Exhibit 99.2
Pro Forma Consolidated Financial Statements
(Unaudited)
On December 31, 2021, City Office REIT, Inc. (the “Company,” “we,” “our” or “us”) closed on the acquisition of Bloc 83 in Raleigh, North Carolina for a gross purchase price of $330.0 million. The Company does not have a material relationship with the seller of Bloc 83 and the acquisition is not an affiliated transaction. As previously announced, on December 2, 2021, the Company closed on the sale of the Sorrento Mesa Portfolio (“Sorrento Mesa”) in San Diego, California for a gross sales price of $576.0 million.
The accompanying unaudited Pro Forma Consolidated Balance Sheet is presented as of September 30, 2021 and the unaudited Pro Forma Consolidated Statements of Operations and unaudited Pro Forma Consolidated Statements of Comprehensive Income are presented for the nine-month period ended September 30, 2021 and the year ended December 31, 2020 and include certain pro forma adjustments to illustrate the estimated effect of the Company’s acquisition of Bloc 83 and disposition of Sorrento Mesa. The City Office REIT, Inc. Historical columns have been derived from the audited financial statements for the year ended December 31, 2020 and from the unaudited interim financial statements as of and for the nine-month period ended September 30, 2021.
On the unaudited Pro Forma Consolidated Balance Sheet, the pro forma adjustments reflect the addition of the acquired property and removal of the disposed property as if the transactions had occurred on September 30, 2021. On the unaudited Pro Forma Consolidated Statement of Operations, for the nine-month period ended September 30, 2021 and the year ended December 31, 2020, the pro forma adjustments reflect the addition of historical revenue and expenses of the acquired property and removal of historical revenues and expenses of the disposed property for the periods presented as if the transaction had occurred on January 1, 2020. The unaudited Pro Forma Consolidated Statements of Operations exclude any nonrecurring charges or credits directly attributable to the acquisition or disposition.
The unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there can be no assurance that the Company’s results would not have differed significantly from those set forth below if the acquisition or disposition had actually occurred on January 1, 2020. Accordingly, the unaudited Pro Forma Consolidated Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the disposition of the property occurred on the date indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Company makes no representations regarding the information set forth below or the Company’s ultimate performance compared to it.
Pro forma information is intended to provide investors with information about the impact of transactions by showing how specific transactions might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. This pro forma consolidated information should not be viewed as indicative of the Company’s financial results in the future and should be read in conjunction with the Company’s financial statements as filed on Form 10-K for the year ended December 31, 2020 and on Form 10-Q for the nine-month period ended September 30, 2021. The adjustments made to historical financial information give effect to events that are directly attributable to the acquisition Bloc 83 and disposition of Sorrento Mesa and are factually supportable. The unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Article 11 of Regulation S-X.
City Office REIT, Inc.
Pro Forma Consolidated Balance Sheet
As of September 30, 2021
(Unaudited)
(In thousands, except par value and share data)
City Office REIT, Inc. Historical | Acquisition of Bloc 83 (A) | Disposition of Sorrento Mesa (B) | City Office REIT, Inc. Pro Forma | |||||||||||||
Assets | ||||||||||||||||
Real estate properties, net | $ | 868,248 | $ | 304,344 | $ | — | $ | 1,172,592 | ||||||||
Cash and cash equivalents | 17,697 | — | 42,439 | 60,136 | ||||||||||||
Restricted cash | 52,484 | (320,718 | ) | 505,253 | 237,019 | |||||||||||
Rents receivable, net | 29,221 | — | — | 29,221 | ||||||||||||
Deferred leasing costs, net | 18,415 | — | — | 18,415 | ||||||||||||
Acquired lease intangible assets, net | 30,183 | 19,560 | — | 49,743 | ||||||||||||
Other assets | 17,753 | 291 | — | 18,044 | ||||||||||||
Assets held for sale | 118,382 | — | (118,382 | ) | — | |||||||||||
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Total Assets | $ | 1,152,383 | $ | 3,477 | $ | 429,310 | $ | 1,585,170 | ||||||||
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Liabilities and Equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Debt | $ | 603,334 | $ | — | $ | — | $ | 603,334 | ||||||||
Accounts payable and accrued liabilities | 32,096 | — | — | 32,096 | ||||||||||||
Deferred rent | 10,460 | 140 | — | 10,600 | ||||||||||||
Tenant rent deposits | 5,542 | 323 | — | 5,865 | ||||||||||||
Acquired lease intangible liabilities, net | 3,868 | 3,014 | — | 6,882 | ||||||||||||
Other liabilities | 47,662 | — | — | 47,662 | ||||||||||||
Liabilities related to assets held for sale | 2,873 | — | (2,873 | ) | — | |||||||||||
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Total Liabilities | 705,835 | 3,477 | (2,873 | ) | 706,439 | |||||||||||
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Equity: | ||||||||||||||||
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 shares issued and outstanding | 112,000 | — | — | 112,000 | ||||||||||||
Common stock, $0.01 par value per share, 100,000,000 shares authorized, 43,554,375 shares issued and outstanding | 435 | — | — | 435 | ||||||||||||
Additional paid-in capital | 481,345 | — | — | 481,345 | ||||||||||||
Retained earnings (accumulated deficit) | (146,930 | ) | — | 432,183 | 285,253 | |||||||||||
Accumulated other comprehensive loss | (1,063 | ) | — | — | (1,063 | ) | ||||||||||
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Total Stockholders’ Equity | 445,787 | — | 432,183 | 877,970 | ||||||||||||
Non-controlling interests in properties | 761 | — | — | 761 | ||||||||||||
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Total Equity | 446,548 | — | 432,183 | 878,731 | ||||||||||||
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Total Liabilities and Equity | $ | 1,152,383 | $ | 3,477 | $ | 429,310 | $ | 1,585,170 | ||||||||
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City Office REIT, Inc.
Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2021
(Unaudited)
(In thousands, except per share data)
City Office REIT, Inc. Historical | Acquisition of Bloc 83 (AA) | Disposition of Sorrento Mesa (BB) | City Office REIT, Inc. Pro Forma | |||||||||||||
Rental and other revenues | $ | 124,369 | $ | 8,700 | $ | (9,375 | ) | $ | 123,694 | |||||||
Operating expenses: | ||||||||||||||||
Property operating expenses | 43,477 | 2,362 | (1,981 | ) | 43,858 | |||||||||||
General and administrative | 13,768 | — | — | 13,768 | ||||||||||||
Depreciation and amortization | 44,017 | 5,334 | (3,423 | ) | 45,928 | |||||||||||
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Total operating expenses | 101,262 | 7,696 | (5,404 | ) | 103,554 | |||||||||||
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Operating income | 23,107 | 1,004 | (3,971 | ) | 20,140 | |||||||||||
Interest expense: | ||||||||||||||||
Contractual interest expense | (17,533 | ) | — | — | (17,533 | ) | ||||||||||
Amortization of deferred financing costs and debt fair value | (869 | ) | — | — | (869 | ) | ||||||||||
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(18,402 | ) | — | — | (18,402 | ) | |||||||||||
Net gain on sale of real estate property | 47,400 | — | — | 47,400 | ||||||||||||
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Net income | 52,105 | 1,004 | (3,971 | ) | 49,138 | |||||||||||
Less: | ||||||||||||||||
Net income attributable to non-controlling interests in properties | (760 | ) | — | — | (760 | ) | ||||||||||
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Net income attributable to the Company | 51,345 | 1,004 | (3,971 | ) | 48,378 | |||||||||||
Preferred stock distributions | (5,565 | ) | — | — | (5,565 | ) | ||||||||||
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Net income attributable to common stockholders | $ | 45,780 | $ | 1,004 | $ | (3,971 | ) | $ | 42,813 | |||||||
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Net income per common share: | ||||||||||||||||
Basic | $ | 1.05 | $ | 0.98 | ||||||||||||
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Diluted | $ | 1.04 | $ | 0.97 | ||||||||||||
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Weighted average common shares outstanding: | ||||||||||||||||
Basic | 43,478 | 43,478 | ||||||||||||||
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Diluted | 44,091 | 44,091 | ||||||||||||||
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Dividend distributions declared per common share | $ | 0.45 | $ | 0.45 | ||||||||||||
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City Office REIT, Inc.
Pro Forma Consolidated Statement of Comprehensive Income
For the Nine Months Ended September 30, 2021
(Unaudited)
(In thousands)
City Office REIT, Inc. Historical | Acquisition of Bloc 83 (AA) | Disposition of Sorrento Mesa (BB) | City Office REIT, Inc. Pro Forma | |||||||||||||
Net income | $ | 52,105 | $ | 1,004 | $ | (3,971 | ) | $ | 49,138 | |||||||
Other comprehensive income: | ||||||||||||||||
Unrealized cash flow hedge gain | 458 | — | — | 458 | ||||||||||||
Amounts reclassified to interest expense | 439 | — | — | 439 | ||||||||||||
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Other comprehensive income | 897 | — | — | 897 | ||||||||||||
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Comprehensive income | 53,002 | 1,004 | (3,971 | ) | 50,035 | |||||||||||
Less: | ||||||||||||||||
Comprehensive income attributable to non-controlling interests in properties | (760 | ) | — | — | (760 | ) | ||||||||||
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Comprehensive income attributable to the Company | $ | 52,242 | $ | 1,004 | $ | (3,971 | ) | $ | 49,275 | |||||||
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City Office REIT, Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2020
(Unaudited)
(In thousands, except per share data)
City Office REIT, Inc. Historical | Acquisition of Bloc 83 (AA) | Disposition of Sorrento Mesa (BB) | City Office REIT, Inc. Pro Forma | |||||||||||||
Rental and other revenues | $ | 160,840 | $ | 9,177 | $ | (9,921 | ) | $ | 160,096 | |||||||
Operating expenses: | ||||||||||||||||
Property operating expenses | 58,312 | 2,402 | (1,892 | ) | 58,822 | |||||||||||
General and administrative | 10,690 | — | — | 10,690 | ||||||||||||
Depreciation and amortization | 60,367 | 7,271 | (3,747 | ) | 63,891 | |||||||||||
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Total operating expenses | 129,369 | 9,673 | (5,639 | ) | 133,403 | |||||||||||
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Operating income | 31,471 | (496 | ) | (4,282 | ) | 26,693 | ||||||||||
Interest expense: | ||||||||||||||||
Contractual interest expense | (26,363 | ) | — | — | (26,363 | ) | ||||||||||
Amortization of deferred financing costs and debt fair value | (1,326 | ) | — | — | (1,326 | ) | ||||||||||
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(27,689 | ) | — | — | (27,689 | ) | |||||||||||
Net gain on sale of real estate property | 1,347 | — | — | 1,347 | ||||||||||||
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Net income | 5,129 | (496 | ) | (4,282 | ) | 351 | ||||||||||
Less: | ||||||||||||||||
Net income attributable to non-controlling interests in properties | (602 | ) | — | — | (602 | ) | ||||||||||
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Net income/(loss) attributable to the Company | 4,527 | (496 | ) | (4,282 | ) | (251 | ) | |||||||||
Preferred stock distributions | (7,420 | ) | — | — | (7,420 | ) | ||||||||||
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Net loss attributable to common stockholders | $ | (2,893 | ) | $ | (496 | ) | $ | (4,282 | ) | $ | (7,671 | ) | ||||
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Net loss per common share: | ||||||||||||||||
Basic | $ | (0.06 | ) | $ | (0.16 | ) | ||||||||||
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Diluted | $ | (0.06 | ) | $ | (0.16 | ) | ||||||||||
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Weighted average common shares outstanding: | ||||||||||||||||
Basic | 47,223 | 47,223 | ||||||||||||||
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Diluted | 47,223 | 47,223 | ||||||||||||||
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Dividend distributions declared per common share | $ | 0.60 | $ | 0.60 | ||||||||||||
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City Office REIT, Inc.
Pro Forma Consolidated Statement of Comprehensive Income
For the Year Ended December 31, 2020
(Unaudited)
(In thousands)
City Office REIT, Inc. Historical | Acquisition of Bloc 83 (AA) | Disposition of Sorrento Mesa (BB) | City Office REIT, Inc. Pro Forma | |||||||||||||
Net income | $ | 5,129 | $ | (496 | ) | $ | (4,282 | ) | $ | 351 | ||||||
Other comprehensive income/(loss): | ||||||||||||||||
Unrealized cash flow hedge loss | (3,003 | ) | — | — | (3,003 | ) | ||||||||||
Amounts reclassified to interest expense | 328 | — | — | 328 | ||||||||||||
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Other comprehensive loss | (2,675 | ) | — | — | (2,675 | ) | ||||||||||
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Comprehensive income/(loss) | 2,454 | (496 | ) | (4,282 | ) | (2,324 | ) | |||||||||
Less: | ||||||||||||||||
Comprehensive income attributable to non-controlling interests in properties | (602 | ) | — | — | (602 | ) | ||||||||||
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Comprehensive income/(loss) attributable to the Company | $ | 1,852 | $ | (496 | ) | $ | (4,282 | ) | $ | (2,926 | ) | |||||
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City Office REIT, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
1. Adjustments to Unaudited Pro Forma Consolidated Balance Sheet
(A) The acquisition of Bloc 83 was accounted for using preliminary estimates of the fair value of tangible and intangible assets to be acquired and liabilities to be assumed in connection with the acquisition. The pro forma adjustments include the estimated cash paid from escrow upon the acquisition of Bloc 83 and was recorded as an asset acquisition.
(B) The pro forma adjustments for the disposition of the Sorrento Mesa property include the net sales proceeds received and remove the carrying value of the disposed Sorrento Mesa property.
2. Adjustments to Unaudited Pro Forma Consolidated Statement of Operations and Unaudited Pro Forma Consolidated Statement of Comprehensive Income
(AA) These pro forma adjustments are based on the historical revenue and expenses of Bloc 83 for the nine months ended September 30, 2021 and year ended December 31, 2020 under the previous owners’ ownership. The pro forma adjustments include estimated depreciation expense based on the fair value of the tangible and intangible assets acquired and liabilities assumed.
(BB) These pro forma adjustments remove the actual historical revenue and expenses for the nine months ended September 30, 2021 and year ended December 31, 2020 from the operations of the Sorrento Mesa property under the Company’s ownership.