PART I. FINANCIAL INFORMATION Presents City Office REIT, Inc.'s unaudited condensed consolidated financial statements and detailed explanatory notes [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements, encompassing balance sheets, operations, equity, cash flows, and detailed notes, are presented [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) - Total Assets decreased slightly from **$1,157,292 thousand** at December 31, 2020, to **$1,152,383 thousand** at September 30, 2021[11](index=11&type=chunk) - Assets held for sale significantly increased from **$46,054 thousand** to **$118,382 thousand**, indicating a strategic shift towards dispositions[11](index=11&type=chunk) - Total Liabilities decreased from **$739,417 thousand** to **$705,835 thousand**, primarily driven by a reduction in debt[11](index=11&type=chunk) Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :---------------------------------- | :-------------------------------- | :--------------------------------- | | **Assets** | | | | Real estate properties, net | $868,248 | $955,589 | | Assets held for sale | $118,382 | $46,054 | | Total Assets | $1,152,383 | $1,157,292 | | **Liabilities** | | | | Debt | $603,334 | $677,242 | | Total Liabilities | $705,835 | $739,417 | | **Equity** | | | | Total Stockholders' Equity | $445,787 | $416,926 | | Total Equity | $446,548 | $417,875 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) - Rental and other revenues increased by **9%** for the three months ended September 30, 2021, and by **3%** for the nine months ended September 30, 2021, compared to the respective prior periods[15](index=15&type=chunk) - Net income attributable to the Company saw a significant increase for the nine months ended September 30, 2021, reaching **$51,345 thousand**, primarily due to a **$47,400 thousand** net gain on the sale of real estate property[15](index=15&type=chunk) Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Rental and other revenues | $44,889 | $41,261 | $124,369 | $121,000 | | Total operating expenses | $37,728 | $32,621 | $101,262 | $96,913 | | Operating income | $7,161 | $8,640 | $23,107 | $24,087 | | Net gain on sale of real estate property | — | $1,347 | $47,400 | $1,347 | | Net income attributable to the Company | $866 | $2,886 | $51,345 | $4,154 | | Net (loss)/income attributable to common stockholders | $(989) | $1,031 | $45,780 | $(1,411) | | Basic EPS | $(0.02) | $0.02 | $1.05 | $(0.03) | | Diluted EPS | $(0.02) | $0.02 | $1.04 | $(0.03) | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) - Comprehensive income attributable to the Company significantly increased to **$52,242 thousand** for the nine months ended September 30, 2021, compared to **$1,249 thousand** in the prior year, largely driven by higher net income and a positive shift in other comprehensive income[17](index=17&type=chunk) Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $1,244 | $3,039 | $52,105 | $4,668 | | Other comprehensive income/(loss) | $128 | $134 | $897 | $(2,905) | | Comprehensive income attributable to the Company | $994 | $3,020 | $52,242 | $1,249 | [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) - Total equity increased from **$417,875 thousand** at December 31, 2020, to **$446,548 thousand** at September 30, 2021, primarily due to net income and other comprehensive income, partially offset by dividend distributions[21](index=21&type=chunk) - The accumulated deficit decreased significantly from **$(172,958) thousand** to **$(146,930) thousand**, reflecting positive net income during the period[21](index=21&type=chunk) Condensed Consolidated Statements of Changes in Equity (in thousands) | Metric (in thousands) | Balance—Dec 31, 2020 | Balance—Sep 30, 2021 | | :------------------------------------------ | :------------------- | :------------------- | | Preferred stock | $112,000 | $112,000 | | Common stock | $433 | $435 | | Additional paid-in capital | $479,411 | $481,345 | | Accumulated deficit | $(172,958) | $(146,930) | | Accumulated other comprehensive loss | $(1,960) | $(1,063) | | Total stockholders' equity | $416,926 | $445,787 | | Non-controlling interests in properties | $949 | $761 | | Total equity | $417,875 | $446,548 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) - Net cash provided by operating activities increased by **$18.1 million**, from **$47,631 thousand** in 2020 to **$65,731 thousand** in 2021[25](index=25&type=chunk) - Investing activities shifted from a net cash outflow of **$15,244 thousand** in 2020 to a net cash inflow of **$59,586 thousand** in 2021, primarily due to proceeds from property sales[25](index=25&type=chunk) - Net cash used in financing activities increased to **$101,087 thousand** in 2021, up from **$63,549 thousand** in 2020, mainly due to higher debt repayments[25](index=25&type=chunk) Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided By Operating Activities | $65,731 | $47,631 | | Net Cash Provided By/(Used In) Investing Activities | $59,586 | $(15,244) | | Net Cash Used In Financing Activities | $(101,087) | $(63,549) | | Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash | $24,230 | $(31,162) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $70,181 | $56,361 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization and Description of Business](index=9&type=section&id=1.%20Organization%20and%20Description%20of%20Business) City Office REIT, Inc., formed in Maryland in 2013, operates as a REIT and sole general partner of its Operating Partnership - Company organized in Maryland on November 26, 2013, and completed its initial public offering (IPO) on April 21, 2014[27](index=27&type=chunk) - Operates as the sole general partner of City Office REIT Operating Partnership, L.P., managing its business[28](index=28&type=chunk) - Elected to be taxed and operates to qualify as a Real Estate Investment Trust (REIT), allowing deduction of dividend distributions and eliminating U.S. federal taxation at the company level[29](index=29&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements follow SEC rules and US GAAP; the Company evaluates recent accounting pronouncements ASU 2020-04, 2021-01, and 2021-05 - Unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and US GAAP, requiring management estimates and assumptions[30](index=30&type=chunk) - The Company is evaluating the impact of ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) on its financial statements, which provide optional expedients for contract modifications and hedge accounting related to the transition away from LIBOR[31](index=31&type=chunk) - The Company is also evaluating ASU 2021-05 (Leases), effective for fiscal years beginning after December 15, 2021, which requires lessors to classify certain leases with variable payments as operating leases[32](index=32&type=chunk) [3. Real Estate Investments](index=10&type=section&id=3.%20Real%20Estate%20Investments) The Company engaged in significant real estate transactions, including property sales, acquisitions, and classifying assets as held for sale - Sold the Cherry Creek property in February 2021 for **$95.0 million**, resulting in a net gain of **$47.4 million**[34](index=34&type=chunk) - Acquired 5910 Pacific Center and 9985 Pacific Heights (Sorrento Mesa portfolio) in May 2021 for a net cost of **$43.256 million**[35](index=35&type=chunk)[36](index=36&type=chunk) - Entered into agreements to sell the North Disposition (**$395.1 million**) and South Disposition (**$180.9 million**) of Sorrento Mesa properties, classifying them as assets held for sale as of September 30, 2021[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [4. Lease Intangibles](index=12&type=section&id=4.%20Lease%20Intangibles) Lease intangibles totaled **$30.183 million** in assets and **$(3.868) million** in liabilities, with **$26.315 million** estimated amortization Lease Intangible Category (in thousands) | Lease Intangible Category (in thousands) | September 30, 2021 | December 31, 2020 | | :--------------------------------------- | :----------------- | :---------------- | | Above Market Leases (net) | $4,895 | $6,397 | | Lease In Place Leases (net) | $15,596 | $24,623 | | Leasing Commissions (net) | $9,692 | $13,123 | | Total Acquired Lease Intangible Assets, net | $30,183 | $44,143 | | Below Market Leases (net) | $(3,777) | $(5,941) | | Below Market Ground Lease (net) | $(91) | $(94) | | Total Acquired Lease Intangible Liabilities, net | $(3,868) | $(6,035) | Estimated Aggregate Amortization Expense (in thousands) | Year | Estimated Aggregate Amortization Expense (in thousands) | | :--- | :------------------------------------------------------ | | 2021 | $2,381 | | 2022 | $7,699 | | 2023 | $5,281 | | 2024 | $2,994 | | 2025 | $2,751 | | Thereafter | $5,209 | | Total | $26,315 | [5. Debt](index=13&type=section&id=5.%20Debt) Total principal debt decreased to **$606.174 million**, comprising variable-rate facilities and fixed-rate mortgages, with significant maturities in 2022 and 2024 - The Midland Life Insurance mortgage loan balance of **$83.5 million** was repaid in full in February 2021[42](index=42&type=chunk) Debt Summary (dollars in thousands) | Debt Type (dollars in thousands) | September 30, 2021 | December 31, 2020 | Interest Rate (Sep 30, 2021) | Maturity | | :------------------------------- | :----------------- | :---------------- | :--------------------------- | :--------- | | Unsecured Credit Facility | $88,000 | $75,000 | LIBOR +1.40% | March 2022 | | Term Loan | $50,000 | $50,000 | LIBOR +1.25% | September 2024 | | Midland Life Insurance | — | $83,537 | — | — | | Total Principal | $606,174 | $680,962 | | | Scheduled Principal Repayments (in thousands) | Year | Scheduled Principal Repayments (in thousands) | | :--- | :-------------------------------------------- | | 2021 | $1,524 | | 2022 | $94,539 | | 2023 | $48,539 | | 2024 | $124,736 | | 2025 | $91,997 | | Thereafter | $244,839 | | Total | $606,174 | [6. Fair Value of Financial Instruments](index=14&type=section&id=6.%20Fair%20Value%20of%20Financial%20Instruments) An interest rate swap, a Level 2 cash flow hedge, was a **$1.1 million** liability; fixed-rate mortgage loans had a Level 3 fair value of **$474.0 million** - The Interest Rate Swap, with a notional amount of **$50 million**, is classified as a Level 2 fair value measurement and a cash flow hedge[45](index=45&type=chunk)[46](index=46&type=chunk) - As of September 30, 2021, the Interest Rate Swap was reported as a liability at its fair value of approximately **$1.1 million**[47](index=47&type=chunk) - The fair value of fixed rate mortgage loans payable was **$474.0 million** (carrying value **$468.2 million**) as of September 30, 2021, and **$573.6 million** (carrying value **$556.0 million**) as of December 31, 2020, classified as Level 3 fair value measurements[50](index=50&type=chunk) [7. Related Party Transactions](index=14&type=section&id=7.%20Related%20Party%20Transactions) The Company earned **$0.5 million** in administrative services from related parties for both the nine months ended September 30, 2021, and 2020 Administrative Services Income (in millions) | Metric | Nine Months Ended Sep 30, 2021 (in millions) | Nine Months Ended Sep 30, 2020 (in millions) | | :------------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Administrative services income | $0.5 | $0.5 | [8. Leases](index=14&type=section&id=8.%20Leases) Details lessor and lessee accounting, including **$124.229 million** in lease payments received and **$14.238 million** in right-of-use assets Lessor Accounting (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Fixed payments | $38,963 | $35,071 | $106,825 | $103,070 | | Variable payments | $5,868 | $6,151 | $17,404 | $17,864 | | Total | $44,831 | $41,222 | $124,229 | $120,934 | Future Minimum Lease Payments to be Received (in thousands) | Year | Amount | | :--- | :----- | | 2021 | $29,967 | | 2022 | $111,708 | | 2023 | $92,205 | | 2024 | $72,917 | | 2025 | $59,773 | | Thereafter | $182,296 | | Total | $548,866 | Lessee Accounting (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :----------------- | :---------------- | | Right-of-use asset – operating leases | $14,238 | $12,739 | | Lease liability – operating leases | $9,374 | $7,719 | | Right-of-use asset – financing leases | $37 | $55 | | Lease liability – financing leases | $37 | $55 | | Weighted average discount rate | 6.2% | | [9. Commitments and Contingencies](index=16&type=section&id=9.%20Commitments%20and%20Contingencies) Obligations include tenant improvements and environmental compliance; ordinary course litigation is not expected to materially affect financial position or operations - Obligated under certain tenant leases to fund tenant improvements and property expansions[59](index=59&type=chunk) - Believes it is in compliance with environmental regulations and is not aware of any material adverse environmental liabilities[61](index=61&type=chunk) - Involved in ordinary course lawsuits and disputes, but management does not expect a material adverse effect on financial position or results of operations[62](index=62&type=chunk) [10. Stockholders' Equity](index=16&type=section&id=10.%20Stockholders'%20Equity) Share repurchase plans totaling **$150 million** were approved, with no repurchases in 2021; dividends declared, and equity incentive plan granted RSUs, incurring compensation - Completed a **$100 million** share repurchase plan in July 2020 and approved an additional **$50 million** plan in August 2020; no shares were repurchased during the nine months ended September 30, 2021[63](index=63&type=chunk)[65](index=65&type=chunk) - Declared a cash dividend distribution of **$0.15** per common share and **$0.4140625** per Series A Preferred Stock share for the quarter ended September 30, 2021[66](index=66&type=chunk)[67](index=67&type=chunk) - Granted **169,500** RSUs and **120,000** Performance RSU Awards during the nine months ended September 30, 2021, resulting in **$1.4 million** and **$0.6 million** in net compensation expense, respectively[71](index=71&type=chunk)[72](index=72&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations, including business overview, influencing factors, and financial comparisons [Cautionary Statement Regarding Forward-Looking Statements](index=19&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements identified by words like 'anticipate,' 'expect,' 'will,' and 'may,' which are subject to risks and uncertainties - The report contains forward-looking statements identified by words like 'anticipate,' 'expect,' 'will,' and 'may,' which are subject to risks and uncertainties[76](index=76&type=chunk) - Key risks include adverse economic/real estate developments, COVID-19 impacts (rent deferrals, decreased demand, increased vacancy), inability to compete, financing challenges, and failure to maintain REIT status[76](index=76&type=chunk)[77](index=77&type=chunk) - Actual results may differ materially from expectations due to various factors, and the Company undertakes no obligation to update these statements[78](index=78&type=chunk) [Overview](index=20&type=section&id=Overview) [Company](index=20&type=section&id=Company) City Office REIT, Inc. was formed in Maryland in 2013 and commenced operations after its IPO in April 2014, contributing net proceeds to its Operating Partnership - Formed as a Maryland corporation on November 26, 2013, and completed its initial public offering (IPO) on April 21, 2014[79](index=79&type=chunk) - Contributed net IPO proceeds to its Operating Partnership in exchange for common units, commencing operations for both entities[79](index=79&type=chunk) [Revenue Base](index=20&type=section&id=Revenue%20Base) The Company owned 24 properties (64 office buildings) with **5.6 million** square feet NRA and **88.7%** occupancy, primarily under full-service gross or net leases - As of September 30, 2021, the Company owned 24 properties (64 office buildings) with approximately **5.6 million** square feet of net rentable area (NRA)[80](index=80&type=chunk) - Properties were approximately **88.7%** leased as of September 30, 2021[80](index=80&type=chunk) - Leases are predominantly full-service gross or net, with specific properties (Lake Vista Pointe, Superior Pointe, 2525 McKinnon, Canyon Park) having triple net leases[81](index=81&type=chunk) [Factors That May Influence Our Operating Results and Financial Condition](index=21&type=section&id=Factors%20That%20May%20Influence%20Our%20Operating%20Results%20and%20Financial%20Condition) [COVID-19](index=21&type=section&id=COVID-19) COVID-19 led to lower asset usage, but **over 99%** of base rents were collected; slow leasing activity and long-term space uncertainty persist - Usage of assets in Q3 2021 was significantly lower than normal due to the COVID-19 pandemic[83](index=83&type=chunk) - Collected over **99%** of contractually required base rents for the three months ended September 30, 2021, and granted rent relief for approximately **0.1%** of occupied NRA[84](index=84&type=chunk)[85](index=85&type=chunk) - Leasing activity has generally been slow, with uncertainty over existing tenants' long-term space requirements and a trend towards subleasing, which could reduce future rental revenues[86](index=86&type=chunk) [Business and Strategy](index=22&type=section&id=Business%20and%20Strategy) Strategy focuses on acquiring office properties in target markets with strong growth, diversified industries, and high quality of life, leveraging concentrated local ownership - Focuses on owning and acquiring office properties in target markets with growing populations, above-average employment growth, diversified industries, low-cost business operations, and high quality of life[90](index=90&type=chunk) - Utilizes market-specific knowledge and relationships to identify acquisition opportunities offering cash flow stability and long-term value appreciation[90](index=90&type=chunk) - Target markets are attractive due to concentrated ownership among local operators and low institutional investor participation, which can result in favorable pricing and risk-adjusted returns[90](index=90&type=chunk) [Rental Revenue and Tenant Recoveries](index=22&type=section&id=Rental%20Revenue%20and%20Tenant%20Recoveries) Rental revenue depends on occupancy, leasing, and rental rates; economic downturns or tenant bankruptcies could impact future revenue and growth - Rental revenue depends on maintaining occupancy rates, leasing available space, and increasing rental rates[91](index=91&type=chunk) - Average rental rates for the portfolio are generally in-line or slightly below current market rates[91](index=91&type=chunk) - Future economic downturns or tenant bankruptcies could impair the ability to renew leases or maintain rental rates, while growth also relies on acquiring new properties[91](index=91&type=chunk) [Our Properties](index=23&type=section&id=Our%20Properties) Portfolio includes 24 properties (64 office buildings) totaling **5.6 million** square feet NRA across key metropolitan areas, with **88.7%** occupancy - As of September 30, 2021, the Company owned 24 properties comprising 64 office buildings with approximately **5.6 million** square feet of NRA[93](index=93&type=chunk)[94](index=94&type=chunk) - The portfolio is located in metropolitan areas such as Phoenix, Tampa, Denver, Orlando, Dallas, Portland, San Diego, and Seattle[93](index=93&type=chunk)[94](index=94&type=chunk) - Overall in-place occupancy was **88.7%**, with a weighted average annualized base rent of **$26.32** per square foot[94](index=94&type=chunk) [Operating Expenses](index=24&type=section&id=Operating%20Expenses) Operating expenses, including utilities, property taxes, insurance, and site maintenance, are generally passed through to tenants in full-service gross leases (above base year stops) and fully paid by tenants in net leased properties - Operating expenses consist of utilities, property and ad valorem taxes, insurance, and site maintenance costs[96](index=96&type=chunk) - Increases in these expenses over tenants' base years are generally passed along to tenants in full-service gross leased properties[96](index=96&type=chunk) - In net leased properties, tenants generally pay the full amount of these expenses[96](index=96&type=chunk) [Conditions in Our Markets](index=24&type=section&id=Conditions%20in%20Our%20Markets) Performance is sensitive to market economic conditions and natural hazards; COVID-19's long-term impact on markets, tenants, and strategy remains uncertain - Performance is impacted by economic conditions, state budgetary shortfalls, employment rates, and natural hazards in its operating markets[97](index=97&type=chunk) - The COVID-19 pandemic has caused significant disruption in global financial markets and economies, with its material impact on the Company's markets and tenants being highly uncertain and not reasonably estimable[97](index=97&type=chunk) [Summary of Significant Accounting Policies](index=24&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) The interim condensed consolidated financial statements adhere to the same accounting policies and procedures detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 - The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2020[98](index=98&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) [Comparison of Three Months Ended September 30, 2021 to Three Months Ended September 30, 2020](index=24&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030%2C%202021%20to%20Three%20Months%20Ended%20September%2030%2C%202020) Q3 2021 saw **9%** revenue growth from termination fees and acquisitions, **16%** operating expense increase due to a bonus accrual, and **15%** interest expense decrease [Rental and Other Revenues](index=24&type=section&id=Rental%20and%20Other%20Revenues) - Rental and other revenues increased by **$3.6 million (9%)** to **$44.9 million** for the three months ended September 30, 2021, compared to **$41.3 million** in the prior year[99](index=99&type=chunk) - Increase attributed to significant termination fee income at Park Tower (**+$5.2 million**) and SanTan (**+$0.6 million**), and acquisitions at Sorrento Mesa (**+$0.7 million**)[99](index=99&type=chunk) - Offset by a **$2.4 million** decrease in revenue due to the disposition of Cherry Creek in February 2021[99](index=99&type=chunk) [Total Operating Expenses](index=24&type=section&id=Total%20Operating%20Expenses) - Total operating expenses increased by **$5.1 million (16%)** to **$37.7 million** for the three months ended September 30, 2021, from **$32.6 million** in the prior year[100](index=100&type=chunk) - Primarily driven by a one-time **$5.0 million** bonus accrual related to the Sorrento Mesa sale transaction[100](index=100&type=chunk) - Further increased by **$0.7 million** from Sorrento Mesa acquisitions, but offset by a **$1.3 million** decrease due to the Cherry Creek disposition[100](index=100&type=chunk) [Property Operating Expenses](index=24&type=section&id=Property%20Operating%20Expenses) - Property operating expenses increased by **$0.3 million (2%)** to **$15.2 million** for the three months ended September 30, 2021, from **$14.9 million** in the prior year[101](index=101&type=chunk) - Increase primarily due to **$0.3 million** from Sorrento Mesa acquisitions, offset by a **$0.7 million** decrease from the Cherry Creek disposition[101](index=101&type=chunk) [General and Administrative](index=25&type=section&id=General%20and%20Administrative) - General and administrative expenses increased by **$5.4 million (210%)** to **$7.9 million** for the three months ended September 30, 2021, from **$2.5 million** in the prior year[103](index=103&type=chunk) - The increase was primarily due to a one-time **$5.0 million** bonus accrual related to the Sorrento Mesa sale transaction[103](index=103&type=chunk) [Depreciation and Amortization](index=25&type=section&id=Depreciation%20and%20Amortization) - Depreciation and amortization decreased by **$0.6 million (4%)** to **$14.6 million** for the three months ended September 30, 2021, from **$15.2 million** in the prior year[104](index=104&type=chunk) - The decrease was primarily attributable to the disposition of Cherry Creek[104](index=104&type=chunk) [Interest Expense](index=25&type=section&id=Interest%20Expense) - Interest expense decreased by **$1.0 million (15%)** to **$5.9 million** for the three months ended September 30, 2021, from **$6.9 million** in the prior year[105](index=105&type=chunk) - The decrease was primarily due to debt repayment from the sale of Cherry Creek[105](index=105&type=chunk) [Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020](index=25&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202021%20to%20Nine%20Months%20Ended%20September%2030%2C%202020) Nine months ended September 30, 2021, saw **3%** revenue growth, **4%** total operating expense decrease, **72%** G&A surge from a bonus, and a **$47.4 million** property sale gain [Rental and Other Revenues](index=25&type=section&id=Rental%20and%20Other%20Revenues) - Rental and other revenues increased by **$3.4 million (3%)** to **$124.4 million** for the nine months ended September 30, 2021, compared to **$121.0 million** in the prior year[106](index=106&type=chunk) - Key drivers include termination fees at Park Tower (**+$5.3 million**) and SanTan (**+$1.4 million**), increased occupancy/rental income at Denver Tech (**+$0.8 million**), Sorrento Mesa (**+$1.2 million**), and City Center (**+$0.3 million**), and Sorrento Mesa acquisitions (**+$1.1 million**)[106](index=106&type=chunk) - Offset by a **$5.6 million** decrease from the Cherry Creek disposition and decreases at 190 Office Center and Pima Center due to lower occupancy[106](index=106&type=chunk) [Total Operating Expenses](index=25&type=section&id=Total%20Operating%20Expenses) - Total operating expenses decreased by **$4.4 million (4%)** to **$101.3 million** for the nine months ended September 30, 2021, from **$96.9 million** in the prior year[107](index=107&type=chunk) - General and administrative expenses increased by **$5.8 million**, including a **$5.0 million** bonus accrual for the Sorrento Mesa sale[107](index=107&type=chunk) - Offsetting factors include a **$3.4 million** decrease from the Cherry Creek disposition, partially offset by acquisitions at Sorrento Mesa (**+$1.2 million**) and Denver Tech (**+$0.7 million**)[107](index=107&type=chunk) [Property Operating Expenses](index=25&type=section&id=Property%20Operating%20Expenses) - Property operating expenses decreased by **$0.2 million (0%)** to **$43.5 million** for the nine months ended September 30, 2021, compared to **$43.7 million** in the prior year[108](index=108&type=chunk) - The decrease was primarily due to a **$1.7 million** reduction from the Cherry Creek disposition, partially offset by a **$0.4 million** increase from Sorrento Mesa acquisitions[108](index=108&type=chunk) [General and Administrative](index=26&type=section&id=General%20and%20Administrative) - General and administrative expenses increased by **$5.8 million (72%)** to **$13.8 million** for the nine months ended September 30, 2021, from **$8.0 million** in the prior year[110](index=110&type=chunk) - The increase was primarily due to a one-time **$5.0 million** bonus accrual related to the Sorrento Mesa sale transaction[110](index=110&type=chunk) [Depreciation and Amortization](index=26&type=section&id=Depreciation%20and%20Amortization) - Depreciation and amortization decreased by **$1.2 million (3%)** to **$44.0 million** for the nine months ended September 30, 2021, from **$45.2 million** in the prior year[111](index=111&type=chunk) - The decrease was primarily due to a **$1.8 million** reduction from the Cherry Creek disposition, partially offset by depreciation from Sorrento Mesa acquisitions[111](index=111&type=chunk) [Interest Expense](index=26&type=section&id=Interest%20Expense) - Interest expense decreased by **$2.4 million (11%)** to **$18.4 million** for the nine months ended September 30, 2021, from **$20.8 million** in the prior year[112](index=112&type=chunk) - The decrease was primarily attributable to debt repayment from the sale of Cherry Creek in February 2021[112](index=112&type=chunk) [Net Gain on the Sale of Real Estate Property](index=26&type=section&id=Net%20Gain%20on%20the%20Sale%20of%20Real%20Estate%20Property) - Recorded a net gain of **$47.4 million** on the sale of real estate property for the nine months ended September 30, 2021, related to the Cherry Creek sale[113](index=113&type=chunk) [Cash Flows](index=26&type=section&id=Cash%20Flows) [Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2020](index=26&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202021%20to%20Nine%20Months%20Ended%20September%2030%2C%202020) Nine months ended September 30, 2021, saw **$18.1 million** increase in operating cash, **$59.6 million** investing inflow, and **$37.6 million** increase in financing outflow - Cash, cash equivalents, and restricted cash increased to **$70.2 million** as of September 30, 2021, from **$56.4 million** as of September 30, 2020[114](index=114&type=chunk) - Net cash provided by operating activities increased by **$18.1 million** to **$65.7 million**, primarily due to changes in working capital[115](index=115&type=chunk) - Net cash provided by investing activities increased by **$74.8 million** to **$59.6 million**, driven by proceeds from the Cherry Creek sale and Sorrento Mesa deposits, partially offset by acquisitions[116](index=116&type=chunk) - Net cash used in financing activities increased by **$37.6 million** to **$101.1 million**, mainly due to higher debt repayments and lower net proceeds from borrowings[117](index=117&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) [Analysis of Liquidity and Capital Resources](index=27&type=section&id=Analysis%20of%20Liquidity%20and%20Capital%20Resources) Liquidity includes **$17.7 million** cash and **$52.5 million** restricted cash, with financing from an **$88.0 million** credit facility and **$50 million** term loan - As of September 30, 2021, the Company had **$17.7 million** in cash and cash equivalents and **$52.5 million** in restricted cash[119](index=119&type=chunk) - The Unsecured Credit Facility had **$88.0 million** outstanding and a **$4.2 million** letter of credit, maturing in March 2022 (extendable to March 2023)[120](index=120&type=chunk) - The **$50 million** Term Loan, entered in September 2019, is hedged by a five-year interest rate swap, fixing the LIBOR rate at approximately **1.27%**[121](index=121&type=chunk) - Short-term liquidity is met through net cash from operations, reserves, public offerings, and borrowings, while long-term needs are funded by operations, long-term debt, and equity issuances[123](index=123&type=chunk)[124](index=124&type=chunk) [Contractual Obligations and Other Long-Term Liabilities](index=28&type=section&id=Contractual%20Obligations%20and%20Other%20Long-Term%20Liabilities) Total contractual obligations reached **$756.201 million**, including **$606.174 million** in mortgage principal and **$94.531 million** in interest payments Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Total | Payments 2021 | Due by Period 2022-2023 | 2024-2025 | More than 5 years | | :----------------------------------- | :---- | :------------ | :---------------------- | :-------- | :---------------- | | Principal payments on mortgage loans | $606,174 | $1,524 | $143,078 | $216,733 | $244,839 | | Interest payments | $94,531 | $5,455 | $40,503 | $30,751 | $17,822 | | Tenant-related commitments | $24,147 | $19,930 | $4,217 | — | — | | Lease obligations | $31,349 | $96 | $1,838 | $1,540 | $27,875 | | Total | $756,201 | $27,005 | $189,636 | $249,024 | $290,536 | [Off-Balance Sheet Arrangements](index=28&type=section&id=Off-Balance%20Sheet%20Arrangements) As of September 30, 2021, the Company had a **$4.2 million** letter of credit outstanding under its Unsecured Credit Facility to meet mortgage lender escrow requirements - As of September 30, 2021, the Company had a **$4.2 million** letter of credit outstanding under its Unsecured Credit Facility[128](index=128&type=chunk) - This letter of credit is used to satisfy escrow requirements for a mortgage lender[128](index=128&type=chunk) [Inflation](index=28&type=section&id=Inflation) The Company believes that inflationary increases may be partially offset by contractual rent increases and expense escalations included in its office leases - Substantially all office leases include provisions for real estate tax and operating expense escalations[129](index=129&type=chunk) - Most leases also provide for fixed annual rent increases[129](index=129&type=chunk) - These contractual provisions are expected to at least partially offset inflationary increases[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risk is interest rate risk, with **77.2%** of debt fixed (**85.5%** with swap); a **10%** LIBOR change has nominal impact - The primary market risk is interest rate risk, specifically exposure to LIBOR fluctuations[132](index=132&type=chunk) - As of September 30, 2021, approximately **77.2%** of debt had fixed interest rates, increasing to **85.5%** when factoring in the **$50 million** Term Loan hedged by an interest rate swap[132](index=132&type=chunk) - A **10%** increase or decrease in LIBOR would result in a nominal change to annual interest costs on outstanding debt[132](index=132&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) CEO and CFO affirmed effective disclosure controls and procedures, with no material changes to internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The Company's Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective as of September 30, 2021[134](index=134&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=29&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) - There have been no changes to the Company's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[135](index=135&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) Ordinary course litigation is not expected to materially affect the Company's financial position or results of operations - The Company and its subsidiaries are parties to litigation arising from the ordinary course of business[137](index=137&type=chunk) - Management does not believe any such litigation will have a material adverse effect on the Company's financial position or results of operations[137](index=137&type=chunk) [Item 1A. Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) There are no new material risk factors to report in this quarterly period - No new material risk factors are reported in this section[138](index=138&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Completed **$100 million** share repurchase plan in July 2020, approved **$50 million** more, but made no repurchases in the nine months ended September 30, 2021 - The Company's Board of Directors approved a **$100 million** share repurchase plan on March 9, 2020, which was completed in July 2020[139](index=139&type=chunk) - An additional **$50 million** share repurchase plan was approved on August 5, 2020[139](index=139&type=chunk) - No shares were repurchased during the nine months ended September 30, 2021[65](index=65&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[141](index=141&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable[142](index=142&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) There is no other information to report in this section - No other information is reported[142](index=142&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with Form 10-Q, including organizational documents, agreements, CEO/CFO certifications, and XBRL data files - Includes Articles of Amendment and Restatement, Bylaws, and Certificates of Common and Preferred Stock[144](index=144&type=chunk) - Lists Agreement of Purchase and Sale and Joint Escrow Instructions for Sorrento Mesa dispositions[144](index=144&type=chunk) - Contains certifications by the Chief Executive Officer and Chief Financial Officer under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and XBRL interactive data files[144](index=144&type=chunk) [Signatures](index=32&type=section&id=Signatures) Report signed on November 3, 2021, by James Farrar (CEO) and Anthony Maretic (CFO, Secretary, and Treasurer) - The report was signed on November 3, 2021[148](index=148&type=chunk) - Signed by James Farrar, Chief Executive Officer (Principal Executive Officer)[148](index=148&type=chunk) - Signed by Anthony Maretic, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)[148](index=148&type=chunk)

Company Overview - City Office REIT owns high-quality office properties in 18-hour cities in the Southern and Western United States, with a total of 64 buildings and 5,578,000 square feet of net rentable area[5] - The overall in-place occupancy rate is 89.7% with an annualized gross rent of $29.35 per square foot[5] - Phoenix, AZ represents 22% of the portfolio net rentable area, Tampa, FL 19%, Denver, CO 14%, Orlando, FL 13%, San Diego, CA 12%, and Dallas, TX 10%[5] Financial Performance and Highlights - In Q2 2021, Core FFO per share was $0.35 and AFFO per share was $0.22[14] - The company executed approximately 249,000 SF of new and renewal leases in Q2 2021[14] - Same store cash NOI growth was 2.7% for the quarter compared to the prior year[14] Strategic Initiatives and Value Creation - The company selectively harvests value, with nine dispositions generating $122 million of gains[22] - CIO acquired a 10-building portfolio in San Diego in 2017 for $175 million and created tremendous value to date[11] - Revised 2021 guidance includes Net Operating Income between $1045 million and $106 million, and Core FFO per Share between $140 and $143[17] Balance Sheet and Liquidity - The company has a conservative structure with strong liquidity, including $13 million of cash and cash equivalents and $23 million of restricted cash at the property level as of June 30, 2021[20] - Leverage metrics as of June 30, 2021 include 465% leverage and 62x Net Debt / Annualized Adjusted EBITDA[20]

City Office REIT, Inc. (NYSE:CIO) Q2 2021 Earnings Conference Call August 5, 2021 11:00 AM ET Company Participants Tony Maretic - Chief Financial Officer, Treasurer and Corporate Secretary Jamie Farrar - Chief Executive Officer Conference Call Participants Rob Stevenson - Janney Michael Carroll - RBC Capital Markets Craig Kucera - B. Riley FBR Bill Crow - Raymond James Operator Good morning and welcome to the City Office REIT, Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial information for City Office REIT, Inc., including financial statements and management's discussion and analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of City Office REIT, Inc. for the periods ended June 30, 2021, and December 31, 2020, including balance sheets, statements of operations, comprehensive income, changes in equity, and cash flows, along with accompanying notes detailing significant accounting policies, real estate investments, debt, lease intangibles, and equity [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets show a decrease in total assets and liabilities, primarily driven by debt reduction, while total equity increased for the period ended June 30, 2021 Assets/Liabilities & Equity (in thousands) | Assets/Liabilities & Equity | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | **Assets:** | | | | Real estate properties, net | $983,304 | $955,589 | | Cash and cash equivalents | $13,394 | $25,305 | | Total Assets | $1,128,152 | $1,157,292 | | **Liabilities:** | | | | Debt | $612,510 | $677,242 | | Total Liabilities | $674,728 | $739,417 | | **Equity:** | | | | Total Stockholders' Equity | $452,515 | $416,926 | | Total Equity | $453,424 | $417,875 | - Total Assets decreased by **$29.14 million (2.5%)** from $1,157.292 million at December 31, 2020, to $1,128.152 million at June 30, 2021, primarily due to a decrease in cash and cash equivalents and assets held for sale, partially offset by an increase in real estate properties, net[13](index=13&type=chunk) - Total Liabilities decreased by **$64.689 million (8.7%)** from $739.417 million at December 31, 2020, to $674.728 million at June 30, 2021, mainly driven by a significant reduction in debt[13](index=13&type=chunk) - Total Equity increased by **$35.549 million (8.5%)** from $417.875 million at December 31, 2020, to $453.424 million at June 30, 2021[13](index=13&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income attributable to the Company significantly increased for both the three and six-month periods ended June 30, 2021, largely due to a substantial gain on the sale of real estate property Metric (in thousands, except per share data) | Metric (in thousands, except per share data) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Rental and other revenues | $39,964 | $39,617 | $79,480 | $79,739 | | Total operating expenses | $32,201 | $31,861 | $63,534 | $64,292 | | Operating income | $7,763 | $7,756 | $15,946 | $15,447 | | Interest expense | $(5,911) | $(7,133) | $(12,485) | $(13,818) | | Net gain on sale of real estate property | — | — | $47,400 | — | | Net income attributable to the Company | $1,662 | $444 | $50,479 | $1,268 | | Net (loss)/income attributable to common stockholders | $(193) | $(1,411) | $46,769 | $(2,442) | | Basic Net (loss)/income per common share | $0.00 | $(0.03) | $1.08 | $(0.05) | | Diluted Net (loss)/income per common share | $0.00 | $(0.03) | $1.06 | $(0.05) | - Net income attributable to the Company significantly increased for both the three-month period (**274.3% YoY**) and six-month period (**3889.7% YoY**) ended June 30, 2021, primarily driven by a **$47.4 million** net gain on the sale of real estate property in the six-month period[15](index=15&type=chunk)[108](index=108&type=chunk) - Rental and other revenues remained relatively stable, with a slight increase of **1%** for the three months ended June 30, 2021, and a slight decrease of **0%** for the six months ended June 30, 2021, compared to the prior year periods[15](index=15&type=chunk)[94](index=94&type=chunk)[101](index=101&type=chunk) [Condensed Consolidated Statements of Comprehensive Income/(Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%2F%28Loss%29) Comprehensive income attributable to the Company saw a substantial increase for the six months ended June 30, 2021, driven by higher net income and positive other comprehensive income Metric (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $1,852 | $623 | $50,861 | $1,629 | | Other comprehensive income/(loss) | $100 | $(298) | $769 | $(3,039) | | Comprehensive income/(loss) attributable to the Company | $1,762 | $146 | $51,248 | $(1,771) | - Comprehensive income attributable to the Company saw a substantial increase, reaching **$51.248 million** for the six months ended June 30, 2021, compared to a loss of **$(1.771) million** in the prior year, primarily due to higher net income and positive other comprehensive income[18](index=18&type=chunk) [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased by $35.549 million from December 31, 2020, to June 30, 2021, primarily due to net income contributions, which also significantly improved the accumulated deficit Equity Component (in thousands) | Equity Component (in thousands) | Balance—December 31, 2020 | Balance—June 30, 2021 | | :------------------------------ | :------------------------ | :-------------------- | | Preferred stock | $112,000 | $112,000 | | Common stock | $433 | $435 | | Additional paid-in capital | $479,411 | $480,629 | | Accumulated deficit | $(172,958) | $(139,358) | | Accumulated other comprehensive loss | $(1,960) | $(1,191) | | Total stockholders' equity | $416,926 | $452,515 | | Non-controlling interests in properties | $949 | $909 | | Total equity | $417,875 | $453,424 | - Total equity increased by **$35.549 million** from December 31, 2020, to June 30, 2021, primarily driven by net income of **$48.817 million** and **$1.662 million** for the first and second quarters of 2021, respectively, partially offset by dividend distributions[22](index=22&type=chunk) - Accumulated deficit improved significantly, decreasing from **$(172.958) million** at December 31, 2020, to **$(139.358) million** at June 30, 2021, reflecting positive net income contributions[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash, cash equivalents, and restricted cash decreased, with operating cash flows increasing, investing activities shifting to a net inflow due to property sales, and financing activities seeing a significant increase in cash used for debt repayments Cash Flow Activity (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided By Operating Activities | $35,685 | $31,336 | | Net Cash Provided By/(Used In) Investing Activities | $37,417 | $(18,196) | | Net Cash Used In Financing Activities | $(82,730) | $(17,520) | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(9,628) | $(4,380) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $36,323 | $83,143 | - Net cash provided by investing activities significantly increased by **$55.6 million**, shifting from an outflow of **$18.2 million** in 2020 to an inflow of **$37.4 million** in 2021, primarily due to proceeds from the sale of the Cherry Creek property[26](index=26&type=chunk)[110](index=110&type=chunk) - Net cash used in financing activities increased by **$65.2 million**, from **$17.5 million** in 2020 to **$82.7 million** in 2021, mainly due to higher repayment of borrowings and lower net proceeds from new borrowings[26](index=26&type=chunk)[111](index=111&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on the Company's accounting policies, real estate investments, debt, lease intangibles, equity, and other financial instruments [1. Organization and Description of Business](index=9&type=section&id=1.%20Organization%20and%20Description%20of%20Business) City Office REIT, Inc. was organized in Maryland in 2013 and completed its IPO in 2014, contributing proceeds to its Operating Partnership. The Company operates as the sole general partner of the Operating Partnership and has elected to qualify as a Real Estate Investment Trust (REIT) to deduct dividend distributions and avoid federal income tax at the company level - The Company was organized in Maryland on November 26, 2013, and completed its IPO on April 21, 2014[28](index=28&type=chunk) - The Company operates as the sole general partner of City Office REIT Operating Partnership, L.P., managing its business[29](index=29&type=chunk) - The Company has elected to be taxed and will continue to operate as a REIT, allowing it to deduct dividend distributions and eliminate U.S. federal taxation of income at the Company level[30](index=30&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the basis of preparation for the unaudited condensed consolidated financial statements, adhering to SEC rules, US GAAP, and management's estimates. It also details recent accounting pronouncements, specifically ASU 2020-04 and ASU 2021-01, which provide optional expedients for contract modifications and hedge accounting related to reference rate reform, with the Company currently evaluating their impact - Financial statements are prepared in accordance with SEC rules and US GAAP, relying on management's estimates and assumptions[31](index=31&type=chunk) - The FASB issued ASU 2020-04 and ASU 2021-01, offering optional expedients for contract modifications and hedge accounting related to reference rate reform (e.g., LIBOR transition), available for use through December 31, 2022[32](index=32&type=chunk) - The Company has not yet adopted these new standards and is evaluating their potential impact on its financial statements, with the option to elect expedients in future periods[32](index=32&type=chunk) [3. Real Estate Investments](index=10&type=section&id=3.%20Real%20Estate%20Investments) The Company engaged in both acquisitions and dispositions of real estate properties during the six months ended June 30, 2021. It acquired two properties adjacent to its Sorrento Mesa portfolio for $43.256 million and sold the Cherry Creek property for $95.0 million, realizing a net gain of $47.4 million [Acquisitions](index=10&type=section&id=Acquisitions) During the six months ended June 30, 2021, the Company acquired two properties, 5910 Pacific Center and 9985 Pacific Heights, for a total purchase price of $43.256 million - During the six months ended June 30, 2021, the Company acquired 5910 Pacific Center and 9985 Pacific Heights (Sorrento Mesa portfolio) for a total purchase price of **$43.256 million**[33](index=33&type=chunk)[34](index=34&type=chunk) Acquired Assets (in thousands) | Acquired Assets (in thousands) | 5910 Pacific Center and 9985 Pacific Heights | | :----------------------------- | :------------------------------------------- | | Land | $37,294 | | Building and improvement | $2,979 | | Tenant improvement | $917 | | Lease intangible assets | $2,469 | | Other assets | $19 | | Accounts payable and other liabilities | $(319) | | Lease intangible liabilities | $(103) | | Net assets acquired | $43,256 | [Sale of Real Estate Property](index=10&type=section&id=Sale%20of%20Real%20Estate%20Property) On February 10, 2021, the Company sold the Cherry Creek property for a gross sales price of $95.0 million, resulting in a net gain of $47.4 million - On February 10, 2021, the Company sold the Cherry Creek property in Denver, Colorado, for a gross sales price of **$95.0 million**[35](index=35&type=chunk) - The sale resulted in an aggregate net gain of **$47.4 million**, which is classified as net gain on sale of real estate property in the condensed consolidated statements of operations[35](index=35&type=chunk) [Assets Held for Sale](index=10&type=section&id=Assets%20Held%20for%20Sale) The Cherry Creek property was classified as held for sale as of December 31, 2020, with total assets held for sale amounting to $46.054 million - The Cherry Creek property was classified as held for sale as of December 31, 2020, with total assets held for sale amounting to **$46.054 million** and related liabilities of **$(0.531) million**[36](index=36&type=chunk)[37](index=37&type=chunk) [4. Lease Intangibles](index=11&type=section&id=4.%20Lease%20Intangibles) This note details the Company's lease intangibles, including above-market leases, in-place leases, and leasing commissions, as well as below-market lease liabilities. As of June 30, 2021, net acquired lease intangible assets were $37.363 million, and net acquired lease intangible liabilities were $(5.352) million. The estimated aggregate amortization expense for lease intangibles for the next five years is also provided Lease Intangibles (in thousands) | Lease Intangibles (in thousands) | June 30, 2021 | December 31, 2020 | | :------------------------------- | :------------ | :---------------- | | Acquired lease intangible assets, net | $37,363 | $44,143 | | Acquired lease intangible liabilities, net | $(5,352) | $(6,035) | Estimated Aggregate Amortization Expense (in thousands) | Estimated Aggregate Amortization Expense (in thousands) | | :------------------------------------------------------ | | 2021 | $6,112 | | 2022 | $8,941 | | 2023 | $5,914 | | 2024 | $3,118 | | 2025 | $2,720 | | Thereafter | $5,206 | | Total | $32,011 | [5. Debt](index=12&type=section&id=5.%20Debt) The Company's debt portfolio includes an Unsecured Credit Facility, a Term Loan, and various property-specific mortgage loans. Total principal debt decreased from $680.962 million at December 31, 2020, to $615.617 million at June 30, 2021, primarily due to the repayment of the Midland Life Insurance mortgage loan. The Unsecured Credit Facility and Term Loan bear interest at LIBOR plus a margin, with the Term Loan partially hedged by an interest rate swap Debt (in thousands) | Debt (in thousands) | June 30, 2021 | December 31, 2020 | | :------------------ | :------------ | :---------------- | | Total Principal | $615,617 | $680,962 | | Total Debt | $612,510 | $677,242 | - The Midland Life Insurance mortgage loan, with a balance of **$83.537 million**, was repaid in full in February 2021[39](index=39&type=chunk) Scheduled Principal Repayments of Debt (in thousands) | Scheduled Principal Repayments of Debt (in thousands) | | :---------------------------------------------------- | | 2021 | $2,967 | | 2022 | $102,539 | | 2023 | $48,539 | | 2024 | $124,736 | | 2025 | $91,997 | | Thereafter | $244,839 | | Total | $615,617 | [6. Fair Value of Financial Instruments](index=13&type=section&id=6.%20Fair%20Value%20of%20Financial%20Instruments) The Company uses a fair value hierarchy (Level 1, 2, 3) for financial instruments. An Interest Rate Swap with a notional amount of $50 million, designated as a cash flow hedge, is classified as a Level 2 liability. The fair value of fixed rate mortgage loans payable, determined using discounted cash flow analysis, is classified as Level 3 - The Interest Rate Swap, designated as a cash flow hedge, had a fair value liability of approximately **$1.2 million** as of June 30, 2021, and **$2.0 million** as of December 31, 2020, classified as a Level 2 fair value measurement[42](index=42&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - For the six months ended June 30, 2021, approximately **$0.3 million** of realized losses from the Interest Rate Swap were reclassified to interest expense[44](index=44&type=chunk) - The fair value of fixed rate mortgage loans payable was **$476.4 million** (carrying value **$469.6 million**) as of June 30, 2021, and **$573.6 million** (carrying value **$556.0 million**) as of December 31, 2020, classified as Level 3 fair value measurements[47](index=47&type=chunk) [7. Related Party Transactions](index=13&type=section&id=7.%20Related%20Party%20Transactions) The Company earned $0.3 million in administrative services fees from Second City Real Estate II Corporation, Clarity Real Estate Ventures GP, Limited Partnership, and their affiliates for both the six months ended June 30, 2021, and 2020 - The Company earned **$0.3 million** in administrative services from related parties (Second City, Clarity, and affiliates) for the six months ended June 30, 2021, consistent with the prior year[48](index=48&type=chunk) [8. Leases](index=14&type=section&id=8.%20Leases) This section details the Company's accounting for leases both as a lessor and a lessee. As a lessor, the Company primarily uses operating leases with fixed and variable payments, recognizing rental income on a straight-line basis. As a lessee, the Company has operating and financing leases, with right-of-use assets and lease liabilities recorded on the balance sheet, using a weighted average discount rate of 6.2% [Lessor Accounting](index=14&type=section&id=Lessor%20Accounting) As a lessor, the Company primarily utilizes full-service gross or net operating leases, recognizing rental income on a straight-line basis, with future minimum lease payments totaling $541.464 million - The Company's properties are primarily leased under full-service gross or net operating leases, with rental income recognized on a straight-line basis[49](index=49&type=chunk) Lease Payments (in thousands) | Lease Payments (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Fixed payments | $34,311 | $33,907 | $67,862 | $67,999 | | Variable payments | $5,629 | $5,697 | $11,536 | $11,713 | | Total | $39,940 | $39,604 | $79,398 | $79,712 | Future Minimum Lease Payments to be Received (in thousands) | Future Minimum Lease Payments to be Received (in thousands) | | :---------------------------------------------------------- | | 2021 | $61,009 | | 2022 | $108,545 | | 2023 | $88,167 | | 2024 | $68,482 | | 2025 | $55,089 | | Thereafter | $160,172 | | Total | $541,464 | [Lessee Accounting](index=14&type=section&id=Lessee%20Accounting) As a lessee, the Company holds operating and financing leases with a weighted average remaining lease term of 49 years, recording right-of-use assets and lease liabilities using a 6.2% weighted average discount rate - As a lessee, the Company has operating and financing leases with remaining terms of **1 to 67 years** and a weighted average remaining lease term of **49 years**[51](index=51&type=chunk) Lessee Lease Balances (in thousands) | Lessee Lease Balances (in thousands) | June 30, 2021 | December 31, 2020 | | :----------------------------------- | :------------ | :---------------- | | Right-of-use asset – operating leases | $14,362 | $12,739 | | Lease liability – operating leases | $9,447 | $7,719 | | Right-of-use asset – financing leases | $43 | $55 | | Lease liability – financing leases | $43 | $55 | - The Company uses a weighted average discount rate of **6.2%** for determining its lease liabilities[51](index=51&type=chunk) Operating Lease Expenses (in thousands) | Operating Lease Expenses (in thousands) | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Operating lease expenses | $300 | $500 | [9. Commitments and Contingencies](index=15&type=section&id=9.%20Commitments%20and%20Contingencies) The Company has commitments to fund tenant improvements and is subject to environmental laws, but management believes there are no material adverse environmental liabilities. The Company is also involved in ordinary course lawsuits, which management does not expect to have a material adverse effect on its financial position or results of operations - The Company is obligated to fund tenant improvements and property expansions under certain tenant leases[55](index=55&type=chunk) - Management believes the Company is in material compliance with environmental regulations and is not aware of any environmental liability that would materially impact its financial position or results of operations[57](index=57&type=chunk) - Legal proceedings arising in the ordinary course of business are not expected to have a material adverse effect on the Company's financial position or results of operations as of June 30, 2021[58](index=58&type=chunk) [10. Stockholders' Equity](index=16&type=section&id=10.%20Stockholders%27%20Equity) This note details the Company's share repurchase plans, dividend distributions for common and preferred stock, and its equity incentive plan. The Company completed its $100 million share repurchase plan in July 2020 and an additional $50 million plan in August 2020, but made no repurchases in the first half of 2021. It declared quarterly cash dividends of $0.15 per common share and $0.4140625 per Series A Preferred Stock share for Q2 2021. The equity incentive plan includes grants of restricted stock units (RSUs) and performance-based RSUs (Performance RSU Awards) to executive officers, directors, and employees [Share Repurchase Plan](index=16&type=section&id=Share%20Repurchase%20Plan) The Company completed $150 million in share repurchase plans in 2020, but made no repurchases during the first six months of 2021 - The Company completed a **$100 million** share repurchase plan in July 2020 and an additional **$50 million** plan in August 2020[59](index=59&type=chunk) - No shares were repurchased during the six months ended June 30, 2021[61](index=61&type=chunk) - During the six months ended June 30, 2020, the Company repurchased **10,249,655 shares** of common stock for approximately **$89.3 million**[61](index=61&type=chunk) [Common Stock and Common Unit Distributions](index=16&type=section&id=Common%20Stock%20and%20Common%20Unit%20Distributions) A cash dividend distribution of $0.15 per common share, totaling $6.5 million, was declared for the quarter ended June 30, 2021 - A cash dividend distribution of **$0.15 per common share** was declared for the quarter ended June 30, 2021, totaling **$6.5 million**[61](index=61&type=chunk) [Preferred Stock Distributions](index=16&type=section&id=Preferred%20Stock%20Distributions) A cash dividend distribution of $0.4140625 per share of 6.625% Series A Preferred Stock, totaling $1.9 million, was declared for the quarter ended June 30, 2021 - A cash dividend distribution of **$0.4140625 per share** of 6.625% Series A Preferred Stock was declared for the quarter ended June 30, 2021, totaling **$1.9 million**[62](index=62&type=chunk) [Equity Incentive Plan](index=16&type=section&id=Equity%20Incentive%20Plan) The Equity Incentive Plan allows for various equity-based awards, with 2,263,580 shares available, and resulted in $0.9 million and $0.4 million in compensation expense for RSUs and Performance RSU Awards, respectively, during the first half of 2021 - The Equity Incentive Plan allows for grants of various equity-based awards, with **2,263,580 shares** of common stock available for issuance[63](index=63&type=chunk) - During the six months ended June 30, 2021, **169,500 RSUs** with a fair value of **$1.6 million** were granted, resulting in **$0.9 million** in compensation expense[66](index=66&type=chunk) - During the same period, **120,000 Performance RSU Awards** with a fair value of **$1.2 million** were granted, leading to **$0.4 million** in compensation expense[67](index=67&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, highlighting the impact of COVID-19, business strategy, property portfolio, and key financial results for the three and six months ended June 30, 2021. It also discusses liquidity, capital resources, and contractual obligations [Cautionary Statement Regarding Forward-Looking Statements](index=18&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section advises readers that the report contains forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Key risks include economic conditions, the ongoing COVID-19 pandemic's impact on tenants and demand for office space, interest rate changes, and the Company's ability to maintain REIT status - Forward-looking statements are identified by words like 'anticipate,' 'expect,' 'will,' and 'may,' and are subject to risks and uncertainties[71](index=71&type=chunk) - Key risks include adverse economic or real estate developments, changes in local/regional/national/international economic conditions (including COVID-19 impact), tenant defaults or non-renewals, increased interest rates, and the Company's ability to qualify and maintain REIT status[71](index=71&type=chunk)[72](index=72&type=chunk) - The Company cautions against undue reliance on forward-looking statements and undertakes no obligation to update them, except as required by law[73](index=73&type=chunk) [Overview](index=19&type=section&id=Overview) City Office REIT, Inc. was formed in 2013 and completed its IPO in 2014, operating as a REIT focused on office properties. As of June 30, 2021, the Company owned 24 properties comprising 64 office buildings with approximately 5.6 million square feet of net rentable area, with an occupancy rate of 89.7%. Most leases are full-service gross or net leases [Company](index=19&type=section&id=Company) City Office REIT, Inc. was formed on November 26, 2013, and completed its initial public offering on April 21, 2014 - City Office REIT, Inc. was formed on November 26, 2013, and completed its IPO on April 21, 2014[74](index=74&type=chunk) [Revenue Base](index=19&type=section&id=Revenue%20Base) As of June 30, 2021, the Company owned 24 properties (64 office buildings) with approximately 5.6 million square feet of net rentable area, achieving an occupancy rate of 89.7% - As of June 30, 2021, the Company owned **24 properties (64 office buildings)** with approximately **5.6 million square feet** of net rentable area[75](index=75&type=chunk) - The Company's properties were approximately **89.7% leased** as of June 30, 2021[75](index=75&type=chunk) [Office Leases](index=20&type=section&id=Office%20Leases) Most of the Company's office leases are structured as full-service gross with a base year expense stop or triple net leases, where tenants are responsible for all property taxes and operating expenses - Most leases are full-service gross (with base year expense 'stop') or triple net leases (tenant responsible for all property taxes and operating expenses)[76](index=76&type=chunk) - All tenants in Lake Vista Pointe, Superior Pointe, 2525 McKinnon, and Canyon Park properties have triple net leases[76](index=76&type=chunk) [Factors That May Influence Our Operating Results and Financial Condition](index=20&type=section&id=Factors%20That%20May%20Influence%20Our%20Operating%20Results%20and%20Financial%20Condition) This section discusses key factors influencing the Company's performance, including the ongoing impact of the COVID-19 pandemic on tenant behavior, leasing activity, and economic conditions. It also outlines the Company's business strategy of acquiring office properties in growing target markets, and how rental revenue, operating expenses, and market conditions affect financial results [COVID-19](index=20&type=section&id=COVID-19) The COVID-19 pandemic has negatively impacted the global economy and regional U.S. economies, affecting some tenants' ability to pay rent and slowing leasing activity - The COVID-19 pandemic has negatively impacted the global economy and regional U.S. economies, affecting some tenants' ability to pay rent[77](index=77&type=chunk) - The Company collected over **99%** of contractually required base rents for the three months ended June 30, 2021, and granted rent relief to tenants comprising approximately **0.1%** of occupied NRA[80](index=80&type=chunk) - Leasing activity has been slow, with uncertainty over existing tenants' long-term space requirements, potentially reducing anticipated rental revenues and increasing subleasing activity[81](index=81&type=chunk) [Business and Strategy](index=21&type=section&id=Business%20and%20Strategy) The Company's strategy focuses on acquiring and owning office properties in target markets characterized by growing populations, strong employment, diversified industries, and a high quality of life - The Company focuses on owning and acquiring office properties in target markets characterized by growing populations, strong employment growth, diversified industries, and a high quality of life[85](index=85&type=chunk) - The strategy leverages management's market-specific knowledge and local relationships to identify acquisition opportunities offering cash flow stability and long-term value appreciation[85](index=85&type=chunk) [Rental Revenue and Tenant Recoveries](index=21&type=section&id=Rental%20Revenue%20and%20Tenant%20Recoveries) Net rental revenue is influenced by maintaining occupancy rates, leasing available space, and increasing rental rates, with current average rental rates generally in-line or slightly below market rates - Net rental revenue depends on maintaining occupancy rates, leasing available space, and increasing rental rates[86](index=86&type=chunk) - The average rental rates for the Company's portfolio are generally in-line or slightly below current average quoted market rates[86](index=86&type=chunk) [Our Properties](index=22&type=section&id=Our%20Properties) As of June 30, 2021, the Company owned 24 properties (64 office buildings) totaling approximately 5.6 million square feet of net rentable area across eight metropolitan areas - As of June 30, 2021, the Company owned **24 properties (64 office buildings)** totaling approximately **5.6 million square feet** of NRA across metropolitan areas including Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle, and Tampa[88](index=88&type=chunk) Metropolitan Area (NRA in 000s Square Feet, Annualized Base Rent in $000s) | Metropolitan Area | NRA (000s Square Feet) | In Place Occupancy | Annualized Base Rent ($000s) | | :---------------- | :--------------------- | :----------------- | :--------------------------- | | Phoenix, AZ | 1,264 | 87.4% | $30,571 | | Tampa, FL | 1,037 | 92.4% | $26,012 | | Denver, CO | 807 | 89.7% | $15,093 | | Orlando, FL | 720 | 94.2% | $16,720 | | San Diego, CA | 681 | 80.4% | $19,063 | | Dallas, TX | 577 | 84.7% | $11,910 | | Portland, OR | 203 | 98.4% | $4,517 | | Seattle, WA | 335 | 97.2% | $8,035 | | Total / Weighted Average | 5,578 | 89.7% | $131,949 | [Operating Expenses](index=23&type=section&id=Operating%20Expenses) Operating expenses, including utilities, property taxes, insurance, and site maintenance, are generally passed along to tenants in full-service gross leases or paid in full by tenants in net leased properties - Operating expenses include utilities, property taxes, insurance, and site maintenance costs[91](index=91&type=chunk) - Increases in these expenses above tenants' base years are generally passed along to tenants in full-service gross leases or paid in full by tenants in net leased properties[91](index=91&type=chunk) [Conditions in Our Markets](index=23&type=section&id=Conditions%20in%20Our%20Markets) Economic conditions, including state budgetary shortfalls, employment rates, and natural hazards, can impact the Company's performance, with the long-term impact of the COVID-19 pandemic remaining highly uncertain - Economic conditions, including state budgetary shortfalls, employment rates, and natural hazards, can impact the Company's performance in its operating markets[92](index=92&type=chunk) - The COVID-19 pandemic has caused significant disruption, and its long-term impact on the Company's markets, tenants, and business strategy remains highly uncertain and not reasonably estimable[92](index=92&type=chunk) [Summary of Significant Accounting Policies](index=23&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) The interim condensed consolidated financial statements adhere to the same accounting policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2020 - The interim condensed consolidated financial statements follow the same accounting policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2020[93](index=93&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) The Company's results of operations for the three and six months ended June 30, 2021, show a slight increase in rental and other revenues for the three-month period, primarily due to acquisitions and significant leasing transactions, offset by the disposition of Cherry Creek. Total operating expenses also saw a marginal increase for the three-month period. For the six-month period, revenues slightly decreased, while total operating expenses decreased, largely influenced by the Cherry Creek disposition and a significant net gain on sale of real estate property [Comparison of Three Months Ended June 30, 2021 to Three Months Ended June 30, 2020](index=23&type=section&id=Comparison%20of%20Three%20Months%20Ended%20June%2030%2C%202021%20to%20Three%20Months%20Ended%20June%2030%2C%202020) This section compares the Company's financial performance for the three months ended June 30, 2021, against the same period in 2020, detailing changes in revenues, operating expenses, and other income/expenses [Rental and Other Revenues](index=23&type=section&id=Rental%20and%20Other%20Revenues) Rental and other revenues increased by $0.4 million (1%) for the three months ended June 30, 2021, driven by acquisitions and termination fees, partially offset by the Cherry Creek disposition - Rental and other revenues increased by **$0.4 million (1%)** to **$40.0 million** for the three months ended June 30, 2021, from **$39.6 million** in the prior year[94](index=94&type=chunk) - This increase was driven by **$0.4 million** from Sorrento Mesa acquisitions, **$0.5 million** from 7595 Tech, **$0.6 million** from existing Sorrento Mesa, and **$0.9 million** from termination fees at SanTan and Park Tower[94](index=94&type=chunk) - The disposition of Cherry Creek resulted in a **$2.1 million** decrease in revenue[94](index=94&type=chunk) [Operating Expenses](index=23&type=section&id=Operating%20Expenses) Total operating expenses increased by $0.3 million (1%) for the three months ended June 30, 2021, primarily due to acquisitions and higher professional fees, partially offset by the Cherry Creek disposition [Total Operating Expenses](index=23&type=section&id=Total%20Operating%20Expenses) Total operating expenses increased by $0.3 million (1%) to $32.2 million for the three months ended June 30, 2021, primarily due to acquisitions and higher professional fees, offset by the Cherry Creek disposition - Total operating expenses increased by **$0.3 million (1%)** to **$32.2 million** for the three months ended June 30, 2021, from **$31.9 million** in the prior year[95](index=95&type=chunk) - Increases were due to **$0.4 million** from Sorrento Mesa acquisitions, **$0.6 million** from Mission City, and **$0.4 million** in higher professional fees (general and administrative)[95](index=95&type=chunk) - The disposition of Cherry Creek resulted in a **$1.3 million** decrease in total operating expenses[95](index=95&type=chunk) [Property Operating Expenses](index=23&type=section&id=Property%20Operating%20Expenses) Property operating expenses increased by $0.1 million (1%) for the three months ended June 30, 2021, due to acquisitions, partially offset by the Cherry Creek disposition - Property operating expenses increased by **$0.1 million (1%)** to **$14.2 million** for the three months ended June 30, 2021, from **$14.1 million** in the prior year[96](index=96&type=chunk) - This increase was due to **$0.1 million** from Sorrento Mesa acquisitions and **$0.3 million** from Mission City[96](index=96&type=chunk) - The disposition of Cherry Creek resulted in a **$0.7 million** decrease in property operating expenses[96](index=96&type=chunk) [General and Administrative](index=24&type=section&id=General%20and%20Administrative) General and administrative expenses increased by $0.4 million (14%) for the three months ended June 30, 2021, primarily due to higher professional fees - General and administrative expenses increased **$0.4 million (14%)** to **$3.1 million** for the three months ended June 30, 2021, from **$2.7 million** in the prior year, due to higher professional fees[98](index=98&type=chunk) [Depreciation and Amortization](index=24&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization decreased by $0.1 million (1%) for the three months ended June 30, 2021, primarily due to the Cherry Creek disposition, partially offset by Sorrento Mesa acquisitions - Depreciation and amortization decreased **$0.1 million (1%)** to **$15.0 million** for the three months ended June 30, 2021, from **$15.1 million** in the prior year[99](index=99&type=chunk) - The decrease was primarily due to a **$0.6 million** reduction from the Cherry Creek disposition, partially offset by a **$0.3 million** increase from Sorrento Mesa acquisitions[99](index=99&type=chunk) [Other Expense (Income)](index=24&type=section&id=Other%20Expense%20%28Income%29) This section details changes in non-operating expenses and income, specifically highlighting the decrease in interest expense due to debt repayment [Interest Expense](index=24&type=section&id=Interest%20Expense) Interest expense decreased by $1.2 million (17%) for the three months ended June 30, 2021, primarily due to debt repayment from the Cherry Creek sale - Interest expense decreased **$1.2 million (17%)** to **$5.9 million** for the three months ended June 30, 2021, from **$7.1 million** in the prior year, primarily due to debt repayment from the Cherry Creek sale[100](index=100&type=chunk) [Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020](index=24&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202021%20to%20Six%20Months%20Ended%20June%2030%2C%202020) This section compares the Company's financial performance for the six months ended June 30, 2021, against the same period in 2020, detailing changes in revenues, operating expenses, and other income/expenses [Rental and Other Revenues](index=24&type=section&id=Rental%20and%20Other%20Revenues) Rental and other revenues decreased by $0.2 million (0%) for the six months ended June 30, 2021, primarily due to the Cherry Creek disposition and lower occupancy, partially offset by acquisitions and termination income - Rental and other revenues decreased by **$0.2 million (0%)** to **$79.5 million** for the six months ended June 30, 2021, from **$79.7 million** in the prior year[101](index=101&type=chunk) - The decrease was primarily due to a **$3.2 million** reduction from the Cherry Creek disposition and decreases at 190 Office Center (**$0.5 million**) and Pima Center (**$0.6 million**) due to lower occupancy[101](index=101&type=chunk) - Offsetting increases included **$0.4 million** from Sorrento Mesa acquisitions, **$0.9 million** from 7595 Tech, **$1.2 million** from existing Sorrento Mesa, **$0.3 million** from City Center, and **$0.9 million** from termination income at SanTan and Park Tower[101](index=101&type=chunk) [Operating Expenses](index=24&type=section&id=Operating%20Expenses) Total operating expenses decreased by $0.8 million (1%) for the six months ended June 30, 2021, mainly due to the Cherry Creek disposition, partially offset by acquisitions and higher professional fees [Total Operating Expenses](index=24&type=section&id=Total%20Operating%20Expenses) Total operating expenses decreased by $0.8 million (1%) to $63.5 million for the six months ended June 30, 2021, primarily due to the Cherry Creek disposition, partially offset by acquisitions and higher professional fees - Total operating expenses decreased by **$0.8 million (1%)** to **$63.5 million** for the six months ended June 30, 2021, from **$64.3 million** in the prior year[102](index=102&type=chunk) - The decrease was mainly due to a **$2.1 million** reduction from the Cherry Creek disposition[102](index=102&type=chunk) - Offsetting increases included **$0.4 million** from Sorrento Mesa acquisitions, **$0.4 million** from the Denver Tech portfolio, and **$0.4 million** in higher professional fees[102](index=102&type=chunk) [Property Operating Expenses](index=24&type=section&id=Property%20Operating%20Expenses) Property operating expenses decreased by $0.5 million (2%) for the six months ended June 30, 2021, primarily due to the Cherry Creek disposition, partially offset by Sorrento Mesa acquisitions - Property operating expenses decreased by **$0.5 million (2%)** to **$28.3 million** for the six months ended June 30, 2021, from **$28.8 million** in the prior year[103](index=103&type=chunk) - The decrease was primarily due to a **$1.0 million** reduction from the Cherry Creek disposition, partially offset by a **$0.1 million** increase from Sorrento Mesa acquisitions[103](index=103&type=chunk) [General and Administrative](index=25&type=section&id=General%20and%20Administrative) General and administrative expenses increased by $0.4 million (7%) for the six months ended June 30, 2021, primarily due to higher professional fees - General and administrative expenses increased **$0.4 million (7%)** to **$5.9 million** for the six months ended June 30, 2021, from **$5.5 million** in the prior year, due to higher professional fees[105](index=105&type=chunk) [Depreciation and Amortization](index=25&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization decreased by $0.6 million (2%) for the six months ended June 30, 2021, primarily due to the Cherry Creek disposition, partially offset by Sorrento Mesa acquisitions - Depreciation and amortization decreased **$0.6 million (2%)** to **$29.4 million** for the six months ended June 30, 2021, from **$30.0 million** in the prior year[106](index=106&type=chunk) - The decrease was primarily due to a **$1.1 million** reduction from the Cherry Creek disposition, partially offset by depreciation related to Sorrento Mesa acquisitions[106](index=106&type=chunk) [Other Expense (Income)](index=25&type=section&id=Other%20Expense%20%28Income%29) This section details changes in non-operating expenses and income, including a decrease in interest expense and a significant net gain from the sale of real estate property [Interest Expense](index=25&type=section&id=Interest%20Expense) Interest expense decreased by $1.3 million (10%) for the six months ended June 30, 2021, primarily due to debt repayment from the Cherry Creek sale - Interest expense decreased **$1.3 million (10%)** to **$12.5 million** for the six months ended June 30, 2021, from **$13.8 million** in the prior year, primarily due to debt repayment from the Cherry Creek sale[107](index=107&type=chunk) [Net Gain on the Sale of Real Estate Property](index=25&type=section&id=Net%20Gain%20on%20the%20Sale%20of%20Real%20Estate%20Property) The Company recorded a significant net gain of $47.4 million on the sale of its Cherry Creek property for the six months ended June 30, 2021 - The Company recorded a net gain of **$47.4 million** on the sale of its Cherry Creek property for the six months ended June 30, 2021[108](index=108&type=chunk) [Cash Flows](index=25&type=section&id=Cash%20Flows) The Company's cash, cash equivalents, and restricted cash decreased from $83.1 million at June 30, 2020, to $36.3 million at June 30, 2021. Operating cash flows increased, while investing activities shifted from a net use to a net provision of cash due to property sales. Financing activities saw a significant increase in cash used, primarily due to higher debt repayments [Comparison of Six Months Ended June 30, 2021 to Six Months Ended June 30, 2020](index=25&type=section&id=Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202021%20to%20Six%20Months%20Ended%20June%2030%2C%202020) This section compares the Company's cash flow activities for the six months ended June 30, 2021, against the same period in 2020, detailing changes in operating, investing, and financing cash flows [Cash flow from operating activities](index=25&type=section&id=Cash%20flow%20from%20operating%20activities) Net cash provided by operating activities increased by $4.4 million to $35.7 million for the six months ended June 30, 2021, primarily due to changes in working capital - Net cash provided by operating activities increased by **$4.4 million** to **$35.7 million** for the six months ended June 30, 2021, compared to **$31.3 million** in the prior year, primarily due to changes in working capital[109](index=109&type=chunk) [Cash flow from investing activities](index=25&type=section&id=Cash%20flow%20from%20investing%20activities) Net cash provided by investing activities increased by $55.6 million to $37.4 million for the six months ended June 30, 2021, primarily due to proceeds from the Cherry Creek property sale - Net cash provided by investing activities increased by **$55.6 million** to **$37.4 million** for the six months ended June 30, 2021, compared to **$18.2 million** used in the prior year[110](index=110&type=chunk) - This increase was primarily due to proceeds from the sale of the Cherry Creek property, partially offset by the acquisition of two Sorrento Mesa buildings[110](index=110&type=chunk) [Cash flow to financing activities](index=25&type=section&id=Cash%20flow%20to%20financing%20activities) Net cash used in financing activities increased by $65.2 million to $82.7 million for the six months ended June 30, 2021, mainly due to higher debt repayments and lower net proceeds from new borrowings - Net cash used in financing activities increased by **$65.2 million** to **$82.7 million** for the six months ended June 30, 2021, compared to **$17.5 million** in the prior year[111](index=111&type=chunk) - The increase was primarily due to higher repayment of borrowings, including the Midland Life Insurance loan, and lower net proceeds from new borrowings[111](index=111&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity is supported by cash, an Unsecured Credit Facility, and a Term Loan. Short-term needs are met by operations and existing cash, while long-term needs are funded through debt, equity issuances, and the Unsecured Credit Facility. The Company's contractual obligations include principal and interest payments on debt, tenant-related commitments, and lease obligations, totaling $767.5 million as of June 30, 2021 [Analysis of Liquidity and Capital Resources](index=25&type=section&id=Analysis%20of%20Liquidity%20and%20Capital%20Resources) As of June 30, 2021, the Company had $13.4 million in cash and cash equivalents and $22.9 million in restricted cash, supported by an Unsecured Credit Facility and a Term Loan for both short-term and long-term liquidity needs - As of June 30, 2021, the Company had **$13.4 million** in cash and cash equivalents and **$22.9 million** in restricted cash[112](index=112&type=chunk) - The Unsecured Credit Facility provides commitments up to **$250 million** (with an accordion feature up to **$500 million**), maturing in March 2022 (extendable to March 2023); as of June 30, 2021, **$96.0 million** was outstanding[114](index=114&type=chunk) - A five-year **$50 million** Term Loan, entered in September 2019, bears interest at LIBOR plus a margin and is partially hedged by an interest rate swap[115](index=115&type=chunk) - Short-term liquidity needs are met by operations, reserves, public offerings, and borrowings, while long-term needs are funded by operations, long-term debt, and equity issuances[117](index=117&type=chunk)[118](index=118&type=chunk) [Contractual Obligations and Other Long-Term Liabilities](index=26&type=section&id=Contractual%20Obligations%20and%20Other%20Long-Term%20Liabilities) As of June 30, 2021, the Company's contractual obligations, including principal and interest payments on debt, tenant-related commitments, and lease obligations, totaled $767.5 million Contractual Obligations (in thousands) | Contractual Obligations (in thousands) | Total | Payments 2021 | Due by Period 2022-2023 | 2024-2025 | More than 5 years | | :------------------------------------- | :--------- | :------------ | :---------------------- | :-------- | :---------------- | | Principal payments on mortgage loans | $615,617 | $2,967 | $151,078 | $216,733 | $244,839 | | Interest payments | $100,122 | $11,011 | $40,538 | $30,751 | $17,822 | | Tenant-related commitments | $20,196 | $19,984 | $212 | — | — | | Lease obligations | $31,568 | $315 | $1,838 | $1,540 | $27,875 | | Total | $767,503 | $34,277 | $193,666 | $249,024 | $290,536 | [Off-Balance Sheet Arrangements](index=27&type=section&id=Off-Balance%20Sheet%20Arrangements) As of June 30, 2021, the Company had a $4.8 million letter of credit outstanding under its Unsecured Credit Facility to satisfy escrow requirements for a mortgage lender - As of June 30, 2021, the Company had a **$4.8 million** letter of credit outstanding under its Unsecured Credit Facility to satisfy escrow requirements for a mortgage lender[122](index=122&type=chunk) [Inflation](index=27&type=section&id=Inflation) The Company anticipates that inflationary increases may be partially offset by contractual rent increases and expense escalations embedded in its office leases - The Company believes that inflationary increases may be at least partially offset by contractual rent increases and expense escalations in its office leases[123](index=123&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company's primary market risk is interest rate risk, mainly exposed to LIBOR fluctuations. It manages this risk primarily through fixed interest rate financing and derivative financial instruments like interest rate swaps. As of June 30, 2021, approximately 84.4% of its debt was fixed rate, and 15.6% was variable rate (after factoring in the interest rate swap) - The primary market risk is interest rate risk, with exposure to LIBOR[125](index=125&type=chunk) - As of June 30, 2021, approximately **76.3% ($469.6 million)** of debt had fixed interest rates, and **23.7% ($146.0 million)** had variable rates[126](index=126&type=chunk) - Factoring in the Interest Rate Swap, approximately **84.4%** of debt was fixed rate and **15.6%** was variable rate as of June 30, 2021[126](index=126&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's CEO and CFO evaluated the disclosure controls and procedures, determining them to be effective as of June 30, 2021. There have been no material changes to the internal control over financial reporting during the period - The Company's disclosure controls and procedures were effective as of June 30, 2021, as determined by the CEO and CFO[128](index=128&type=chunk) - No material changes to internal control over financial reporting occurred during the period covered by the report[129](index=129&type=chunk) [PART II. OTHER INFORMATION](index=29&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information beyond the financial statements, including legal proceedings, risk factors, equity sales, defaults, and other disclosures [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The Company and its subsidiaries are occasionally involved in litigation arising from ordinary business operations. As of June 30, 2021, management believes that no such litigation will have a material adverse effect on the Company's financial position or results of operations - The Company is involved in ordinary course litigation, but management does not believe it will have a material adverse effect on financial position or results of operations as of June 30, 2021[130](index=130&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section states that there are no new material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 - No new material risk factors are reported in this quarterly filing[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company's Board of Directors approved share repurchase plans totaling $150 million in 2020, which were completed. Repurchased shares are classified as authorized and unissued, reducing stockholders' equity. No shares were repurchased during the six months ended June 30, 2021 - The Company's Board approved share repurchase plans totaling **$150 million** in 2020, which were fully completed[132](index=132&type=chunk) - Repurchased shares are classified as authorized and unissued, reducing common stock and additional paid-in capital[133](index=133&type=chunk) [Item 3. Defaults Upon Senior Securities](index=29&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[134](index=134&type=chunk) [Item 4. Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company's operations - Mine Safety Disclosures are not applicable to the Company[135](index=135&type=chunk) [Item 5. Other Information](index=29&type=section&id=Item%205.%20Other%20Information) On August 4, 2021, the Company entered into Amendment No. 2 to the employment agreements with its CEO, President/COO, and CFO. These amendments clarify provisions related to the vesting of equity awards upon the death or disability of executive officers - On August 4, 2021, the Company amended employment agreements with its CEO, President/COO, and CFO[136](index=136&type=chunk) - The amendments clarify provisions regarding the vesting of equity awards upon the death or disability of executive officers[136](index=136&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to the Company's charter and bylaws, certificates for common and preferred stock, and recent amendments to executive employment agreements. It also includes certifications under the Sarbanes-Oxley Act and Interactive Data Files - Exhibits include amendments to the Company's charter and bylaws, certificates for common and preferred stock, and executive employment agreement amendments[138](index=138&type=chunk) - Certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[138](index=138&type=chunk) - Interactive Data Files (formatted as Inline XBRL) are provided[138](index=138&type=chunk) [Signatures](index=31&type=section&id=Signatures) The report is duly signed on behalf of City Office REIT, Inc. by James Farrar, Chief Executive Officer and Director, and Anthony Maretic, Chief Financial Officer, Secretary, and Treasurer, on August 5, 2021 - The report was signed by James Farrar, Chief Executive Officer and Director, and Anthony Maretic, Chief Financial Officer, Secretary and Treasurer[142](index=142&type=chunk) - The signing date for the report was August 5, 2021[142](index=142&type=chunk)

City Office REIT, Inc. (NYSE:CIO) Q1 2021 Earnings Conference Call May 7, 2021 11:00 AM ET Company Participants James Farrar - CEO Anthony Maretic - CFO, Secretary & Treasurer Conference Call Participants Rob Stevenson - Janney Craig Kucera - B. Riley FBR Jason Idoine - RBC Operator Good morning, and welcome to the City Office REIT, Incorporated First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal pre ...

| --- | --- | --- | |-------|-------------------------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | I N V E S T O R P R E S E NTATION | | | | M A Y 2 0 2 1 | | | | N Y S E: CIO | | FORWARD-LOOKING STATEMENTS This presentation contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain state ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2021 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for City Office REIT, Inc., including balance sheets, statements of operations, comprehensive income, changes in equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, real estate investments, debt, and equity activities for the quarter ended March 31, 2021 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This table presents the company's financial position, including assets, liabilities, and equity, as of March 31, 2021, and December 31, 2020 | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :----------------- | :---------------------------- | :------------------------------- | | Total Assets | $1,088,151 | $1,157,292 | | Total Liabilities | $628,538 | $739,417 | | Total Equity | $459,613 | $417,875 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This table details the company's revenues, expenses, and net income for the three months ended March 31, 2021, and 2020 | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Rental and other revenues | $39,516 | $40,122 | | Operating income | $8,182 | $7,692 | | Net gain on sale of real estate property | $47,400 | — | | Net income | $49,009 | $1,006 | | Net income attributable to the Company | $48,817 | $824 | | Net income/(loss) attributable to common stockholders | $46,962 | $(1,031) | | Basic EPS | $1.08 | $(0.02) | | Diluted EPS | $1.07 | $(0.02) | | Dividend distributions declared per common share | $0.150 | $0.150 | [Condensed Consolidated Statements of Comprehensive Income/(Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%2F%28Loss%29) This table outlines the company's net income and other comprehensive income components for the three months ended March 31, 2021, and 2020 | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net income | $49,009 | $1,006 | | Other comprehensive income/(loss) | $669 | $(2,741) | | Comprehensive income/(loss) | $49,678 | $(1,735) | | Comprehensive income/(loss) attributable to the Company | $49,486 | $(1,917) | [Condensed Consolidated Statements of Changes in Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) This table summarizes changes in the company's equity, including net income and dividend distributions, between December 31, 2020, and March 31, 2021 | Metric | Balance—December 31, 2020 (in thousands) | Balance—March 31, 2021 (in thousands) | | :----------------------------------------- | :--------------------------------------- | :------------------------------------ | | Total Stockholders' Equity | $416,926 | $458,692 | | Total Equity | $417,875 | $459,613 | | Net income attributable to the Company | N/A | $48,817 | | Other comprehensive income | N/A | $669 | | Common stock dividend distribution declared | N/A | $(6,510) | | Preferred stock dividend distribution declared | N/A | $(1,855) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This table presents the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2021, and 2020 | Metric | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :----------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net Cash Provided By Operating Activities | $15,524 | $10,739 | | Net Cash Provided by/(Used In) Investing Activities | $85,121 | $(5,332) | | Net Cash (Used In)/Provided By Financing Activities | $(113,411) | $71,907 | | Net (Decrease)/Increase in Cash, Cash Equivalents and Restricted Cash | $(12,766) | $77,314 | | Cash, Cash Equivalents and Restricted Cash, End of Period | $33,185 | $164,837 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization and Description of Business](index=9&type=section&id=1.%20Organization%20and%20Description%20of%20Business) This note describes the company's formation, IPO, and operational structure as a Real Estate Investment Trust - City Office REIT, Inc. was organized in Maryland on November 26, 2013, and completed its initial public offering (IPO) on April 21, 2014[26](index=26&type=chunk) - The Company operates as a Real Estate Investment Trust (REIT) under the Internal Revenue Code, allowing it to deduct dividend distributions and avoid U.S. federal taxation at the company level[28](index=28&type=chunk) [2. Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the accounting principles and policies used in preparing the unaudited condensed consolidated financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and US GAAP, relying on management's estimates and assumptions[29](index=29&type=chunk) - The Company is evaluating the impact of recent FASB ASUs (2020-04 and 2021-01) on reference rate reform, which provide optional expedients for contract modifications and hedge accounting[30](index=30&type=chunk)[31](index=31&type=chunk) [3. Real Estate Investments](index=10&type=section&id=3.%20Real%20Estate%20Investments) This note details significant transactions and classifications related to the company's real estate portfolio - On February 10, 2021, the Company sold the Cherry Creek property for **$95.0 million**, realizing a net gain of **$47.4 million**[32](index=32&type=chunk) - The Cherry Creek property was classified as held for sale as of December 31, 2020, with total assets held for sale valued at **$46.054 million**[33](index=33&type=chunk)[34](index=34&type=chunk) [4. Lease Intangibles](index=10&type=section&id=4.%20Lease%20Intangibles) This note provides information on acquired lease intangible assets and liabilities, including estimated amortization expenses | Lease Intangible Category | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :------------------------ | :---------------------------- | :------------------------------- | | Acquired lease intangible assets, net | $39,641 | $44,143 | | Acquired lease intangible liabilities, net | $(5,644) | $(6,035) | | Year | Estimated Aggregate Amortization Expense (in thousands) | | :--------- | :------------------------------------------------------ | | 2021 | $9,446 | | 2022 | $8,118 | | 2023 | $5,424 | | 2024 | $3,101 | | 2025 | $2,703 | | Thereafter | $5,205 | | **Total** | **$33,997** | [5. Debt](index=11&type=section&id=5.%20Debt) This note details the company's debt structure, including principal amounts, credit facilities, and scheduled repayments | Metric | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Total Principal Debt | $576,141 | $680,962 | | Unsecured Credit Facility | $55,000 | $75,000 | | Term Loan | $50,000 | $50,000 | | Midland Life Insurance (repaid) | — | $83,537 | | Year | Scheduled Principal Repayments (in thousands) | | :--------- | :-------------------------------------------- | | 2021 | $4,483 | | 2022 | $61,529 | | 2023 | $48,529 | | 2024 | $124,725 | | 2025 | $96,572 | | Thereafter | $240,303 | | **Total** | **$576,141** | - The Unsecured Credit Facility matures in March 2022 (extendable to March 2023) and bears interest at LIBOR + 1.40% to 2.25%[37](index=37&type=chunk) - The Term Loan matures in September 2024 at LIBOR + 1.25% to 2.15%[37](index=37&type=chunk) [6. Fair Value of Financial Instruments](index=12&type=section&id=6.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the fair value measurements of the company's financial instruments, including derivative instruments - The Company uses an Interest Rate Swap for a notional amount of **$50 million**, designated as a cash flow hedge, to pay a fixed rate of approximately **1.27%** and receive floating 30-day LIBOR payments[40](index=40&type=chunk)[41](index=41&type=chunk) - As of March 31, 2021, the Interest Rate Swap was reported as a Level 2 liability at approximately **$1.3 million**, with **$0.1 million** in realized losses reclassified to interest expense for the three months ended March 31, 2021[42](index=42&type=chunk) - Fixed rate mortgage loans payable are classified as Level 3 fair value measurements, with a fair value of **$474.1 million** as of March 31, 2021, compared to a carrying value of **$471.1 million**[46](index=46&type=chunk) [7. Related Party Transactions](index=13&type=section&id=7.%20Related%20Party%20Transactions) This note discloses transactions and balances with related parties - The Company earned **$0.1 million** in administrative services from related parties (Second City Real Estate II Corporation and Clarity Real Estate Ventures GP, Limited Partnership) for both the three months ended March 31, 2021 and 2020[47](index=47&type=chunk) [8. Leases](index=13&type=section&id=8.%20Leases) This note provides details on the company's lessor and lessee lease arrangements, including payments and liabilities | Lessor Lease Payments | Three Months Ended March 31, 2021 (in thousands) | Three Months Ended March 31, 2020 (in thousands) | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | | Fixed payments | $33,551 | $34,092 | | Variable payments | $5,907 | $6,016 | | **Total** | **$39,458** | **$40,108** | | Lessee Lease Liabilities | March 31, 2021 (in thousands) | December 31, 2020 (in thousands) | | :----------------------- | :---------------------------- | :------------------------------- | | Right-of-use asset – operating leases | $12,633 | $12,739 | | Lease liability – operating leases | $7,666 | $7,719 | | Right-of-use asset – financing leases | $49 | $55 | | Lease liability – financing leases | $49 | $55 | | Year | Future Minimum Lease Payments (Lessee - Operating Leases, in thousands) | | :--------- | :---------------------------------------------------------------------- | | 2021 | $383 | | 2022 | $798 | | 2023 | $663 | | 2024 | $597 | | 2025 | $596 | | Thereafter | $26,084 | | **Total** | **$29,121** | [9. Commitments and Contingencies](index=15&type=section&id=9.%20Commitments%20and%20Contingencies) This note outlines the company's obligations for tenant improvements and potential environmental liabilities - The Company is obligated to fund tenant improvements and property expansions under certain leases[56](index=56&type=chunk) - Management believes the Company is in material compliance with environmental regulations and is not aware of any environmental liabilities or legal disputes that would have a material adverse impact on its financial position or results of operations[57](index=57&type=chunk)[58](index=58&type=chunk) [10. Stockholders' Equity](index=15&type=section&id=10.%20Stockholders%27%20Equity) This note details changes in stockholders' equity, including share repurchase plans, dividend declarations, and equity incentive grants - The Company completed a **$100 million** share repurchase plan in July 2020 and approved an additional **$50 million** plan in August 2020, with no shares repurchased in Q1 2021[59](index=59&type=chunk)[60](index=60&type=chunk) - A cash dividend of **$0.15** per common share and **$0.4140625** per Series A Preferred Stock share was declared for Q1 2021, totaling **$6.5 million** and **$1.9 million** respectively[61](index=61&type=chunk)[63](index=63&type=chunk) - The Equity Incentive Plan granted **169,500** restricted stock units (RSUs) and **120,000** Performance RSU Awards in Q1 2021, resulting in **$0.5 million** and **$0.2 million** in compensation expense, respectively[66](index=66&type=chunk)[67](index=67&type=chunk) [11. Subsequent Events](index=16&type=section&id=11.%20Subsequent%20Events) This note discloses significant events that occurred after the reporting period but before the financial statements were issued - Subsequent to March 31, 2021, the Company entered into an agreement to acquire two properties in San Diego, California, for **$43.3 million**, with closing expected in Q2 2021[68](index=68&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, highlighting the impact of COVID-19, business strategy, property portfolio, and a detailed comparison of operating results and cash flows for the three months ended March 31, 2021, versus the prior year [Cautionary Statement Regarding Forward-Looking Statements](index=17&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section warns that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including adverse economic conditions, COVID-19 impacts, competition, financing challenges, and the ability to maintain REIT status[71](index=71&type=chunk)[72](index=72&type=chunk) - Actual results may differ materially from expectations due to various factors, and the Company undertakes no obligation to update these statements, except as required by law[73](index=73&type=chunk) [Overview](index=18&type=section&id=Overview) This section provides a general introduction to City Office REIT, Inc., its formation, and its property portfolio as of March 31, 2021 - City Office REIT, Inc. was formed in November 2013 and completed its IPO in April 2014, commencing operations as a REIT[74](index=74&type=chunk) - As of March 31, 2021, the Company owned **24 properties** comprising **62 office buildings** with approximately **5.5 million square feet** of net rentable area (NRA), with an occupancy rate of approximately **90.5%**[75](index=75&type=chunk) - Most leases are full-service gross or triple net, with triple net leases common in properties like Lake Vista Pointe, 2525 McKinnon, Sorrento Mesa, and Canyon Park[76](index=76&type=chunk) [Factors That May Influence Our Operating Results and Financial Condition](index=19&type=section&id=Factors%20That%20May%20Influence%20Our%20Operating%20Results%20and%20Financial%20Condition) This section discusses key external and internal factors, such as the COVID-19 pandemic and leasing strategy, that could affect the company's financial performance - The COVID-19 pandemic has led to rent relief for approximately **0.1%** of occupied NRA, with over **99%** of base rents collected for Q1 2021, but future collection rates remain uncertain[79](index=79&type=chunk)[81](index=81&type=chunk) - Leasing activity has been slow, except for the life science sector, and there is uncertainty regarding existing tenants' long-term space requirements, potentially impacting rental revenues[84](index=84&type=chunk) - The Company's strategy focuses on acquiring and owning high-quality office properties in target markets with growing populations, strong employment growth, and diversified industries, aiming for cash flow stability and long-term value appreciation[87](index=87&type=chunk) [Our Properties](index=22&type=section&id=Our%20Properties) This section provides a detailed breakdown of the company's property portfolio by metropolitan area, including net rentable area, occupancy, and annualized base rent | Metropolitan Area | NRA (000s Square Feet) | In Place Occupancy | Annualized Base Rent (000s) | | :---------------- | :--------------------- | :----------------- | :-------------------------- | | Phoenix, AZ | 1,164 | 86.3% | $29,805 | | Tampa, FL | 1,041 | 92.8% | $25,577 | | Denver, CO | 807 | 89.2% | $14,912 | | Orlando, FL | 565 | 95.8% | $13,307 | | San Diego, CA | 733 | 90.9% | $21,397 | | Dallas, TX | 577 | 86.0% | $12,066 | | Portland, OR | 331 | 99.0% | $7,983 | | Seattle, WA | 207 | 100.0% | $4,650 | | **Total / Weighted Average** | **5,475** | **90.5%** | **$129,701** | [Operating Expenses](index=23&type=section&id=Operating%20Expenses) This section explains the components of operating expenses and how they are managed through lease structures - Operating expenses include utilities, property taxes, insurance, and site maintenance costs, which are generally passed through to tenants in full-service gross leases (above a base year stop) or paid directly by tenants in net leases[94](index=94&type=chunk) [Conditions in Our Markets](index=23&type=section&id=Conditions%20in%20Our%20Markets) This section discusses how external market conditions, including economic changes and the COVID-19 pandemic, can influence the company's performance - Market conditions, including economic changes, employment rates, and natural hazards, can impact performance, with the COVID-19 pandemic causing significant disruption and uncertainty in global financial markets and economies[95](index=95&type=chunk) [Summary of Significant Accounting Policies](index=23&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) This section confirms that the interim financial statements adhere to the accounting policies outlined in the previous annual report - The interim condensed consolidated financial statements adhere to the same accounting policies and procedures outlined in the Company's Annual Report on Form 10-K for the year ended December 31, 2020[96](index=96&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, detailing changes in revenues, expenses, and net income for the reporting period - Rental and other revenues decreased by **$0.6 million (2%)** to **$39.5 million** for Q1 2021, primarily due to the Cherry Creek disposition and decreased occupancy at 190 Office Center and Pima Center, partially offset by increases at 7595 Tech and Sorrento Mesa[97](index=97&type=chunk) - Total operating expenses decreased by **$1.1 million (3%)** to **$31.3 million**, mainly due to the Cherry Creek disposition[98](index=98&type=chunk) - Interest expense decreased by **$0.1 million (2%)** to **$6.6 million**, primarily due to debt repayment from the Cherry Creek sale proceeds[103](index=103&type=chunk) - The Company recorded a net gain of **$47.4 million** on the sale of the Cherry Creek property in February 2021[104](index=104&type=chunk) [Cash Flows](index=24&type=section&id=Cash%20Flows) This section analyzes the company's cash generation and usage across operating, investing, and financing activities - Net cash provided by operating activities increased by **$4.8 million** to **$15.5 million** for Q1 2021, primarily due to changes in working capital[106](index=106&type=chunk) - Net cash provided by investing activities increased by **$90.4 million** to **$85.1 million**, mainly driven by proceeds from the Cherry Creek property sale[107](index=107&type=chunk) - Net cash used in financing activities increased by **$185.3 million** to **$113.4 million**, primarily due to higher debt repayments and lower net proceeds from borrowings[108](index=108&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its short-term and long-term financial obligations and funding sources - As of March 31, 2021, the Company had **$14.9 million** in cash and cash equivalents and **$18.3 million** in restricted cash[109](index=109&type=chunk) - The Company has an Unsecured Credit Facility with **$55.0 million** outstanding and a **$50 million** Term Loan, both bearing interest at LIBOR plus a margin[110](index=110&type=chunk)[112](index=112&type=chunk) - Short-term liquidity needs are met through operations, existing cash reserves, public offerings, and borrowings, while long-term needs are funded by operations, debt, and equity issuances[114](index=114&type=chunk)[115](index=115&type=chunk) [Contractual Obligations and Other Long-Term Liabilities](index=25&type=section&id=Contractual%20Obligations%20and%20Other%20Long-Term%20Liabilities) This section details the company's future payment obligations under various contracts and long-term liabilities | Contractual Obligations | Total (in thousands) | 2021 (in thousands) | 2022-2023 (in thousands) | 2024-2025 (in thousands) | More than 5 years (in thousands) | | :---------------------- | :------------------- | :------------------ | :----------------------- | :----------------------- | :------------------------------- | | Principal payments on mortgage loans | $576,141 | $4,483 | $110,058 | $221,297 | $240,303 | | Interest payments | $105,100 | $16,100 | $40,405 | $30,773 | $17,822 | | Tenant-related commitments | $12,395 | $12,395 | — | — | — | | Lease obligations | $29,172 | $403 | $1,492 | $1,193 | $26,084 | | **Total** | **$722,808** | **$33,381** | **$151,955** | **$253,263** | **$284,209** | [Off-Balance Sheet Arrangements](index=26&type=section&id=Off-Balance%20Sheet%20Arrangements) This section describes the company's off-balance sheet commitments, such as letters of credit - As of March 31, 2021, the Company had a **$4.8 million** letter of credit outstanding under its Unsecured Credit Facility to satisfy escrow requirements for a mortgage lender[120](index=120&type=chunk) [Inflation](index=26&type=section&id=Inflation) This section explains how the company's lease agreements help mitigate the impact of inflation on its operating results - The Company's office leases generally include provisions for real estate tax and operating expense escalations, as well as fixed annual rent increases, which are expected to partially offset inflationary increases[121](index=121&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the Company's exposure to market risks, primarily interest rate risk, and its strategies for managing these risks through fixed-rate financing and derivative instruments - The primary market risk is interest rate risk, with approximately **81.8%** of debt having fixed interest rates as of March 31, 2021[123](index=123&type=chunk) - Including the Interest Rate Swap, which effectively fixes the LIBOR component of the **$50 million** Term Loan, approximately **90.5%** of the Company's debt was fixed rate[123](index=123&type=chunk) - A **10%** increase or decrease in LIBOR would result in a nominal change to annual interest costs on outstanding debt[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes to internal control over financial reporting - The Company's Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective as of March 31, 2021[125](index=125&type=chunk) - There have been no material changes to the Company's internal control over financial reporting during the period covered by the report[126](index=126&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity sales [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is involved in ordinary course litigation but does not anticipate any material adverse effects on its financial position or results of operations - Management does not believe that any current litigation will have a material adverse effect, individually or in the aggregate, on the Company's financial position or results of operations[128](index=128&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there are no new material risk factors to report for the current period - No new material risk factors are reported for the current period[129](index=129&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section outlines the Company's share repurchase plans, including the completion of a $100 million plan and the approval of an additional $50 million plan - The Company completed a **$100 million** share repurchase plan in July 2020 and approved an additional **$50 million** plan in August 2020[130](index=130&type=chunk) - Repurchased shares are classified as authorized and unissued, with costs reducing stockholders' equity by first reducing common stock par value and then additional paid-in capital[131](index=131&type=chunk) [Item 3. Defaults Upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[132](index=132&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[133](index=133&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report for the current period - No other information is reported[133](index=133&type=chunk) [Item 6. Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, stock certificates, and various certifications - Exhibits include Articles of Amendment and Restatement, Second Amended and Restated Bylaws, Certificates of Common and Preferred Stock, and certifications under the Sarbanes-Oxley Act[135](index=135&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section contains the official signatures of the Company's Chief Executive Officer and Chief Financial Officer, certifying the report - The report was signed on May 7, 2021, by James Farrar, Chief Executive Officer and Director, and Anthony Maretic, Chief Financial Officer, Secretary and Treasurer[137](index=137&type=chunk)[139](index=139&type=chunk)

City Office REIT, Inc. (NYSE:CIO) Q4 2020 Earnings Conference Call February 25, 2021 11:00 AM ET Company Participants James Farrar - CEO Anthony Maretic - CFO, Secretary & Treasurer Conference Call Participants Barry Oxford - D.A. Davidson Rob Stevenson - Janney Craig Kucera - B. Riley FBR Michael Carroll - RBC Capital Markets Bill Crow - Raymond James Operator Good morning, and welcome to the City Office REIT, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time all participants are in a listen- ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file no: 001-36409 CITY OFFICE REIT, INC. Maryland 98-1141883 (State or other jurisdiction of incorporation or organization)(IRS Em ...

City Office REIT, Inc. (NYSE:CIO) Q3 2020 Earnings Conference Call November 5, 2020 11:00 AM ET Company Participants Tony Maretic – Chief Financial Officer, Treasurer and Corporate Secretary Jamie Farrar – Chief Executive Officer Conference Call Participants Rob Stevenson – Janney Barry Oxford – D.A. Davidson Michael Carroll – RBC Capital Markets Operator Good morning, and welcome to the City Office REIT, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conferenc ...