City Office REIT, Inc. (NYSE:CIO) Q3 2023 Earnings Conference Call November 9, 2023 11:00 AM ET Company Participants Anthony Maretic - CFO, Secretary & Treasurer James Farrar - CEO & Director Conference Call Participants Robert Stevenson - Janney Montgomery Scott Barry Oxford - Colliers Securities William Crow - CIMB Research Operator Good morning, and welcome to the City Office REIT, Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. As a reminder this conference call is being reco ...

Title of Each Class Trading Symbol(s) Name of each Exchange on Which Registered Common Stock, $0.01 par value 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 666 Burrard Street Suite 3210 Vancouver, BC V6C 2X8 (Address of principal executive offices) (Zip Code) Indicate by check mark whether the registrant has submitted electronically every I ...

City Office REIT, Inc. (NYSE:CIO) Q2 2023 Earnings Conference Call August 3, 2023 11:00 AM ET Company Participants Anthony Maretic - CFO, Secretary & Treasurer James Farrar - CEO & Director Conference Call Participants Robert Stevenson - Janney Montgomery Scott Barry Oxford - Colliers Securities Craig Kucera - B. Riley Securities William Crow - CIMB Research Operator Good morning, and welcome to the City Office REIT, Inc. Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. It is now my pl ...

Item 3. Defaults Upon Senior Securities None. Item 4. Mine Safety Disclosures Not applicable. Item 5. Other Information The above description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Third Amended and Restated Bylaws, which is filed as Exhibit 3.2 hereto and incorporated herein reference. Item 6. Exhibits | --- | --- | |----------------|----------------------------------------------------------------------------- ...

Financial Data and Key Metrics Changes - The company reported core FFO of $15 million or $0.37 per share, which was $400,000 lower than in the fourth quarter, primarily due to higher interest costs and G&A offsetting net operating income increases [10] - The net operating income in Q1 was $28.2 million, an increase of $600,000 compared to the fourth quarter, driven by occupancy gains at certain properties [24] - The total debt as of March 31 was $708 million, with a net debt to EBITDA ratio of 6.5x [42] Business Line Data and Key Metrics Changes - The first quarter same-store cash NOI change was positive 3%, or $700,000 higher compared to Q1 2022, with Block 83, Block 23, and Park Tower showing the largest year-over-year increases due to higher occupancy [25] - The portfolio occupancy ended the quarter at 84.9%, including 158,000 square feet of signed leases that have not yet commenced [11] Market Data and Key Metrics Changes - St. Petersburg, Florida, where the City Center property is located, has strong population and economic growth metrics, with a low office market vacancy rate of approximately 7% and an 8% year-over-year rent increase [6] - Utilization across the portfolio has increased significantly, with approximately 60% of tenant offices being utilized, up from the low 30% range last year [37] Company Strategy and Development Direction - The company has reduced its quarterly dividend to $0.10 per share to retain $16 million of incremental cash annually for strategic investments, leverage reduction, or share purchases [9] - The company is focused on maintaining a premium core Sunbelt portfolio and enhancing liquidity while being cautious in the current market environment [39] Management's Comments on Operating Environment and Future Outlook - Management noted that rising interest rates and banking sector challenges have impacted debt availability in the commercial real estate industry, particularly in the office sector [22] - The company anticipates that the current challenging conditions will continue for smaller and regional banks, which are important capital providers to the commercial real estate industry [22] Other Important Information - The company executed two debt-related transactions to enhance liquidity and reduce exposure to rate fluctuations, with over 90% of total debt effectively fixed as of quarter end [12] - The company is exploring options for the potential disposition of its 190 Office Center property, which could positively impact its financial position [26] Q&A Session Summary Question: Thoughts on share repurchases given the new plan - Management indicated that the priority is to build additional liquidity before considering share repurchases [29] Question: Other potential dispositions due to market conditions - Management noted that the market is currently frozen for acquisitions and dispositions, making it not an ideal time to sell assets [30] Question: Dividend level versus taxable earnings - The new dividend level is above the minimum required, providing some cushion, with potential for additional depreciation to lower taxable income in future years [31] Question: Occupancy drop and specific buildings - The drop in occupancy was attributed to known vacates at specific properties, with the largest being a 49,000 square foot tenant in Phoenix [48] Question: Trends in leasing and tenant space needs - Smaller tenants are showing consistency in renewals, while larger tenants are downsizing and seeking higher quality properties [50]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36409 CITY OFFICE REIT, INC. Maryland 98-1141883 (State or other jurisdiction (I.R.S. Employer of incorporati ...

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 statements contained in this presentation, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forwardlooking statements within the mean ...

City Office REIT, Inc. (NYSE:CIO) Q4 2022 Earnings Conference Call February 23, 2023 8:30 AM ET Company Participants Tony Maretic - Chief Financial Officer, Treasurer and Corporate Secretary Jamie Farrar - Chief Executive Officer Conference Call Participants Robert Stevenson - Janney Craig Kucera - B. Riley Securities Operator Good morning, and welcome to the City Office REIT, Inc. Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-an ...

FORWARD-LOOKING STATEMENTS 2 The Terraces, Dallas Bloc 83, Raleigh Block 23, Phoenix INVESTING IN LEADING SUN BELT MARKETS | --- | --- | --- | |-------|-------------------------------------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | I N V E S T O R P R E S E NTATION | | | | F E B R U A R Y 2 0 2 3 | | | | N Y S E: CIO | | The forward-looking statements contained in this presentation are based on historical performance and management's current plans, estimates and expectations in light of i ...

[CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=3&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This annual report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations - The annual report contains numerous forward-looking statements regarding the company's industry, business strategy, objectives, market position, future operations, profits, capital expenditures, financial condition, liquidity, capital resources, cash flow, and operating results. These statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations[186](index=186&type=chunk)[187](index=187&type=chunk) - Key risks include adverse changes in the real estate industry and economic environment, rising interest rates, inflation, recession, COVID-19 impact, increased competition, difficulties in collecting rent and renewing leases, loss of key personnel, decreased demand for office space, major tenant defaults, financing difficulties, debt burden, restrictive covenants, impact of the Russia-Ukraine conflict, US government fiscal issues, hedging risks, joint venture risks, environmental regulations and litigation costs, limited investment diversity, illiquidity of real estate investments, tenant bankruptcies, government tenant-related risks, early lease termination clauses, green leasing policies, acquisition integration risks, new market risks, asset impairment, increased property taxes, and conflicts of interest with related parties[186](index=186&type=chunk)[187](index=187&type=chunk)[244](index=244&type=chunk) PART I [ITEM 1. BUSINESS](index=5&type=section&id=ITEM%201.%20BUSINESS) The company, a Maryland corporation formed in 2013, owns, operates, and acquires high-quality office properties in US Sun Belt markets, with 25 complexes, 60 buildings, and approximately 6 million square feet of net rentable area at 86.2% occupancy as of December 31, 2022 - The company was formed on November 26, 2013, focusing on owning, operating, and acquiring high-quality office properties in US Sun Belt markets[189](index=189&type=chunk) - The company's business objective is to provide investors with attractive long-term risk-adjusted returns through dividends and capital appreciation. Key growth strategies include driving value creation and FFO per share growth (including through asset dispositions and share repurchases), increasing cash flow through rent growth, leasing vacant space and completing strategic renewals, acquiring properties in target markets, and leveraging the management team's strong relationships[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - 2022 highlights include: completing approximately **777,000 square feet** of new and renewal leases; integrating and stabilizing **975,000 square feet** of premium office buildings acquired in Raleigh, Phoenix, and Dallas in December 2021; completing the sale of Lake Vista Pointe property for a total sales price of **$43.8 million**, realizing a gain on sale of **$21.7 million**; and repurchasing **4,006,897 shares** of common stock for a total cost of approximately **$50 million**[233](index=233&type=chunk) As of December 31, 2022 Property Portfolio Overview | Metric | Data | | :--- | :--- | | Number of Office Complexes | 25 | | Number of Office Buildings | 60 | | Total Net Rentable Area (NRA) | Approximately 6 million square feet | | Portfolio Occupancy Rate | 86.2% | | Lease Weighted Average Remaining Term | 4.9 years | | Metropolitan Areas | Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle, and Tampa | [ITEM 1A. RISK FACTORS](index=9&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks from real estate investment, market competition, tenant retention, declining office demand, debt burden, and the potential loss of REIT qualification - Real estate investments face inherent risks, including economic downturns, interest rate fluctuations, increased competition, declining rental income, rising operating costs, and natural disasters, which could adversely affect financial performance and property values[252](index=252&type=chunk)[253](index=253&type=chunk)[255](index=255&type=chunk) - As of December 31, 2022, **14.9%**, **9.3%**, and **8.5%** of the company's annualized base rent are scheduled to expire in 2023, 2024, and 2025, respectively; failure to renew leases or re-lease vacant space on favorable terms could materially adversely affect operating results and cash flow[256](index=256&type=chunk) - The ongoing COVID-19 pandemic continues to materially adversely affect the company's business, financial condition, operating results, cash flows, liquidity, and tenant performance, including reduced office space utilization, difficulty accessing capital, increased tenant default risk, financial covenant compliance risk, and asset impairment risk[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk) - As of December 31, 2022, the company's total consolidated principal debt was approximately **$693.8 million**, with **71.1%** effectively fixed-rate debt. The company's reliance on external capital sources may impact its ability to seize strategic opportunities, meet debt obligations, and distribute dividends to shareholders[301](index=301&type=chunk)[441](index=441&type=chunk)[443](index=443&type=chunk) - Inflation and price volatility may negatively impact tenants and the company's operating results; although lease contracts typically include fixed annual rent escalations, high inflation could exceed contractual rent growth, increasing tenant operating costs and affecting their ability to pay rent[322](index=322&type=chunk) - Failure to maintain REIT qualification would result in severe US federal income tax consequences, significantly reducing funds available for distribution, and potentially preventing re-election of REIT status for four years[374](index=374&type=chunk)[375](index=375&type=chunk)[376](index=376&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=39&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) No unresolved staff comments are mentioned in this report - No unresolved staff comments are mentioned in this report[429](index=429&type=chunk) [ITEM 2. PROPERTIES](index=40&type=section&id=ITEM%202.%20PROPERTIES) As of December 31, 2022, the company owned 25 office complexes with 60 buildings, totaling approximately 6 million square feet of net rentable area, with an 86.2% occupancy rate and a 4.9-year weighted average remaining lease term As of December 31, 2022 Property Portfolio Overview | Metric | Data | | :--- | :--- | | Number of Office Complexes | 25 | | Number of Office Buildings | 60 | | Total Net Rentable Area (NRA) | Approximately 6 million square feet | | Portfolio Occupancy Rate | 86.2% | | Lease Weighted Average Remaining Term | 4.9 years | | Metropolitan Areas | Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle, and Tampa | Lease Expirations as of December 31, 2022 | Lease Expiration Year | Percentage of NRA Expiring | | :--- | :--- | | 2023 | 13.2% | | 2024 | 8.2% | | 2025 | 7.4% | | 2026 | 8.3% | | 2027 | 11.9% | | 2028 | 8.8% | | 2029 | 9.2% | | 2030 | 4.9% | | 2031 | 2.7% | | 2032 and thereafter | 11.6% | [ITEM 3. LEGAL PROCEEDINGS](index=42&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any material legal proceedings and does not anticipate any significant adverse impact on its liquidity, operating results, or financial condition - The company and its subsidiaries are involved in litigation arising in the ordinary course of business from time to time. As of December 31, 2022, management believes these matters will not have a material adverse effect on the company's financial condition or results of operations[271](index=271&type=chunk)[447](index=447&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=42&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to this report - Mine safety disclosures are not applicable to this report[448](index=448&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=43&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY,%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock has been listed on the NYSE under "CIO" since April 2014, with a closing price of $9.32 and 55 registered shareholders as of February 16, 2023, and has completed multiple share repurchase programs - The company's common stock has been listed on the New York Stock Exchange under the symbol "CIO" since April 15, 2014[451](index=451&type=chunk) - As of February 16, 2023, the company's common stock closing price was **$9.32**, with **55** registered shareholders[452](index=452&type=chunk) - The company generally plans to pay quarterly common stock dividends, with actual amounts and timing at the discretion of the Board of Directors[453](index=453&type=chunk) Share Repurchase Programs | Plan Name | Authorized Amount | Completion Date | Shares Repurchased (2022) | Cost of Repurchases (2022) | | :--- | :--- | :--- | :--- | :--- | | March 2020 Plan | $100 million | July 2020 | - | - | | August 2020 Plan | $50 million | September 2022 | 4,006,897 | Approximately $50 million | [ITEM 6. [RESERVED]](index=45&type=section&id=ITEM%206.%20%5BRESERVED%5D) This section is reserved - This section is reserved[455](index=455&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=46&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial condition and operating results as of December 31, 2022, highlighting revenue growth, increased operating expenses due to acquisitions and impairment, and sufficient liquidity despite interest rate risks [Overview](index=46&type=section&id=Overview) The company, formed in 2013 and IPO'd in 2014, operates as a REIT, exempting it from US federal income tax - The company was formed on November 26, 2013, and completed its initial public offering (IPO) on April 21, 2014. The company has elected and intends to continue to operate in a manner that will allow it to qualify as a REIT, thereby exempting it from US federal income tax at the corporate level[26](index=26&type=chunk)[94](index=94&type=chunk)[132](index=132&type=chunk) [Revenue Base](index=47&type=section&id=Revenue%20Base) As of December 31, 2022, the company's portfolio comprised 25 properties, 60 office buildings, approximately 6 million square feet of net rentable area, and an 86.2% occupancy rate - As of December 31, 2022, the company owned **25** properties, comprising **60** office buildings, with a total net rentable area of approximately **6 million square feet** and an occupancy rate of approximately **86.2%**[36](index=36&type=chunk) [Office Leases](index=47&type=section&id=Office%20Leases) Most of the company's leases are full-service gross or net leases, with full-service gross leases typically including a base year stop for operating expenses and triple net leases requiring tenants to cover all property taxes and operating costs - Most of the company's lease contracts are full-service gross leases or net leases. Full-service gross leases typically include a base year "stop" for expenses, with tenants proportionally responsible for amounts exceeding it; triple net leases require tenants to bear all property taxes and operating expenses[37](index=37&type=chunk) [Factors That May Influence Our Operating Results and Financial Condition](index=47&type=section&id=Factors%20That%20May%20Influence%20Our%20Operating%20Results%20and%20Financial%20Condition) [Economic Environment and Inflation](index=47&type=section&id=Economic%20Environment%20and%20Inflation) The deteriorating economic environment in 2022, marked by inflation, rising interest rates, and market volatility, increased the company's capital costs and influenced tenant leasing decisions - In 2022, US and global economic conditions deteriorated due to increased inflation, leading to Federal Reserve monetary tightening, rising interest rates, capital market volatility, and recession concerns, which increased the company's cost of capital and may affect tenant leasing decisions[69](index=69&type=chunk) [COVID-19](index=48&type=section&id=COVID-19) The ongoing COVID-19 pandemic continues to impact the company's business, creating uncertainty in office space demand, promoting remote work, and potentially slowing new leasing activity and increasing subleasing - The COVID-19 pandemic continues to affect the company's business, leading to uncertainty in tenant demand for office space and the prevalence of remote and hybrid work models. Although asset utilization recovered somewhat in 2022, it remains below pre-pandemic levels. The pandemic may slow new leasing activity, create long-term uncertainty regarding existing tenants' space needs, and potentially increase subleasing activity, thereby impacting rental income and leasing competitiveness[106](index=106&type=chunk) [Business and Strategy](index=48&type=section&id=Business%20and%20Strategy) The company strategically focuses on acquiring and owning office properties in high-growth Sun Belt markets, leveraging market knowledge to identify opportunities with stable cash flow and long-term value appreciation - The company focuses on owning and acquiring office properties in Sun Belt growth markets, characterized by population and job growth, diversified industries, and high quality of life. The company leverages market knowledge and relationships to identify acquisition opportunities with stable cash flow and long-term value appreciation potential[109](index=109&type=chunk) [Rental Revenue and Tenant Recoveries](index=48&type=section&id=Rental%20Revenue%20and%20Tenant%20Recoveries) Net rental revenue depends on maintaining occupancy, leasing available space, and increasing rents, with economic downturns or market declines potentially impacting renewal and re-leasing capabilities and growth also driven by new property acquisitions - Net rental revenue primarily depends on maintaining occupancy in existing leased spaces, leasing available space, and the ability to increase rents. Economic downturns or market/industry declines may affect the ability to renew and re-lease, thereby impacting rental income. Rental revenue growth also partially depends on acquiring new properties that meet investment criteria[466](index=466&type=chunk)[467](index=467&type=chunk) [Operating Expenses](index=49&type=section&id=Operating%20Expenses) Operating expenses, including utilities, property taxes, insurance, and site maintenance, are typically passed on to tenants in full-service gross leases after a base year or fully borne by tenants in net leases, with no significant COVID-19 impact in fiscal year 2022 - Operating expenses primarily include utilities, property taxes, insurance, and site maintenance. Increases in these expenses after a tenant's base year are typically passed on to tenants in full-service gross properties or fully paid by tenants in net lease properties. The COVID-19 pandemic did not cause significant changes in operating expenses for fiscal year 2022[468](index=468&type=chunk) [Conditions in Our Markets](index=49&type=section&id=Conditions%20in%20Our%20Markets) Changes in market conditions, such as state budget shortfalls, employment rates, and natural disasters, can affect overall performance, with inflation, rising interest rates, and policy changes introducing uncertainty despite expected Sun Belt growth - Changes in market conditions, such as state budget shortfalls, employment rates, and natural disasters, may affect the company's overall performance. Despite anticipated continued population and economic growth trends in Sun Belt cities, inflation, rising interest rates, and potential changes in tax, fiscal, and monetary policies introduce uncertainty. The short-term and long-term impact of the COVID-19 pandemic on office space demand also cannot be estimated[469](index=469&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) [Basis of Preparation](index=49&type=section&id=Basis%20of%20Preparation) Consolidated financial statements are prepared under US GAAP, encompassing the company, operating partnership, and subsidiaries, with all significant intercompany transactions and balances eliminated - Consolidated financial statements are prepared in accordance with US Generally Accepted Accounting Principles (GAAP) and include the financial position and results of operations of the company, the operating partnership, and their subsidiaries. All significant intercompany transactions and balances have been eliminated[470](index=470&type=chunk) [Use of Estimates](index=49&type=section&id=Use%20of%20Estimates) The company uses significant estimates and assumptions in financial statement preparation, including collectibility of receivables, property purchase price allocation, and long-lived asset impairment, with actual results potentially differing materially from these estimates - The company uses several significant estimates and assumptions in preparing its financial statements, including the collectibility of accounts receivable, allocation of property purchase prices, impairment of long-lived assets, and useful lives. These estimates are based on historical experience and current economic conditions, and actual results may differ materially from these estimates[471](index=471&type=chunk) [Business Combinations](index=49&type=section&id=Business%20Combinations) Property acquisition purchase prices are allocated to tangible and identifiable intangible assets and liabilities, while acquisitions not meeting business combination accounting standards are treated as asset acquisitions, with costs allocated to individual assets and liabilities - When acquiring properties, the purchase price is allocated to tangible assets (land, buildings, and improvements) and identifiable intangible assets and liabilities (above-market and below-market lease values, in-place lease values, and tenant relationship values). Acquisitions that do not meet the accounting standards for business combinations are treated as asset acquisitions, with costs allocated to individual assets and liabilities[472](index=472&type=chunk)[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk) [Revenue Recognition](index=50&type=section&id=Revenue%20Recognition) The company recognizes lease revenue on a straight-line basis over the lease term, with termination fees recognized upon receipt if lease continuity is reasonably assured, and tenant recoveries for property taxes and operating expenses recognized as incurred - The company recognizes lease revenue on a straight-line basis over the lease term. If a tenant terminates a lease early and pays a termination fee, and lease continuity is reasonably assured, the termination fee is recognized as revenue upon receipt. Tenant recoveries for real estate taxes, insurance, and other operating expenses are recognized as revenue when incurred[477](index=477&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk) [Leases](index=51&type=section&id=Leases) The company determines if an arrangement is a lease at inception, recognizing operating and finance right-of-use assets and lease liabilities on the consolidated balance sheet based on the present value of lease payments over the lease term, with lease expenses recognized on a straight-line basis - The company determines whether an arrangement is a lease at the inception of the lease and includes operating and finance right-of-use assets and lease liabilities on the consolidated balance sheet. Right-of-use assets and liabilities are recognized based on the present value of lease payments over the lease term. Lease expenses are recognized on a straight-line basis over the lease term[480](index=480&type=chunk) [Impairment of Real Estate Properties](index=51&type=section&id=Impairment%20of%20Real%20Estate%20Properties) The company periodically reviews long-lived assets for impairment, recognizing a loss when impairment indicators exist and expected undiscounted cash flows are less than carrying value, with valuation techniques including discounted cash flow analysis and comparable sales - The company periodically reviews long-lived assets in use for impairment indicators and writes down the carrying value to fair value when impairment is determined. Impairment losses are recognized when impairment indicators exist and expected undiscounted cash flows are less than the carrying value. Valuation of impaired assets uses techniques such as discounted cash flow analysis, comparable sales transactions, and third-party purchase offers[481](index=481&type=chunk) [Recently Issued or Adopted Accounting Standards](index=51&type=section&id=Recently%20Issued%20or%20Adopted%20Accounting%20Standards) The company is evaluating the impact of FASB ASUs 2020-04, 2021-01, and 2022-06, which simplify reference rate reform, and adopted ASU 2021-05 in 2022 with no significant impact on its consolidated financial statements - FASB issued ASU 2020-04, ASU 2021-01, and ASU 2022-06 to simplify the financial reporting impact of reference rate reform, extending the optional relief deadline to December 31, 2024. The company has not yet adopted this guidance and is still evaluating its impact on the consolidated financial statements[482](index=482&type=chunk) - The company adopted ASU 2021-05 on January 1, 2022, which requires lessors to classify leases with variable lease payments not dependent on an index or rate as operating leases if, under the previous classification criteria, the lease would have been classified as a sales-type or direct financing lease and would have resulted in a day-one loss. The adoption of this guidance did not have a material impact on the company's consolidated financial statements[483](index=483&type=chunk)[484](index=484&type=chunk) [Results of Operations](index=52&type=section&id=Results%20of%20Operations) [Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021](index=52&type=section&id=Comparison%20of%20Year%20Ended%20December%2031,%202022%20to%20Year%20Ended%20December%2031,%202021) [Rental and Other Revenues](index=52&type=section&id=Rental%20and%20Other%20Revenues) Rental and other revenues increased by $16.5 million (10%) to $180.5 million in 2022, primarily driven by acquisitions, partially offset by property dispositions and lease terminations Rental and Other Revenues (2022 vs 2021) | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Rental and Other Revenues | 180.5 | 164.0 | 16.5 | 10% | | **Primary Growth Contributions:** | | | | | | Block 23 Acquisition | 9.8 | - | | | | The Terraces Acquisition | 10.3 | - | | | | Bloc 83 Acquisition | 17.1 | - | | | | Mission City (Higher Occupancy) | 0.5 | - | | | | **Primary Decline Contributions:** | | | | | | Cherry Creek Disposition | (0.8) | - | | | | Sorrento Mesa Disposition | (12.2) | - | | | | Lake Vista Pointe Disposition | (2.5) | - | | | | Park Tower (Termination Fees and Vacancy) | (5.1) | - | | | [Property Operating Expenses](index=52&type=section&id=Property%20Operating%20Expenses) Property operating expenses increased by $9.7 million (17%) to $67.7 million in 2022, mainly due to acquisitions, partially offset by property dispositions Property Operating Expenses (2022 vs 2021) | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Property Operating Expenses | 67.7 | 58.0 | 9.7 | 17% | | **Primary Growth Contributions:** | | | | | | Block 23 Acquisition | 2.6 | - | | | | The Terraces Acquisition | 3.2 | - | | | | Bloc 83 Acquisition | 4.0 | - | | | | Ingenuity Drive Property | 0.9 | - | | | | Park Tower (Non-recoverable Expenses and Utilities) | 0.7 | - | | | | **Primary Decline Contributions:** | | | | | | Cherry Creek Disposition | (0.3) | - | | | | Sorrento Mesa Disposition | (2.6) | - | | | | Lake Vista Pointe Disposition | (0.8) | - | | | | Other Properties (Combined) | 2.0 | - | | | [General and Administrative](index=53&type=section&id=General%20and%20Administrative) General and administrative expenses decreased by $1.7 million (11%) to $13.8 million in 2022, primarily due to a one-time employee bonus in 2021, partially offset by increased stock compensation and professional fees General and Administrative Expenses (2022 vs 2021) | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | General and Administrative Expenses | 13.8 | 15.5 | (1.7) | (11%) | | **Primary Reasons for Change:** | | | | | | Sorrento Mesa Sale One-time Employee Bonus | - | (3.5) | | | | Increased Stock Compensation Expense | | | | | | Increased Professional Fees | | | | | [Depreciation and Amortization](index=53&type=section&id=Depreciation%20and%20Amortization) Depreciation and amortization increased by $5.2 million (9%) to $62.5 million in 2022, mainly due to acquisitions, partially offset by property dispositions and fully amortized lease intangibles Depreciation and Amortization (2022 vs 2021) | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Depreciation and Amortization | 62.5 | 57.3 | 5.2 | 9% | | **Primary Growth Contributions:** | | | | | | Block 23 Acquisition | 3.5 | - | | | | The Terraces Acquisition | 3.4 | - | | | | Bloc 83 Acquisition | 6.8 | - | | | | **Primary Decline Contributions:** | | | | | | Sorrento Mesa Disposition | (3.4) | - | | | | Lake Vista Pointe Disposition | (0.7) | - | | | | Pima Center (Lease Intangibles Fully Amortized) | (1.1) | - | | | | Other Properties (Accelerated Amortization) | (3.3) | - | | | [Other Expense (Income)](index=53&type=section&id=Other%20Expense%20(Income)) [Interest Expense](index=53&type=section&id=Interest%20Expense) Interest expense increased by $2.4 million (10%) to $27.0 million in 2022, primarily due to higher outstanding floating-rate debt and rising interest rates | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Interest Expense | 27.0 | 24.6 | 2.4 | 10% | | **Primary Reasons:** | | | | | | Increased Floating Rate Debt Draws and Rising Interest Rates | | | | | [Net Gain on the Sale of Real Estate Property](index=53&type=section&id=Net%20Gain%20on%20the%20Sale%20of%20Real%20Estate%20Property) The company recognized a net gain of $21.7 million from the sale of real estate property in 2022, significantly lower than the $476.7 million gain in 2021 from larger portfolio dispositions | Metric | 2022 (million USD) | 2021 (million USD) | | :--- | :--- | :--- | | Lake Vista Pointe Sale Net Gain | 21.7 | - | | Cherry Creek Sale Net Gain | - | 47.4 | | Sorrento Mesa Sale Net Gain | - | 429.3 | | **Total Net Gain** | **21.7** | **476.7** | [Impairment of Real Estate](index=53&type=section&id=Impairment%20of%20Real%20Estate) The company recognized a $13.4 million real estate impairment in 2022 for 190 Office Center and Cascade Station, reducing their carrying values to fair value, with no impairment in prior years | Metric | 2022 (million USD) | 2021 (million USD) | | :--- | :--- | :--- | | Real Estate Impairment | 13.4 | 0 | | **Reason for Impairment:** | | | | 190 Office Center and Cascade Station Carrying Value Written Down to Fair Value | | | [Cash Flows](index=54&type=section&id=Cash%20Flows) [Comparison of Period Ended December 31, 2022 to Period Ended December 31, 2021](index=54&type=section&id=Comparison%20of%20Period%20Ended%20December%2031,%202022%20to%20Period%20Ended%20December%2031,%202021) [Cash flow from operating activities](index=54&type=section&id=Cash%20flow%20from%20operating%20activities) Net cash provided by operating activities increased by $33.5 million to $106.7 million in 2022, primarily due to higher collections from sales-type leases, partially offset by working capital changes | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 106.7 | 73.2 | 33.5 | | **Primary Reasons:** | | | | | Lake Vista Property Sales-Type Lease Collections | Increase | | | | Changes in Working Capital | Partially Offset Increase | | | [Cash flow to investing activities](index=54&type=section&id=Cash%20flow%20to%20investing%20activities) Net cash used in investing activities increased by $29.7 million to $47.1 million in 2022, driven by reduced real estate sales proceeds, partially offset by increased property acquisitions and new investments in real estate | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | | :--- | :--- | :--- | :--- | | Net Cash Used in Investing Activities | 47.1 | 17.4 | 29.7 (Increase) | | **Primary Reasons:** | | | | | Decreased Real Estate Sales Proceeds | Increased Cash Usage | | | | Increased Real Estate Acquisitions in 2021 | Partially Offset Increase | | | | Increased New Investments in Real Estate Properties in 2022 | Partially Offset Increase | | | [Cash flow to financing activities](index=54&type=section&id=Cash%20flow%20to%20financing%20activities) Net cash used in financing activities decreased by $1.9 million to $57.6 million in 2022, primarily due to increased net proceeds from borrowings, partially offset by common stock repurchases | Metric | 2022 (million USD) | 2021 (million USD) | Change (million USD) | | :--- | :--- | :--- | :--- | | Net Cash Used in Financing Activities | 57.6 | 59.5 | (1.9) (Decrease) | | **Primary Reasons:** | | | | | Increased Net Proceeds from Borrowings in 2022 | Decreased Cash Usage | | | | Repurchase of Common Stock in 2022 | Partially Offset Decrease | | | [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) [Analysis of Liquidity and Capital Resources](index=54&type=section&id=Analysis%20of%20Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity with $44.3 million in cash and restricted cash as of December 31, 2022, meeting short-term needs through operations and existing reserves, and long-term needs through debt, equity, and credit facilities Cash and Cash Equivalents as of December 31, 2022 | Metric | Amount (million USD) | | :--- | :--- | | Cash and Cash Equivalents | 28.2 | | Restricted Cash | 16.1 | | **Total** | **44.3** | - The company's short-term liquidity needs primarily include operating expenses, property-related expenditures, distributions to limited partners and shareholders, capital expenditures, and potential acquisitions. These needs are expected to be met through net cash generated from operating activities and existing cash reserves. Additional sources include proceeds from public offerings and borrowings under mortgage loans and unsecured credit facilities[16](index=16&type=chunk) - Long-term liquidity needs primarily include debt maturities, property acquisitions, and non-recurring capital improvements. These are expected to be met through net cash from operating activities, long-term secured and unsecured debt, and the issuance of equity and debt securities. The unsecured credit facility may also be used for property acquisitions and non-recurring capital improvements[17](index=17&type=chunk) - As of December 31, 2022, the company had **$200.5 million** outstanding under its unsecured credit facility and **$4.2 million** in letters of credit to satisfy escrow requirements of mortgage lenders. The company entered into a five-year term loan in September 2019, increasing its unsecured credit facility authorized borrowings from **$250 million** to **$300 million**, and entered into a five-year interest rate swap agreement with a notional amount of **$50 million**, fixing a portion of LIBOR at approximately **1.27%**[12](index=12&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[439](index=439&type=chunk)[460](index=460&type=chunk) - In the second half of 2022, lenders for two mortgage loans exercised their right to sweep property cash flows to cover future payments, tenant improvements, and capital obligations, resulting in a total of **$6.4 million** in restricted cash for these two properties as of December 31, 2022[15](index=15&type=chunk) [Consolidated Indebtedness as of December 31, 2022](index=56&type=section&id=Consolidated%20Indebtedness%20as%20of%20December%2031,%202022) As of December 31, 2022, the company's total principal debt was $693.8 million, with approximately 71.1% effectively fixed-rate, and certain properties experienced cash sweeps due to covenant breaches or tenant non-renewals Outstanding Debt Overview as of December 31, 2022 (thousand USD) | Property/Debt Type | December 31, 2022 | Interest Rate (December 31, 2022) | Maturity Date | | :--- | :--- | :--- | :--- | | Unsecured Credit Facility | 200,500 | LIBOR +1.30% | November 2025 | | Term Loan | 50,000 | LIBOR +1.25% | September 2024 | | Mission City | 46,859 | 3.78% | November 2027 | | Canyon Park | 39,673 | 4.30% | March 2027 | | Circle Point | 39,440 | 4.49% | September 2028 | | 190 Office Center | 38,894 | 4.79% | October 2025 | | SanTan | 32,140 | 4.56% | March 2027 | | Intellicenter | 31,297 | 4.65% | October 2025 | | The Quad | 30,600 | 4.20% | September 2028 | | 2525 McKinnon | 27,000 | 4.24% | April 2027 | | FRP Collection | 26,784 | 3.10% | September 2023 | | Greenwood Blvd | 21,396 | 3.15% | December 2025 | | Cascade Station | 21,192 | 4.55% | May 2024 | | 5090 N. 40th St | 20,810 | 3.92% | January 2027 | | AmberGlen | 20,000 | 3.69% | May 2027 | | Central Fairwinds | 16,273 | 3.15% | June 2024 | | FRP Ingenuity Drive | 16,165 | 4.44% | December 2024 | | Carillon Point | 14,773 | 3.10% | October 2023 | | **Total Principal** | **693,796** | | | | Deferred Financing Costs, Net | (3,887) | | | | Unamortized Fair Value Adjustment | 190 | | | | **Total** | **690,099** | | | - As of December 31, 2022, approximately **71.1%** of the company's outstanding consolidated debt was effectively fixed-rate debt (after considering interest rate swaps)[441](index=441&type=chunk)[443](index=443&type=chunk) - The 190 Office Center loan initiated a "cash sweep" in Q4 2022 because a major tenant did not renew for the minimum area, resulting in excess funds being escrowed to cover future leasing costs[20](index=20&type=chunk)[208](index=208&type=chunk) - The FRP Ingenuity Drive property's Debt Service Coverage Ratio (DSCR) covenant was not met as of September 30, 2022, triggering a "cash sweep" event in Q4 2022, where excess funds were escrowed to cover future tenant improvement costs[20](index=20&type=chunk)[208](index=208&type=chunk) [Contractual Obligations and Other Long-Term Liabilities](index=57&type=section&id=Contractual%20Obligations%20and%20Other%20Long-Term%20Liabilities) The company's contractual obligations as of December 31, 2022, totaled $846.2 million, primarily comprising mortgage principal and interest payments, tenant-related commitments, and lease obligations Contractual Obligations as of December 31, 2022 (thousand USD) | Contractual Obligation | Total | Payments in 2023 | Payments in 2024-2025 | Payments in 2026-2027 | Payments in 5+ Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Mortgage Principal Payments | 693,796 | 47,980 | 400,977 | 180,719 | 64,120 | | Interest Payments | 100,611 | 30,506 | 52,163 | 15,860 | 2,082 | | Tenant-Related Commitments | 14,795 | 14,795 | - | - | - | | Lease Obligations | 37,046 | 663 | 1,555 | 1,327 | 33,501 | | **Total** | **846,248** | **93,944** | **454,695** | **197,906** | **99,703** | - The company believes its sensitivity to the negative economic effects of inflation is low due to expense pass-through clauses in lease contracts and the prevalence of fixed contractual interest rates in its debt[23](index=23&type=chunk)[24](index=24&type=chunk) [Inflation](index=57&type=section&id=Inflation) The company believes its exposure to the negative economic impacts of inflation is low due to expense pass-through clauses in lease contracts and the prevalence of fixed contractual interest rates in its debt - The company believes its sensitivity to the negative economic effects of inflation is low due to expense pass-through clauses in lease contracts and the prevalence of fixed contractual interest rates in its debt. Lease contracts typically include expense reimbursement clauses and fixed rent escalations, which help offset inflationary impacts[23](index=23&type=chunk)[24](index=24&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=57&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company primarily faces interest rate risk, managed through fixed-rate financing and interest rate swaps, with LIBOR transition to SOFR potentially leading to higher borrowing costs - The company primarily faces interest rate risk, managed mainly through fixed-rate financing and interest rate swaps. As of December 31, 2022, approximately **71.1%** of its debt was fixed-rate or effectively fixed-rate, with **28.9%** being floating-rate. The gradual phasing out of LIBOR and transition to SOFR may result in higher borrowing costs[443](index=443&type=chunk)[444](index=444&type=chunk)[463](index=463&type=chunk) - The transition from LIBOR to SOFR presents uncertainties and may lead to higher interest costs than when LIBOR was available. The company is evaluating the impact of final rules and collaborating with lenders to minimize the effect of the LIBOR transition on its financial condition and operating results[30](index=30&type=chunk)[463](index=463&type=chunk) Impact of LIBOR Rate Changes on Annual Interest Cost | LIBOR Change | Change in Annual Interest Cost (million USD) | | :--- | :--- | | 1% Increase | 2.0 Increase | | 1% Decrease | 2.0 Decrease | [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=59&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) The information required for Item 8 is included as a separate section in this annual report on Form 10-K, specifically in "Item 15. Exhibits, Financial Statement Schedules" - The information required for Item 8 is included as a separate section in this annual report on Form 10-K; please refer to "Item 15. Exhibits, Financial Statement Schedules"[35](index=35&type=chunk)[464](index=464&type=chunk) [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=59&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) No changes in or disagreements with accountants on accounting and financial disclosure are mentioned in this report - No changes in or disagreements with accountants on accounting and financial disclosure are mentioned in this report[42](index=42&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=59&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) [Evaluation of Disclosure Controls and Procedures](index=59&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) As of December 31, 2022, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective in ensuring timely processing, recording, summarizing, and reporting of required information - As of December 31, 2022, the company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated and concluded that the company's disclosure controls and procedures were effective, ensuring timely processing, recording, summarizing, and reporting of information required in reports filed under the Exchange Act[43](index=43&type=chunk)[465](index=465&type=chunk) [Management's Report on Internal Control Over Financial Reporting](index=60&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Management affirmed the effectiveness of the company's internal control over financial reporting as of December 31, 2022, based on the COSO 2013 framework, with KPMG LLP issuing an unqualified opinion - Management is responsible for establishing and maintaining the effectiveness of the company's internal control over financial reporting. Based on an evaluation using the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022. KPMG LLP issued an unqualified opinion on the effectiveness of internal control[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Changes in Internal Control over Financial Reporting](index=60&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect internal control - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect internal control[48](index=48&type=chunk) [ITEM 9B. OTHER INFORMATION](index=60&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) No other information is mentioned in this report - No other information is mentioned in this report[49](index=49&type=chunk) [ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS](index=60&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to this report - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to this report[49](index=49&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=61&type=section&id=ITEM%2010.%20DIRECTORS,%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[52](index=52&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=61&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[53](index=53&type=chunk) [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS](index=61&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[53](index=53&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=61&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS,%20AND%20DIRECTOR%20INDEPENDENCE) The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[54](index=54&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=61&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - The information required for this section is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders[55](index=55&type=chunk) PART IV [ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES](index=61&type=section&id=ITEM%2015.%20EXHIBITS,%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the exhibits and financial statement schedules for the company's 2022 annual report, including the independent auditor's report, consolidated financial statements, and related notes and schedules [Report of Independent Registered Public Accounting Firm](index=63&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued an unqualified opinion on the company's consolidated financial statements for 2022 and 2021, and on the effectiveness of internal control over financial reporting as of December 31, 2022 - KPMG LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2022, and 2021, stating they are fairly presented in all material respects in accordance with US GAAP. Additionally, KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - A critical audit matter was the assessment of revenue recognition for new and modified lease arrangements, particularly determining tenant improvement ownership and its impact on straight-line rent calculations, which required complex audit judgment and significant audit effort[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[72](index=72&type=chunk) [Consolidated Financial Statements](index=65&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=67&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets present the company's financial position as of December 31, 2022 and 2021, detailing assets, liabilities, and equity Consolidated Balance Sheets (as of December 31, 2022 and December 31, 2021) (thousand USD) | Metric | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets:** | | | | Real Estate Properties, Net | 1,378,871 | 1,411,297 | | Cash and Cash Equivalents | 28,187 | 21,321 | | Restricted Cash | 16,075 | 20,945 | | Rents Receivable, Net | 44,429 | 30,415 | | Deferred Leasing Costs, Net | 21,989 | 20,327 | | Acquired Lease Intangible Assets, Net | 55,438 | 68,925 | | Other Assets | 29,450 | 28,283 | | **Total Assets** | **1,574,439** | **1,601,513** | | **Liabilities:** | | | | Debt | 690,099 | 653,648 | | Accounts Payable and Accrued Liabilities | 35,753 | 27,101 | | Deferred Rent | 9,147 | 11,600 | | Tenant Security Deposits | 7,040 | 6,165 | | Acquired Lease Intangible Liabilities, Net | 9,150 | 10,872 | | Other Liabilities | 20,076 | 21,532 | | **Total Liabilities** | **771,265** | **730,918** | | **Equity:** | | | | Preferred Stock | 112,000 | 112,000 | | Common Stock | 397 | 435 | | Additional Paid-in Capital | 436,161 | 482,061 | | Retained Earnings | 251,542 | 275,502 | | Accumulated Other Comprehensive Income/(Loss) | 2,731 | (382) | | **Total Stockholders' Equity** | **802,831** | **869,616** | | Noncontrolling Interests | 343 | 979 | | **Total Equity** | **803,174** | **870,595** | [Consolidated Statements of Operations](index=68&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations report the company's financial performance for the years ended December 31, 2022, 2021, and 2020, detailing revenues, expenses, and net income Consolidated Statements of Operations (for the years ended December 31, 2022, December 31, 2021, and December 31, 2020) (thousand USD, except per share data) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Rental and Other Revenues | 180,485 | 164,041 | 160,840 | | **Operating Expenses:** | | | | | Property Operating Expenses | 67,739 | 58,005 | 58,312 | | General and Administrative | 13,782 | 15,489 | 10,690 | | Depreciation and Amortization | 62,495 | 57,317 | 60,367 | | Real Estate Impairment | 13,444 | - | - | | **Total Operating Expenses** | **157,460** | **130,811** | **129,369** | | **Operating Income** | **23,025** | **33,230** | **31,471** | | **Interest Expense:** | | | | | Contractual Interest Expense | (25,784) | (23,268) | (26,363) | | Amortization of Deferred Financing Costs and Debt Fair Value | (1,218) | (1,332) | (1,326) | | **Total Interest Expense** | **(27,002)** | **(24,600)** | **(27,689)** | | Net Gain on Sale of Real Estate Property | 21,658 | 476,651 | 1,347 | | **Net Income** | **17,681** | **485,281** | **5,129** | | Less: Net Income Attributable to Noncontrolling Interests | (691) | (886) | (602) | | **Net Income Attributable to the Company** | **16,990** | **484,395** | **4,527** | | Preferred Stock Distributions | (7,420) | (7,420) | (7,420) | | **Net Income/(Loss) Attributable to Common Stockholders** | **9,570** | **476,975** | **(2,893)** | | **Net Income/(Loss) Per Common Share:** | | | | | Basic | 0.23 | 10.97 | (0.06) | | Diluted | 0.22 | 10.80 | (0.06) | | Declared Dividends Per Common Share | 0.80 | 0.65 | 0.60 | [Consolidated Statements of Comprehensive Income](index=69&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The consolidated statements of comprehensive income present the company's comprehensive income for the years ended December 31, 2022, 2021, and 2020, including net income and other comprehensive income or loss Consolidated Statements of Comprehensive Income (for the years ended December 31, 2022, December 31, 2021, and December 31, 2020) (thousand USD) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Income | 17,681 | 485,281 | 5,129 | | **Other Comprehensive Income/(Loss):** | | | | | Unrealized Cash Flow Hedge Gain/(Loss) | 3,336 | 989 | (3,003) | | Amounts Reclassified to Interest Expense | (223) | 589 | 328 | | **Other Comprehensive Income/(Loss)** | **3,113** | **1,578** | **(2,675)** | | **Comprehensive Income** | **20,794** | **486,859** | **2,454** | | Less: Comprehensive Income Attributable to Noncontrolling Interests | (691) | (886) | (602) | | **Comprehensive Income Attributable to the Company** | **20,103** | **485,973** | **1,852** | [Consolidated Statements of Changes in Equity](index=70&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) The consolidated statements of changes in equity detail the movements in the company's equity for the years ended December 31, 2022, 2021, and 2020, including net income, share repurchases, and distributions Consolidated Statements of Changes in Equity (for the years ended December 31, 2022, December 31, 2021, and December 31, 2020) (thousand USD) | Change Item | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Beginning Balance** | **870,595** | **417,875** | **549,132** | | Restricted Stock Award Grants and Vesting | 3,792 | 2,424 | 2,290 | | Common Stock Repurchases | (50,082) | - | (100,365) | | Common Stock Dividend Distributions | (33,178) | (28,287) | (27,439) | | Preferred Stock Dividend Distributions | (7,420) | (7,420) | (7,420) | | Noncontrolling Interests Contributions | 170 | 286 | 52 | | Noncontrolling Interests Distributions | (1,497) | (1,142) | (829) | | Net Income | 17,681 | 485,281 | 5,129 | | Other Comprehensive Income/(Loss) | 3,113 | 1,578 | (2,675) | | **Ending Balance** | **803,174** | **870,595** | **417,875** | [Consolidated Statements of Cash Flows](index=71&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The consolidated statements of cash flows present the company's cash inflows and outflows from operating, investing, and financing activities for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Cash Flows (for the years ended December 31, 2022, December 31, 2021, and December 31, 2020) (thousand USD) | Cash Flow Type | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Cash Flows from Operating Activities:** | | | | | Net Income | 17,681 | 485,281 | 5,129 | | Depreciation and Amortization | 62,495 | 57,317 | 60,367 | | Net Gain on Sale of Real Estate Property | (21,658) | (476,651) | (1,347) | | Real Estate Impairment | 13,444 | - | - | | **Net Cash Provided by Operating Activities** | **106,677** | **73,222** | **59,923** | | **Cash Flows from Investing Activities:** | | | | | New Investments in Real Estate Properties | (37,485) | (17,869) | (26,352) | | Real Estate Acquisitions | - | (632,317) | - | | Net Proceeds from Real Estate Sales | - | 640,995 | 6,340 | | **Net Cash Used in Investing Activities** | **(47,050)** | **(17,381)** | **(27,803)** | | **Cash Flows from Financing Activities:** | | | | | Proceeds from Borrowings | 97,500 | 180,000 | 130,000 | | Repayments of Borrowings | (62,270) | (202,442) | (61,330) | | Dividend Distributions | (41,365) | (33,506) | (41,178) | | Repurchase of Common Stock | (50,082) | - | (100,365) | | **Net Cash Used in Financing Activities** | **(57,631)** | **(59,526)** | **(73,692)** | | **Net Increase/(Decrease) in Cash, Cash Equivalents, and Restricted Cash** | **1,996** | **(3,685)** | **(41,572)** | | **Cash, Cash Equivalents, and Restricted Cash at End of Period** | **44,262** | **42,266** | **45,951** | [Notes to Consolidated Financial Statements](index=72&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Organization and Description of Business](index=72&type=section&id=1.%20Organization%20and%20Description%20of%20Business) City Office REIT, Inc., a Maryland corporation formed in 2013 and IPO'd in 2014, operates as a REIT, exempting it from US federal income tax - City Office REIT, Inc. was formed on November 26, 2013, in Maryland and completed its initial public offering on April 21, 2014. The company has elected and intends to continue to operate in a manner that will allow it to qualify as a real estate investment trust (REIT), thereby exempting it from US federal income tax at the corporate level[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [2. Summary of Significant Accounting Policies](index=72&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) Consolidated financial statements are prepared under US GAAP, using significant estimates, and include policies for cash, revenue recognition, real estate, impairment, REIT status, derivatives, and recently adopted accounting standards - Consolidated financial statements are prepared in accordance with US Generally Accepted Accounting Principles (GAAP) and include the financial position and results of operations of the company, the operating partnership, and their subsidiaries. The company uses several significant estimates and assumptions in preparing its financial statements, including the collectibility of accounts receivable, allocation of property purchase prices, impairment of long-lived assets, and useful lives[133](index=133&type=chunk)[134](index=134&type=chunk) - Cash and cash equivalents include unrestricted cash and short-term investments with original maturities of three months or less at the time of acquisition. Restricted cash includes cash held in escrow by lenders under loan agreements and cash from contracted property sales[135](index=135&type=chunk)[137](index=137&type=chunk) - The company recognizes lease revenue on a straight-line basis over the lease term. If the company funds tenant improvements and the improvements are determined to be owned by the company, revenue recognition begins when the space is delivered to the tenant. If a tenant allowance is determined to be a lease incentive, revenue is recognized when the tenant begins construction and amortized as a reduction of revenue[145](index=145&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Real estate properties are stated at cost less accumulated depreciation, except for land. Depreciation is calculated using the straight-line method over useful lives of 28-59 years for buildings and improvements, and 4-10 years for furniture, fixtures, and equipment[147](index=147&type=chunk)[153](index=153&type=chunk) - The company periodically reviews long-lived assets for impairment indicators and recognizes an impairment loss when expected undiscounted cash flows are less than the carrying value. The company has elected and intends to continue to operate in a manner that will allow it to qualify as a REIT, generally exempting it from US federal corporate income tax on earnings distributed to shareholders[155](index=155&type=chunk)[157](index=157&type=chunk) - The company uses interest rate swap contracts to manage interest rate risk associated with borrowings and does not engage in speculative derivative transactions. All derivatives are reported at fair value on the consolidated balance sheets. The company applies ASC 820-10 fair value hierarchy (Level 1, Level 2, Level 3) to distinguish between market participant assumptions and reporting entity's own assumptions[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - FASB issued ASU 2020-04, ASU 2021-01, and ASU 2022-06 to simplify the financial reporting impact of reference rate reform, extending the optional relief deadline to December 31, 2024. The company has not yet adopted this guidance and is still evaluating its impact on the consolidated financial statements. The company adopted ASU 2021-05 on January 1, 2022, which did not have a material impact on its consolidated financial statements[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) [3. Rents Receivable, Net](index=77&type=section&id=3.%20Rents%20Receivable,%20Net) Net rents receivable totaled $44.4 million as of December 31, 2022, comprising $4.7 million in billed receivables and $39.8 million in straight-line (unbilled) receivables, with a minimal allowance for doubtful accounts Rents Receivable, Net (thousand USD) | Metric | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Billed Accounts Receivable | 4,675 | 2,820 | | Straight-Line Accounts Receivable (Unbilled) | 39,754 | 27,595 | | **Total Rents Receivable** | **44,429** | **30,415** | | Allowance for Doubtful Accounts | 0.1 | 0.2 | [4. Real Estate Investments](index=77&type=section&id=4.%20Real%20Estate%20Investments) [Acquisitions](index=77&type=section&id=Acquisitions) In 2021, the company acquired Bloc 83, The Terraces, Block 23, and Sorrento Mesa properties, all accounted for as asset acquisitions - In 2021, the company acquired Bloc 83, The Terraces, and Block 23, as well as the 5910 Pacific Center and 9985 Pacific Heights properties in Sorrento Mesa. All acquisitions were accounted for as asset acquisitions[170](index=170&type=chunk)[171](index=171&type=chunk) 2021 Acquisition Asset and Liability Allocation (thousand USD) | Item | 5910 Pacific & 9985 Pacific Heights | Block 23 | The Terraces | Bloc 83 | Total as of December 31, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Land | 37,294 | - | 15,861 | 18,956 | 72,111 | | Buildings and Improvements | 2,979 | 115,747 | 101,455 | 280,313 | 500,494 | | Tenant Improvements | 917 | 2,375 | 6,431 | 5,075 | 14,798 | | Lease Intangible Assets | 2,469 | 11,306 | 11,074 | 19,560 | 44,409 | | Other Assets | 19 | 10,627 | 15 | 291 | 10,952 | | Accounts Payable and Other Liabilities | (319) | (1,914) | (319) | (463) | (3,015) | | Lease Intangible Liabilities | (103) | (2,197) | (2,118) | (3,014) | (7,432) | | **Net Assets Acquired** | **43,256** | **135,944** | **132,399** | **320,718** | **632,317** | [Sale of Real Estate Property](index=78&type=section&id=Sale%20of%20Real%20Estate%20Property) In 2022, the company sold Lake Vista Pointe for $43.8 million, realizing a $21.7 million gain, following significant sales in 2021 of Sorrento Mesa for $576 million and Cherry Creek for $95 million - In Q1 2022, the sole tenant of the Lake Vista Pointe property exercised its purchase option, and the company sold the property for a total sales price of **$43.8 million**, realizing a net gain of **$21.7 million**[172](index=172&type=chunk) - In December 2021, the company sold the Sorrento Mesa portfolio for a total sales price of **$576 million**, realizing a net gain of **$429.3 million**. In February 2021, the company sold the Cherry Creek property for a total sales price of **$95 million**, realizing a net gain of **$47.4 million**[173](index=173&type=chunk)[204](index=204&type=chunk) - In July 2020, the company sold a parcel of land at the Circle Point property for **$6.5 million**, realizing a net gain of **$1.3 million**[174](index=174&type=chunk) [Impairment of Real Estate](index=78&type=section&id=Impairment%20of%20Real%20Estate) In December 2022, the company recognized a $13.4 million real estate impairment for 190 Office Center and Cascade Station, writing down their carrying values to fair value, with no impairment in 2021 and 2020 Real Estate Impairment (2022) | Property | Impairment Amount (million USD) | | :--- | :--- | | 190 Office Center | 6.9 | | Cascade Station | 6.5 | | **Total** | **13.4** | - In December 2022, the company recognized **$13.4 million** in real estate impairment for the 190 Office Center and Cascade Station properties due to impairment indicators, writing down their carrying values to fair value. No real estate impairment occurred in 2021 and 2020[175](index=175&type=chunk)[176](index=176&type=chunk) [Lease Intangibles](index=79&type=section&id=Lease%20Intangibles) Lease intangible assets and liabilities, including above-market and in-place leases, and below-market leases, are presented as of December 31, 2022 and 2021, with projected amortization expenses detailed for future years Lease Intangible Assets and Liabilities (thousand USD) | Item | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Lease Intangible Assets:** | | | | Above-Market Leases | 9,724 | 11,520 | | In-Place Leases | 28,948 | 36,774 | | Leasing Commissions | 16,766 | 20,631 | | **Total Lease Intangible Assets** | **55,438** | **68,925** | | **Lease Intangible Liabilities:** | | | | Below-Market Leases | (9,064) | (10,782) | | Below-Market Ground Leases | (86) | (90) | | **Total Lease Intangible Liabilities** | **(9,150)** | **(10,872)** | Estimated Amortization Expense for Lease Intangible Assets (thousand USD) | Year | Amortization Expense | | :--- | :--- | | 2023 | 8,861 | | 2024 | 6,660 | | 2025 | 6,479 | | 2026 | 6,491 | | 2027 | 4,287 | | Thereafter | 13,510 | | **Total** | **46,288** | [5. Lease Intangibles](index=79&type=section&id=5.%20Lease%20Intangibles) Lease intangible assets and liabilities, including above-market and in-place leases, and below-market leases, are presented as of December 31, 2022 and 2021, with projected amortization expenses detailed for future years Lease Intangible Assets and Liabilities (thousand USD) | Item | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Lease Intangible Assets:** | | | | Above-Market Leases | 9,724 | 11,520 | | In-Place Leases | 28,948 | 36,774 | | Leasing Commissions | 16,766 | 20,631 | | **Total Lease Intangible Assets** | **55,438** | **68,925** | | **Lease Intangible Liabilities:** | | | | Below-Market Leases | (9,064) | (10,782) | | Below-Market Ground Leases | (86) | (90) | | **Total Lease Intangible Liabilities** | **(9,150)** | **(10,872)** | Est