ~~5.7~~6.0 million square feet of net rentable area (“NRA”). As of June 30, ~~2019,~~2022, our properties were approximately ~~93.4%~~86.9% leased.

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

billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected in tenant recoveries. All tenants in ~~our Lake Vista~~Canyon Park, Superior Pointe, ~~FRP Ingenuity Drive, Sorrento Mesa,~~The Terraces and ~~Canyon Park~~2525 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.

Table of Contents
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 ~~operators~~property and ~~our investment partners~~leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns.
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.

Table of Contents
Our Properties
As of June 30, ~~2019,~~2022, we owned ~~27 office complexes~~25 properties comprised of 6560 office buildings with a total of approximately ~~5.7~~6.0 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of 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 40^th 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 a~~includes 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, ~~2019~~2022 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.

Table of Contents
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 ~~Significant~~positive population and economic growth in our cities to continue, there is no way for us to predict whether these trends will continue, especially in light of the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the 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, ~~2018~~2021 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, ~~2019~~2022 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, ~~2019~~2022 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 ~~acquisition~~acquisitions of ~~Circle Point in July 2018, $1.4 million was from the acquisition of~~Block 23, The ~~Quad in July 2018, $1.2 million was from the acquisition of Greenwood Blvd~~Terraces and Bloc 83 in December ~~2018, $1.2~~2021 contributed increases of $2.5 million, ~~was from~~$2.7 million and $3.9 million, respectively. Offsetting these increases, the ~~acquisition~~disposition of ~~Camelback Square~~Sorrento 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 ~~sale~~downtime 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 higher~~relatively 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 Park~~Terraces and ~~Cascade Station properties. Park Tower~~Bloc 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 ~~operating~~properties’ expenses were ~~modestly higher~~relatively 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 ~~$2.8~~by $2.6 million, or ~~24%~~19%, to ~~$14.5~~$16.8 million for the three months ended June 30, ~~2019~~2022, 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 operating~~properties’ expenses ~~aggregate to~~increased a ~~net~~combined $0.7 ~~million increase in comparison to the prior-year period.~~
million.

Table of Contents
General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and ~~board~~Board of ~~directors~~Directors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased ~~$1.4~~$0.5 million, or ~~71%~~18%, to ~~$3.4~~$3.6 million for the three months ended June 30, ~~2019 compared to $2.0~~2022, from $3.1 million for the three months ended June 30, ~~2018. Of this increase, $1.1 million can be attributed to the~~ ~~one-time~~2021. 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 is~~increased primarily ~~attributable~~due 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 compared~~2022, 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 ~~$11.8~~the 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 $7.8~~2022, 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 ~~due~~attributable 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 sale~~amount drawn and ~~the extinguishment of its property level~~interest rates on our floating rate debt.
Comparison of Six Months Ended June 30, ~~2019~~2022 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, ~~2019~~2022 compared to ~~$61.8~~$79.5 million for the six months ended June 30, ~~2018.~~2021. Of this increase, ~~$1.8~~the 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 ~~acquisition~~SanTan property, which recorded higher termination fee income during 2022, which increased revenue by $0.6 million. Offsetting these increases, the disposition of ~~Pima Center~~Cherry 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 Blvd~~February 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 Plaza~~respectively. Revenue also decreased ~~by $1.7 million due to the sale of the property in March 2018 and Plaza 25 decreased~~at Park Tower by $1.0 million due to the ~~sale~~downtime 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 result~~second 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 higher~~relatively 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 Park~~Terraces and ~~Cascade Station properties. Park Tower~~Bloc 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 ~~operating~~properties’ 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.

Table of Contents
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, ~~2019~~2022, 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 operating~~properties’ 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 ~~board~~Board of ~~directors~~Directors, 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 compared~~2022, from $5.9 million reported for the same period in 2021. General and administrative expenses increased primarily due to ~~$3.9~~higher 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, ~~$1.1~~the 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.~~ ~~Depreciation~~decrease, depreciation and amortization ~~increased $5.3~~for Pima Center decreased by $1.0 million from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining properties’ depreciation 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 $23.7~~2022, from $12.5 million for the six months ended June 30, ~~2018, primarily due~~2021.
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 ~~addition~~building and we signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, we reassessed the lease classification of the ~~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 by~~Lake Vista Pointe property was sold in June 2022. In the prior year, we recorded a ~~decrease at Washington Group Plaza and Plaza 25 due to~~net gain on the sale of ~~those properties.~~
~~Other Expense (Income)~~
~~Interest Expense.~~ ~~Interest expense increased $4.0 million, or 36%, to $15.3~~real estate property of $47.4 million for the six months ended June 30, ~~2019, compared~~2021 related to ~~$11.3~~the 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, ~~2019~~2022 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 Station~~a 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 compared~~2021 was attributable to ~~2018, which included proceeds from~~ the sale of ~~Washington Group Plaza~~the Cherry Creek property in ~~2018.~~
2021.
This decrease was partially offset by higher acquisition of real estate in 2021 compared to 2022.

Table of Contents
Cash flow ~~from~~to financing activities.
Net cash ~~provided by~~used in financing activities ~~increased~~decreased by ~~$49.5~~$56.1 million to ~~$17.6~~$26.6 million for the six months ended June 30, ~~2019~~2022 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 increased~~was primarily due to ~~higher proceeds from mortgage loans payable compared to 2018 and~~ lower ~~repayments~~repayment of ~~mortgage loans payable compared to 2018. The increase was~~borrowings, 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 million~~credit agreement for the Unsecured Credit Facility that provided for commitments of up to $250 million, which ~~includes~~included an accordion feature that ~~allows~~allowed the Company to borrow up to $500 million, subject to customary terms and conditions. ~~The Company’s previous secured credit facility was replaced~~On November 16, 2021, the Company entered into an Amended and ~~repaid in full from~~Restated Credit Agreement (the “Amended and Restated Credit Agreement”) that provides for commitments of up to $300 million on the ~~proceeds of our~~ Unsecured Credit Facility. Our Unsecured Credit Facility matures in ~~March 2022,~~November 2025 and may be extended ~~to March 2023~~12 months at the Company’s option upon meeting certain conditions. Borrowings under our Unsecured Credit Facility bear an interest at a rate equal to the LIBOR rate plus a margin of between ~~140~~125 to 225 basis points depending upon the Company’s consolidated leverage ratio. Combined with the Term Loan, the total authorized borrowings increased from $300 million to $350 million. As of 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, the~~each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc., BMO Capital Markets Corp., RBC Capital Markets, LLC, B. Riley FBR, Inc., D.A. Davidson & Co. and Janney Montgomery Scott LLC (the “Sales Agents”), pursuant to which the Company may issue and sell from time to time up to ~~8,000,000~~15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or ~~principals. Pursuant~~principals (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 consent~~notice 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 ~~make~~issue any ~~sales~~shares of ~~securities~~common stock or Series A Preferred Stock under the ~~EDAs~~ATM 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.

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

Table of Contents
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 ~~replaces~~supplements the risk ~~factor~~factors 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 result~~expenses 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 under~~rent 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 funds~~tenant based on such tenant’s proportionate square footage in the ~~future. On July 31, 2019, we, through~~property. Additionally, our
triple-net
leases require the lessee to pay all property operating expenses. Therefore, increases in property-level expenses resulting from inflation could have an ~~indirect, wholly-owned subsidiary, entered into~~adverse impact on our lessees if increases in their operating expenses exceed increases in their revenue, which may adversely affect our lessees’ ability to pay rent or other obligations owed to us. An increase in our lessees’ expenses and a ~~separate administrative services agreement~~failure 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
Table of Contents
Share repurchase activity under our share repurchase plans, on a trade date basis, for the three months ended June 30, 2022, was as follows:
Issuer Purchases of Equity Securities
(1)

Period

Total

Number of

Shares of Common
Stock

Purchased

Average

Price Paid

per Share of

Common Stock
Repurchased

Total Number of

Shares of Common
Stock Purchased

as Part of Share
Repurchase Plans

Approximate Dollar

Value of Shares of
Common Stock that

May Yet Be

Purchased
Under the

Share Repurchase
Plans
(2)

(thousands)

April 1 – 30, 2022
   —      $ —      —      $ 50,000
May 1 – 31, 2022
   —      —      —      50,000
June 1 – 30, 2022
   394,833    12.64    394,833    45,008








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








~~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
Table of the Company, entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Clarity Real Estate III GP, Limited Partnership and Clarity Real Estate Ventures GP, Limited Partnership (collectively with their affiliates, “Clarity”), entities affiliated with the Company. James Farrar, the Company’s Chief Executive Officer, and Gregory Tylee, the Company’s President and Chief Operating Officer, are officers of the general partners of the Clarity funds and own equity interests in the Clarity funds. Pursuant to the Administrative Services Agreement, the Service Provider will provide various administrative services and support to Clarity as set forth in the Administrative Services Agreement. The annual payments made by Clarity to the Service Provider for these services under the Administrative Services Agreement will be a percentage of the management fees received by Clarity from Clarity’s managed funds and affiliates under Clarity’s governance documents according to a formula set forth in the Administrative Services Agreement.
In conjunction with the Company’s entry into the Administrative Services Agreement, on July 31, 2019, the Company, through a wholly-owned subsidiary, entered into an amendment to the Company’s employment agreements (collectively, the “Employment Agreement Amendments”) with each of James Farrar, the Company’s
Contents

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).

~~10.1~~		~~Amendment 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).~~

~~10.2~~		Administrative 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. †

~~10.3~~		~~Amendment No. 1 to Executive Employment Agreement, dated as of July 31, 2019, by and between City Office Management Ltd. and James Farrar.* †~~

~~10.4~~		~~Amendment No. 1 to Executive Employment Agreement, dated as of July 31, 2019, by and between City Office Management Ltd. and Gregory Tylee.* †~~

~~10.5~~		~~Amendment 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*

104		Cover 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.

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITY OFFICE REIT, INC.
Date: August ~~1, 2019~~4, 2022
By:
/s/ James Farrar
James Farrar

Chief Executive Officer and Director
(Principal Executive Officer)
Date: August ~~1, 2019~~4, 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


	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)


	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


	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


	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


	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


	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


	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


	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	)


	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	)


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


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 40^th 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


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


	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


	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


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


	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


	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


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

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

Outstanding at June 30, 2022		413,686			307,500


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

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

Outstanding at June 30, 2021		336,920			217,500


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