666 Burrard Street, Suite 3210
Vancouver, BC V6C 2X8
March 16, 202215, 2023
Dear Fellow Stockholders:
On behalf of the Board of Directors and management, I cordially invite you to attend the 20222023 Annual Meeting of Stockholders (the “Annual Meeting”) of City Office REIT, Inc. (the “Company” or “CIO”). In light of public health concerns resulting from the global COVID-19 pandemic, this year’sThe Annual Meeting will be held online via a live webcast at 9:00 a.m., Pacific Time on May 4, 2022. The Company believes that2023 at the abilityCompany’s Corporate Office at 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8. Details of stockholders and proxy holdersthe business to attendbe presented at the Annual Meeting online will allow enhanced participation of, and interaction with, our stockholder base, while also being environmentally friendly and sensitive to the public health and travel concerns that our stockholders may have in light of the COVID-19 pandemic. If you are a record holder of our common stock or legal proxy for a record holder, you may ask questions and vote your shares online during the live webcast. Questions maycan be submitted online prior to the meeting beginning one hour before the commencement of the Annual Meeting or during the Annual Meeting. Additional details about the availability of proxy materials and attendance online via the live webcast are available elsewherefound in this Proxy Statement.
2021 was a transformational year forWithin the Company.office real estate sector, we believe the Company is well positioned to outperform in the long term with high-quality properties in attractive Sun Belt markets. The Company’s focus on driving leasing transactionsactive approach to asset management and executing strategic transactions to unlock value creation led to strong operating results in 2022. During the sale ofyear, the Company integrated and stabilized the three major acquisitions it made in December 2021. This, among other initiatives, led to a 10% increase in total revenues over the prior year, generating the highest annual total revenues in the Company’s life science portfolio in San Diego for $576 million, generating a gain on sale of $429 million.history. The Company also acquired approximately $614completed a $43.8 million sale of premier propertiesa property in Dallas, Texas for a $21.7 million gain. The Company progressed its spec suite program and numerous renovations to optimally position the Company’s available spaces for leasing success. During 2022, the Company completed over 750,000 square feet of new and renewal leasing and the average gross rental rate across the Company’s portfolio increased by 4.1%. While 2022 was a challenging year for office real estate companies due to rapidly rising interest rates, challenging conditions in the Southcapital markets and West, includingheadwinds in the Company’s first acquisition in Raleigh, North Carolina. Despite challenging macro-economic conditions related to the COVID-19 pandemic,office industry, the Company has continuedbelieves its active steps to execute on impactful leasing transactions and complete value-enhancing capital improvements. The Company’s achievements translated toenhance the highest common stock total returnposition of the portfolio will benefit shareholders in the public office REIT sector and a top-ten total return among all public equity REITs in 2021. We believe that this is an exciting time of value creation and growth for the Company.long term.
On behalf of the Board of Directors, we thank you for your ongoing support and investment in our Company.
| Sincerely, |
 |
| James Farrar |
| Chief Executive Officer and Director |
666 Burrard Street, Suite 3210
Vancouver, BC V6C 2X8
NOTICE OF 20222023 ANNUAL MEETING OF STOCKHOLDERS
| TIME AND DATE | 9:00 a.m., Pacific Time, on May 4, | |
| PLACE | ||
| ITEMS OF BUSINESS | 1) The election of six directors nominated by the Board of Directors, each to serve until the | |
2) To ratify the appointment of KPMG LLP as the independent registered public accounting firm for CIO for the fiscal year ending December 31, | ||
3) Advisory vote to approve executive compensation; and | ||
4) | ||
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| RECORD DATE | In order to vote, you must have been a stockholder of record at the close of business on February | |
ADMISSION TO THE ANNUAL MEETING | |||
| meeting. For further information on admission, please refer to the question entitled “What do I need to do to attend the | ||
| We are pleased to take advantage of the | ||
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, |
| It is important that your shares are represented and voted at the Annual | ||
| You may revoke your proxy by (1) executing and submitting a later dated proxy card by mail, (2) subsequently authorizing a proxy online or by telephone, (3) sending a written revocation of your proxy by mail to the Company’s Secretary at its principal executive offices or (4) attending the Annual Meeting and voting | ||
| PROXY VOTING | We cordially invite you to attend the meeting | |
1) VISIT THE WEBSITE noted on your proxy card or the Notice of Internet Availability of Proxy Materials to authorize your proxy via the Internet; | ||
2) If you receive a printed copy of the proxy materials by mail, USE THE TOLL-FREE TELEPHONE NUMBER shown on your proxy card (this is a free call in the U.S.); or | ||
3) If you receive a printed copy of the proxy materials by mail, MARK, SIGN, DATE AND PROMPTLY RETURN your proxy card in the envelope provided, which requires no additional postage if mailed in the U.S. | ||
Any proxy may be revoked by you at any time prior to its exercise at the meeting. | ||
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE 20222023 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 4, 2022:2023:
The Notice of Annual Meeting of Stockholders, the Proxy Statement and the 20212022 Annual Report are available on City Office REIT, Inc.’s website, www.cioreit.com, and at http://www.astproxyportal.com/ast/18940/. Information on or connected to these websites is not deemed to be a part of this proxy solicitation or the Proxy Statement.
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| By Order of the Board of Directors, |
|
| Anthony Maretic |
| Chief Financial Officer, Secretary and Treasurer |
| March |
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666 Burrard Street, Suite 3210
Vancouver, BC V6C 2X8
PROXY STATEMENT
| 1 | ||||
| 17 | ||||
| 18 | ||||
| 18 | ||||
| 20 | ||||
PROPOSAL NO. 2. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | ||||
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The Effect of Regulatory Requirements on Our Executive Compensation | ||||
| 45 | ||||
| 47 | ||||
Risk Management and the Company’s Compensation Policies and Procedures | ||||
| 52 | ||||
ii
666 Burrard Street, Suite 3210
Vancouver, BC V6C 2X8
20222023 ANNUAL MEETING OF STOCKHOLDERS
City Office REIT, Inc. is furnishing this Proxy Statement in connection with our solicitation of proxies to be voted at our 20222023 Annual Meeting of Stockholders (the “Annual Meeting”). In light of public health concerns resulting fromWe will hold the global COVID-19 pandemic, this year’s Annual Meeting will be held online via a live webcast at https://web.lumiagm.com/241901273the Company’s Corporate Office at 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8, on Thursday, May 4, 2023 at 9:00 a.m., Pacific Time, on May 4, 2022. To access the Annual Meeting, visit https://web.lumiagm.com/241901273, enter your 11-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy cardand any postponements, continuations or on the instructions that accompany your proxy materials and the password “city2022” (the password is case sensitive). If you are a record holder of our common stock or legal proxy for a record holder, you may ask questions and vote your shares online during the live webcast.adjournments thereof. We are making this Proxy Statement and the enclosed proxy card available to our stockholders commencing on or about March 16, 2022.15, 2023.
Unless the context suggests otherwise, references in this Proxy Statement to “City Office,” “CIO,” “Company,” “we,” “us” and “our” are 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 through which we conduct substantially all of our business (our “Operating Partnership”).
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
At the Annual Meeting, our stockholders will be asked to consider and act upon the following matters:
The election of six directors nominated by our Board of Directors (our “Board of Directors”) and listed in this Proxy Statement to serve until the 20232024 Annual Meeting of Stockholders (the “2024 Annual Meeting”) and until their successors are duly elected and qualify;
To ratify the appointment of KPMG LLP as our independent registered public accounting firm for 2022;the fiscal year ending December 31, 2023;
To approve, on an advisory basis, the compensation of the Named Executive Officers for 20212022 as disclosed in this Proxy Statement;
To approve an amendment to our Equity Incentive Plan to increase the number of shares of our common stock available for awards made thereunder and certain other administrative changes; and
Such other business as may properly come before the Annual Meeting or any adjournment, continuation or postponement thereof.
Why did I receive a Notice of Internet Availability of Proxy Materials in the mail instead of a printed set of proxy materials?
Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), we are permitted to furnish our proxy materials online to our stockholders by delivering a Notice of Internet Availability of Proxy Materials in the mail. Unless requested, you will not receive a printed copy of the proxy materials in the mail.
Instead, the Notice of Internet Availability of Proxy Materials instructs you on how to access and review the Proxy Statement and our 20212022 Annual Report by visiting http://www.astproxyportal.com/ast/18940/. The Notice of Internet Availability of Proxy Materials also instructs you on how you may submit your proxy online, or how you can request a full set of proxy materials, including a proxy card to return by mail. If you received a Notice of Internet Availability of Proxy Materials in the mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting these materials provided in the Notice of Internet Availability of Proxy Materials.
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Who is entitled to vote at the Annual Meeting?
Only stockholders of record at the close of business on February 25, 2022,23, 2023, the record date for the Annual Meeting (the “Record Date”), are entitled to receive notice of, and vote at, the Annual Meeting and any adjournments or postponements thereof.
If you hold your shares through a bank, broker or other nominee and intend to vote onlinein person at the Annual Meeting, you will need to provide a legal proxy from your bank, broker or other holder of record. In order to vote your shares at the Annual Meeting, you must first obtain a legal proxy from your bank, broker or other nominee reflecting the number of shares you held as of the Record Date for the Annual Meeting, your name and email address. You must submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST by no later than 5:00 p.m. Eastern Time on April 27, 2022.
What are the voting rights of stockholders?
Each share of our common stock, par value $0.01 per share (our “common stock”) is entitled to one vote. There is no cumulative voting.
How many shares are outstanding?
At the close of business on February 25, 2022,23, 2023, the Record Date, 43,554,37539,938,451 shares of our common stock were issued and outstanding.
What constitutes a quorum?
The presence online via the live webcastin person or by proxy of the stockholders entitled to cast a majority of all the votes entitled to be cast at the Annual Meeting will constitute a quorum for the transaction of business. Abstentions and broker non-votes, if any, will be counted for purposes of determining whether a quorum is present.
What is the difference between a “stockholder of record” and a “street name” holder?
These terms describe how your shares are held. If your shares are registered directly in your name with AST,American Stock Transfer & Trust Company, LLC (“AST”), our transfer agent and registrar, you are a “stockholder of record.” If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a “street name” holder.
If you are a “street name” holder, you are considered the beneficial owner of shares held in street name and your broker or nominee is considered, with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker on how to vote your shares. You are also invited to attend the Annual Meeting and vote your shares online at the Annual Meeting;in person; however, in order to vote your shares in person, you must provide us with a legal proxy from your bank, broker or other stockholder of record. If you are a “street name” holder, in order to vote your shares in person at the Annual Meeting, you must first obtain a legal proxy from your bank, broker or other nominee reflecting the number of shares you held as of the Record Date for the Annual Meeting, your name and email address. You
must submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST no later than 5:00 p.m., Eastern Time, on April 27, 2022. If your shares are held in “street name” and you do not register for the Annual Meeting, you may attend the meeting online as a guest.2023.
How do I vote?
If you are a registered stockholder, meaning that your shares are registered in your name, you have four voting options. You may vote:
online at the web address noted in the Notice of Internet Availability of Proxy Materials or proxy card you received (if you have access to the Internet, we encourage you to vote in this manner);
by telephone using the number noted on the proxy card you received (if you received a proxy card);
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by signing and dating your proxy card (if you received a proxy card) and mailing it in the prepaid, preaddressed envelope enclosed therewith; or
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by attending the Annual Meeting and voting in person.
Please carefully follow the directions in the Notice of Internet Availability of Proxy Materials or proxy card you received. Proxies submitted online or by telephone must be received by 11:59 p.m., Eastern Time, on May 3, 2022.2023. Proxies submitted by mail must be received by the Company by 5:00 p.m., Pacific Time, on May 3, 2022.2023.
If you are a “street name” holder, in order to vote your shares online at the Annual Meeting, you must first obtain a legal proxy from your bank, broker or other nominee reflecting the number of shares you held as of the Record Date for the Annual Meeting, your name and email address. You must submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST no later than 5:00 p.m. Eastern Time on April 27, 2022. If your shares are held in “street name” and you do not register for the Annual Meeting, you may attend the meeting online as a guest. Guest attendees will not be able to vote during the Annual Meeting.
Can I vote my shares onlinein person at the meeting?
If you are a “stockholder of record,” you may vote your shares online via the live webcastin person at the Annual Meeting by visiting the link https://web.lumiagm.com/241901273 and using the password “city2022” (the password is case sensitive) along with the 11-digit control number from AST.meeting. If you hold your shares in “street name,” you must first obtain a legal proxy from your broker, bank, brokertrustee or other nominee, reflectinggiving you the number of shares you held as of the Record Date for the Annual Meeting, your name and email address. You must submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST by no later than 5:00 p.m. Eastern Time on April 27, 2022. If your shares are held in “street name” and you do not register for the Annual Meeting, you may attend the meeting online as a guest. Guest attendees will not be ableright to vote during the Annual Meeting.shares at the meeting.
What do I need to do to attend the meeting?meeting in person?
Proof of stock ownership and some form of government-issued photo identification (such as a valid driver’s license or passport) will be required for admission to the meeting in person. If you wish to attend the Annual Meeting and vote in person, you may contact our Investor Relations at (604) 806-3366. Only stockholders who owned our common stock as of the close of business on February 25, 2022, 23, 2023, the Record Date, may vote their shares online at Annual Meeting via the live webcast. If attending the Annual
Meeting online via the live webcast, you will need to visit https://web.lumiagm.com/241901273, click on “I have a control number” and enter your 11-digit control number included in your Notice of Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompany your proxy materials, and enter the password “city2022” (the password is case sensitive). Online check-in will begin at 8:00 a.m., Pacific Time, on May 4, 2022, and you should allow ample time for the online check-in procedures. If your shares are held in a bank or brokerage account, you must first obtain a legal proxy from your bank, broker or other nominee reflecting the number of shares you held as of the Record Date for the Annual Meeting, your name and email address. You must submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST no later than 5:00 p.m. Eastern Time on April 27, 2022. If you do not obtain a legal proxy from your bank or broker, you will not be entitled to vote your shares online via the live webcast at the meeting, but you can still attend the meeting online via the live webcast as a guest.
If you are unable to access the Annual Meeting online via the live webcast, you may view the webcast at the Company’s corporate office at 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8. If you wish to view the Annual Meeting via webcast at the Company’s corporate office, the following procedures will apply:.
If your shares are registered in your name and you owned our common stock as of the close of business on February 25, 2022,23, 2023, the Record Date, you only need to provide some form of government-issued photo identification for admission.
If your shares are held in a bank or brokerage account, contact your bank or broker to obtain a written legal proxy in order to vote your shares at the meeting. If you mustdo not obtain a legal proxy from your bank or broker, you will not be entitled to vote your shares, but you can still attend the meeting if you bring a recent bank or other nominee reflecting the numberbrokerage statement showing that you owned shares of shares you held as of the Record Date for the Annual Meeting, your name and email address. You must then submit a request for registration to AST: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730; or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by AST no later than 5:00 p.m. Eastern Timeour common stock on April 27, 2022.February 23, 2023.
What does it mean if I receive more than one Notice of Internet Availability of Proxy Materials or proxy card?
It means that you have multiple accounts with our transfer agent and/or with a broker, bank or other nominee. You will need to vote separately with respect to each Notice of Internet Availability of Proxy Materials or proxy card you received. Please vote all of the shares you own.
Can I change my vote after I have mailed in my proxy card?
You may revoke your proxy by doing one of the following:
by sending a written notice of revocation stating that you revoke your proxy by mail to our Secretary at 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8 so it is received no later than 5:00 p.m., Pacific Time, on May 3, 2022;2023;
by signing a later-dated proxy card and submitting it so it is received prior to the meeting in accordance with the instructions included in the proxy card(s);
subsequently authorizing a proxy online or by telephone; or
by attending the meeting and voting your shares in person. |
How may I vote for each proposal?
| Proposal 1 — | In the election of the six director nominees, you may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to each of the director nominees. If a quorum is present at the Annual Meeting, in an uncontested director election, directors will be elected by receiving the affirmative vote of a majority of the total votes cast for and against the election of such nominee. Abstentions and broker non-votes, if any, are not treated as votes cast and thus will have no effect on the outcome of the vote on the election of directors, although they will be considered present for the purpose of determining the presence of a quorum. Under our Second Amended and Restated Bylaws (our “Bylaws”), cumulative voting is not permitted.
Under the terms of our director resignation policy included in our Third Amended and Restated Corporate Governance Guidelines (our “corporate governance guidelines”), by accepting a nomination to stand for election or re-election as a director of the Company or an appointment as director to fill a vacancy or new directorship, each candidate, nominee or appointee for director agrees that he or she will promptly tender, upon such nomination or appointment and as a condition thereof, a written offer of resignation to the Board of Directors, which offer of resignation will be effective on his or her failure to receive, in an uncontested election of directors, the vote required for election or re-election by the Bylaws. The nominating and corporate governance committee will promptly consider the director’s offer of resignation and recommend to the Board of Directors whether to accept the resignation or reject it. The Board of Directors will act on the nominating and corporate governance committee’s recommendation within 90 days following certification of the stockholder vote. In determining what action to recommend or take regarding the director’s offer of resignation, each of the nominating and corporate governance committee and the Board of Directors may consider a range of alternatives as they deem appropriate.
In a contested director election (i.e., where the number of nominees exceeds the number of directors to be elected at such meeting), the directors will be elected by the vote of a plurality of the votes cast. Under the plurality standard, the number of individuals equal to the number of directorships to be filled who receive more votes than other nominees are elected to the board, regardless of whether they receive a majority of votes cast. | |
| Proposal 2 — | If a quorum is present, the proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for | |
| Proposal 3 — | If a quorum is present, the proposal to approve, on an advisory basis, the compensation of the Named Executive Officers for | |
None of the proposals, if approved, entitle stockholders to appraisal rights under Maryland law or our Charter.amended and restated articles of incorporation (the “Charter”).
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What are the Board of Directors’ recommendations on how I should vote my shares?
The Board of Directors unanimously recommends that you vote:
| Proposal 1 — | Forall of the Board of Directors’ six nominees for election as director. | |
| Proposal 2 — | Forthe proposal to ratify the appointment of KPMG LLP as our independent registered public | |
| Proposal 3 — | Forthe proposal to approve, on an advisory basis, the compensation of the Named Executive Officers for | |
What if I authorize a proxy without specifying a choice on any given matter at the Annual Meeting?
If you are a stockholder of record as of the Record Date and you properly authorize a proxy (whether online, telephone or mail) without specifying a choice on any given matter to be considered at the Annual Meeting, the proxy holders will vote your shares according to the Board of Directors’ recommendation on that matter. If you are a stockholder of record as of the Record Date and you fail to authorize a proxy or vote online via the live webcastin person at the Annual Meeting, assuming that a quorum is present at the Annual Meeting, it will have no effect on the result of the vote on any of the matters to be considered at the Annual Meeting.
What if I hold my shares through a broker, bank or other nominee?
If you hold your shares through a broker, bank or other nominee, under the rules of the New York Stock Exchange (the “NYSE”), your broker or other nominee may not vote with respect to certain proposals unless you have provided voting instructions with respect to that proposal.
How are abstentions and broker non-votes treated?
A “broker non-vote” occurs when a bank, broker or other holder of record holding shares of our common stock for a beneficial owner does not vote on a particular proposal, because that holder does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. Pursuant to Maryland law, abstentions and broker non-votes are counted as present for purposes of determining the presence of a quorum.
Under the rules of the NYSE, brokerage firms may have the discretionary authority to vote their customers’ shares of our common stock on certain routine matters for which they do not receive voting instructions, including the ratification of independent auditors, and thus brokers may vote at their discretion on Proposal 2 if they do not receive voting instructions from you on Proposal 2. Under the rules of the NYSE, Proposals 1 3 and 43 are not considered “routine” matters for purposes of broker discretionary voting and therefore, brokers may not vote on Proposals 1 3 or 43 if they do not receive voting instructions from you on Proposals 1 or 3, or 4, respectively.
What if I return my proxy card but do not provide voting instructions?
If you return a signed proxy card but do not provide voting instructions, your shares will be voted by the proxies identified in the proxy card as follows:
| Proposal 1 — | For all of the Board of Directors’ six nominees for election as director. | |
| Proposal 2 — | For the proposal to ratify the appointment of KPMG LLP as our independent registered public | |
| Proposal 3 — | For the proposal to approve, on an advisory basis, the compensation of the Named Executive Officers for | |
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What happens if additional matters are presented at the Annual Meeting?
We know of no other matters other than the items of business described in this Proxy Statement that can be considered at the meeting. If other matters requiring a vote do arise, the persons named as proxies will have the discretion to vote on those matters for you.
Who will count the votes?
A representative of AST or one of its affiliates will act as the inspector of election and will tabulate votes.
Who pays the cost of this proxy solicitation?
We will pay the cost of preparing, assembling and mailing the proxy materials. We have retained AST to assist us in the distribution of proxy materials and the passive solicitation of proxies. We expect to pay AST and Broadridge Financial Services, Inc. approximately $35,000 in the aggregate for services rendered, including passively soliciting proxies, reviewing of proxy materials, disseminating of brokers’ search cards, distributing proxy materials, operating online and phone voting systems, receiving executed proxies and tabulation of results. We will also request banks, brokers and other holders of record to send the proxy materials to, and obtain proxies from, beneficial owners and will reimburse them for their reasonable expenses in doing so.
How do I submit a stockholder proposal for inclusion in the proxy materials for next year’s annual meeting, and what is the deadline for submitting a proposal?
In order forStockholders who wish to submit a stockholder proposal for inclusion in the Company’s proxy statement for the 2024 Annual Meeting must comply with the requirements as to be properly submitted pursuant toform and substance established by the SEC and set forth in Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (“Rule 14a-8”) for presentation, including delivering the required materials to the Company’s Secretary at our 2023 annual meeting and included in the proxy material for next year’s annual meeting, we must receive written notice of the proposal at our executive offices by November 16, 2022. All proposals must contain the information specified in, and otherwise comply with, our Bylaws. Proposals should be sentfollowing address via registered, certified or express mail to: 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8, Attention: Anthony Maretic, Chief Financial Officer, Secretary and Treasurer.Treasurer, no later than by November 16, 2023, in order for the proposal to be considered for inclusion in the proxy materials for the 2024 Annual Meeting. All proposals must contain the information specified in, and otherwise comply with, our Bylaws and pursuant to Rule 14a-8. For more information regarding stockholder proposals, see “Stockholder Proposals and Nominations” below.
TheStockholders who wish to submit a stockholder proposal outside of the processes of Rule 14a-8, but rather in compliance with the Company’s Bylaws, must comply with the requirements of the Bylaws, which provide that, in addition to anyamong other applicable requirements,things, for business to be properly brought before the annual meeting by a stockholder, but not included in the Company’s proxy statement, the stockholder must deliver the required materials to the Company’s Secretary at the above address and give timely notice in writing not earlier than October 17, 2022,2023, nor later than the close of business on November 16, 2022,2023 at 5:00 p.m., Eastern Time, which is the time period that is not earlier than 150 days nor later than 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however,
that in the event the annual meeting is advanced or delayed by more than 30 days, notice must be received by the Secretary of the Company not earlier than the 150th day prior to the date of the annual meeting and not later than the close of business on the later of the 120th day prior to the date of the annual meeting or the 10th day following the day on which the Company first publicly announces the date of the annual meeting. As to each matter, the notice must contain the information specified in the Bylaws regarding the stockholder giving the notice and the business proposed to be brought before the annual meeting. If such notice is received by the Secretary of the Company on or after the close of business on November 16, 2023, then such notice will be considered untimely. Stockholder proposals submitted in this manner will not be included in the Company’s proxy statement or form of proxy. The Company reserves the right to reject, rule out of order or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
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The Company’s Bylaws provide that a stockholder of record, both at the time of the giving of the required notice set forth in this sentence and at the time of the 2023 annual meeting,2024 Annual Meeting, entitled to vote at the annual meeting may nominate persons for election to the Board of Directors by mailing written noticedelivering the required materials to the Secretary of the Company at the above address and giving timely notice in writing not earlier than October 17, 2022,2023, nor later than the close of business on November 16, 2022,2023 at 5:00 p.m., Eastern Time, which is the time period that is not more than 150 days nor less than 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting; provided, however, that in the event the annual meeting is advanced or delayed by more than 30 days, notice must be received by the Secretary of the Company not earlier than the 150th day prior to the date of the annual meeting and not later than the close of business on the later of the 120th day prior to the date of the annual meeting or the 10th day following the day on which the Company first publicly announces the date of the annual meeting. The notice must contain the information specified in the Bylaws regarding the stockholder giving the notice and each person whom the stockholder wishes to nominate for election as a Director.director. The notice must be accompanied by the written consent of each proposed nominee to serve as one of the Company’s directors, if elected.
In addition, to comply with the universal proxy rules, stockholders who intend to solicit proxies in support of director nominees other than the Company’s nominees must provide notice to the Secretary of the Company that sets forth the information required by Rule 14a-19 under the Exchange Act no later than March 5, 2024.
In addition to our Bylaws, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act, and the rules and regulations thereunder. Our Bylaws do not affect any right of a stockholder to request inclusion of a proposal in, or our right to omit a proposal from, our Proxy Statement pursuant to Rule 14a-8 (or any successor provision).
If I share my residence with another stockholder, how many copies of the Notice of Internet Availability of Proxy Materials should I receive?
We are sending only a single Notice of Internet Availability of Proxy Materials to any household at which two or more stockholders reside if they share the same last name or we reasonably believe they are members of the same family, unless we have received instructions to the contrary from any stockholder at that address. This practice is known as “householding” and is permitted by rules adopted by the SEC. This practice reduces the volume of duplicate information received at your household and helps us to reduce costs. Each stockholder will continue to receive a separate proxy card or voting instructions card. We will deliver promptly, upon written request or oral request, a separate copy of the 20212022 Annual Report or Proxy Statement, as applicable, to a stockholder at a shared address to which a single copy of the documents werewas previously delivered. If you received a single set of these documents for your household for this year, but you would prefer to receive your own copy, you may direct requests for separate copies in the future to the following address: City Office REIT, Inc., c/o American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, NY 11219; (800) 937-5449. If you are a stockholder who receives multiple copies of our proxy materials, you may request householding by contacting us in the same manner and requesting a householding consent form.
What if I consent to have one set of materials mailed now but change my mind later?
You may withdraw your householding consent at any time by contacting AST at the address and phone number provided above. We will begin sending separate copies of stockholders communications to you within 30 days of receipt of your instructions.
The reason I receive multiple sets of materials is because some of the shares belong to my children. What happens if they move out and no longer live in my household?
When we receive notice of an address change for one of the members of the household, we will begin sending separate copies of stockholder communications directly to the stockholder at his or her new address. You may notify us of a change of address by contacting AST at the address and phone number provided above.
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Other Information
Our Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 is available at www.sec.gov, and, if you received a printed copy of this Proxy Statement, accompanies this Proxy Statement and our 20212022 Annual Report. However, the 20212022 Annual Report forms no part of the material for the solicitation of proxies.
The 20212022 Annual Report may also be accessed through our website at http://www.cioreit.com by clicking on the “Investor Relations” link. At the written request of any stockholder who owns our common stock as of the close of business on the Record Date, we will provide, without charge, additional paper copies of our 20212022 Annual Report on Form 10-K, including the financial statements and financial statement schedule, as filed with the SEC, except exhibits thereto. If requested by eligible stockholders, we willprovide copies of the exhibits for a reasonable fee. You can request copies of our 20212022 Annual Report by following the instructions on the Notice of Internet Availability of Proxy Materials or by mailing a written request to:
City Office REIT, Inc.
666 Burrard Street, Suite 3210
Vancouver, BC V6C 2X8
Attention: Secretary
PROPOSAL NO. 1. ELECTION OF DIRECTORS
Our Bylaws provide that the number of directors shall be fixed by resolution of the Board of Directors, provided that there shall never be less than the minimum number required by Maryland law, nor more than 15. The Board of Directors has fixed the number of directors at six. All directors are elected for a term of one year and until their successors are elected and qualify. The Board of Directors, upon the recommendation of its Nominating and Corporate Governance Committee, has nominated John McLernon,Sweet, James Farrar, William Flatt,Michael Mazan, John McLernon, Sabah Mirza and Mark Murski and John Sweet for election at the Annual Meeting for a term to expire at the annual meeting of stockholders in 20232024 Annual Meeting and until their successors are duly elected and qualify.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”
EACH OF THE NOMINEES NAMED IN PROPOSAL NO. 1.
It is the intention of the persons named in the enclosed proxy, in the absence of a contrary direction, to vote for the election of all of the nominees named in Proposal No. 1. Should any of the nominees become unable or refuse to accept nomination or election as a director, the persons named as proxies intend to vote for the election of such other person as the Nominating and Corporate Governance Committee may recommend. The Board of Directors knows of no reason why any of the nominees might be unable or refuse to accept nomination or election.
Information is set forth below regarding each of our Board of Directors’ six nominees.
Name | Age | Position(s) | ||
| John | Independent Director and Chairman of the Board of Directors | |||
| James Farrar | Chief Executive Officer and Director | |||
| Independent Director | ||||
| John McLernon | 82 | Independent Director | ||
| Sabah Mirza | Independent Director | |||
| Mark Murski | ||||
| Independent Director |
John McLernonSweet
Mr. McLernon,Sweet, age 81,78, has served as one of our independent directors since March 2017 and has been the Chairman of our Board of Directors since February 2023. He has over 40 years of experience in numerous financial and real estate positions with public and private companies. From 2013 to 2016, Mr. Sweet served as founder and Chief Investment Officer of Physicians Realty Trust (NYSE: DOC), a leading healthcare real estate company that grew from approximately $125 million in real estate assets to almost $3 billion during his tenure. Prior to that endeavor, he was a Managing Director for the specialty investment firm BC Ziegler, where he sourced and managed a medical office building investment fund that became the initial portfolio for Physicians Realty Trust. Mr. Sweet also co-founded and played an integral role in the growth of Windrose Medical Properties Trust, a publicly traded medical office real estate investment trust (“REIT”) that completed its initial public offering in 2002. Additionally, Mr. Sweet brings experience at the board level for public company, philanthropic and charitable organizations, including sitting on the board of Wheeler Real Estate Investment Trust, Inc. (“Wheeler REIT”) (NASDAQ: WHLR) until May 2019. In 2018, he was elected Chairman of the Board of Wheeler REIT. From January 2020 to December 2020, Mr. Sweet served as a board member and Audit Committee Chair of Live Oak Acquisition Corp (NYSE: LOAK), a special purpose acquisition company, which was merged into Danimer Scientific Inc (NYSE: DNMR) at the end of 2020. Mr. Sweet has a bachelor’s degree in business administration from St. John Fisher College and an M.B.A. from Rochester Institute of Technology.
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James Farrar
Mr. Farrar, age 47, is our Chief Executive Officer (the “CEO” or “PEO”) and has been a member of our Board of Directors since our initial public offering (“IPO”) in April 2014. He joined Second City Real Estate in October 2009 as a Managing Director where he was responsible for launching its real estate private equity platform. Prior to Second City Real Estate, Mr. Farrar served as the Vice President of a family office with a diversified portfolio concentrated primarily in the real estate and hospitality sectors and as an investment professional with TD Capital, the private equity unit of TD Bank. Mr. Farrar has extensive experience in acquisitions and divestitures and has been involved in the acquisition of over $3.0 billion of commercial real estate. Mr. Farrar received a bachelor’s degree in business administration from Wilfrid Laurier University and is a chartered accountant, a chartered business valuator and a CFA charterholder. Mr. Farrar brings to our Board of Directors extensive executive management experience gained over 20 years of involvement in the public company, private equity, real estate and corporate finance industries.
Michael Mazan
Michael Mazan, age 55, has served as one of our independent directors since February 2023. Mr. Mazan has over 30 years of experience in investing, management consulting and investment banking. He currently serves as a founding partner of KingsPeak Partners, a boutique private equity investment firm focused on investing in and developing market-leading small to mid-size businesses. Prior to that, from 1999 to 2018, Mr. Mazan was a partner at Birch Hill Equity Partners, a leading private equity firm, where he was responsible for all parts of the investment lifecycle, with a focus on portfolio company building and governance. From 1997 to 1999, Mr. Mazan was an investment banking associate at Credit Suisse First Boston, one of the world’s premier investment banks. From 1995 to 1997, he was Director of Finance and Corporate Development at Rogers Wave, a pioneering division of Rogers Communications. From 1992 to 1995, Mr. Mazan was a consulting associate at McKinsey & Company, the world’s leading management consulting firm. He also has extensive experience serving as a director for various private and publicly listed companies, having served on 12 boards across various industries during his career. Mr. Mazan has a bachelor of commerce degree from Carleton University and a master of business administration degree from the University of Western Ontario.
John McLernon
Mr. McLernon, age 82, has served as one of our independent directors since our IPO in April 2014 and was the Chairman of our Board of Directors from our IPO in April 2014 to February 2023. He has been president of McLernon Consultants Ltd. since November 2004. From 1977 to 2004, he was chairman and chief executive officer of Macaulay Nicolls Maitland and Co. and its successor, Colliers International, a global real estate services company. Mr. McLernon started his career with Canadian Pacific Railway Limited in 1964 before joining its property development arm, Marathon Realty Company Limited, in Vancouver. In 1977, he became president and chief executive officer of Macaulay Nicolls Maitland and Co., a Vancouver real estate brokerage company, and in 1985 was instrumental in the employee purchase of the company and the formation of Colliers International. From 1977 to 2004, Mr. McLernon guided Colliers International through steady business growth, successfully completing approximately 50 mergers, acquisitions and startups in the Americas, Asia Pacific and Europe. Mr. McLernon is honorary chair of Colliers International, is chair of A&W Revenue Royalties Income Fund and Village Farms International Inc. and sits on the board of Canadian Urban Ltd. He is past chair of British Columbia Railway Company and the British Columbia Lottery Corporation. Mr. McLernon is founding chair of Streetohome Foundation, the Vancouver coalition to end homelessness. Mr. McLernon brings to the Board of Directors extensive experience as an executive at a public company, which enables him to make significant contributions to the deliberations of the Board of Directors, especially in relation to operations, financings and strategic planning. Mr. McLernon has a bachelor of arts from McGill University.
James Farrar
Mr. Farrar, age 46, is our Chief Executive Officer and has been a member of our Board of Directors since our IPO in April 2014. He joined Second City Real Estate in October 2009 as a Managing Director where he was responsible for launching its real estate private equity platform. Prior to Second City Real Estate, Mr. Farrar served as the Vice President of a family office with a diversified portfolio concentrated primarily in the real estate and hospitality sectors and as an investment professional with TD Capital, the private equity unit of TD Bank. Mr. Farrar has extensive experience in acquisitions and divestitures and has been involved in the acquisition of over $3.0 billion of commercial real estate. Mr. Farrar received a bachelor’s degree in business administration from Wilfrid Laurier University and is a chartered accountant, a chartered business valuator and a CFA charterholder. Mr. Farrar brings to our Board of Directors extensive executive management experience gained over 20 years of involvement in the public company, private equity, real estate and corporate finance industries.
William Flatt
Mr. Flatt, age 47, has served as one of our independent directors since our IPO in April 2014. He is a principal of a boutique real estate investment firm, Free Market Ventures, LLC, in Chicago and founder and principal with Oxbow Ventures, LLC, a private equity venture firm. From 2013 to 2016, Mr. Flatt was executive vice president and chief operating officer of Telos Group LLC, an office landlord representation firm with nearly 26 million square feet under representation. From 1996 to 2011, Mr. Flatt worked for an NYSE listed real estate investment trust specializing in office properties. From 2005 to 2011, he served as executive vice president in the positions of chief financial officer and later chief operating officer. Mr. Flatt has taught as an adjunct professor in economics at Millsaps College and has been a guest lecturer on real estate at the University of Chicago Booth School of Business. He is a member of the Urban Land Institute and a board member of City Year Chicago. Mr. Flatt brings to the Board of Directors extensive executive and acquisition experience in the office real estate industry gained over 26 years of managing, leasing, acquiring and financing office buildings. Mr. Flatt has a bachelor of arts in economics from Millsaps College and a masters in business administration from University of Chicago Booth School of Business.
Sabah Mirza
Ms. Mirza, age 47,48, has served as one of our independent directors since March 2019. She is currently Special ProjectsConsultant to the President & CEO of Sunwing Travel Group Inc., the largest tour operator in North America
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with over $3 billion in annual revenue. Prior to that, Ms. Mirza was Executive Office of the CEO, atVice President & General Counsel for Corus Entertainment Inc. (TSX: CJR.B), a leading media and content company that develops and delivers high quality brands and content across platforms for audiences around the world. Prior to that, Ms. Mirza was Executive Vice President & General Counsel for Corus Entertainment Inc. From 2010 to 2020, Ms. Mirza was Executive Vice President, Business Affairs at Sunwing Travel Group (“Sunwing”), the largest tour operator in North America with over $3 billion in annual revenue, where she had oversight of legal functions, mergers and acquisitions, governance and government affairs. Ms. Mirza also served as Sunwing’s General Counsel from 2010 to 2019 and began her tenure with Sunwing as Vice President in 2010 before being promoted to Executive Vice President in 2016. Ms. Mirza was key to the establishment of Sunwing’s hotel division in 2010, which now comprises over $1 billion in real estate assets and over 15,000 rooms under management across ten countries. Previously, Ms. Mirza was Vice President & General Counsel at a charter airline, and prior to that she was Vice President and Division Counsel at a subsidiary of L-3 Technologies. Ms. Mirza holds law degrees from the University of Ottawa and is a member of the bar in both Ontario and Quebec. Ms. Mirza brings over 20 years of extensive legal, corporate and management experience across an array of industries, enabling her to make significant contributions to the Board of Directors.
Mark Murski
Mr. Murski, age 46,47, has served as one of our independent directors since our IPO in April 2014. He is currently a Managing Partner for Brookfield Infrastructure Group.Group and sits on private boards for Brookfield investment companies. He has over 2025 years of investment banking
and private equity experience with a focus on real estate and infrastructure. Previously, he was a Managing Partner with Brookfield Financial, a global real estate investment bank. As the head of the M&A group, Mr. Murski was responsible for originating and executing mergers and acquisitions, debt and equity capital markets transactions and conducting general corporate finance advisory. Mr. Murski has worked on numerous public and private mergers and acquisitions transactions involving real estate clients such as Dream International REIT, Summit Industrial Income REIT, Realex Properties Corporation, InStorage REIT, Overland Realty Inc., Lone Star, Gazit America Inc. and Atlas Cold Storage. Mr. Murski previously worked in Brookfield’s merchant banking group investing into numerous real estate companies, prior to which he worked at Ernst & Young LLP. Since September 2020, Mr. Murski also serves as a board member of Cheniere Energy Partners, L.P. (NYSE: CQP). He previously served for seven years on the board of the Greater Toronto Chapter of NAIOPthe National Association of Industrial and Office Properties (NAIOP) and was a founding director of Trisura Guarantee Insurance Company. Mr. Murski brings to the Board of Directors extensive executive management experience as well as acquisition and transaction experience with a wide range of real estate clients. Mr. Murski is a CA, CPA, CFA charterholder and a graduate of the Richard Ivey School of Business.
John Sweet
Mr. Sweet, age 77, has served as one of our independent directors since March 2017. He has over 40 years of experience in numerous financial and real estate positions with public and private companies. From 2013 to 2016, Mr. Sweet served as founder and Chief Investment Officer of Physicians Realty Trust (NYSE: DOC), a leading healthcare real estate company that grew from approximately $125 million in real estate assets to almost $3 billion during his tenure. Prior to that endeavor, he was a Managing Director for the specialty investment firm BC Ziegler, where he sourced and managed a medical office building investment fund that became the initial portfolio for Physicians Realty Trust. Mr. Sweet also co-founded and played an integral role in the growth of Windrose Medical Properties Trust, a publicly traded medical office REIT that completed its initial public offering in 2002. Additionally, Mr. Sweet brings experience at the board level for public company, philanthropic and charitable organizations, including sitting on the board of Wheeler Real Estate Investment Trust, Inc. (“Wheeler REIT”) (NASDAQ: WHLR) until May 2019. In 2018, he was elected Chairman of the Board of Wheeler REIT. From January 2020 to December 2020, Mr. Sweet served as a board member and Audit Committee Chair of Live Oak Acquisition Corp (NYSE: LOAK), a special purpose acquisition company, which was merged into Danimer Scientific Inc (NYSE: DNMR) at the end of 2020. Mr. Sweet has a bachelor’s degree in business administration from St. John Fisher College and an M.B.A. from Rochester Institute of Technology.
Board of Directors and Committees
Our common stock is listed on the NYSE under the symbol “CIO” and we are subject to the NYSE listing standards. We have adopted corporate governance guidelines and charters for the Audit, Compensation, Investment and Nominating and Corporate Governance Committees of the Board of Directors intended to satisfy NYSE listing standards. We have also adopted a code of business conduct and ethics for our directors and officers intended to satisfy NYSE listing standards and the definition of a “code of ethics” set forth in applicable SEC rules. Our corporate governance guidelines, code of ethics and these charters are available on our website at http://www.cioreit.com.
We operate under the direction of our Board of Directors. Our Board of Directors is responsible for the overall management and control of our affairs. Our Board of Directors, or the Investment Committee thereof, must approve all investment decisions involving the acquisitions of properties in accordance with our investment guidelines and upon recommendations made by our management.
We currently have six directors, five of whom our Board of Directors has determined are independent directors under standards established by the SEC and the NYSE. Our independent directors are John Sweet, Michael Mazan, John McLernon, William Flatt, Sabah Mirza and Mark Murski and John Sweet.Murski. Directors are elected annually by our
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stockholders, and there is no limit on the number of times a director may be elected to office. Each director serves until the next annual meeting of stockholders and until his or her successor is duly elected and qualified.
Our Board of Directors has approved our objectives and strategies on investments and borrowing. The Board of Directors has delegated certain decision-making authority regarding property acquisitions and dispositions to the Investment Committee. The directors may establish further written objectives and strategies on investments and borrowings, or modify existing strategies and objectives, and will monitor our administrative procedures, investment operations and performance.
Commitment to Good Corporate Governance
Our Company and our Board of Directors are committed to pursuing best practices for overall corporate governance. We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders. Highlights include the following:
We are an internally managed Company in order to ensure optimal alignment of interests among our management, our Board of Directors and our stockholders;
Five of our six directors, or 83.3%, all of whom have been nominated for election at this year’s Annual Meeting pursuant to Proposal 1, are independent under our corporate governance guidelines, the rules of the NYSE and Rule 10A-3 under the Exchange Act;
Our Bylaws provide for a majority vote standard in uncontested director elections and permit stockholders to amend the Bylaws upon obtaining the requisite stockholder approval;
Our corporate governance guidelines provide for a director resignation policy;
We have adopted a policy prohibiting hedging in the Company’s equity securities;
We have adopted a formal executive and director succession plan that provides various procedures to follow upon a vacancy created by an executive or director;
We have adopted stock ownership guidelines for our Named Executive Officers and independent directors which require Named Executive Officers and independent directors to purchase a requisite amount of shares of our common stock within five years of the earlier of (a) February 1, 2016 or (b) the date he or she was first elected or appointed that will further align the interests of the executives and independent directors with those of our stockholders;
Our Board of Directors is not staggered and is elected annually, and we have opted out of the board classification statute under Title 3, Subtitle 8 of the Maryland General Corporation Law (“MGCL”) and therefore we cannot elect to stagger our Board of Directors in the future without a vote of our stockholders;
Our directors continue to partake in annual individual performance evaluations in order to identify areas of strengths and weaknesses;
We have adopted a Board Diversity Policy (the “Board Diversity Policy”) to promote the inclusion of different opinions, perspectives, skills, experiences, backgrounds and orientations on the Board of Directors. As of the date hereof, 16.7% of the Board of Directors is female and 16.7% of the Board of Directors is of a diverse race or ethnicity;
We haveSeveral years prior to the effectiveness of Rule 10D-1 under the Exchange Act, we proactively adopted an incentive award recoupment policy (the “Recoupment Policy”) applicable to our Named Executive Officers;
We have opted out of the business combination statute, Title 3, Subtitle 6 under the MGCL, and the control share acquisition statute, Title 3, Subtitle 7 under the MGCL; and
We do not have a stockholder rights plan (i.e., a “poison pill”).
The Board of Directors currently has a standing Audit Committee, Compensation Committee, Investment Committee and Nominating and Corporate Governance Committee. The directors who serve on these committees and the current Chairman of these committees are set forth below:
Board Member | Audit | Compensation | Nominating | Investment | Board | |||||
John Sweet | X | X(1) | Chairman(1) | |||||||
James Farrar | X | |||||||||
| X | |||||||||
| ||||||||||
| X | |||||||||
| ||||||||||
|
The Board of Directors held a total of nine meetings during 2021. The number of meetings held by each committee and the Board of Directors during 2021 is set forth below:
| Audit | Compensation | Nominating | Investment | Board | ||||||
| Number of Meetings | 4 | 3 | 2 | 1 | 9 |
During fiscal year 2021, all incumbent directors who served in fiscal year 2021 attended at least 75% of the aggregate of:
the total number of meetings of the Board of Directors held during the period for which the director had been a director; and
the total number of meetings held by all committees of the Board of Directors on which the director served during the periods that the director served.
Our corporate governance guidelines provide that directors are invited and encouraged to attend our annual meeting of stockholders. Each of our directors as of the 2021 Annual Meeting attended our 2021 Annual Meeting.
Annual Board of Directors Evaluations
Pursuant to our corporate governance guidelines and the charter of the Nominating and Corporate Governance Committee, the Nominating and Corporate Governance Committee oversees an annual evaluation of the performance of the Board of Directors and each committee of the Board of Directors. The evaluation process is designed to assess the overall effectiveness of the Board of Directors and its committees and to identify opportunities for improving the operations and procedures of the Board of Directors and each committee. The process is meant to solicit ideas from directors about (i) improving prioritization of issues, (ii) improving quality of management presentations, (iii) improving quality of Board of Directors or committee discussions on key matters, (iv) identifying specific issues that should be discussed in the future, and (v) identifying any other matters of importance to the functioning of the Board of Directors or committee. The annual evaluations are generally conducted in the first quarter of each calendar year and the results of the annual evaluation are reviewed and discussed by the Board of Directors.
Board of Directors Committees
We currently have a standing Audit Committee, Compensation Committee, Investment Committee and Nominating and Corporate Governance Committee. All of our standing committees consist solely of independent directors, the principal functions of which are briefly described elsewhere in this Proxy Statement. Our Board of Directors may from time to time establish other committees to facilitate our management.
Audit Committee
Our Audit Committee consists of William Flatt, Mark Murski and John McLernon, and William Flatt serves as the chair of the Audit Committee. Our Board of Directors has determined that each of these members is “financially literate” as that term is defined by the NYSE corporate governance listing standards. Our Audit Committee is composed only of directors who are independent in compliance with applicable SEC and NYSE rules.
Our Audit Committee, among other matters, oversees: (1) our financial reporting, auditing and internal control activities; (2) the integrity and audits of our financial statements; (3) our compliance with legal and regulatory requirements; (4) the qualifications and independence of our independent auditors; (5) the performance of our internal audit function and independent auditors; and (6) our overall risk exposure and management, including cybersecurity and data privacy. Our Audit Committee also has the following duties to:
annually review and assess the adequacy of the Audit Committee charter and the performance of the Audit Committee;
be responsible for the appointment, retention and termination of our independent auditors and determine the compensation of our independent auditors;
review the plans and results of the audit engagement with the independent auditors;
evaluate the qualifications, performance and independence of our independent auditors;
have sole authority to approve in advance all audit and non-audit services by our independent auditors, the scope and terms thereof and the fees therefor;
review the adequacy of our internal accounting controls;
meet at least quarterly with our executive officers, internal audit staff and our independent auditors in separate executive sessions; and
prepare the Audit Committee report required by the SEC regulations to be included in our annual proxy statement.
The Audit Committee has the power to investigate any matter brought to its attention within the scope of its duties and to retain counsel for this purpose where appropriate. The Board of Directors has determined that each member of the Audit Committee qualifies as an “audit committee financial expert,” as such term is defined by the applicable SEC regulations and NYSE corporate governance listing standards. The designation does not impose on them any duties, obligations or liabilities that are greater than those generally imposed on members of our Audit Committee and our Board of Directors. Our Board of Directors adopted a written charter for the Audit Committee, which is available on our corporate website at http://www.cioreit.com.
Compensation Committee
Our Compensation Committee consists of Mark Murski, Sabah Mirza and John Sweet, and Mark Murski serves as the chair of the Compensation Committee. Our Compensation Committee is composed only of directors who are independent in compliance with applicable SEC and NYSE rules.
The Compensation Committee has the sole authority to retain, and terminate, any compensation consultant to assist in the evaluation of employee compensation and to approve the consultant’s fees and the other terms and conditions of the consultant’s retention. The Compensation Committee’s responsibilities include, among other matters:
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, if any, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration of our Chief Executive Officer based on such evaluation;
reviewing and approving the compensation, if any, of all of our other officers;
reviewing and approving the compensation of all of our directors;
reviewing our executive compensation policies and plans;
evaluating the performance of our officers;
administering the Company’s Equity Incentive Plan (the “EIP”) and the issuance of any common stock or other equity awards granted to plan participants;
set performance targets under the EIP and determine annual cash bonuses for our officers according to the satisfaction of those performance targets;
preparing compensation committee reports; and
assisting management in complying with our proxy statement and Annual Report on Form 10-K disclosure requirements.
In fulfilling its responsibilities, the Compensation Committee shall be entitled to delegate any or all of its responsibilities to a sub-committee of the Compensation Committee to the extent consistent with the Company’s charter, bylaws, and applicable law and rules of markets in which the Company’s securities then trade. Pursuant to the Compensation Committee charter, the Compensation Committee may not delegate its responsibility to evaluate non-executive officer performance and compensation or its responsibility to review and approve all officers’ employment agreements, executive retirement plans and severance agreements. Our Board of Directors adopted a written charter for the Compensation Committee, which is available on our corporate website at
http://www.cioreit.com.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Sabah Mirza, John McLernon and John Sweet, and Sabah Mirza serves as the chair of the Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee is composed only of directors who are independent in compliance with NYSE rules. The Nominating and Corporate Governance Committee’s principal duties include identifying individuals qualified to become members of our Board of Directors. The Nominating and Corporate Governance Committee considers the following factors when deciding who to nominate for the Board of Directors and to which committees, if any, such nominees should be nominated to join:
personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly held company;
experience in the Company’s industry;
experience with relevant social policy concerns;
each director and director nominee’s skills, principal occupation, reputation, age, tenure and diversity (including geographic, gender and ethnicity);
experience as a board member of another publicly held company;
ability and willingness to commit adequate time to the Board of Directors and its committee matters;
the fit of the individual’s skills with those of the other members of the Board of Directors and the committees of the Board of Directors, if any, such nominees are nominated to join, and potential members of the Board of Directors in the building of a board that is effective, collegial and responsive to the needs of the Company;
academic expertise in an area of the Company’s operations;
practical and mature business judgment; and
the independence of the director candidate.
In addition to the criteria set forth above, the Nominating and Corporate Governance Committee strives to create diversity in perspective, background and experience in the Board of Directors as a whole, as referenced in the Board Diversity Policy. The Nominating and Corporate Governance Committee’s other principal duties include the following:
develop, and recommend to our Board of Directors for its approval, qualifications for director candidates and periodically review these qualifications with our Board of Directors;
review the committee structure of our Board of Directors and recommend directors to serve as members or chairs of each committee of our Board of Directors;
review and recommend committee slates annually and recommend additional committee members to fill vacancies as needed;
develop and recommend to our Board of Directors a set of corporate governance guidelines applicable to us and, at least annually, review such guidelines and recommend changes to our Board of Directors for approval as necessary; and
oversee the annual self-evaluations of our Board of Directors and management.
In accordance with the our Bylaws, any stockholder of record entitled to vote for the election of directors at the applicable meeting of stockholders may nominate persons for election to the Board of Directors if such stockholder complies with the notice procedures set forth in the Bylaws and summarized in “Stockholder Proposals and Nominations” elsewhere in this Proxy Statement. Nominees recommended by stockholders will be evaluated in the same manner as those recommended by our Nominating and Corporate Governance Committee. Our Board of Directors adopted a written charter for the Nominating and Corporate Governance Committee, which is available on our corporate website at http://www.cioreit.com.
Investment Committee
Our Investment Committee consists of John Sweet, William Flatt and John McLernon, and John Sweet serves as the chair of the Investment Committee. Our Investment Committee is composed only of directors who are independent in compliance with NYSE rules. The Investment Committee establishes guidelines for acquisitions and dispositions to be presented to the Board of Directors and leads the Board of Directors in its review of potential acquisitions and dispositions presented by management. The Investment Committee evaluates and approves acquisitions and dispositions with an individual purchase or sales price of less than $100 million and leads the Board of Directors in its review of acquisitions and dispositions with a purchase or sales price above $100 million. The Investment Committee makes recommendations to the Board of Directors and senior management regarding potential acquisitions and dispositions and reviews due diligence reports prepared by management conducted on all potential acquisitions. Our Board of Directors adopted a written charter for the Investment Committee, which is available on our corporate website at http://www.cioreit.com.
In connection with the preparation and filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021:
The Audit Committee of the Board of Directors of CIO, or the Audit Committee, has reviewed and discussed the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 with CIO’s management and KPMG LLP, the Company’s independent registered public accounting firm;
Prior to the commencement of the audit, the Audit Committee discussed with the Company’s management and independent registered public accounting firm the overall scope and plans for the audit. Subsequent to the audit and each quarterly review, the Audit Committee discussed with the independent registered public accounting firm, with and without management present, the results of their examinations or reviews, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of specific judgments and the clarity of disclosures in the consolidated financial statements;
The Audit Committee has discussed with CIO’s independent registered public accounting firm, KPMG LLP, the matters required to be discussed by the Public Company Accounting Oversight Board, (“PCAOB”);
The Audit Committee has received the written disclosures and the letter from KPMG LLP required by applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP the independence of KPMG LLP and satisfied itself as to KPMG LLP’s independence; and
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors of CIO that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The Audit Committee has provided this report. This report shall not be deemed incorporated by reference by any general statement incorporating this Proxy Statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), and the Exchange Act, except to the extent CIO specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act.
The Audit Committee of the Board of Directors:
William Flatt, Chairman
John McLernon
Sabah Mirza
Mark Murski
| (2) | Effective February 23, 2023, Mr. McLernon was appointed as Chairman of the Investment Committee. In connection with his appointment as Chairman of the Investment Committee, Mr. McLernon stepped down from his role as Chairman of the Board of |
| (4) | In connection with the resignation of Mr. Flatt as a member of our Board of Directors, effective February 23, 2023, Mr. Murski was appointed as a member of the Investment Committee. |
The Board of Directors held a total of six meetings during 2022. The number of meetings held by each committee and the Board of Directors during 2022 is set forth below:
| Audit | Compensation | Nominating | Investment | Board | ||||||
| Number of Meetings | 4 | 2 | 2 | 1 | 6 |
During 2022, all incumbent directors who served in 2022 attended at least 75% of the aggregate of:
the total number of meetings of the Board of Directors held during the period for which the director had been a director; and
the total number of meetings held by all committees of the Board of Directors on which the director served during the periods that the director served.
Our corporate governance guidelines provide that directors are invited and encouraged to attend our annual meeting of stockholders. Each of our directors as of the 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”) attended our 2022 Annual Meeting.
Annual Board of Directors Evaluations
Pursuant to our corporate governance guidelines and the charter of the Nominating and Corporate Governance Committee, the Nominating and Corporate Governance Committee oversees an annual evaluation of the performance of the Board of Directors and each committee of the Board of Directors. The evaluation process is designed to assess the overall effectiveness of the Board of Directors and its committees and to identify opportunities for improving the operations and procedures of the Board of Directors and each committee. The process is meant to solicit ideas from directors about (i) improving prioritization of issues, (ii) improving quality of management presentations, (iii) improving quality of Board of Directors or committee discussions on key matters, (iv) identifying specific issues that should be discussed in the future, and (v) identifying any other matters of importance to the functioning of the Board of Directors or committee. The annual evaluations are generally conducted in the first quarter of each calendar year and the results of the annual evaluation are reviewed and discussed by the Board of Directors.
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Board of Directors Committees
We currently have a standing Audit Committee, Compensation Committee, Investment Committee and Nominating and Corporate Governance Committee. All of our standing committees consist solely of independent directors, the principal functions of which are briefly described elsewhere in this Proxy Statement. Our Board of Directors may from time to time establish other committees to facilitate our management.
Audit Committee
Our Audit Committee consists of Michael Mazan, John McLernon and Mark Murski, and Michael Mazan serves as the chair of the Audit Committee. Mr. William Flatt served as a member and Chairman of the Audit Committee until his resignation as a member of our Board of Directors effective February 23, 2023. Our Board of Directors has determined that each of these members is “financially literate” as that term is defined by the NYSE corporate governance listing standards. Our Audit Committee is composed only of directors who are independent in compliance with applicable SEC and NYSE rules.
Our Audit Committee, among other matters, oversees: (1) our financial reporting, auditing and internal control activities; (2) the integrity and audits of our financial statements; (3) our compliance with legal and regulatory requirements; (4) the qualifications and independence of our independent auditors; (5) the performance of our internal audit function and independent auditors; and (6) our overall risk exposure and management, including cybersecurity and data privacy. Our Audit Committee also has the following duties to:
annually review and assess the adequacy of the Audit Committee charter and the performance of the Audit Committee;
be responsible for the appointment, retention and termination of our independent auditors and determine the compensation of our independent auditors;
review the plans and results of the audit engagement with the independent auditors;
evaluate the qualifications, performance and independence of our independent auditors;
have sole authority to approve in advance all audit and non-audit services by our independent auditors, the scope and terms thereof and the fees therefor;
review the adequacy of our internal accounting controls;
meet at least quarterly with our executive officers, internal audit staff and our independent auditors in separate executive sessions; and
prepare the Audit Committee report required by the SEC regulations to be included in our annual proxy statement.
The Audit Committee has the power to investigate any matter brought to its attention within the scope of its duties and to retain counsel for this purpose where appropriate. The Board of Directors has determined that each member of the Audit Committee qualifies as an “audit committee financial expert,” as such term is defined by the applicable SEC regulations and NYSE corporate governance listing standards. The designation does not impose on them any duties, obligations or liabilities that are greater than those generally imposed on members of our Audit Committee and our Board of Directors. Our Board of Directors adopted a written charter for the Audit Committee, which is available on our corporate website at http://www.cioreit.com.
Compensation Committee
Our Compensation Committee consists of Mark Murski, Sabah Mirza and John Sweet, and Mark Murski serves as the chair of the Compensation Committee. Our Compensation Committee is composed only of directors who are independent in compliance with applicable SEC and NYSE rules.
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The Compensation Committee has the sole authority to retain, and terminate, any compensation consultant to assist in the evaluation of employee compensation and to approve the consultant’s fees and the other terms and conditions of the consultant’s retention. The Compensation Committee’s responsibilities include, among other matters:
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, if any, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration of our Chief Executive Officer based on such evaluation;
reviewing and approving the compensation, if any, of all of our other officers;
reviewing and approving the compensation of all of our directors;
reviewing our executive compensation policies and plans;
evaluating the performance of our officers;
administering the Company’s Equity Incentive Plan (the “EIP”) and the issuance of any common stock or other equity awards granted to plan participants;
set performance targets under the EIP and determine annual cash bonuses for our officers according to the satisfaction of those performance targets;
preparing compensation committee reports; and
assisting management in complying with our proxy statement and Annual Report on Form 10-K disclosure requirements.
In fulfilling its responsibilities, the Compensation Committee shall be entitled to delegate any or all of its responsibilities to a sub-committee of the Compensation Committee to the extent consistent with the Company’s charter, bylaws, and applicable law and rules of markets in which the Company’s securities then trade. Pursuant to the Compensation Committee charter, the Compensation Committee may not delegate its responsibility to evaluate non-executive officer performance and compensation or its responsibility to review and approve all officers’ employment agreements, executive retirement plans and severance agreements. Our Board of Directors adopted a written charter for the Compensation Committee, which is available on our corporate website at http://www.cioreit.com.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee consists of Sabah Mirza, Michael Mazan and John McLernon, and Sabah Mirza serves as the chair of the Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee is composed only of directors who are independent in compliance with NYSE rules. The Nominating and Corporate Governance Committee’s principal duties include identifying individuals qualified to become members of our Board of Directors. The Nominating and Corporate Governance Committee considers the following factors when deciding who to nominate for the Board of Directors and to which committees, if any, such nominees should be nominated to join:
personal and professional integrity, ethics and values;
experience in corporate management, such as serving as an officer or former officer of a publicly held company;
experience in the Company’s industry;
experience with relevant social policy concerns;
each director and director nominee’s skills, principal occupation, reputation, age, tenure and diversity (including geographic, gender and ethnicity);
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experience as a board member of another publicly held company;
ability and willingness to commit adequate time to the Board of Directors and its committee matters;
the fit of the individual’s skills with those of the other members of the Board of Directors and the committees of the Board of Directors, if any, such nominees are nominated to join, and potential members of the Board of Directors in the building of a board that is effective, collegial and responsive to the needs of the Company;
academic expertise in an area of the Company’s operations;
practical and mature business judgment; and
the independence of the director candidate.
In addition to the criteria set forth above, the Nominating and Corporate Governance Committee strives to create diversity in perspective, background and experience in the Board of Directors as a whole, as referenced in the Board Diversity Policy. The Nominating and Corporate Governance Committee’s other principal duties include the following:
develop, and recommend to our Board of Directors for its approval, qualifications for director candidates and periodically review these qualifications with our Board of Directors;
review the committee structure of our Board of Directors and recommend directors to serve as members or chairs of each committee of our Board of Directors;
review and recommend committee slates annually and recommend additional committee members to fill vacancies as needed;
develop and recommend to our Board of Directors a set of corporate governance guidelines applicable to us and, at least annually, review such guidelines and recommend changes to our Board of Directors for approval as necessary;
oversee the Company’s environmental, social and governance (“ESG”) initiatives and receive regular updates regarding strategy, practices and performance; and
oversee the annual self-evaluations of our Board of Directors and management.
In accordance with our Bylaws, any stockholder of record entitled to vote for the election of directors at the applicable meeting of stockholders may nominate persons for election to the Board of Directors if such stockholder complies with the notice procedures set forth in the Bylaws and summarized in “Stockholder Proposals and Nominations” elsewhere in this Proxy Statement. Nominees recommended by stockholders will be evaluated in the same manner as those recommended by our Nominating and Corporate Governance Committee. Our Board of Directors adopted a written charter for the Nominating and Corporate Governance Committee, which is available on our corporate website at http://www.cioreit.com.
Investment Committee
Our Investment Committee consists of John McLernon, Mark Murski and John Sweet, and John McLernon serves as the chair of the Investment Committee. Mr. William Flatt served as a member of the Investment Committee until his resignation as a member of our Board of Directors effective February 23, 2023. Our Investment Committee is composed only of directors who are independent in compliance with NYSE rules. The Investment Committee establishes guidelines for acquisitions and dispositions to be presented to the Board of Directors and leads the Board of Directors in its review of potential acquisitions and dispositions presented by management. The Investment Committee evaluates and approves acquisitions and dispositions with an individual purchase or sales price of less than $100 million and leads the Board of Directors in its review of acquisitions and dispositions with a purchase or sales price above $100 million. The Investment Committee makes
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recommendations to the Board of Directors and senior management regarding potential acquisitions and dispositions and reviews due diligence reports prepared by management conducted on all potential acquisitions. Our Board of Directors adopted a written charter for the Investment Committee, which is available on our corporate website at http://www.cioreit.com.
Audit Committee Report
In connection with the preparation and filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022:
The Audit Committee of the Board of Directors of CIO, or the Audit Committee, has reviewed and discussed the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 with CIO’s management and KPMG LLP, the Company’s independent registered public accounting firm;
Prior to the commencement of the audit, the Audit Committee discussed with the Company’s management and independent registered public accounting firm the overall scope and plans for the audit. Subsequent to the audit and each quarterly review, the Audit Committee discussed with the independent registered public accounting firm, with and without management present, the results of their examinations or reviews, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of specific judgments and the clarity of disclosures in the consolidated financial statements;
The Audit Committee has discussed with CIO’s independent registered public accounting firm, KPMG LLP, the matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”);
The Audit Committee has received the written disclosures and the letter from KPMG LLP required by applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning independence, and has discussed with KPMG LLP the independence of KPMG LLP and satisfied itself as to KPMG LLP’s independence; and
| • | Based on the review and discussions referred to above, the Audit Committee |
The Audit Committee has provided this report. This report shall not be deemed incorporated by reference by any general statement incorporating this Proxy Statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), and the Exchange Act, except to the extent CIO specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act.
The Audit Committee of the Board of Directors:
Michael Mazan, Chairman
John McLernon
Mark Murski
Compensation Committee Interlocks and Insider Participation
Our Compensation Committee consists of Mark Murski, Sabah Mirza and John Sweet. No member of the Compensation Committee was at any time after the date of our formation, or currently is, an officer or employee of our company, and no member of the Compensation Committee had any relationship with us requiring disclosure under Item 404 of SEC Regulation S-K. None of our executive officers serves, or in the past has served, as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who serve as members of our Board of Directors or our Compensation Committee.
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Board Leadership Structure
The Board of Directors believes that it is in the best interests of the Company that the roles of Chief Executive Officer and Chairman of the Board of Directors be separated in order for the individuals to focus on their primary roles. The Company’s Chief Executive Officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board of Directors provides guidance to the Company’s Chief Executive Officer, presides over meetings of the full Board of Directors and sets the agenda for Board of Directors meetings.
Role of our Board of Directors in Risk Oversight
One of the key functions of our Board of Directors is informed oversight of our risk management process. Our Board of Directors administers this oversight function directly, with support from the four standing committees, our Audit Committee, our Compensation Committee, our Investment Committee and our Nominating and Corporate Governance Committee, each of which addresses risks specific to its respective areas of oversight. In particular, our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management takes to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. Our Audit Committee also monitors compliance with legal and regulatory requirements, in addition to oversight of the performance of our internal audit function. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs have the potential to encourage excessive risk-taking. Our Investment Committee oversees acquisitions, dispositions, developments and other investment opportunities for the Company and reviews and assesses guidelines for potential transactions in light of the Company’s strategic goals and objectives. In addition, the Investment Committee has the authority to approve potential transactions subject to the requirements set forth in the Investment Committee charter, as applicable. Our Nominating and Corporate Governance Committee provides oversight with respect to corporate governance and ethical conduct and monitors the effectiveness of our corporate governance guidelines, including whether such guidelines are successful in preventing illegal or improper liability-creating conduct. All committees report to the full Board of Directors as appropriate, including when a matter rises to the level of a material or enterprise level risk. In addition, the Board of Directors receives detailed regular reports from members of our senior management and other personnel that include assessments and potential mitigation of the risks and exposures involved with their respective areas of responsibility.
Code of Business Conduct and Ethics
Our Board of Directors adopted a code of business conduct and ethics that establishes the standards of ethical conduct applicable to all of our directors, officers, employees, consultants and contractors. The code of ethics addresses, among other things, competition and fair dealing, conflicts of interest, financial matters and external reporting, compliance with applicable governmental laws, rules and regulations, company funds and assets, confidentiality and corporate opportunity requirements and the process for reporting violations of the code of ethics, employee misconduct, conflicts of interest or other violations. Any waiver of our code of ethics with respect to our Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer, Chief Operating Officer and President, or persons performing similar functions may only be authorized by our Nominating and Corporate Governance Committee and will be promptly disclosed as required by law and NYSE regulations and posted on our website. Amendments to the code of ethics must be approved by our Board of Directors and will be promptly disclosed and posted on our website (other than technical, administrative or non-substantive changes). Our code of ethics is publicly available on our website at http://www.cioreit.com and in print to any stockholder who requests a copy.
Corporate Governance Guidelines
Our Board of Directors adopted corporate governance guidelines that serve as a flexible framework within which our Board of Directors and its committees will operate. These guidelines cover a number of areas
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including the size and composition of our Board of Directors, Board of Directors membership criteria and director qualifications, director responsibilities, Board of Directors agenda, roles of the Chairman of the Board of Directors and Chief Executive Officer, meetings of independent directors, committee responsibilities and assignments, Board of Directors member access to management and independent advisors, director communications with third parties, director compensation, director orientation and continuing education, evaluation of senior management and management succession planning. Our Nominating and Corporate Governance Committee will review our corporate governance guidelines at least once a year and, if necessary, recommend changes to our Board of Directors. Additionally, our Board of Directors adopted independence standards as part of our corporate governance guidelines. A copy of our corporate governance guidelines is posted on our website at http://www.cioreit.com.
Employee, Officer and Director Hedging
Effective March 9, 2017, the Company’s Board of Directors adopted a policy prohibiting hedging of the Company’s securities, including our common stock, that applies to all officers and directors of the Company and their respective families, others living in his or her household and investment vehicles over which such officer or director exercises voting or investment control (each, a “Covered Person”). The policy prohibiting hedging prohibits the purchase or sale by any Covered Persons of puts, calls, options or other derivative securities, including financial instruments such as prepaid variable forward contracts, equity swaps, collars and exchange funds, based on the Company’s securities. Failure to comply with the policy prohibiting hedging will be grounds for disciplinary action by the Company against the applicable officers or directors. A copy of our policy prohibiting hedging is posted on our website at http://www.cioreit.com.
Incentive Award Recoupment Policy
Effective February 25, 2020, more than three years prior to the effectiveness of Rule 10D-1 under the Exchange Act, the Company’s Board of Directors adopted the Recoupment Policy that permits the Company to recoup any cash bonus awarded and any equity-based awards granted to the Named Executive Officers pursuant to the EIP in the event that the Company is required to restate its financial statements due to material noncompliance with any financial reporting requirement under federal securities laws or as a result of certain misconduct by such Named Executive Officer during a specified look-back period. The Recoupment Policy also permits the recoupment of compensation from the Named Executive Officers under limited circumstances when misconduct by a Named Executive Officer has occurred but no restatement of financial statements is required. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities. The Board of Directors will continue to evaluate the appropriateness of the current Recoupment Policy pending the effectiveness of Rule 10D-1.
Board Diversity Policy
Under the Board Diversity Policy adopted by each of our Board of Directors and the Nominating and Corporate Governance Committee, the Nominating and Corporate Governance Committee will take into account a director candidate’s business experience, knowledge, skills, viewpoints and opinions on issues important to the Company’s performance, growth and sustainability, and similar qualifications. In addition, the Nominating and Corporate Governance Committee will seek to assess and take into account each candidate’s personal characteristics, which may include gender, sexual orientation, gender identity, ethnicity, race, age, religion, geographic location, nationality and other factors relevant to the Nominating and Corporate Governance Committee and the Board of Directors. The Nominating and Corporate Governance Committee may also review and assess the overall composition of candidates identified to fill open director positions on the Board of Directors, including whether the pool of candidates includes a sufficient number of diverse candidates. Additionally, the Nominating and Corporate Governance Committee, from time to time as appropriate, will review the composition of the then current Board of Directors to determine the diversity of the Board of Directors over time. A copy of the Company’s Board Diversity Policy is posted on the Company’s website at http://www.cioreit.com.
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Human Rights Policy
Effective February 24, 2022, the Company’s Board of Directors adopted a Human Rights Policy. The purpose of the policy is to outline our commitment with respect to the human rights of our directors, officers, employees, vendors and tenants. We are committed to operating in accordance with the principles of the Universal Declaration of Human Rights, the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. The Human Rights Policy outlines our commitment to a safe and healthy workplace, prohibition of forced labor and child labor, appropriate working conditions, freedom of association and right to water. The Company is committed to the continuous review of its practices, training and stakeholder communication to consider enhancements on human rights issues.
ESG Report
The Board of Directors adopted an ESG report for 2022 (the “2022 ESG Report”). The 2022 ESG Report details the Company’s ESG mission, goals and commitments both historically and for the future. We employ a progressive mentality to consistently strive for sustainable, long-term results for our stakeholders and for the environment. Our mission is to create a positive and lasting impact through sustainable business practices across our portfolio. We believe our core business is to create a healthy and functional environment for our tenants. To deliver these results for our company and for our stockholders, we believe it is essential to focus on the well-being of our buildings, properties, tenants, communities and employees. A copy of the Company’s 2022 ESG Report is posted on the Company’s website at http://www.cioreit.com.
Environmental
We embrace environmental stewardship in our business practices and strive to integrate this core value into each aspect of our operations and management. We recognize the negative consequences of climate change and believe it is our responsibility to reduce our environmental footprint. We continue to focus on minimizing the energy, water, waste and emissions impacts of our properties. We believe transparency and accountability are another important part of environmental sustainability. As we grow our portfolio, we will continue to enhance property-level tracking systems to monitor operating efficiencies and capital expenditures made towards lowering our environmental impact and increasing sustainable building operations. For the environment and our tenants, we aim to take the following measures:
optimize the efficiency of our energy and water consumption;
implement measures to manage waste and emissions;
increase our use of renewable energy resources;
increase climate risk awareness and evaluate climate risk upon acquisition of properties;
regularly measure our buildings’ sustainability performance;
pursue third-party sustainable building certifications; and
conduct health, safety and environmental assessments and remediate identified risks.
Social
We believe that corporate social responsibility goes hand-in-hand with business growth and maximizing returns for our investors. Our reputation for acting with integrity and transparency is essential to the successful execution of our business goals. We take pride in our work culture and strive to create an environment where people feel valued. The success of our efforts is demonstrated in responses to our annual Employee Satisfaction Survey, in which all respondents indicated that the Company has a positive culture and that they feel valued at work. Social responsibility also furthers our mission to be an upstanding corporate citizen within the real estate community. We invest in and engage with our local communities, making charitable giving and volunteerism an
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important part of our culture. To maintain this level of social responsibility, we aim to undertake the following measures:
foster a culture of diversity, inclusion and equality;
invest in employee development;
maintain a horizontal work culture;
encourage a safe, active and healthy office environment; and
give back to our communities.
Governance
Corporate governance is a vital component of achieving our business objectives and effectively managing risk. Our experienced and majority-independent Board of Directors provides guidance and oversight with respect to, among others, ESG guidelines, operations, investments, financial reporting, strategic plans, key corporate policies and decisions and enterprise risk management. The Company promotes long-term value creation and accountability to our stakeholders. We are committed to the policies and procedures we have in place and continue to review corporate best practices on an ongoing basis. In an effort to continue serving the best interests of our stockholders, we aim to undertake the following measures:
operate with transparent and stockholder-friendly corporate governance;
uphold the highest standard of business ethics;
comply with laws, rules, regulations and industry best practices;
educate our employees and third parties on the importance of our policies;
maintain infrastructure for accountability to governance policies;
incorporate ESG considerations into executive compensation; and
review industry corporate governance ratings and incorporate stockholder feedback.
Climate Risk Awareness
During 2022 we integrated a climate risk assessment platform to help analyze the physical climate risks of our portfolio. Through these analytics, we obtained physical risk factor data related to climate and weather events in each of the areas our properties are located. Through this assessment we identified climate risks, potential risk impacts and potential opportunities to mitigate climate impact. To the extent material, such risks are identified in our 2022 Annual Report.
Communications with the Board of Directors
Stockholders and other interested parties who wish to communicate with the Board of Directors or any of its committees may do so by writing to the Chairman of the Board, Board of Directors of City Office REIT, Inc., c/o Secretary, 666 Burrard Street, Suite 3210, Vancouver, BC V6C 2X8. The Secretary will review all communications received. All communications that relate to matters that are within the scope of the responsibilities of the Board of Directors and its committees are to be forwarded to the Chairman of the Board. Communications that relate to matters that are within the scope of responsibility of one of the committees of our Board of Directors are also to be forwarded to the chairman of the appropriate committee. Solicitations, junk mail and obviously frivolous or inappropriate communications will not be forwarded but will be made available to any director who wishes to review them.
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PROPOSAL NO. 2. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
On February 22, 2023, the Audit Committee appointed KPMG LLP to serve as CIO’s independent registered public accounting firm for the fiscal year ending December 31, 2023. KPMG LLP has served as our independent public accountants since our IPO in April 2014.
We are asking our stockholders to ratify the appointment of KPMG LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2023. Although ratification is not required by our Bylaws or otherwise, the Board of Directors is submitting the appointment of KPMG LLP to our stockholders for ratification as a matter of good corporate practice. In the event stockholders do not ratify the appointment, the appointment will be reconsidered by the Audit Committee. Even if the appointment is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company. A representative of KPMG LLP is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he or she so desires and is expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE APPOINTMENT OF KPMG LLP TO AUDIT THE FINANCIAL STATEMENTS OF CIO FOR THE FISCAL YEAR ENDING DECEMBER 31, 2023.
Audit Fees
The following table presents the aggregate fees billed by KPMG LLP for each service listed below for the years ended December 31, 2022 and December 31, 2021.
| 2022 | 2021 | |||||||
Audit Fees(1) | $ | 726,637 | $ | 523,016 | ||||
Audit-Related Fees | — | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | — | — | ||||||
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Total | $ | 726,637 | $ | 523,016 | ||||
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| (1) | Audit fees consisted of the aggregate fees billed for professional services rendered by KPMG LLP in connection with its audit of our consolidated financial statements, reviews of our Quarterly Reports on Form 10-Q, audits required in connection with property acquisitions, and |
Exchange Act rules generally require any engagement by a public company of an accountant to provide audit or non-audit services to be pre-approved by the Audit Committee of that public company. This pre-approval requirement is waived with respect to the provision of services other than audit, review or attest services if certain conditions set forth in Rule 2-01(c)(7)(i)(C) of Regulation S-X are met. All of the audit and audit-related services described above were pre-approved by the Audit Committee and, as a consequence, such services were not provided pursuant to a waiver of the pre-approval requirement set forth in this Rule. The Audit Committee charter provides guidelines for the pre-approval of independent auditor services. All of the audit and audit-related services described above were completed by full-time, permanent employees of KPMG LLP.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage owned by each person who, to the knowledge of CIO as of February 23, 2023, is the beneficial owner of more than 5% of the outstanding shares of our common stock. This information is reported in accordance with the beneficial ownership rules of the SEC under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days. Shares of our common stock issuable pursuant to options, warrants, rights or conversion privileges are deemed to be outstanding for purposes of computing the percentage ownership of the person or group holding such options, warrants, rights or conversion privileges but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated in footnotes to the table, each person listed has sole voting and dispositive power with respect to the securities owned by such person.
Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | |||||||
Common Stock | The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355 | 4,100,716 | (2) | 10.3 | % | |||||
Common Stock | BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | 3,297,146 | (3) | 8.3 | % | |||||
| (1) | Based on 39,938,451 shares of our common |
| (2) | The number of
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The following tables set forth the number and percentage owned as of February 23, 2023 by each of our present directors, each of our present Named Executive Officers, as defined in “Executive Compensation” below, and all of our present executive officers (whether or not deemed to be Named Executive Officers) and directors as a group of our shares of our common stock. This information is reported in accordance with the beneficial ownership rules of the SEC under which a person is deemed to be the beneficial owner of a security if that person has or shares voting power or investment power with respect to such security or has the right to acquire such ownership within 60 days. Shares of our common stock issuable pursuant to options, warrants, rights or conversion privileges are deemed to be outstanding for purposes of computing the percentage ownership of the person or group holding such options, warrants, rights or conversion privileges but are not deemed to be
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outstanding for purposes of computing the percentage ownership of any other person. Unless otherwise indicated in footnotes to the table, each person listed has sole voting and dispositive power with respect to the securities owned by such person as of February 23, 2023.
Name of Beneficial Owner | Title of Securities | Shares Owned | Percentage of All Shares(1) | |||||||||
James Farrar(2) | Common Stock | 569,014 | 1.4 | % | ||||||||
Gregory Tylee(2) | Common Stock | 493,795 | 1.2 | % | ||||||||
Anthony Maretic | Common Stock | 181,489 | * | |||||||||
John Sweet | Common Stock | 48,220 | * | |||||||||
Michael Mazan(3) | Common Stock | — | * | |||||||||
John McLernon(2) | Common Stock | 29,343 | * | |||||||||
Sabah Mirza | Common Stock | 7,801 | * | |||||||||
Mark Murski | Common Stock | 27,325 | * | |||||||||
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All directors and executive officers as a group (8 persons) | Common Stock | 1,356,987 | 3.4 | % | ||||||||
| * | Represents less than one percent of class. |
| (1) | Based on 39,938,451 shares of our common stock
24 EXECUTIVE COMPENSATION Compensation Discussion and Analysis The Compensation Committee of our Board of Directors is currently comprised of three independent directors with the responsibility for establishing and administering the underlying policies and principles of our compensation program. We strive to provide a competitive total remuneration package to our Named Executive Officers (“NEOs”) through a combination of base salary, annual cash incentive compensation and long-term equity incentive compensation. Our focus is to establish a program that aligns the Company’s short- and long-term interests with those of our management. We strive to reward strong performance but designed our compensation program to have material consequences for NEOs if objectives established by the Compensation Committee are not satisfactorily met. This Compensation Discussion and Analysis section describes our executive compensation program for 2022. It also describes how and why the Compensation Committee made its decisions regarding 2022 compensation. Set forth below is information concerning our NEOs and their respective titles as of December 31, 2022:
Information regarding the background of our non-director NEOs is set forth below. Gregory Tylee Mr. Tylee, age 51, has been our chief operating officer and president since our IPO in April 2014. He joined Second City Real Estate in May 2010 and has been primarily responsible for sourcing, underwriting and acquiring properties throughout the United States. He has been involved in real estate transactions with a combined enterprise value of over $4.0 billion over the course of his career. He has deep relationships with real estate operators, lenders and brokers. From May 2008 to October 2012, Mr. Tylee held both the Vice President of Acquisitions and President roles for Bosa Properties Inc., a prominent real estate development company based in Vancouver, Canada, with over 400 employees. As President, Mr. Tylee was involved in all aspects of Bosa’s decision-making with a primary responsibility for growing the business through new acquisitions. Mr. Tylee received a bachelor’s degree in accounting from Brock University and is a chartered accountant. Mr. Tylee brings accounting and finance skills as well as over 20 years of diverse real estate experience that includes acquisitions of various types of income-producing property and high-rise development. Anthony Maretic Mr. Maretic, age 51, has been our chief financial officer, secretary and treasurer since our IPO in April 2014. Prior to joining affiliates of Second City Real Estate in May of 2013, Mr. Maretic served as the chief operating officer and chief financial officer of Earls Restaurants Ltd., one of North America’s premier privately held restaurant companies from 2006 to 2013. Mr. Maretic’s experience in the real estate industry includes his role as the chief financial officer for a portfolio of U.S.-based senior living facilities, where he served from 2005 to 2006. Mr. Maretic has also held several financial management positions with the predecessor of BentallGreenOak, one of North America’s premier institutional real estate advisory companies. Mr. Maretic is a chartered professional accountant and holds a bachelor’s degree in commerce and business administration from the University of British Columbia. The business address of all of our directors and NEOs is 666 Burrard Street, Suite 3210, Vancouver, British Columbia, Canada V6C 2X8.
25 Executive Summary Overview of 2022 Business Performance The Company is focused on owning and operating high-quality office properties located predominantly in Sun Belt markets with strong economic fundamentals. During 2022, the Company believes it executed well on its real estate operations and per share results. The Company focused on integrating and stabilizing the three major properties it acquired in December 2021, driving leasing transactions, maintaining efficient operations and optimally positioning the portfolio through strategic renovations and a spec suite program. The Company also repurchased shares of its common stock at what the Company believes to be a steep discount to the value of those shares. The successful execution against these initiatives resulted in the Company generating its highest annual Core FFO, as defined below, per share in the Company’s history. Despite a challenging environment in 2022 due to the impact of rapidly rising interest rates, challenging conditions in the capital markets and office real estate industry headwinds, the Company believes its active steps to enhance the position of the portfolio will benefit shareholders in the long term. Summary of Key 2022 Accomplishments During 2022, the Company achieved substantial results that contributed to the overall strong operating performance of the Company, including, but not limited to: Achieved strong operational results including 15% growth in core funds from operations (“Core FFO”) per share (as described below) and 6% growth in portfolio NOI (as described below); Executed approximately 777,000 square feet of new and renewal leases; Integrated and stabilized the approximately 975,000 square feet of premier office buildings in Raleigh, Phoenix and Dallas that the Company acquired in December 2021; Closed the disposition of the Lake Vista Pointe property in Dallas for $43.8 million, generating a $21.7 million gain on sale; Continued construction and leasing of high-quality spec suites and successfully executed numerous renovation projects on time and on budget; Repurchased $50 million of shares of common stock at a substantial discount to what the Company believes is the value of those shares; Collected over 99% of 2022 contractual base rent; Actively positioned Company properties to maximize overall corporate value; Continued enhancement of ESG-focused initiatives; and Implemented cost savings measures to maximize returns. 2022 Total Stockholder Return The total return for our common stock in 2022 was negative 54.9%. In comparison, the Dow Jones U.S. Real Estate Office Index generated a negative 35.6% total return. Share prices of office real estate companies were generally challenged in 2022, and the Company’s total return for its common stock in 2022 was less than the Dow Jones U.S. Real Estate Office Index. As of December 31, 2022, the Dow Jones U.S. Real Estate Office Index was comprised of 18 publicly traded U.S. office REITs. The Compensation Committee believes that the Dow Jones U.S. Real Estate Office Index provides an appropriate group of peer REITs with a focus similar to the Company’s and represents an appropriate basis for comparison of our total stockholder return. The Compensation Committee evaluates the Company’s performance relative to various peer indices each year and may determine, 26 in its sole discretion, to substitute certain peer indices in any given year in order to ensure fair measurement of the Company against its peers.
Long-Term Stockholder Return As of December 31, 2022, our five-year total return was negative 9.8%, which has been during the tenure of the NEOs. In comparison, the Dow Jones U.S. Real Estate Office Index generated a negative 24.6% total return during such period. The Company’s five-year total return was in the top quartile among companies in the Dow Jones U.S. Real Estate Office Index. Compensation Philosophy and Objectives Executive Compensation Principles We have established our compensation program to achieve various short and long-term objectives. Our overriding philosophy is to establish lower than average base salaries but provide our NEOs the ability to earn higher than average total remuneration through demonstrated performance, thereby better aligning their interests with those of our stockholders. Our compensation program includes (i) a base salary component, (ii) an annual cash incentive compensation potential, and (iii) a long-term equity incentive potential. The Compensation Committee judges performance based on detailed criteria (the “Performance Objectives”) that are established at the beginning of the year and are discussed elsewhere in this Proxy Statement under the heading “—2022 Performance Objectives.” The compensation program for our executives is designed to achieve the following core objectives: Attract and retain executives capable of performing at the highest levels of our industry; Create and maintain a performance-focused culture, by rewarding Company and individual performance based upon objective, predetermined metrics; Align the interests of our executives and stockholders by motivating executives to achieve key corporate goals and objectives that should enhance stockholder value; Ensure that unsatisfactory performance has consequences and will result in materially reduced incentive compensation; Create an alignment between our executives’ compensation and the enhancement of our ESG initiatives over time; 27 Encourage teamwork and cooperation while recognizing individual contributions by linking variable compensation to both corporate and individual performance; and Motivate our executives to manage our business to meet and appropriately balance our short and long-term objectives. Compensation Best Practices The Compensation Committee and management periodically review the compensation and benefit programs for executives and other employees to align them with the core objectives discussed above. Additionally, we compare both compensation and Company performance against peer companies when evaluating the appropriateness of our compensation. We have implemented a number of measures in an effort to align the interests of the Company’s NEOs with those of our stockholders, while also driving performance and achievement of long-term goals. Below we highlight our compensation and governance practices that support these principles. What we do:
What we don’t do:
28 Compensation Review Process Role of the Compensation Committee and Management The Compensation Committee evaluates Company and individual performance when making compensation recommendations to the Company’s Board of Directors with respect to our NEOs. In making decisions regarding NEO remuneration, the Compensation Committee may consider recommendations from our CEO with respect to the performance and contributions of each of the other two NEOs but the Compensation Committee ultimately acts in its sole and absolute discretion. Market Data and Peer Sets A key consideration in determining levels of base and incentive compensation is the pay practices and performance of our peers. For purposes of evaluating our performance relative to comparable companies, we focus on the performance of publicly traded office REITs. We believe this is appropriate because we most closely compete with other publicly traded office REITs for human capital, investments, etc. and broad market dynamics are likely to impact publicly traded office REITs in similar ways. For purposes of evaluating the pay practices of our peers, we focus on both publicly traded office REITs and publicly traded REITs of a similar size to us. In determining pay practices, we believe it is important to evaluate REITs of a similar size, as we are one of the smaller REITs in the publicly traded office REIT peer group. As part of our annual analysis, we utilize data provided by our association with the National Association of Real Estate Investment Trusts (“NAREIT”). Each year, NAREIT sponsors a detailed compensation survey prepared by independent consultant FPL Associates, L.P. In 2022, 123 companies participated in the survey, representing approximately 75% of the equity market capitalization of U.S listed equity REITs. The data is segmented into an analysis of base salary, total cash compensation and total remuneration. Data is further segmented based on the 25th percentile, median, average and 75th percentile by role, market segment and other factors. The Compensation Committee evaluates the range of data within both the publicly traded office REIT sector, as well as REITs that have a total enterprise value of $1.5 billion to $3.0 billion. When analyzing this data cohort, the Compensation Committee considers the fact that the Company is one of the smaller entities within the publicly traded office REIT sector. 2022 Performance Objectives On November 2, 2021, the Company’s Board of Directors approved an updated five-year strategic plan and an operating budget for 2022. The Board of Directors believes that the successful execution of the five-year strategic plan and operating budget will position the Company for strong stockholder returns over the long term. The targets from the strategic plan and operating budget were used to develop specific operating and financial performance targets in order to measure progress. Subsequently, the Compensation Committee approved the creation of the Performance Objectives and relative weightings, which it believed would appropriately measure progress towards the achievement of both the strategic plan and the operating budget, and the concepts are summarized below:
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We use FFO, which NAREIT states should represent net income or loss (computed in accordance with U.S. generally accepted accounting principles) plus real estate related depreciation and amortization (excluding amortization of deferred financing costs) and after adjustments of unconsolidated partnerships and joint ventures, gains or losses on the sale of property and impairments to real estate, as a supplemental performance measure, because we believe that FFO is beneficial as a starting point in measuring the Company’s operational performance. We also believe that, as a widely recognized measure of the performance of REITs, FFO can be used as a basis to compare the Company’s operating performance to that of other REITs. We also believe Core FFO, calculated using FFO as defined by NAREIT and adjusting for certain other non-core items, such as deducting acquisition costs, loss on early extinguishment of debt, changes in the fair value of earn-outs, changes in the fair value of contingent consideration and the amortization of stock-based compensation, provides a useful metric in comparing operations between reporting periods and in assessing the sustainability of the Company’s ongoing operating performance. We define NOI as total rental and other revenues less property operating expenses. We consider NOI to be an appropriate supplemental performance measure to net income because we believe it provides information useful in understanding the core operations and operating performance of the Company’s portfolio. We believe that Same Store Cash NOI, calculated as the NOI attributable to the properties continuously owned and operated for the entirety of the reporting periods presented (excluding properties that were not stabilized during both of the applicable reporting periods), is an important measure of comparison, because it allows for comparison of operating results of stabilized properties owned and operated for the entirety of both applicable periods and therefore eliminates variations caused by acquisitions, dispositions or re-positionings during such periods. 30 The Compensation Committee established the following relative weightings for these Performance Objectives in 2022:
Each Performance Objective is measured between 0-200% of the target weighting, with 100% established as target performance. The Compensation Committee believes that the 2022 Performance Objectives were established with the goal of promoting both short- and long-term stockholder value. In addition, the Compensation Committee believes that maintaining an ability to reward specific accomplishments outside of the Performance Objective criteria that generate incremental stockholder value is an important alignment tool. The Compensation Committee retains the ability to make adjustments in determining performance to reward special achievements or to account for negative factors. 2022 Performance Evaluation The Compensation Committee evaluated the Company’s actual performance against the 2022 Performance Objectives and formulated a recommendation to the Company’s Board of Directors. Key factors driving the Compensation Committee’s conclusions included, among other factors:
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Structure and Components of the Executive Compensation Program The compensation program for NEOs generally consists of base salary, annual cash incentive compensation potential and long-term equity incentive compensation potential. Each year the Compensation Committee establishes a set of Performance Objectives (discussed further above) and weightings for each Performance Objective, which is used in evaluating performance and determining total remuneration of our NEOs. Base Salary Base salaries for NEOs are determined by position, which takes into consideration the scope of job responsibilities, the employee’s level of experience and expertise and competitive market compensation paid by other public office REITs for similar positions. Base salaries for NEOs are generally fixed by the Compensation Committee for a two-year period and reviewed for adjustment every other year and set to a level that the Compensation Committee believes is necessary and appropriate to attract and retain high-quality professionals. However, the Compensation Committee reviews base salaries paid by our peer groups on an annual basis to determine if adjustments should be made more frequently. Under guidelines established by our Compensation Committee, the target for base salaries for our NEOs is intended to be generally below the comparable peer groups’ average while providing the ability to achieve above average total remuneration based on strong performance. On February 1, 2018, we, through a wholly-owned subsidiary, entered into Employment Agreements (collectively, the “Original Employment Agreements”) with each of our NEOs. On July 31, 2019, we, through a wholly-owned subsidiary, entered into amendments to the Original Employment Agreements (collectively with 32 the Original Employment Agreements, the “Employment Agreements”) with each of our NEOs. On August 4, 2021, we through a wholly-owned subsidiary entered into second amendments to the Employment Agreements with each of our NEOs. See “Certain Relationships and Related Person Transactions.” Base salaries for the NEOs were last adjusted on January 1, 2020. For 2022, the Compensation Committee recommended and the Board of Directors approved no change to the Base Salary compensation for our NEOs, which is as follows:
Annual Cash Incentive Compensation Our NEOs have the opportunity to earn an annual cash incentive compensation designed to reward annual corporate performance. In determining the actual annual cash incentive compensation paid to an NEO, the Compensation Committee provides a score for each Performance Objective. However, the percentage amount an NEO may earn under this program can generally range from 0-200% of base salary as determined by the Compensation Committee’s measurement of achievement under the Performance Objectives, subject to special circumstance reward or punitive adjustments that may be approved by the Compensation Committee in its discretion. The Compensation Committee considered the Company’s actual performance for 2022 against the 2022 Performance Objectives as well as the other factors described above. Based on those considerations, the Compensation Committee made the following annual cash incentive compensation recommendations for 2022 performance, which were subsequently approved by the Company’s Board of Directors and paid to the NEOs.
Long-Term Equity Incentive Compensation Our NEOs are eligible to receive long-term equity incentive compensation under the Company’s EIP that promotes our long-term success by aligning the NEOs’ interests with the interests of our stockholders. The EIP enables the Company to provide the NEOs with an ownership interest in our company through restricted stock units and performance restricted stock units. Such compensation is typically granted during the first quarter of each year relating to the prior year’s performance. The Compensation Committee may, from time to time pursuant to the EIP, grant our NEOs certain equity-based awards. These awards are designed to align the interests of our NEOs with those of our stockholders by allowing our NEOs to share in the creation of value for our stockholders through capital appreciation and dividends. These equity awards are generally subject to vesting requirements, and are designed to promote the retention of management and to achieve strong performance for our company. Our NEOs and independent directors are subject to certain stock ownership guidelines and our NEOs are subject to an additional requirement to hold an amount of our common stock having an aggregate value of at least a certain multiple of the NEO’s annual base salary. For more information on our stock ownership guidelines, see the discussion elsewhere in this Proxy Statement under the heading “—Stock Ownership Guidelines.” 33 REIT regulations require us to pay at least 90% of our REIT taxable income to stockholders as dividends. As a result, we believe that our common stockholders are interested in receiving attractive risk-adjusted dividends and the growth of our market capitalization. Accordingly, we want to provide incentives to our NEOs that reward success in achieving these goals. We believe that equity-based awards serve to align the interests of our NEOs with the interests of our stockholders since the value our NEOs receive from these awards is largely dependent on the value of our common stock, the potential for appreciation of that value and our capability to pay dividends. We believe that this alignment of interests provides an incentive to our NEOs to implement strategies that will enhance our overall performance. Long-Term Equity Incentive Compensation Objectives The issuance of restricted stock units and performance restricted stock units are an important motivational and retention tool that serves to drive performance and deter our NEOs from seeking other employment opportunities. We also believe that it creates a good long-term alignment between our NEOs and stockholders. We utilize both time-based restricted stock units that generally vest ratably on an annual basis over a three-year term, as well as performance restricted stock units that generally cliff vest after three years with payouts ranging from 50% to 150%, depending on relative total shareholder return versus the individual company constituents in a peer group set, subject to the Compensation Committee’s discretion and as described further below. If an NEO leaves the employment of the Company, unvested restricted stock units and unvested performance restricted stock units are immediately forfeited, except in limited circumstances. Dividends received on the restricted stock units are accrued at the same rate and on the same date as our common stock and remain subject to forfeiture, and dividends on the performance restricted stock units are only accrued at the end of the applicable term based on the actual award vesting amount. The Compensation Committee designed the long-term incentive awards to ensure that our NEOs have a continuing stake in our long-term success, that the total compensation realized by our NEOs reflects our multi-year performance as measured by the efficient use of capital and changes in stockholder value, and that a large portion of their total compensation opportunity is earned over a multi-year period and could be forfeitable in the event of termination of their service to us or our affiliates. This intent is reinforced through our stock ownership guidelines and our Recoupment Policy. Our overall approach for setting the level of long-term equity incentive compensation is to create and sustain long-term stockholder value while rewarding employee performance. Under the guidelines established by our Compensation Committee, the base salaries our NEO’s receive are intended to be below-market, with the ability to achieve total renumeration at the higher end of the market range, through bonuses and long-term incentive compensation based on performance. When considering market remuneration, our Compensation Committee evaluates remuneration levels of our publicly traded REIT peer set and considers our relative size and performance versus the comparison peer groups. As we intentionally set base salaries generally below the average of our peer groups, the long-term equity incentive compensation component is intended to comprise a material portion of total remuneration if strong performance is achieved by the NEOs. During the fiscal year ended December 31, 2022, the composition of long-term equity incentive compensation to NEOs was comprised of 50% time-based restricted stock units and 50% performance restricted stock units, adjusted by one-time special awards of time-based restricted stock as described in the proxy statement for the 2022 Annual Meeting. The one-time special awards were made to the NEOs in recognition of their extraordinary efforts in negotiating and executing the important strategic disposition of the Sorrento Mesa life science portfolio and related transactions, resulting in a transformational $429 million realized gain on sale. The cash component of the one-time special awards was recognized in 2021, but because long-term equity incentive compensation is typically granted during the first quarter of each year relating to the prior year’s performance, the equity component of the one-time special awards was recognized in 2022. 34 For the fiscal year ending December 31, 2023, the Compensation Committee elected to alter the composition of long-term equity incentive compensation to NEOs to be comprised of 40% time-based restricted stock units and 60% performance restricted stock units, which the Company believes enhances the alignment of NEO compensation with the interests of our stockholders. Grants of Time Vesting Restricted Stock Units to our NEOs in 2022 During the fiscal year ended December 31, 2022, pursuant to the applicable restricted stock unit award agreements and our EIP, we issued 74,312 restricted stock units to Mr. Farrar, 74,312 restricted stock units to Mr. Tylee and 22,362 restricted stock units to Mr. Maretic. These restricted stock unit award agreements were approved by the Company’s Board of Directors, as recommended by the Compensation Committee, pursuant to the EIP. The awards were made pursuant to restricted stock unit award agreements between the Company and each of the award recipients, subject to vesting over a three-year period. These restricted stock units vest in three equal installments on each of the first three anniversaries of the grant date and shall vest in full upon the termination of employment without Cause (as defined in the form of award agreement). If earned, these restricted stock units will be settled in the form of shares of our common stock, pursuant to the EIP, or if approved by the Compensation Committee, in cash of equivalent value. Restricted stock units do not entitle the recipient to the rights of a holder of common stock until shares are issued upon settlement of the vested units. The restricted stock unit award agreements generally also grant the right to receive dividends pursuant to the dividend equivalency rights, which will be reinvested in shares of our common stock and delivered to the recipient upon, and subject to, satisfaction of the vesting criteria applicable to the related restricted stock units. In connection with the payment of dividends declared of $0.20 per share on December 17, 2021, $0.20 on March 15, 2022, $0.20 per share on June 16, 2022 and $0.20 per share on September 15, 2022, Mr. Farrar was granted an aggregate 7,848 restricted stock units, Mr. Tylee was granted an aggregate 7,848 restricted stock units and Mr. Maretic was granted an aggregate 2,876 restricted stock units. These additional restricted stock units vest in accordance with the same vesting schedule, and upon the same conditions, as the underlying restricted stock units as to which the dividend equivalent rights were granted (generally vesting on the first three anniversaries of the original grant date). Future awards will be at the discretion of our Compensation Committee. The Time Vesting Restricted Stock Unit component of the long-term equity incentive compensation that was issued in January 2022 for each of the NEOs for calendar year 2021 performance is listed below. As described above, the Time Vesting Restricted Stock Unit component was increased for the one-time special awards related to the Sorrento Mesa life science portfolio sale. Without the one-time special awards, the Time Vesting Restricted Stock Unit component would have represented 50% of the long-term equity incentive compensation for the year.
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