Table of Contents
 
 
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, 20222023
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-36409
 
 
CITY OFFICE REIT, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
 
98-1141883
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)
666 Burrard Street
Suite 3210
Vancouver, BC
V6C 2X8
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (604)
806-3366
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Trading Symbol(s)
 
Name of each Exchange on Which Registered
Common Stock, $0.01 par value
6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share
 
“CIO”
“CIO.PrA”
 
New York Stock Exchange
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.     
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 August
2
July 31
, 20222023 was 41,572,870
.39,938,451.
 
 

Table of Contents
City Office REIT, Inc.
Quarterly Report on Form
10-Q
For the Quarter Ended June 30, 20222023
Table of Contents
 
PART I. FINANCIAL INFORMATION
   1 
Item 1. Financial Statements
   1 
Condensed Consolidated Balance Sheets as of June 30, 20222023 and December 31, 20212022
   1 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 20222023 and 20212022
   2 
Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 20222023 and 20212022
   3 
Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 20222023 and 20212022
   4 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20222023 and 20212022
   5 
Notes to Condensed Consolidated Financial Statements
   6 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
   16 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
   26 
Item 4. Controls and Procedures
   26 
PART II. OTHER INFORMATION
   2728 
Item 1. Legal Proceedings
   2728 
Item 1A. Risk Factors
   2728 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   2728 
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
City Office REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value and share data)
 
   
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)         
   
June 30,

2023
  
December 31,
2022
 
Assets
         
Real estate properties         
Land  $193,524  $199,537 
Building and improvement   1,189,789   1,215,000 
Tenant improvement   146,633   139,365 
Furniture, fixtures and equipment   689   689 
          
    1,530,635   1,554,591 
Accumulated depreciation   (197,062)   (175,720) 
          
    1,333,573   1,378,871 
          
Cash and cash equivalents   38,350   28,187 
Restricted cash   14,307   16,075 
Rents receivable, net   48,971   44,429 
Deferred leasing costs, net   21,058   21,989 
Acquired lease intangible assets, net   49,876   55,438 
Other assets   31,313   29,450 
          
Total Assets  $1,537,448  $1,574,439 
          
Liabilities and Equity
         
Liabilities:
         
Debt  $678,380  $690,099 
Accounts payable and accrued liabilities   30,625   35,753 
Deferred rent   7,956   9,147 
Tenant rent deposits   7,142   7,040 
Acquired lease intangible liabilities, net   8,422   9,150 
Other liabilities   16,035   20,076 
          
Total Liabilities   748,560   771,265 
          
Commitments and Contingencies (Note 9)
       
Equity:
         
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding as of June 30, 2023 and December 31, 2022   112,000   112,000 
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,938,451 and 39,718,767 shares issued and outstanding as of June 30, 2023 and December 31, 2022   399   397 
Additional
paid-in
capital
   436,733   436,161 
Retained earnings   235,705   251,542 
Accumulated other comprehensive income   3,726   2,731 
          
Total Stockholders’ Equity   788,563   802,831 
Non-controlling
interests in properties
   325   343 
          
Total Equity   788,888   803,174 
          
Total Liabilities and Equity  $1,537,448  $1,574,439 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
.
 
1
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,
 
   
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 
                  
   
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
   
2023
  
2022
  
2023
  
2022
 
Rental and other revenues
  $44,604  $45,498  $90,562  $90,350 
Operating expenses:
                 
Property operating expenses   17,246   16,836   34,966   33,325 
General and administrative   3,668   3,614   7,433   7,070 
Depreciation and amortization   15,768   15,701   31,072   31,516 
                  
Total operating expenses   36,682   36,151   73,471   71,911 
                  
Operating income   7,922   9,347   17,091   18,439 
Interest expense:                 
Contractual interest expense   (7,981)   (5,982)   (15,953)   (11,729) 
Amortization of deferred financing costs and debt fair value   (323)   (302)   (647)   (614) 
                  
    (8,304)   (6,284)   (16,600)   (12,343) 
Net (loss)/gain on disposition of real estate property   (134)   —     (134)   21,658 
                  
Net (loss)/income
   (516)   3,063   357   27,754 
Less:                 
Net income attributable to
non-controlling
interests in properties
   (164)   (164)   (333)   (335) 
                  
Net (loss)/income attributable to the Company
   (680)   2,899   24   27,419 
Preferred stock distributions   (1,855)   (1,855)   (3,710)   (3,710) 
                  
Net (loss)/income attributable to common stockholders
  $(2,535)  $1,044  $(3,686)  $23,709 
                  
Net (loss)/income per common share:                 
Basic  $(0.06)  $0.02  $(0.09)  $0.54 
                  
Diluted  $(0.06)  $0.02  $(0.09)  $0.53 
                  
Weighted average common shares outstanding:                 
Basic   39,938   43,632   39,906   43,593 
                  
Diluted   39,938   44,482   39,906   44,445 
                  
Dividend distributions declared per common share  $0.10  $0.20  $0.30  $0.40 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
.
 
2
City Office REIT, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
   
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 
                  
   
Three Months Ended
June 30,
  
Six Months Ended
June 30,
 
   
2023
  
2022
  
2023
  
2022
 
Net (loss)/income
  $(516)  $3,063  $357  $27,754 
Other comprehensive income:                 
Unrealized cash flow hedge gain   3,749   450   2,284   2,064 
Amounts reclassified to interest expense   (812)   63   (1,289)   203 
                  
Other comprehensive income   2,937   513   995   2,267 
                  
Comprehensive income
   2,421   3,576   1,352   30,021 
Less:                 
Comprehensive income attributable to
non-controlling
interests in properties
   (164)   (164)   (333)   (335) 
                  
Comprehensive income attributable to the Company
  $2,257  $3,412  $1,019  $29,686 
                  
The accompanying notes are an integral part of these condensed consolidated financial statements.statements
.
 
3
Table of Contents
City Office REIT, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(In thousands)
 
  
Number
of shares
of
preferred
stock
  
Preferred

stock
  
Number

of

shares of
common
stock
  
Common

stock
  
Additional

paid-in

capital
  
  Retained  
earnings
  
Accumulated

other
comprehensive
(loss)/income
  
Total

stockholders’

equity
  
Non-controlling

interests in

properties
  
Total

equity
 
Balance—December 31, 2021  4,480  $112,000   43,554  $435  $482,061  $275,502  $(382)  $869,616  $979  $870,595 
Restricted stock award grants and vesting  —     —     —     —     972   (68)   —     904   —     904 
Common stock dividend distribution declared  —     —     —     —     —     (8,711)   —     (8,711)   —     (8,711) 
Preferred stock dividend distribution declared  —     —     —     —     —     (1,855)   —     (1,855)   —     (1,855) 
Contributions  —     —     —     —     —     —     —     —     3   3 
Distributions  —     —     —     —     —     —     —     —     (254)   (254) 
Net income  —     —     —     —     —     24,520   —     24,520   171   24,691 
Other comprehensive income  —     —     —     —     —     —     1,754   1,754   —     1,754 
                                         
Balance—March 31, 2022  4,480  $112,000   43,554  $435  $483,033  $289,388  $1,372  $886,228  $899  $887,127 
                                         
Restricted stock award grants and vesting  —     —     171   2   1,020   (117)   —     905   —     905 
Common stock repurchased  —     —     (395)   (4)   (4,996)   —     —     (5,000)   —     (5,000) 
Common stock dividend distribution declared  —     —     —     —     —     (8,580)   —     (8,580)   —     (8,580) 
Preferred stock dividend distribution declared  —     —     —     —     —     (1,855)   —     (1,855)   —     (1,855) 
Distributions  —     —     —     —     —     —     —     —     (180)   (180) 
Net income  —     —     —     —     —     2,899   —     2,899   164   3,063 
Other comprehensive income  —     —     —     —     —     —     513   513   —     513 
                                         
Balance—June 30, 2022  4,480  $112,000   43,330  $433  $479,057  $281,735  $1,885  $875,110  $883  $875,993 
                                         
  
Number
of shares
of
preferred
stock
  
Preferred
stock
  
Number
of
shares of
common
stock
  
Common
stock
  
Additional
paid-in

capital
  
Retained
earnings
  
Accumulated
other
comprehensive
income
  
Total
stockholders’
equity
  
Non-controlling

interests in
properties
  
Total
equity
 
Balance—December 31, 2022  4,480  $112,000   39,718  $397  $436,161  $
 
 
251,542  $2,731  $802,831  $343  $803,174 
Restricted stock award grants and vesting  —     —     220   2   (535)   (85)   —     (618)   —     (618) 
Common stock dividend distribution declared  —     —     —     —     —     (7,988)   —     (7,988)   —     (7,988) 
Preferred stock dividend distribution declared  —     —     —     —     —     (1,855)   —     (1,855)   —     (1,855) 
Contributions  —     —     —     —     —     —     —     —     110   110 
Distributions  —     —     —     —     —     —     —     —     (235)   (235) 
Net income  —     —     —     —     —     704   —     704   169   873 
Other comprehensive loss  —     —     —     —     —     —     (1,942)   (1,942)   —     (1,942) 
                                         
Balance—March 31, 2023  4,480  $112,000   39,938  $399  $435,626  $242,318  $789  $791,132  $387  $791,519 
                                         
           
Restricted stock award grants and vesting  —     —     —     —     1,107   (84)   —     1,023   —     1,023 
Common stock dividend distribution declared  —     —     —     —     —     (3,994)   —     (3,994)   —     (3,994) 
Preferred stock dividend distribution declared  —     —     —     —     —     (1,855)   —     (1,855)   —     (1,855) 
Distributions  —     —     —     —     —     —     —     —     (226)   (226) 
Net (loss)/income  —     —     —     —     —     (680)   —     (680)   164   (516) 
Other comprehensive income  —     —     —     —     —     —     2,937   2,937   —     2,937 
                                         
Balance—June 30, 2023  4,480  $112,000   39,938  $399  $436,733  $235,705  $3,726  $788,563  $325  $788,888 
                                         
 
  
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 
                                         
  
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 
                                         
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
4

City Office REIT, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
  
Six Months Ended

June 30,
   
Six Months Ended

June 30,
 
  
2022
 
2021
   
2023
 
2022
 
Cash Flows from Operating Activities:
        
Net income  $27,754  $50,861   $357  $27,754 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   31,516   29,369    31,072   31,516 
Amortization of deferred financing costs and debt fair value   614   602    647   614 
Amortization of above and below market leases   80   301    34   80 
Straight-line rent/expense   (4,356)   85    (4,795)   (4,356) 
Non-cash
stock compensation
   1,895   1,310    2,048   1,895 
Receipts from sales-type lease   43,549   —      —     43,549 
Net gain on sale of real estate property   (21,658)   (47,400) 
Net loss/(gain) on disposition of real estate property   134   (21,658) 
Changes in
non-cash
working capital:
          
Rents receivable, net   (4,109)   635    534   (4,109) 
Other assets   (764)   (1,048)    (1,416)   (764) 
Accounts payable and accrued liabilities   1,268   (2,757)    (141)   1,268 
Deferred rent   (1,511)   2,850    (1,032)   (1,511) 
Tenant rent deposits   691   877    141   691 
               
Net Cash Provided By Operating Activities   74,969   35,685    27,583   74,969 
               
Cash Flows (to)/from Investing Activities:
       
Cash Flows to Investing Activities:
   
Additions to real estate properties   (16,462)   (9,499)    (17,826)   (16,462) 
Acquisition of real estate   —      (43,256) 
Net proceeds from sale of real estate   —      93,303 
Reduction of cash on disposition of real estate property   (4,051)   —   
Deferred leasing costs   (4,786)   (3,131)    (1,927)   (4,786) 
               
Net Cash (Used In)/Provided By Investing Activities   (21,248)   37,417 
Net Cash Used In Investing Activities   (23,804)   (21,248) 
               
Cash Flows to Financing Activities:
       
Cash Flows from/(to) Financing Activities:
   
Debt issuance and extinguishment costs   (236)   —   
Proceeds from borrowings   31,000   98,000    35,000   31,000 
Repayment of borrowings   (30,941)   (163,363)    (8,513)   (30,941) 
Dividend distributions paid to stockholders   (21,132)   (16,729)    (19,641)   (21,132) 
Repurchases of common stock

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

   (434)   (424)    (461)   (434) 
Shares withheld for payment of taxes on restricted stock unit vesting

   (87)  (216)   (1,643)   (87) 
Contributions from non-controlling interests in properties

   3   2    110   3 
               
Net Cash Used In Financing Activities   (26,591)   (82,730) 
Net Cash Provided By/(Used In) Financing Activities   4,616   (26,591) 
               
Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash
   27,130   (9,628) 
Net Increase in Cash, Cash Equivalents and Restricted Cash
   8,395   27,130 
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
   42,266   45,951    44,262   42,266 
               
Cash, Cash Equivalents and Restricted Cash, End of Period
  $69,396  $36,323   $52,657  $69,396 
               
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
          
Cash and Cash Equivalents, End of Period   26,352   13,394    38,350   26,352 
Restricted Cash, End of Period   43,044   22,929    14,307   43,044 
               
Cash, Cash Equivalents and Restricted Cash, End of Period  $69,396  $36,323   $52,657  $69,396 
               
Supplemental Disclosures of Cash Flow Information:
          
Cash paid for interest  $10,850  $11,955   $14,827  $10,850 
Purchase of additions in real estate properties included in accounts payable  $10,301  $4,233   $8,753  $10,301 
Purchase of deferred leasing costs included in accounts payable  $2,926  $2,164   $1,404  $2,926 
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 MarylandMarylan
d on
November 26, 2013.2013
. 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 beforeprior to 2018, any applicable alternative minimum tax.
2. Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2021.2022.
During the second quarter of 2023, the Company applied the below accounting policy for Variable Interest Entities (“VIE”) in relation to the deconsolidation of the 190 Office Center property. Refer to Note 3 – Real Estate Investments for additional information.
Variable Interest Entities
The Company consolidates a VIE if the Company determines that it is the primary beneficiary of the entity. When evaluating the accounting for a VIE, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance relative to other economic interest holders. The Company determines the rights, if any, to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE by considering the economic interest in the entity, regardless of form, which may include debt, equity, management and servicing fees, or other contractual arrangements. The Company considers other relevant factors including each entity’s capital structure, contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent payments, and other contractual arrangements that may be economically significant.
6
Table of Contents
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (the “FASB”) established Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)
No. 2020-04
(“ASU
2020-04”).
ASU
2020-04
provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) (“ASU
2021-01”).
ASU
2021-01
clarifies
clarified the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.
ASU
2020-04
and ASU
2021-01
can be applied as of the beginning of the interim period that includes March 12, 2020, however, the guidance will only be available for optional use through December 31, 2022. In December 2022, the FASB issued ASU
No. 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU
2022-06”).
ASU
2022-06
amends the date the guidance will be available to December 31, 2024. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. TheDuring the first quarter of 2023, the Company hastransitioned its LIBOR-based contracts to SOFR and elected to apply the practical expedients to modifications of qualifying debt contracts and hedging relationships as continuations of the existing contracts, rather than as new contracts. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with past presentation and does not 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 a lease with variable lease payments that do not depend on an index or rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease under the
pre-ASU
classification criteria, and sales-type or direct financing classification would result in a Day 1 loss. The ASU is effective for fiscal years beginning after December 15, 2021. The ASU may be early adopted and can be applied either retrospectively to leases that commenced or were modified on or afterdedesignation of hedging relationships. Applying the adoption of ASU
No. 2016-02
or prospectively to leases that commence or are modified on or after the date that an entity first applies the amendments. The Company adopted ASU
2021-05
prospectively on January 1, 2022. The adoption of ASU
2021-05
expedients did not have a material impact on the Company’s consolidated financial statements. The Company has no remaining LIBOR-based contracts.
3. Real Estate Investments
Acquisitions
During the six months ended June 30, 2022 and 2021 the Company acquired the following properties:
Property
Date Acquired
Percentage Owned
5910 Pacific Center and 9985 Pacific HeightsMay 2021100% 
The foregoing acquisition was accounted for as an asset acquisition.
The following table summarizes the Company’s allocation of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 2021 (in thousands):
   
5910 Pacific
Center and 9985
Pacific Heights
 
Land  $ 37,294 
Building and improvement   2,979 
Tenant improvement   917 
Lease intangible assets   2,469 
Other assets   19 
Accounts payable and other liabilities   (319) 
Lease intangible liabilities   (103) 
      
Net assets acquired
  $43,256 
      
SaleDisposition of Real Estate Property
190 Office Center
On May 15, 2023, the Company consented to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s
non-recourse
loan agreement. Given the appointment of the receiver, the Company assessed whether the entity holding the property should be reassessed for consolidation as a VIE in accordance with ASC 810 – Consolidation.
Based on its analysis, the Company concluded that it is not the primary beneficiary of the VIE and therefore deconsolidated the property as of May 15, 2023. The Company deconsolidated the net carrying value of real estate assets of $
35.7
 million, the mortgage loan of $
38.6 
million, cash and restricted cash of $
4.0
million and net current liabilities of
 $
1.0
million. For the three months ended June 30, 2023, the Company recognized a loss on deconsolidation of $
0.1
 million, which has been included within net loss/gain on disposition of real estate property on the Company’s condensed consolidated statement of operations and statement of cash flows.
Lake Vista Pointe
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 relateddisposal-related costs. On June 15, 2022, the Company sold the Lake Vista Pointe property in Dallas, Texas for a gross sales price of $
$43.8
43.8
million.

On February 10
, 2021, the Company sold the Cherry Creek property in Denver, Colorado for a gross sales price of $95.0 million, resulting in an aggregate gain of $47.4 million net of disposal-related costs, which has been classified as net gain on sale of real estate property in the condensed consolidated statements of
operations.
 
7
Table of Contents
4. Lease IntangiblesIntangible
s
Lease intangibles and the value of assumed lease obligations as of June 30, 20222023 and December 31, 20212022 were comprised of the following (in thousands):
 
   
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) 
                              
   
Lease Intangible Assets
  
Lease Intangible Liabilities
 
June 30, 2023
  
Above

Market
Leases
  
In Place

Leases
  
Leasing
Commissions
  
Total
  
Below
Market
Leases
  
Below
Market
Ground
Lease
  
Total
 
Cost  $18,786  $77,066  $33,491  $129,343  $(14,968)  $(138)  $(15,106) 
Accumulated amortization   (9,823)   (51,444)   (18,200)   (79,467)   6,630   54   6,684 
                              
   $8,963  $25,622  $15,291  $49,876  $(8,338)  $(84)  $(8,422) 
                              
   
   
Lease Intangible Assets
  
Lease Intangible Liabilities
 
December 31, 2022
  
Above

Market
Leases
  
In Place

Leases
  
Leasing
Commissions
  
Total
  
Below
Market
Leases
  
Below
Market
Ground
Lease
  
Total
 
Cost  $18,793  $78,720  $34,123  $131,636  $(15,682)  $(138)  $(15,820) 
Accumulated amortization   (9,069)   (49,772)   (17,357)   (76,198)   6,618   52   6,670 
                              
   $9,724  $28,948  $16,766  $55,438  $(9,064)  $(86)  $(9,150) 
                              
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
 
2023  $4,248 
2024   6,687 
2025   6,517 
2026   6,204 
2027   5,217 
Thereafter   12,581 
      
   $41,454 
      
2022  $5,283 
2023   9,028 
2024   6,695 
2025   6,507 
2026   6,461 
Thereafter   17,746 
      
   $51,720 
      
5. Debt
On January 5, 2023, the Company transitioned the borrowing rate of its unsecured credit facility (the “Unsecured Credit Facility”) and $50 million term loan from LIBOR to daily-simple SOFR. The Company applied the practical expedients available under the reference rate reform guidance and accounted for the modifications as continuations of the existing contracts.
The following table summarizes the indebtedness as of June 30, 20222023 and December 31, 20212022 (dollars in thousands):

 
                                                                                                                           
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
Property
  
    June 30,    

2023
   
    December 31,    
2022
   
    Interest Rate as    
of June 30,

2023
(1)
  
Maturity
 
Unsecured Credit Facility 
(3)(5)
  $ 205,713   $ 200,500    SOFR +1.40%
(2)
 		  November 2025 
Term Loan 
(4)
   50,000    50,000    SOFR +1.35%
(2)
 		  September 2024 
Term Loan
(5)
   25,000    —      SOFR +2.10%
(2)
 		  January 2026 
Mission City   46,430    46,859    3.78%   November 2027 
Canyon Park
(6)
   39,306    39,673    4.30%   March 2027 
Circle Point   39,118    39,440    4.49%   September 2028 
SanTan
(7)
   31,794    32,140    4.56%   March 2027 
Intellicenter   30,991    31,297    4.65%   October 2025 
The Quad   30,600    30,600    4.20%   September 2028 
2525 McKinnon   27,000    27,000    4.24%   April 2027 
FRP Collection   26,401    26,784    3.10%   September 2023 
Greenwood Blvd   21,129    21,396    3.15%   December 2025 
 
8
Table of Contents
Property
  
    June 30,    

2023
 
    December 31,    
2022
 
    Interest Rate as    
of June 30,

2023
(1)
 
Maturity
 
Cascade Station
(8)

 20,989  21,192  4.55%  May 2024 
5090 N. 40th St  20,592  20,810  3.92%  January 2027 
AmberGlen   20,000  20,000  3.69%  May 2027 
Central Fairwinds   16,051  16,273  3.15%  June 2024 
FRP Ingenuity Drive
(9)
   16,014  16,165  4.44%  December 2024 
Carillon Point   14,562  14,773  3.10%  October 2023 
190 Office Center
(10)
   —    38,894  4.79%  October 2025 
Total Principal   681,690  693,796       
Deferred financing costs, net   (3,428)  (3,887)       
Unamortized fair value adjustments   118  190       
               
Total  $678,380
$690,099       
               
                                                                                                                           
Property
 
June 30,

2022
  
December 31,

2021
  
Interest Rate as

of June 30,

2022
(1)
  
Maturity
Central Fairwinds   16,491    16,707    3.15%  June 2024
FRP Ingenuity Drive   16,312    16,457    4.44%  December 2024
Carillon Point   14,981    15,185    3.10%  October 2023
Lake Vista Pointe
(6)
   —      17,018    —    —    
                  
Total Principal   658,605    658,538        
Deferred financing costs, net   (4,501)    (5,223)        
Unamortized fair value adjustments   262    333        
                  
Total  $654,366   $653,648        
                  
 
(1)All interest rates are fixed interest rates with the exception of the Unsecured Credit Facility (the “Unsecured Credit Facility”) and the Term Loan (as defined herein),term loans, as explained in footnotes 3, 4 and 45 below.
(2)
As of June 30, 2022,2023, the
one-month
LIBOR daily-simple SOFR rate was 1.79%5.09%.
(3)
In September 2019, the Company entered into a five-year $50 million Term Loan (the “Term Loan”) increasing its authorized borrowings under the Unsecured Credit Facility from $250 million to $300 million. Borrowings under the Term Loan bear interest at a rate equal to the LIBOR rate plus a margin between 125 to 215 basis points depending upon the Company’s consolidated leverage ratio. In conjunction with the Term Loan, the Company also entered into a five-year interest rate swap for a notional amount of $50 million (the “Interest Rate Swap”). Pursuant to the Interest Rate Swap, the Company will pay a fixed rate of approximately 1.27% of the notional amount annually, payable monthly, and receive floating rate
30-day
LIBOR payments.
(4)
In March 2018, the Company entered into the Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $250 million, which included an accordion feature that allowed the Company to borrow up to $500 million, subject to customary terms and conditions. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement for the Unsecured Credit Facility that provides for commitments of up to $300 million. Combined with the Company’s existing five-year Term Loan, the total authorized borrowings increased from $300 million to $350 million. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the LIBORdaily-simple SOFR rate plus a margin of between 125135 to 225235 basis points depending upon the Company’s consolidated leverage ratio. On February 9, 2023, the Company entered into a three-year interest rate swap for a notional amount of $140 million, effective March 8, 2023, effectively fixing the SOFR component of the borrowing rate for $140 million of the Unsecured Credit Facility. As of
June 30,
, 2022, 2023, the Unsecured Credit Facility had $162.0$205.7 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.
(4)Borrowings under the $50 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 225 basis points depending upon the Company’s consolidated leverage ratio. The SOFR component of the borrowing rate is effectively fixed by a $50 million interest rate swap.
(5)
On January 5, 2023, the Company entered into a second amendment to
its amended and restated credit agreement,
dated November 16, 2021 (as amended, the “Amended and Restated Credit Agreement”) for the Unsecured Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. Borrowings under the $25 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of 210 basis points. In conjunction with the term loan, the Company also entered into a three-year interest rate swap for a notional amount of $25 million, effectively fixing the SOFR component of the borrowing rate of the term loan.
(6)The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD,
the loan’s
interest rate shall be adjusted to the greater of (i) the initial interest rate plus 200 basis points or (ii) the yield on the five year “on the run” treasury reported by Bloomberg market data service plus 450 basis points.
(7)
In the second quarter of 2023, the Debt Service Coverage Ratio (“DSCR”) and
d
ebt
y
ield covenants for SanTan were not met, which triggered a ‘cash-sweep period’ that began in the second quarter of 2023. As of June 30, 2023, total restricted cash for the property was $4.7 million.
(6)(8)
In the first quarter of 2023, a ‘cash-sweep period’ began for the Cascade Station loan due to the
non-renewal
of a major tenant’s leased space in the building. As of June 2022,30, 2023, total restricted cash for the loan balance of $
16.8
millionproperty was repaid in full.$1.5 million.
(9)As of September 30, 2022, the DSCR covenant for FRP Ingenuity Drive was not met, which triggered a ‘cash-sweep period’ that began in the fourth quarter of 2022. As of June 30, 2023, the DSCR was still not met. As of June 30, 2023 and December 31, 2022, total restricted cash for the property was $3.0 million and $2.6 million, respectively.
(10)
In
the second quarter of 2023, the
non-recourse
debt associated with the 190 Office Center property was deconsolidated as a result of the appointment of a receiver to assume possession and control of the property. The loan balance as of the date of deconsolidation was $38.6 million.
The scheduled principal repayments of debt as of June 30, 20222023 are as follows (in thousands):
2023  $43,835 
2024   107,728 
2025   260,288 
2026   29,416 
2027   176,303 
Thereafter   64,120 
      
   $681,690 
      
 
2022  $3,141 
2023   48,149 
2024   108,479 
2025   253,997 
2026   4,536 
Thereafter   240,303 
      
   $658,605 
      
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6. Fair Value of Financial Instruments
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs – quoted prices in active markets for identical assets or liabilities

Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs – unobservable inputs

In September 2019
,January 2023, the Company entered intoamended the Interest Rate Swap$50 million interest rate swap to transition from LIBOR to daily-simple SOFR. The Company applied the practical expedients available for a notional amounthedging relationships under the reference rate reform guidance, which preserves the presentation of $50 million.the derivative consistent with past presentation and does not result in dedesignation of the hedging relationship. Pursuant to the Interest Rate Swap,amended interest rate swap, the Company will pay a fixed rate of approximately 1.27%1.17% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
30-dayIn January 2023, the Company entered into an interest rate swap for a notional amount of $25 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 3.90% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
LIBOR
In February 2023, the Company entered into an interest rate swap for a notional amount of $140 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 4.19% of the notional amount annually, payable quarterly, and receive floating rate daily-simple SOFR payments. Accordingly, the
The fair value of the Interest Rate Swap hasinterest rate swaps have been classified as a Level 2 fair value
measurement. measurements.
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The Interest
Rate Swap hasinterest rate swaps have been designated and qualifiesqualify as a cash flow hedgehedges and hashave been recognized on the condensed consolidated balance sheets at fair value.value, presented within other assets and other liabilities. 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.
AsThe following table summarizes the Company’s derivative financial instruments as of June 30, 2023 and December 31, 2022 (in thousands):
   
Notional Value
   
Effective Date
   
Maturity Date
   
Fair Value

Assets/(Liabilities)
 
  
June 30, 2023
   
December 31, 2022
 
Interest Rate Swap  $50,000    September 2019    September 2024   $2,305   $2,731 
Interest Rate Swap   25,000    January 2023    January 2026    341    —   
Interest Rate Swap   140,000    March 2023    November 2025    1,080    —   
                          
   $215,000             $3,726   $2,731 
                          
For the Interest Rate Swap was reported as a
n
 asset at its fair valuesix months ended June 30, 2023, approximately $1.3 million of approximately $1.9 million, which is included in other assets onrealized gains were reclassified to interest expense due to payments received from the Company’s condensed consolidated balance sheet.swap counterparty. 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, 2021, the Interest Rate Swap was reported as a liability at its fair value of approximately $0.4 million, which is included in other liabilities on the Company’s condensed consolidated balance sheet.
Cash, Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and Accrued Liabilities
The Company estimates that the fair value approximates carrying value due to the relatively short-term nature of these instruments.
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Table of Contents
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 $436.7$380.3 million and $478.1$420.7 million (compared to a carrying value of $446.6$401.0 million and $466.5$443.3 million) as of June 30, 2022,2023, and December 31, 2021,2022, respectively. Accordingly, the fair value of mortgage loans payable have been classified as Level 3 fair value measurements.
7. Related Party Transactions
Administrative Services Agreement
For the six months ended June 30, 20222023 and 2021,2022, the Company earned $0.3$0.2 million and $0.3 million, respectively, in administrative services performed for Second City Real Estate II Corporation, (“Second City”), Clarity Real Estate Ventures GP, Limited Partnership (“Clarity”) and their affiliates.
8. Leases
Lessor Accounting
The Company is focused on acquiring, owning and operating high-quality office properties for lease to a stable and diverse tenant base. Our properties have both full-service gross and net leases which are generally classified as operating leases. Rental income related to such leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments, which principally consist of tenant expense reimbursements for certain property operating expenses.
expenses as provided under the lease.
The Company recognized fixed and variable lease payments for operating leases for the three and six months ended June 30, 20222023 and the three and six months ended June 30, 20212022 as follows (in thousands):
 
  
Three Months Ended

June 30,
   
Six Months Ended

June 30,
   
Three Months Ended

June 30,
   
Six Months Ended

June 30,
 
  
2022
   
2021
   
2022
   
2021
   
2023
   
2022
   
2023
   
2022
 
Fixed payments  $ 38,309   $ 34,311   $ 76,628   $ 67,862 
Variable payments   6,180    5,629    12,620    11,536 
Fixed payments
  $37,571   $38,309   $76,484   $76,628 
Variable payments
   6,742    6,180    13,485    12,620 
                                
  $ 44,489   $39,940   $89,248   $79,398   $ 44,313   $44,489   $89,969   $89,248 
                                
10
TableThe Company ceased recognizing rental lease income with respect to the 190 Office Center property on the deconsolidation of Contents
the entity on May 15, 2023 (refer to Note 3). The Company recognized interest income of
$0.6 
million and variable lease payments of $0.2 million for the sales-type lease at the Lake Vista Pointe property for the three a
n
dand six months ended June 30, 2022.

Future minimum lease payments to be received by the Company as of June 30, 20222023 under
non-cancellable
operating leases for the next five years and thereafter are as follows (in thousands):
2023  $62,936 
2024   124,703 
2025   112,593 
2026   101,868 
2027   85,094 
Thereafter   230,167 
      
   $717,361 
      
 
2022  $63,397 
2023   117,160 
2024   104,445 
2025   92,922 
2026   84,779 
Thereafter   252,335 
      
   $715,038 
      
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The Company’s leases may include various provisions such as scheduled rent increases, renewal options and termination options. The majority of the Company’s leases include defined rent increaseincreases rather than variable payments based on an index or unknown rate.
Lessee Accounting
As a lessee, the Company has ground and office leases which are classified as operating and financing leases. As of June 30, 2022,2023, these leases had remaining terms of under one year to 66
three
t
o
65
years and a weighted average remaining lease term of
50
years.
Right-of-use
assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):
 
  
June 30, 2022
   
December 31, 2021
   
June 30, 2023
   
December 31, 2022
 
Right-of-use
asset – operating leases
  $13,858   $14,114 
Right-of-use
asset – operating leases
  $12,720   $12,935 
Lease liability – operating leases  $9,009   $9,160   $8,675   $8,802 
Right-of-use
asset – financing leases
  $10,180   $10,308 
Right-of-use
asset – financing leases
  $9,934   $ 10,054 
Lease liability – financing leases  $1,450   $1,425   $1,511   $1,475 
Lease liabilities are measured at the commencement date based on the present value of future lease payments. One of the Company’s operating ground leases includes rental payment increases over the lease term based on increases in the Consumer Price Index (“CPI”). Changes in the CPI were not estimated as part of the measurement of the operating lease liability. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of 6.2
%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.
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Operating lease expense for the three and six months ended June 30, 2023 w
a
expensess $0.2 million and $0.5 million, respectively. Operating lease expense for the three and six months ended June 30, 2022 werew
a
s $0.3 million and $0.5 million, respectively. OperatingFinancing lease expensesexpense for the three and six months ended June 30, 2021 were $0.32023 w
a
s $0.1 million and $0.5$0.2 million, respectively. Financing lease expensesexpense for the three and six months ended June 30, 2022 werew
a
s $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, 20222023 for the next five years and thereafter are as follows (in thousands):
   
Operating
Leases
   
Financing
Leases
 
2023  $266   $4 
2024   770    7 
2025   770    8 
2026   724    8 
2027   587    8 
Thereafter   26,563    6,938 
           
Total future minimum lease payments   29,680    6,973 
Discount   (21,005)    (5,462) 
           
Total  $8,675   $1,511 
           
 
   
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 
           
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9. Commitments and Contingencies
The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
The Company believes that it is in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any 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, 2022,2023, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
10. Stockholders’ Equity
Share Repurchase Plan
On March 9, 2020, the Company’s Board of Directors (the “Board of Directors”) approved a share repurchase plan authorizing the Company to repurchase up to $100 million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase plan. On August 5, 2020, the Company’s Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of $50 million of its outstanding shares of common stock. In September 2022, the Company completed the full August 2020 share repurchase plan. On May 4, 2023, the Board of Directors approved an additional share repurchase plan (“Repurchase Program”) authorizing the Company to repurchase up to $50 million of its outstanding shares of common stock or Series A Preferred 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.
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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.
There were no shares repurchased during the six months ended June 30, 2023. 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 16, 2022,May 5, 2023, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $0.20$0.10 per common share for the quarterly period ended June 30, 2022.2023. The dividend was paid subsequent to quarter end on July 22, 202221, 2023 to common stockholders and common unitholders of record as of the close of business on July 8, 2022,7, 2023, resulting in an aggregate payment of $8.6$4.0 million.
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Table of Contents
Preferred Stock Distributions
On June 16, 2022,May 5, 2023, the Company’s Board of Directors approved and the Company declared a cash dividend distribution of $0.4140625 per share of the Company’s 6.625% Series A Preferred Stock (“Series A Preferred Stock”) for an aggregate amount of $1.9 million for the quarterly period ended June 30, 2022.2023. The dividend was paid subsequent to quarter end on July 22, 202221, 2023 to the holders of record of Series A Preferred Stock as of the close of business on July 8, 2022.7, 2023.
Equity Incentive Plan
The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certain
non-executive
employees, and with approval of the Board of Directors
, for subsidiaries and their respective affiliates. The Equity Incentive Plan provides for grants of restricted common stock, restricted stock units, phantom shares, stock options, dividend equivalent rights and other equity-based awards (including LTIP Units)the grant of Operating Partnership long-term incentive plan units), subject to the total number of shares available for issuance under the plan. The Equity Incentive Plan is administered by the compensation committee of the Board of Directors (the “Plan Administrator”“Compensation Committee”). On May 4, 2022, the Company’s stockholders approved an amendment to theThe Equity Incentive Plan increasingprovides for the maximum numberissuance of up to 3,763,580 shares of common stock that may be issued under the Equity Incentive Plan from 2,263,580 shares to 3,763,580 shares.stock. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
On January 
27, 2020, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement (the “Performance RSU Award Agreement”) that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Equity Incentive Plan.
The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a three-year measurement period beginning January 1 of the year of grant (the “Measurement Period”) relative to the TSR of a defined peer group list of other US Office REIT companies (the “Peer Group”) as of the first trading date in the year of grant. The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum. To the extent earned, the payouts of the Performance RSU Awards are intended to be settled in the form of shares of the Company’s common stock, pursuant to the Equity Incentive Plan. Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Company’s common stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of the Company’s common stock that are earned.
During the first quarter of 2023, the Performance RSU Awards granted in January 2020, with a January 1, 2020 through December 31, 2022 Measurement Period, were earned at 150% of the target number of shares granted based on achievement of a TSR that was at or above the 75th percentile of the 2020 Peer Group.
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2023:
   
Number
of RSUs
   
Number of
Performance
RSUs
 
Outstanding at December 31, 2022   428,320    307,500 
Granted   198,022    214,888 
Issuance of dividend equivalents   9,485    —   
Vested   (216,520)    (97,500) 
           
Outstanding at March 31, 2023   419,307    424,888 
Issuance of dividend equivalents   14,356    —   
           
Outstanding at June 30, 2023   433,663    424,888 
 
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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
   
Number
of RSUs
   
Number of
Performance
RSUs
 
Outstanding at December 31, 2020   332,435    97,500 
Outstanding at December 31, 2021   342,159    217,500 
Granted   169,500    120,000    237,986    90,000 
Issuance of dividend equivalents   5,139    —      3,902    — 
Vested   —      —   
Forfeited   —      —   
                
Outstanding at March 31, 2021   507,074    217,500 
Granted   —      —   
Outstanding at March 31, 2022   584,047    307,500 
Issuance of dividend equivalents   6,884    —      7,451    — 
Vested   (177,038)    —      (177,812)    — 
Forfeited   —      —   
                
Outstanding at June 30, 2021   336,920    217,500 
Outstanding at June 30, 2022   413,686    307,500 
During the six months ended June 30, 20222023 and June 30, 2021,2022, the Company granted the following restricted stock units (“RSUs”) and Performance RSU Awards to directors, executive officers and certain
non-executive
employees:
 
   
Units Granted
   
Fair Value

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

(in thousands)
   
Weighted Average
Grant Fair Value
Per Share
 
   
RSUs
   
Performance
RSUs
 
2023   198,022    214,888   $3,729   $9.03 
2022   237,986    90,000    5,753    17.54 
The
RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the grant date. The Performance RSU Awards will vest on the last day of the three-year measurement period.
During the three months ended June 30, 20222023 and June 30, 2021,2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
                                                            
  
RSUs
   
Performance
RSUs
   
Total
   
RSUs
   
Performance
RSUs
   
Total
 
2021  $457   $208   $665 
2023  $633   $390   $1,023 
2022   652    340    992    652    340    992 
During the six months ended June 30, 20222023 and June 30, 2021,2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
   
RSUs
   
Performance
RSUs
   
Total
 
2023  $1,276   $771   $2,047 
2022   1,251    645    1,896 
 
                                                            
   
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 an additional
 1,907,861 shares of its common stock for approximately $25.2 million.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form
10-Q
(this “Report”).
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to City Office REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including City Office REIT Operating Partnership L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership, except where it is clear from the context that the term only means City Office REIT, Inc.
Cautionary Statement Regarding Forward-Looking Statements
 
This Report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
 
adverse economic or real estate developments in the office sector or the markets in which we operate;
 
increased interest rates, any resulting increase in financing or operating costs, the impact of inflation and a stall in economic growth or an economic recession;
changes in local, regional, national and international economic conditions, including as a result of the ongoing coronavirus disease
(“COVID-19”)
pandemic;pandemic or any future epidemics or pandemics;
 
requeststhe extent to which “work from tenants for rent deferrals, rent abatement or relief from other contractual obligations, or a failure to pay rent,home” and hybrid work policies continue as a result of changes in business behavior stemming from the ongoing
COVID-19
pandemic or the availability of government assistance programs;any future epidemics or pandemics;
 
our inability to compete effectively;
 
our inability to collect rent from tenants or renew tenants’ leases on attractive terms if at all;
 
demand for and market acceptance of our properties for rental purposes, including as a result of near-term market fluctuations or long-term trends that result in an overall decrease in the demand for office space;
 
defaults on or
non-renewal
of leases by tenants, including as a result of the ongoing
COVID-19
pandemic;
increased interest rates, any resulting increase in financing or operating costs and the impact of inflation;
decreased rental rates or increased vacancy rates, including as a result of the ongoing
COVID-19
pandemic;pandemic or any future epidemics or pandemics;
 
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;
 
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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 maintain our qualification as a REIT for U.S. federal income tax purposes;
 
government approvals, actions and initiatives, including the need for compliance with environmental requirements, vaccine mandates or actions in response to the
COVID-19requirements;
pandemic;
 
outcome of claims and litigation involving or affecting us;
 
financial market fluctuations;
 
changes in real estate, taxation and zoning laws and other legislation and government activity and changes to real property tax rates and the taxation of REITs in general; and
 
other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 20212022 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, 20212022 under the heading “Risk Factors” and in our subsequent reports filed with the SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our IPO of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.
Revenue Base
As of June 30, 2022,2023, we owned 2524 properties comprised of 6058 office buildings with a total of approximately 6.05.7 million square feet of net rentable area (“NRA”). As of June 30, 2022,2023, our properties were approximately 86.9%85.6% leased.
 
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Office Leases
Historically, most leases for our properties have been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense “stop”,“stop,” whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries inwithin rental and other revenues on our condensed consolidated statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected inas tenant recoveries. All tenants in Canyon Park, Superior Pointe, The Terraces and 2525 McKinnon properties have triple net leases. Certain tenants at AmberGlen, Block 23, Bloc 83, Florida Research Park, Circle Point, The Quad, Cascade Station and Denver Tech have leases on a triple net basis. We are also a lessor for a fee simple ground lease at the AmberGlen property. All of our remaining leases are predominately full-service gross leases.
Factors That May Influence Our Operating Results and Financial Condition
Economic Environment and Inflation
Economic conditions in the U.S. and globally continue to be volatile, primarily due to rising inflation. As inflation continued to reach new highs, it set off a chain reaction of events, beginning with the U.S. Federal Reserve taking and signaling severe tightening measures, interest rates rising across the yield curve, volatility and losses in the public equity and debt markets, and now increasing concerns that the U.S. economy may experience a recession. The banking and lending sector in particular has been impacted by the interest rate environment. This evolving operating environment impacts our operating activities as:
business leaders may generally become more reticent to make large capital allocation decisions, such as entry into a new lease, given the uncertain economic environment;
our cost of capital has increased due to higher interest rates and credit spreads, and private market debt financing is significantly more challenging to arrange; and
retaining and attracting new tenants has become increasingly challenging due to potential business layoffs, downsizing and industry slowdowns.
Despite the challenging economic environment, there is increasing evidence that many businesses have or will tighten up
in-person
work policies as economic conditions worsen. Many of these companies increased their workforce during the pandemic without increasing their available space. We expect these factors to help offset, at least partially, the recessionary headwinds to space demand.
COVID-19
During the first quarter of 2020, the World Health Organization declaredOur business has been and will likely continue to be impacted by the
COVID-19
outbreak a pandemic. There haveIn addition, our business has 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 andwill likely continue to operate. We have adopted new policiesbe impacted by tenant uncertainty regarding office space needs given the evolving remote and procedures to incorporate best practices forhybrid working trends as a result of the safety of our tenants, our vendors and our employees. However,
COVID-19
pandemic. While the usage of our assets in the second quarter 2022of 2023 was significantlystill lower than
pre-pandemic
usage.levels, usage has been increasing year over year. Usage of our assets in the near future depends on the duration of the pandemic, the continued implementation and effectiveness of
COVID-19
vaccines and other therapeutics and corporate and individual decisions regarding return to usage of office space, which is impossible to estimate.
We continue to closely monitor the impact of the
COVID-19
pandemic on all aspects of our business and geographies. While we did not experience any significant disruptions during the three months ended 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 and is expected to be impacted by the
COVID-19
pandemic.pandemic until and unless tenants increase utilization of their spaces. 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.
 
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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.ourselves given current economic and industry conditions.
Business and Strategy
We focus on owning and acquiring office properties in our footprint of growth markets predominantly in the Sun Belt. Our markets generally possess growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally
low-cost
centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate property and leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation.
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 rising interest rates and the
COVID-19
pandemic, increasing likelihood of a U.S. recession, 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.
 
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Table of Contents
Our Properties
As of June 30, 2022,2023, we owned 2524 properties comprised of 6058 office buildings with a total of approximately 6.05.7 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, 2022.2023.
 
Metropolitan
Area              
  
Property
 
Economic
Interest
  
NRA

(000s Square
Feet)
  
In Place

Occupancy
  
Annualized Base
Rent per Square
Foot
  
Annualized Gross
Rent per Square
Foot
(1)
  
Annualized
Base Rent
(2)

($000s)
 
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
 
    
 
 
     
 
 
 
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

(26.7% of NRA)
 Block 23  100.0%   307   94.5%  $30.08  $32.37  $8,725 
  Pima Center  100.0%   272   47.2%  $29.15  $29.15  $3,741 
  SanTan  100.0%   267   47.0%  $32.02  $32.02  $4,013 
  5090 N. 40
th
 St		  100.0%   175   70.2%  $34.60  $34.60  $4,255 
  Camelback Square  100.0%   172   84.4%  $34.55  $34.55  $5,027 
  The Quad  100.0%   163   92.3%  $33.08  $33.42  $4,977 
  Papago Tech  100.0%   163   88.7%  $24.48  $24.48  $3,533 
Tampa, FL

(18.5%)
 Park Tower  94.8%   478   89.2%  $28.09  $28.09  $11,988 
  City Center  95.0%   244   91.6%  $30.00  $30.00  $6,706 
  Intellicenter  100.0%   204   100.0%  $26.21  $26.21  $5,333 
  Carillon Point  100.0%   124   100.0%  $30.25  $30.25  $3,757 
Denver, CO

(14.1%)
 Denver Tech  100.0%   381   85.6%  $24.48  $28.93  $7,799 
  Circle Point  100.0%   272   90.6%  $19.93  $34.80  $4,913 
  Superior Pointe  100.0%   152   71.7%  $18.62  $31.62  $2,033 
Orlando, FL

(12.7%)
 Florida Research Park  96.6%   397   86.1%  $26.03  $27.83  $8,802 
  Central Fairwinds  97.0%   168   88.6%  $28.21  $28.21  $4,206 
  Greenwood Blvd  100.0%   155   100.0%  $24.75  $24.75  $3,837 
Raleigh, NC

(8.7%)
 Bloc 83  100.0%   495   83.5%  $37.97  $38.20  $15,692 
Portland, OR

(5.8%)
 AmberGlen  76.0%   203   100.0%  $23.97  $27.17  $4,877 
  Cascade Station  100.0%   128   100.0%  $29.60  $31.51  $3,791 
Dallas, TX

(5.0%)
 The Terraces  100.0%   173   100.0%  $38.99  $58.99  $6,731 
  2525 McKinnon  100.0%   111   97.8%  $30.50  $51.50  $3,323 
San Diego, CA

(4.9%)
 Mission City  100.0%   281   80.1%  $39.57  $39.57  $8,916 
Seattle, WA

(3.6%)
 Canyon Park  100.0%   207   100.0%  $23.86  $29.86  $4,934 
        
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total / Weighted Average – June 30, 2023
(3)
 
 
 
5,692
 
 
 
85.6
% 
 
$
29.19
 
 
$
32.44
 
 
$
141,909
 
        
 
 
              
 
 
 
 
(1)
Annualized gross rent per square foot includes adjustment for estimated expense reimbursements of triple net leases.
(2)
Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 20222023 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.
 
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Operating Expenses
Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants’ base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.
Conditions in Our Markets
Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance. While we generally expect the trend of positive population and economic growth in our Sun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and rising interest rates as well as the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the potential impact that the
COVID-19
pandemic will have on the short- and long-term demand for office space in our markets.
Critical Accounting Policies and Estimates
The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 20212022 included in our Annual Report on Form
10-K
for the year ended December 31, 2021.2022, except for our election to apply the practical expedients related to Reference Rate Reform (Topic 848) and the application of our VIE policy as outlined in Note 2 of the condensed consolidated financial statements.
Results of Operations
Comparison of Three Months Ended June 30, 20222023 to Three Months Ended June 30, 20212022
Rental and Other Revenues.
Revenue includesRental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $5.5decreased $0.9 million, or 14%2%, to $44.6 million for the three months ended June 30, 2023 compared to $45.5 million for the three months ended June 30, 2022. Revenue decreased at SanTan by $1.4 million due to a termination fee recognized in the prior year and lower resulting occupancy in the current period associated with an early tenant departure. In addition, the dispositions of 190 Office Center in May 2023 and Lake Vista Pointe in June 2022 compared to $40.0 million for the three months ended June 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $2.5 million, $2.7reduced revenue by $1.1 million and $3.9$0.8 million, respectively. Offsetting these increases, the disposition of Sorrento Mesa in December 2021 decreased revenue by $3.1 million. Revenue also decreased at 5090, Mission City and Pima Center by $0.4 million, $0.3 million and $0.3 million, respectively, due to lower occupancy at the properties compared to the prior year. Offsetting these decreases, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, increased revenue by $1.2 million, $0.4 million and $0.2 million, respectively. In addition, higher occupancy at Park Tower, Circle Point, City Center and FRP Collection increased revenue by $0.6 million, due to the downtime associated with a tenant departure in which a replacement tenant did not take occupancy until the middle of the second quarter of 2022.$0.5 million, $0.3 million and $0.2 million, respectively. The remaining properties’ rental and other revenues were relatively unchanged in comparison to the prior period.
Operating Expenses
Total Operating Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $4.0$0.5 million, or 12%1%, to $36.7 million for the three months ended June 30, 2023, from $36.2 million for the three months ended June 30, 2022, from $32.2 million for2022. Of the three months ended June 30, 2021. Of this increase, the acquisitionsDecember 2021 acquisition of Bloc 83 and Block 23, The Terraces and Bloc 83 which were undergoing first generation
lease-up
in December 20212022, contributed increases of $1.6 million, $1.8$0.8 million and $2.5$0.4 million, respectively. In addition, total operating expenses at Park Tower and City Center increased $0.4 million and $0.2 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, the disposition of Sorrento Mesa resulted in a $1.8 million decrease in total operating expenses.expenses decreased at SanTan by $0.6 million due to lower occupancy at the property in comparison to the prior year. In addition, the dispositions of 190 Office Center in May 2023 and Lake Vista Pointe in June 2022 decreased total operating expenses by $0.5 million and $0.3 million, respectively. The remaining properties’ total operating expenses were relatively unchanged in comparison to the prior period.
Property Operating Expenses.
Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and
re-leasing
costs. Property operating expenses increased by $2.6 million, or 19%, to $16.8 million for the three months ended June 30, 2022, from $14.2 million for the three months ended June 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $0.7 million, $0.9 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. The remaining properties’ expenses increased a combined $0.7 million.
 
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General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $0.5 million, or 18%, to $3.6 million for the three months ended June 30, 2022, from $3.1 million for the three months ended June 30, 2021. General and administrative expenses increased primarily due to higher stock-based compensation expense and higher professional fees.
Depreciation and Amortization.
Depreciation and amortization increased $0.7 million, or 5%, to $15.7 million for the three months ended June 30, 2022, from $15.0 million reported for the same period in 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 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, 2022, from $5.9 million for the three months ended June 30, 2021. The increase was primarily attributable to the increase in the amount drawn and interest rates on our floating rate debt.
Comparison of Six Months Ended June 30, 2022 to Six Months Ended June 30, 2021
Rental and Other Revenues.
Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $10.8 million, or 14%, to $90.3 million for the six months ended June 30, 2022 compared to $79.5 million for the six months ended June 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and Bloc 83 in December 2021 contributed increases of $5.0 million, $5.3 million and $7.4 million, respectively. A further increase can be attributed to the SanTan property, which recorded higher termination fee income during 2022, which increased revenue by $0.6 million. Offsetting these increases, the disposition of Cherry Creek in February 2021 and Sorrento Mesa in December 2021 decreased revenue by $0.8 million and $5.8 million, respectively. Revenue also decreased at Park Tower by $1.0 million due to the downtime associated with a tenant departure in which a replacement tenant did not take occupancy until the middle of the second quarter of 2022. The remaining properties’ rental and other revenues were relatively unchanged in comparison to the prior period.
Operating Expenses
Total Operating Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $8.4 million, or 13%, to $71.9 million for the six months ended June 30, 2022, from $63.5 million for the six months ended June 30, 2021. Of this increase, the acquisitions of Block 23, The Terraces and 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. The remaining properties’ expenses increased a combined $0.4 million.
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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$0.4 million, or 18%2%, to $33.3$17.2 million for the sixthree months ended June 30, 2022,2023, from $28.3$16.8 million for the sixthree months ended June 30, 2021.2022. Of thisthe increase, the acquisitionsDecember 2021 acquisition of Bloc 83, Block 23 and The Terraces, and Bloc 83 which were undergoing first generation
lease-up
in December 20212022, contributed increases of $1.3$0.3 million, $1.6$0.3 million and $1.6$0.1 million, respectively. An increase of $0.4 million was attributable to the Ingenuity DriveIn addition, property within the Florida Research Park portfolio as that property was converted from a single tenant property where the tenant paid for its own operating expenses into a multi-tenant property where expenses are paid byat Park Tower increased $0.3 million, due to higher operating costs associated with higher occupancy over the landlord and reimbursements are charged to the tenants.prior year. Offsetting these increases, the dispositiondispositions of Cherry Creek resulted190 Office Center in aMay 2023 and Lake Vista Pointe in June 2022 decreased property operating expenses by $0.3 million decrease and the disposition of Sorrento Mesa resulted in a $1.1$0.3 million, decrease in property operating expenses.respectively. The remaining properties’ property operating expenses increased a combined $1.5 million.were relatively unchanged in comparison to the prior period.
General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $1.2$0.1 million, or 20%1%, to $7.1$3.7 million for the sixthree months ended June 30, 2022,2023, from $5.9$3.6 million reported forin the same period in 2021.prior period. General and administrative expenses increased primarily due to higher stock-based compensation expense and higher professional fees.expense.
Depreciation and Amortization.
Depreciation and amortization increased $2.1$0.1 million, or 7%0.4%, to $31.5$15.8 million for the three months ended June 30, 2023, from $15.7 million reported for the same period in 2022. Of the increase, Bloc 83 incurred higher depreciation and amortization expense of $0.5 million related to tenanting costs. Offsetting this increase, depreciation and amortization expense at our SanTan property decreased by $0.5 million mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at the property. The remaining properties’ depreciation expenses were relatively unchanged in comparison to the prior year.
Other Expense (Income)
Interest Expense.
Interest expense increased $2.0 million, or 32%, to $8.3 million for the three months ended June 30, 2023, from $6.3 million for the three months ended June 30, 2022. The increase was primarily attributable to higher amounts drawn and higher interest rates on our floating rate debt.
Net Loss on the Disposition of Real Estate Property.
 During the second quarter of 2023, the Company
consented
to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s loan agreement. Given the appointment of the receiver, the Company deconsolidated the entity holding the property and related assets and liabilities in May 2023. For the three months ended June 30, 2023, the Company recognized a loss on deconsolidation of $0.1 million.
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Rental and Other Revenues.
Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $0.3 million, or 0.2%, to $90.6 million for the six months ended June 30, 2022, from $29.42023 compared to $90.3 million reported for the same period in 2021.six months ended June 30, 2022. Of thisthe increase, the acquisitionsDecember 2021 acquisition of Bloc 83, Block 23 and The Terraces, and Bloc 83 which were undergoing first generation
lease-up
in December 2021 contributed increases of $1.72022, increased revenue by $2.5 million, $1.8$1.0 million and $3.4$0.4 million, respectively. Higher occupancy at Park Tower, Circle Point, FRP Collection and City Center also increased revenue by $1.5 million, $0.9 million, $0.6 million and $0.4 million, respectively. Offsetting these increases, revenue decreased at SanTan by $2.9 million due to a termination fee recognized in the disposition of Sorrento Mesa resultedprior year and lower resulting occupancy in a $2.1 million decrease and the dispositioncurrent period associated with an early tenant departure. In addition, the dispositions of Lake Vista Pointe resulted in a further decrease of $0.4 million. Also contributingJune 2022 and 190 Office Center in May 2023 also decreased revenue by $1.9 million and $0.9 million, respectively. Revenue also decreased at Pima Center, Mission City and 5090 by $0.8 million, $0.5 million and $0.5 million, respectively, due to reduced occupancy at the property. The remaining properties’ rental and other revenues were marginally higher in comparison to the decrease,prior period.
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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 $1.6 million, or 2%, to $73.5 million for the six months ended June 30, 2023, from $71.9 million for the six months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, contributed $1.2 million, $0.9 million and $0.3 million, respectively. In addition, total operating expenses from Park Tower, FRP Collection, City Center and Circle Point increased $0.8 million, $0.4 million, $0.3 million and $0.3 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. General and administrative expenses also increased $0.3 million primarily due to higher payroll and stock-based compensation expense. Offsetting these increases, total operating expenses decreased at SanTan by $1.2 million due to lower occupancy at the property in comparison to the prior year. The dispositions of Lake Vista Pointe in June 2022 and 190 Office Center in May 2023 also decreased total operating expenses by $0.8 million and $0.5 million, respectively. In addition, depreciation and amortization for Pima CenterMission City and Papago Tech decreased by $1.0$0.5 million and $0.4 million, respectively, from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining properties’ depreciationtotal operating expenses were marginally lowerhigher in comparison to the prior period.
Property Operating Expenses.
Property operating expenses are comprised
mainly
of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and
re-leasing
costs. Property operating expenses increased $1.7 million, or 5%, to $35.0 million for the six months ended June 30, 2023, from $33.3 million for the six months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, contributed $0.5 million, $0.5 million and $0.2 million, respectively. In addition, property operating expenses at Park Tower, FRP Collection, City Center and Mission City increased $0.6 million, $0.3 million, $0.1 million and $0.1 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, the dispositions of Lake Vista Pointe in June 2022 and 190 Office Center in May 2023 decreased property operating expenses by $0.6 million and $
0.4 
million, respectively. The remaining properties’ property operating expenses were marginally higher in comparison to the prior period.
General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as
non-cash
stock-based compensation expenses. General and
administrative
expenses increased $0.3 million, or 5%, to $7.4 million for the six months ended June 30, 2023, from $7.1 million reported for the
same
period in 2022. General and administrative expenses increased primarily due to higher payroll and stock-based compensation expense.
Depreciation and Amortization.
Depreciation and amortization decreased $0.4 million, or 1%, to $31.1 million for the six months ended June 30, 2023, from $31.5 million reported for the same period in 2022. Of this decrease, our SanTan property contributed $1.0 million to the decrease mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at the property. Also contributing to the decrease, depreciation and amortization for Mission City and Papago Tech decreased by $
0.5 
million and $0.4 million, respectively, from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. Offsetting these decreases, Bloc 83, Block 23 and Circle Point incurred higher depreciation and amortization expense of $0.7 million, $0.3 million and $0.3 million, respectively, related to tenanting costs. The remaining properties’ depreciation expenses were relatively unchanged in comparison to the prior year.
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Other Expense (Income)
Interest Expense.
Interest expense was relatively unchanged decreasing by $0.2increased $4.3 million, or 1%34%, to $16.6 million for the six months ended June 30, 2023, from $12.3 million for the six months ended June 30, 2022, from $12.5 million for the six months ended June 30, 2021.2022. The increase was primarily attributable to higher amounts drawn and higher interest rates on our floating rate debt.
Net Loss/Gain on the SaleDisposition of Real Estate Property.
 During the firstsecond quarter of 2022,2023, the Company consented to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s loan agreement. Given the appointment of the receiver, the Company deconsolidated the entity holding the property and related assets and liabilities during the quarter. For the six months ended June 30, 2023, the Company recognized a loss on deconsolidation of $0.1 million. In the prior year, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and we signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, we reassessed the lease classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of $21.7 million net of disposal related costs. The Lake Vista Pointe property was sold in June 2022. In the prior year, we recorded a net gain on the sale of real estate property of $47.4 million for the six months ended June 30, 2021 related to the sale of our Cherry Creek property in February 2021.
Cash Flows
Comparison of Six Months Ended June 30, 20222023 to Six Months Ended June 30, 20212022
Cash, cash equivalents and restricted cash were $69.4$52.7 million and $36.3$69.4 million as of June 30, 20222023, and June 30, 2021,2022, respectively.
Cash flow from operating activities.
Net cash provided by operating activities increased by $39.3decreased $47.4 million to $75.0$27.6 million for the six months ended June 30, 20222023, compared to $35.7$75.0 million for the same period in 2021.2022. The increase in cash provided by operating activitiesdecrease was primarily dueattributable to receipts received from the sales-type lease at therelated to Lake Vista Pointe property, which was sold infor the six months ended June 30, 2022.
Cash flow to investing activities.
Net cash used in investing activities increased by $58.6$2.6 million to $21.2$23.8 million for the six months ended June 30, 20222023, compared to $37.4$21.2 million provided by investing activities for the same period in 2021.2022. The increase in cash used in investing activities was primarily dueattributable to a decreasethe reduction of cash on disposition of real estate property related to 190 Office Center for the six months ended June 30, 2023.
Cash flow from financing activities.
Net cash provided by financing activities increased $31.2 million to $4.6 million for the six months ended June 30, 2023, compared to $26.6 million used in financing activities for the same period in 2022. The increase in cash provided by financing activities was primarily attributable to higher net proceeds from saleborrowings for the six months ended June 30, 2023. Further, the repurchases of real estatecommon stock for the six months ended June 30, 2022 compared to the same period in 2021. The higher proceeds from sale of real estate in 2021 was attributable to the sale of the Cherry Creek property in 2021.
This decrease was partially offset by higher acquisition of real estate in 2021 compared to 2022.
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Cash flow to financing activities.
Netincreased cash used in financing activities decreased by $56.1 million to $26.6 million forin the six months ended June 30, 2022 compared to $82.7 million for the same period in 2021. The decrease in cash used in financing activities was primarily due to lower repayment of borrowings, partially offset by lower net proceeds from borrowings.prior period.
Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately $26.4$38.4 million of cash and cash equivalents and $43.0$14.3 million of restricted cash as of June 30, 2022.2023.
On March 15, 2018, the Company entered into a credit agreement for the Unsecured Credit Facility that provided for commitments of up to $250 million, which included an accordion feature that allowed the Company to borrow up to $500 million, subject to customary terms and conditions. On September 27, 2019, the Company entered into a five-year $50 million term loan, increasing its authorized borrowings under the Company’s Unsecured Credit Facility from $250 million to $300 million. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement (the “Amendedthat increased the total authorized borrowings from $300 million to $350 million. On January 5, 2023, the Company entered into a second amendment to the Amended and Restated Credit Agreement”) that providesAgreement for commitments of up to $300 million on the Unsecured Credit Facility. OurFacility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. Borrowings under our Unsecured Credit Facility bear an interest at a rate equal to the LIBOR rate plus a margin of between 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, 2022,2023, we had approximately $162.0$205.7 million outstanding under our Unsecured Credit Facility and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender.
On September 27, 2019, the Company entered into the five-year $50 million Term Loan, 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
24
Table of approximately 1.27% of the notional amount annually, payable monthly, and receive floating rateContents
30-day
LIBOR payments.
On February 26, 2020, the Company and the Operating Partnership entered into equity distribution agreements (collectively, the “Agreements”) with each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc., BMO Capital Markets Corp., RBC Capital Markets, LLC, B. Riley FBR, Inc., D.A. Davidson & Co. and Janney Montgomery Scott LLC (the “Sales Agents”) pursuant to which the Company may issue and sell from time to time up to 15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals (the “ATM Program”). On May 7, 2021 the Company delivered to D.A. Davidson & Co. a notice of termination of the Agreement, effective May 7, 2021. The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the six months ended June 30, 2022.2023.
After considering the effect of the
COVID-19
pandemic on our consolidated operations, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders’ remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations.
As of June 30, 2023, the lenders for three of our mortgage borrowings have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. For these three properties, the total restricted cash as of June 30, 2023 was $9.2 million.
Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our at the market issuance program,ATM Program, and borrowings under our mortgage loans and our Unsecured Credit Facility.
Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions and
non-recurring
capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured and unsecured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions and
non-recurring
capital improvements using our Unsecured Credit Facility pending longer term financing.
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We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot assure you that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, interest rates, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of June 30, 2022,2023, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.
 
  
Payments Due by Period
(in thousands)		   
Payments Due by Period
(in thousands)
 
Contractual Obligations
  
Total
   
2022
   
2023-2024
   
2025-2026
   
More than

5 years
   
Total
   
2023
   
2024-2025
   
2026-2027
   
More than
5 years
 
Principal payments on mortgage loans
  $658,605   $3,141   $156,628   $258,533   $240,303   $681,690   $43,835   $368,016   $205,719   $64,120 
Interest payments
(1)
   94,099    12,307    45,770    28,211    7,811    85,845    15,237    52,645    15,880    2,083 
Tenant-related commitments
   23,620    23,620    —      —      —      12,013    12,013    —      —      —   
Lease obligations
   37,539    307    1,625    1,510    34,097    36,653    270    1,555    1,327    33,501 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
Total
  $813,863   $39,375   $204,023   $288,254   $282,211   $816,201   $71,355   $422,216   $222,926   $99,704 
  
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 
 
(1)
Contracted interest on the floating rate borrowings under our Unsecured Credit Facility was calculated based on the balance and interest rate at June 30, 2022.2023. Contracted interest on our term loans and part of the Term Loan wasUnsecured Credit Facility were calculated based on the Interest Rate Swapinterest rate swap rates fixing the LIBORSOFR component of the borrowing rate to approximately 1.27%.rates.
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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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. See Note 6 to our condensed consolidated financial statements in Item 1 of this Report for more information regarding our derivatives.
The primary market risk
We expect that all LIBOR settings relevant to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financingus will cease 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 bybe published or will no longer be representative after June 30, 2023. The Alternative Reference Rates Committee (“AARC”) has proposed thatdifferences between LIBOR and the Secured Overnight Financing Rate (“SOFR”), plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our results. Although SOFR is the recommended replacement rate by the Alternative Reference Rates Committee, it is also possible that represents best practice as thelenders may instead choose alternative toreplacement rates that may differ from LIBOR for future use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition planways similar to SOFR from LIBORor in other ways that would result in higher borrowing costs for us. During the first quarter of 2023, our LIBOR-based borrowings and organizations are currently working on industry-wide and company specific transition plans as it relatesthe $50 million interest rate swap were transitioned to derivatives and cash markets exposed to LIBOR. SOFR.
We currently consider our interest rate exposure to be moderate because as of June 30, 2022,2023, approximately $446.6$616.0 million, or 67.8%90.4%, of our debt had fixed interest rates, or effectively fixed rates when factoring in interest rate swaps, and approximately $212.0$65.7 million, or 32.2%9.6%, had variable interest rates. Of the $212.0The $616.0 million variablefixed rate debt $50.0includes a $50 million relates toterm loan, a $25 million term loan, and $140 million of the Term LoanUnsecured Credit Facility against which we have applied interest rate swaps. The interest rate swaps effectively fix the Interest Rate Swap. The Interest Rate Swap effectively fixesSOFR component of the
30-day
LIBOR rate at approximately 1.27% borrowing rates until maturity of the Term Loan. When factoringdebt. A 1% increase 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 LIBORSOFR would result in a $1.6$0.7 million increase to our annual interest costs on debt outstanding as of June 30, 20222023 and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility. A 1% decrease in LIBOR, assuming a rate floor of 0%,SOFR would result in a $1.6$0.7 million decrease to our annual interest costs on debt outstanding as of June 30, 20222023 and would increase the fair value of our outstanding debt, as well as decrease interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility.
Interest rate risk amounts are our management’s estimates based on our Company’s capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company’s financial structure.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities and Exchange Act of 1934, as amended) were effective as of June 30, 2022.2023.
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Table of Contents
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.
 
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of business. As of June 30, 2022,2023, management does not believe that any such litigation will have a material adverse effect, individually or in the aggregate, on our financial position or results of operations.
Item 1A. Risk Factors
The following risk factor supplements the risk factors disclosed in the section entitled “Risk Factors” of our Annual Report on Form
10-K
for the year ended December 31, 2021. Except as presented below or in the section titled “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report, there have been no material changes from the risk factors set forth in such Annual Report.
Inflation and price volatility in the global economy could negatively impact our tenants and our results of operations
None.
.
Inflation in the United States has risen to levels not experienced in recent decades, including rising energy prices, prices for consumer goods, interest rates, wages and currency volatility. These increases and any fiscal or other policy interventions by the U.S. government in reaction to such events could negatively impact our results of operations, and could also negatively impact our tenants’ businesses. While our leases generally provide for fixed annual rent increases, high levels of inflation could outpace our contractual rent increases. The leases at our properties are either full-service gross or net lease basis. Our full-service gross leases generally have a base year expense “stop”, whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. Additionally, our
triple-net
leases require the lessee to pay all property operating expenses. Therefore, increases in property-level expenses resulting from inflation could have an adverse impact on our lessees if increases in their operating expenses exceed increases in their revenue, which may adversely affect our lessees’ ability to pay rent or other obligations owed to us. An increase in our lessees’ expenses and a failure of their revenues to increase at least with inflation could adversely affect our lessees’ and our financial condition and our results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 9, 2020, the Company’s Board of Directors approved a share repurchase plan authorizing the Company to repurchase up to $100 million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase program. On August 5, 2020, the Company’s Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of $50 million of its outstanding shares of common stock. Under the share repurchase programs, the shares may be repurchased from time to time using a variety of methods, which may include open market transactions, privately negotiated transactions or otherwise, all in accordance with the rules of the 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.
None.
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Share repurchase activity under our share repurchase plans, on a trade date basis, for the three months ended June 30, 2022, was as follows:
Issuer Purchases of Equity Securities
(1)
 
Period
  
Total

Number of

Shares of Common
Stock

Purchased
   
Average

Price Paid

per Share of

Common Stock
Repurchased
   
Total Number of

Shares of Common
Stock Purchased

as Part of Share
Repurchase Plans
   
Approximate Dollar

Value of Shares of
Common Stock that

May Yet Be

Purchased
Under the

Share Repurchase
Plans
(2)

(thousands)
 
April 1 – 30, 2022
   —     $—      —     $50,000 
May 1 – 31, 2022
   —      —      —      50,000 
June 1 – 30, 2022
   394,833    12.64    394,833    45,008 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
   394,833   $12.64    394,833   $45,008 
  
 
 
   
 
 
   
 
 
   
 
 
 
(1)
The share repurchase plan was announced on August 5, 2020, approving the Company to repurchase an aggregate amount of $50 million of its outstanding shares of common stock. The share repurchase plan does not have an expiration date.
(2)
Represents approximate dollar value of shares that could have been purchased under the plans in effect at the end of the month.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule
None.10b5-1
trading arrangement” or
“non-Rule
10b5-1
trading arrangement,” as each term is defined in Item 408(a) of Regulation
S-K.
On August 2, 2023, the Board of Directors approved and adopted the Third Amended and Restated Bylaws of the Company (the “Amended and Restated Bylaws”). The amendments address matters relating to Rule
14a-19
under the Exchange Act. Among other things, the Amended and Restated Bylaws:
Enhance disclosure and procedural requirements in connection with stockholder nominations of directors, including by (i) requiring any stockholder submitting a director nomination notice to represent as to whether such stockholder intends to solicit proxies in support of director nominees other than the Company’s nominees in accordance with Rule
14a-19
under the Exchange Act, (ii) requiring such nominating stockholder to provide reasonable evidence, at the Company’s request, that certain requirements of Rule
14a-19
have been satisfied, (iii) permitting the Company to disregard proxies or votes solicited for such stockholder’s nominees if such stockholder fails to comply with the requirements of Rule
14a-19
and (iv) incorporating other technical changes in light of the universal proxy rules adopted by the SEC;
Clarify that a stockholder is permitted to cast a vote by proxy filed in accordance with the procedures established by the Company, if that proxy is (i) executed by such stockholder or its agent in a manner permitted by applicable law, (ii) compliant with Maryland law and the Company’s Amended and Restated Bylaws and (iii) filed in accordance with the procedures established by the Company;
Clarify that the Board of Directors of the Company may determine that a meeting of stockholders may be held by means of remote communication;
Outline the procedures for announcing the date, time and place of a reconvened meeting of stockholders in the event a meeting of stockholders is adjourned; and
Other technical and administrative changes and enhancements, including as related to procedures for meetings of stockholders.
 
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The above description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Third Amended and Restated Bylaws, which is filed as Exhibit 3.2 hereto and incorporated herein reference.
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  SecondThird 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)., effective as of August 2, 2023. †
    4.1  Certificate of Common Stock of City Office REIT, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11/A filed with the Commission on February 18, 2014).
    4.2  Form of certificate representing the 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Commission on September 30, 2016).
  31.1  Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
  31.2  Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
  32.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
  32.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS  INLINE XBRL INSTANCE DOCUMENT*DOCUMENT†
101.SCH  INLINE XBRL SCHEMA DOCUMENT*DOCUMENT†
101.CAL  INLINE XBRL CALCULATION LINKBASE DOCUMENT*DOCUMENT†
101.LAB  INLINE XBRL LABELS LINKBASE DOCUMENT*DOCUMENT†
101.PRE  INLINE XBRL PRESENTATION LINKBASE DOCUMENT*DOCUMENT†
101.DEF  INLINE XBRL DEFINITION LINKBASE DOCUMENT*DOCUMENT†
104  Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* †
†  Filed herewith.
*Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
 
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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 3, 2023
 
Date: August 4, 2022
 By: 
/s/ James Farrar
  James Farrar
  
Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 4, 2022  
(Principal Executive Officer)
Date: August 3, 2023
 By: 
/s/ Anthony Maretic
  Anthony Maretic
  
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
 
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