City Office REIT(CIO) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and accompanying notes for City Office REIT, Inc. for the specified interim periods Item 1. Financial Statements This section provides the unaudited condensed consolidated financial statements and comprehensive notes for the interim reporting periods Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 - Total Assets decreased by $127.5 million from December 31, 2024, to June 30, 2025, primarily due to a significant reduction in real estate properties, net, partially offset by an increase in assets held for sale[7] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Total Assets | $1,328,143 | $1,455,670 | $(127,527) | | Real Estate Properties, net | $904,790 | $1,273,146 | $(368,356) | | Assets held for sale | $296,167 | $12,588 | $283,579 | | Total Liabilities | $712,715 | $721,130 | $(8,415) | | Total Equity | $615,428 | $734,540 | $(119,112) | Condensed Consolidated Statements of Operations This section outlines the company's revenues, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 - The company reported a substantial increase in net loss attributable to common stockholders for both the three and six months ended June 30, 2025, primarily driven by a significant impairment of real estate recognized in 2025[9] Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental and other revenues | $42,343 | $42,342 | $84,602 | $86,836 | | Total operating expenses | $138,933 | $36,035 | $174,058 | $72,566 | | Operating (loss)/income | $(96,590) | $6,307 | $(89,456) | $14,270 | | Net loss attributable to common stockholders | $(107,221) | $(5,607) | $(110,746) | $(8,051) | | Basic Net loss per common share | $(2.66) | $(0.14) | $(2.75) | $(0.20) | | Dividend distributions declared per common share | $0.10 | $0.10 | $0.20 | $0.20 | Condensed Consolidated Statements of Comprehensive Loss This section presents the total comprehensive loss, including net loss and other comprehensive income/loss, for the specified interim periods - Comprehensive loss attributable to the company significantly increased for both the three and six months ended June 30, 2025, primarily reflecting the higher net loss[12] Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(105,309) | $(3,627) | $(106,808) | $(4,081) | | Other comprehensive (loss)/income | $(500) | $(481) | $(1,165) | $1,308 | | Comprehensive loss attributable to the Company | $(105,854) | $(4,230) | $(108,170) | $(3,056) | Condensed Consolidated Statements of Changes in Equity This section details changes in stockholders' equity, including net loss and dividend distributions, for the interim periods - Total equity decreased by $119.1 million from December 31, 2024, to June 30, 2025, primarily due to a significant reduction in retained earnings resulting from net losses[14] Condensed Consolidated Statements of Changes in Equity Highlights (in thousands) | Metric | December 31, 2024 | June 30, 2025 | Change | | :------------------------- | :---------------- | :------------ | :----- | | Total Stockholders' Equity | $733,855 | $614,938 | $(118,917) | | Retained Earnings | $179,838 | $60,901 | $(118,937) | | Common Stock (shares) | 40,154 | 40,358 | 204 | Condensed Consolidated Statements of Cash Flows This section reports cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 - Net cash provided by operating activities decreased by $6.3 million, while net cash used in investing activities decreased by $7.2 million, primarily due to proceeds from property sales[17] - Net cash used in financing activities increased by $0.2 million to $13.3 million, primarily due to lower net proceeds from borrowings[126] Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net Cash Provided By Operating Activities | $25,379 | $31,702 | $(6,323) | | Net Cash Used In Investing Activities | $(11,492) | $(18,694) | $7,202 | | Net Cash Used In Financing Activities | $(13,345) | $(13,058) | $(287) | | Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash | $542 | $(50) | $592 | | Cash, Cash Equivalents and Restricted Cash, End of Period | $34,501 | $43,342 | $(8,841) | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering key accounting policies and financial instrument details 1. Organization and Description of Business This note describes the company's formation, business as a REIT, and its initial public offering - City Office REIT, Inc. was organized in Maryland on November 26, 2013, and completed its initial public offering (IPO) on April 21, 2014[19] - The company operates as a Real Estate Investment Trust (REIT), allowing it to deduct dividend distributions for U.S. federal tax purposes[21] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the 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[22] 3. Real Estate Investments This note details real estate transactions, including property sales, deconsolidations, and impairment charges - The Superior Pointe property was sold on January 14, 2025, for $12.0 million, with no gain or loss recognized[23] - The Cascade Station property was deconsolidated on June 27, 2024, due to a loan default, resulting in a $1.5 million loss on deconsolidation[24][25] - The Phoenix Portfolio was classified as held for sale as of June 30, 2025, with an estimated sales price of $296.0 million, leading to a $102.2 million impairment charge[27][30] Assets and Liabilities Held for Sale (in thousands) | Metric | June 30, 2025 (Phoenix Portfolio) | December 31, 2024 (Superior Pointe) | | :---------------------------------------------------- | :-------------------------------- | :---------------------------------- | | Assets held for sale | $296,167 | $12,588 | | Liabilities related to assets held for sale | $16,816 | $2,176 | 4. Lease Intangibles This note provides information on lease intangible assets and liabilities, including their net values and amortization schedules - Net lease intangible assets decreased by $9.2 million, and net lease intangible liabilities decreased by $2.2 million from December 31, 2024, to June 30, 2025[32] Lease Intangibles (in thousands) | Lease Intangibles | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Lease Intangible Assets, net | $25,423 | $34,631 | | Lease Intangible Liabilities, net | $(4,069) | $(6,301) | Estimated Aggregate Amortization Expense for Lease Intangibles (in thousands) | Year | Amount (in thousands) | | :-------- | :-------------------- | | 2025 | $2,648 | | 2026 | $4,986 | | 2027 | $4,019 | | 2028 | $3,468 | | 2029 | $2,624 | | Thereafter | $3,609 | | Total | $21,354 | 5. Debt This note details the company's indebtedness, including principal amounts, interest rates, maturities, and covenant compliance - Total principal debt remained relatively stable at $649.2 million as of June 30, 2025. The Unsecured Credit Facility has $257.5 million drawn and matures in November 2025, with an expected 12-month extension[33] - Several properties (SanTan, Intellicenter, FRP Ingenuity Drive) are in 'cash-sweep periods' due to covenant failures, resulting in restricted cash accounts[34][44] Summary of Indebtedness (in thousands) | Property | June 30, 2025 | December 31, 2024 | Interest Rate (June 30, 2025) | Maturity | | :----------------------- | :------------ | :---------------- | :---------------------------- | :------- | | Unsecured Credit Facility | $257,500 | $255,000 | SOFR + 1.50% | Nov 2025 | | Term Loan | $25,000 | $25,000 | 6.00% | Jan 2026 | | Mission City | $44,633 | $45,095 | 3.78% | Nov 2027 | | Circle Point | $37,816 | $38,109 | 4.49% | Sep 2028 | | Canyon Park | $37,760 | $38,159 | 4.30% | Mar 2027 | | The Quad | $30,600 | $30,600 | 4.20% | Sep 2028 | | SanTan | $30,396 | $30,773 | 4.56% | Mar 2027 | | Intellicenter | $29,708 | $30,042 | 4.65% | Oct 2025 | | 2525 McKinnon | $27,000 | $27,000 | 4.24% | Apr 2027 | | FRP Collection | $25,525 | $25,736 | 7.05% | Aug 2028 | | Greenwood Blvd | $20,077 | $20,299 | 6.34% | May 2028 | | AmberGlen | $20,000 | $20,000 | 3.69% | May 2027 | | 5090 N. 40th St | $19,676 | $19,912 | 3.92% | Jan 2027 | | Central Fairwinds | $15,379 | $15,497 | 7.68% | Jun 2029 | | FRP Ingenuity Drive | $14,096 | $14,096 | 4.44% | Dec 2026 | | Carillon Point | $14,079 | $14,196 | 7.05% | Aug 2028 | | Total Principal | $649,245 | $649,514 | | | Scheduled Principal Repayments of Indebtedness (in thousands) | Year | Amount (in thousands) | | :---------- | :-------------------- | | 2025 | $289,650 | | 2026 | $44,267 | | 2027 | $177,104 | | 2028 | $123,733 | | 2029 | $14,491 | | Thereafter | $0 | | Total | $649,245 | 6. Fair Value of Financial Instruments This note describes the fair value measurements of financial instruments, including derivative instruments and mortgage loans - The company utilizes interest rate swaps to effectively fix the SOFR component of borrowing rates for various loans, classifying these as Level 2 fair value measurements and cash flow hedges[38][39][40][41][42][43][45] Derivative Financial Instruments Fair Value (in thousands) | Interest Rate Swap | Notional Value June 30, 2025 | Fair Value June 30, 2025 | Fair Value December 31, 2024 | | :----------------- | :--------------------------- | :----------------------- | :--------------------------- | | January 2023 | $25,000 | $29 | $50 | | March 2023 | $140,000 | $18 | $(75) | | August 2023 (FRP Collection) | $25,525 | $(700) | $(275) | | August 2023 (Carillon Point) | $14,079 | $(386) | $(152) | | May 2024 (Central Fairwinds) | $15,379 | $(600) | $(284) | | May 2025 (Greenwood Blvd) | $20,077 | $(261) | — | | Total | $240,060 | $(1,900) | $(736) | - The fair value of fixed rate mortgage loans payable was $285.2 million as of June 30, 2025, compared to a carrying value of $291.7 million, classified as Level 3 fair value measurements[48] 7. Related Party Transactions This note discloses transactions with related parties, specifically administrative services income - The company earned $0.1 million in administrative services from related parties for both the six months ended June 30, 2025, and 2024[49] 8. Leases This note provides details on lessor and lessee accounting, including rental income and right-of-use assets - Total rental income from fixed and variable lease payments was $84.3 million for the six months ended June 30, 2025, a slight decrease from $86.6 million in the prior year[52] Lessor Fixed and Variable Lease Payments (in thousands) | Payment Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Fixed payments | $37,079 | $36,042 | $73,525 | $73,634 | | Variable payments | $5,194 | $6,237 | $10,788 | $13,015 | | Total | $42,273 | $42,279 | $84,313 | $86,649 | Future Minimum Lease Payments to be Received (Lessor) (in thousands) | Year | Amount (in thousands) | | :---------- | :-------------------- | | 2025 | $63,602 | | 2026 | $124,214 | | 2027 | $106,555 | | 2028 | $93,759 | | 2029 | $73,689 | | Thereafter | $149,157 | | Total | $610,976 | - Right-of-use assets and lease liabilities for operating leases significantly decreased from December 31, 2024, to June 30, 2025, with financing leases eliminated, due to properties classified as held for sale[54] Lessee Operating Leases (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Right-of-use asset – operating leases | $1,692 | $10,101 | | Lease liability – operating leases | $1,661 | $8,286 | 9. Commitments and Contingencies This note outlines the company's obligations for tenant improvements and assessments of potential litigation impacts - The company is obligated to fund tenant improvements and property expansions[57] - Management believes there are no material adverse environmental liabilities or litigation outcomes that would impact financial position or results of operations[59][60] 10. Stockholders' Equity This note details changes in equity, including share repurchase plans, dividends, and equity incentive plan activity - The Board approved a $50 million share repurchase plan in May 2023, but no shares were repurchased during the six months ended June 30, 2025 or 2024[61][63] - Cash dividends of $0.10 per common share and $0.4140625 per Series A Preferred Stock share were declared for Q2 2025, totaling $4.0 million and $1.9 million respectively[65][66] - Stockholders approved an increase in the maximum number of shares for the Equity Incentive Plan from 3,763,580 to 5,763,580 on May 1, 2025[67] - Performance RSU Awards granted in January 2022 were earned at 50% of target, while January 2021 awards were earned at 120% of target[69][70] Equity Incentive Plan Activity (Number of RSUs) | Metric | June 30, 2025 | March 31, 2025 | December 31, 2024 | | :---------------------- | :------------ | :------------- | :---------------- | | Outstanding RSUs | 613,070 | 600,995 | 588,089 | | Outstanding Performance RSUs | 815,541 | 815,541 | 629,840 | Compensation Expense for RSU Awards (in thousands) | Period | RSUs | Performance RSUs | Total | | :--------------------------- | :--- | :--------------- | :---- | | 3 Months Ended June 30, 2025 | $417 | $426 | $843 | | 3 Months Ended June 30, 2024 | $642 | $441 | $1,083 | | 6 Months Ended June 30, 2025 | $899 | $858 | $1,757 | | 6 Months Ended June 30, 2024 | $1,284 | $870 | $2,154 | 11. Segment Information This note identifies the company's operating segment and the key metrics used by management to evaluate performance - The company operates in one operating segment: Office Properties. The Chief Operating Decision Makers (CODM) use consolidated net income and Net Operating Income (NOI) to evaluate performance[74][75] Segment Net Operating Income (NOI) (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Rental and other revenues | $42,343 | $42,342 | $84,602 | $86,836 | | Property operating expenses | $16,314 | $17,492 | $32,585 | $35,237 | | Segment net operating income | $26,029 | $24,850 | $52,017 | $51,599 | 12. Subsequent Events This note discloses significant events occurring after the reporting period, including a definitive merger agreement - On July 23, 2025, the company entered into a definitive merger agreement to be acquired by MCME Carell Holdings, LP for $7.00 per common share in cash, subject to shareholder approval and customary closing conditions[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operating results, discussing key influencing factors and future outlook Cautionary Statement Regarding Forward-Looking Statements This section warns that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements subject to various risks and uncertainties, including those related to the merger agreement, economic conditions, and market demand for office space[81][82][87] Overview This section provides a brief history of the company and highlights the recently announced merger agreement - City Office REIT, Inc. was formed in November 2013 and completed its IPO in April 2014[84] - On July 23, 2025, the company entered into a merger agreement to be acquired by MCME Carell for $7.00 per common share in cash, pending shareholder approval[85][88] - As of June 30, 2025, the company owned 22 properties (54 office buildings) totaling approximately 5.4 million square feet of net rentable area (NRA), with an occupancy rate of 82.5%[89] Factors That May Influence Our Operating Results and Financial Condition This section discusses economic conditions, work-from-home trends, and other factors impacting the company's performance - The economic environment, characterized by increased inflation, higher interest rates, and tightened monetary policies, has led to increased cost of capital and challenges in tenant retention and attraction[91][94] - Work-from-home and hybrid working trends, along with potential impacts from artificial intelligence, have created uncertainty regarding office space demand, with 13.2% of NRA vacant as of June 30, 2025[92][93] Business and Strategy This section outlines the company's focus on Sun Belt office properties and its strategy for maximizing shareholder value - The company focuses on owning office properties in Sun Belt growth markets, characterized by growing populations and employment[96] - The company is evaluating a joint venture for a condominium development in St. Petersburg, Florida, as part of its strategy to maximize shareholder value[97] Rental Revenue and Tenant Recoveries This section explains how occupancy rates, leasing activity, and rental rates drive the company's rental revenue - Rental revenue depends on occupancy rates, ability to lease available space, and rental rates, with 82.5% of the portfolio leased as of June 30, 2025[98] - Approximately 16.7% of NRA is subject to early termination provisions, though no tenants exercised these in 2025. GSA tenants account for 4.0% of base rental revenue[98] Leasing Activity This section presents key metrics related to new and renewal leasing activity for the three months ended June 30, 2025 Three Months Ended June 30, 2025 Leasing Activity | Metric | New Leasing | Renewal Leasing | Total Leasing | | :---------------------------- | :---------- | :-------------- | :------------ | | Square Feet (000's) | 163 | 192 | 355 | | Average Effective Rents per Square Foot | $31.45 | $33.02 | $32.30 | | Tenant Improvements per Square Foot | $49.18 | $7.05 | $26.38 | | Leasing Commissions per Square Foot | $20.10 | $8.79 | $13.98 | | % Change in Renewal Cash Rent vs. Expiring | | 4.9% | | | Retention Rate % | | 49% | | Our Properties This section provides an overview of the company's property portfolio, including square footage, occupancy, and rental rates - As of June 30, 2025, the company owned 22 properties across nine metropolitan areas, totaling 5.4 million square feet of NRA with an overall occupancy of 82.5%[101][102] Portfolio Overview as of June 30, 2025 | Metropolitan Area | NRA (000's Sq Ft) | Occupancy | Avg Effective Rent per Sq Ft | Annualized Base Rent ($000's) | | :---------------- | :---------------- | :-------- | :--------------------------- | :---------------------------- | | Tampa, FL | 1,049 | 87.0% | $30.40 | $23,827 | | Denver, CO | 653 | 84.7% | $21.99 | $12,549 | | Orlando, FL | 721 | 83.0% | $26.60 | $16,879 | | Raleigh, NC | 493 | 94.6% | $41.25 | $18,750 | | Dallas, TX | 284 | 69.0% | $35.42 | $7,386 | | San Diego, CA | 281 | 95.6% | $39.27 | $11,020 | | Seattle, WA | 207 | 100.0% | $22.31 | $5,235 | | Portland, OR | 203 | 59.4% | $25.44 | $3,350 | | Phoenix, AZ (Assets Held for Sale) | 1,316 | 74.9% | $31.80 | $31,039 | | Total / Weighted Average | 5,411 | 82.5% | $30.13 | $139,049 | Operating Expenses This section describes the nature of operating expenses and how they are recovered from tenants - Operating expenses, including utilities, property taxes, insurance, and maintenance, are generally passed through to tenants in full-service gross leases (above base year) and fully paid by tenants in net leases[104] Conditions in Our Markets This section discusses the impact of market conditions, economic factors, and evolving work trends on the company's performance - Market conditions, including economic factors, employment rates, and natural hazards, impact overall performance. The long-term effects of work-from-home trends and artificial intelligence on office space demand remain uncertain[105] Critical Accounting Policies and Estimates This section confirms the consistency of accounting policies with the prior annual report - The interim condensed consolidated financial statements adhere to the same accounting policies and procedures as outlined in the 2024 Annual Report on Form 10-K[106] Results of Operations This section details the financial performance for the three and six months ended June 30, 2025, compared to the same periods in 2024, focusing on changes in rental revenue, operating expenses (property, general & administrative, depreciation & amortization), impairment charges, and interest expense - Rental and other revenues remained flat for the three months ended June 30, 2025, but decreased by 3% for the six-month period, primarily due to property dispositions and lower occupancy at certain properties[107][115] - Property operating expenses decreased by 7% for the three-month period and 8% for the six-month period, mainly due to property dispositions and lower property taxes[108][116] - General and administrative expenses increased by 13% for the three-month period and 7% for the six-month period, primarily due to $0.7 million in legal expenses related to transaction costs[109][117] - Depreciation and amortization increased by 9% for the three-month period and 5% for the six-month period, driven by higher amortization of tenant-related assets, including accelerated amortization at Greenwood Blvd[110][118] - A significant impairment of real estate of $102.2 million was recognized for both the three and six months ended June 30, 2025, related to the Phoenix Portfolio[111][119] - Interest expense increased by 3% for both the three and six-month periods, mainly due to higher interest rates on the Central Fairwinds property refinance, partially offset by the Cascade Station disposition[112][120][121] Cash Flows This section analyzes the changes in cash flows from operating, investing, and financing activities for the six months ended June 30, 2025 - Net cash provided by operating activities decreased by $6.3 million to $25.4 million for the six months ended June 30, 2025, primarily due to changes in working capital[124] - Net cash used in investing activities decreased by $7.2 million to $11.5 million, mainly due to proceeds from the sale of the Superior Pointe property[125] - Net cash used in financing activities increased by $0.2 million to $13.3 million, primarily due to lower net proceeds from borrowings[126] Non-GAAP Supplemental Measures: NOI This section defines Net Operating Income (NOI) as a non-GAAP measure and reconciles it to consolidated net loss - Net Operating Income (NOI) is a non-GAAP measure used to evaluate the performance of office properties, calculated as rental and other revenues less property operating expenses[127][128] Reconciliation of Segment NOI to Consolidated Net Loss (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Segment net operating income | $26,029 | $24,850 | $52,017 | $51,599 | | General and administrative | $(4,327) | $(3,820) | $(8,055) | $(7,531) | | Depreciation and amortization | $(16,063) | $(14,723) | $(31,189) | $(29,798) | | Impairment of real estate | $(102,229) | $0 | $(102,229) | $0 | | Contractual interest expense | $(8,339) | $(8,129) | $(16,618) | $(16,228) | | Amortization of deferred financing costs and debt fair value | $(380) | $(343) | $(734) | $(661) | | Net loss on disposition of real estate property | $0 | $(1,462) | $0 | $(1,462) | | Consolidated net loss | $(105,309) | $(3,627) | $(106,808) | $(4,081) | Liquidity and Capital Resources This section discusses the company's cash position, debt facilities, and strategies for meeting short-term and long-term liquidity needs - As of June 30, 2025, the company had $18.3 million in cash and cash equivalents and $16.2 million in restricted cash[131] - The Unsecured Credit Facility has $257.5 million outstanding and is expected to be extended for 12 months beyond its November 2025 maturity[132] - The Greenwood Blvd loan was amended and restated in May 2025, extending its term and converting to a floating interest rate, hedged by a three-year interest rate swap[133] - Short-term liquidity needs are met by cash from operations and reserves, while long-term needs are addressed through operations, debt, equity issuances, and property dispositions[137][138][140] Contractual Obligations and Other Long-Term Liabilities This section details the company's future payment obligations for debt, interest, tenant commitments, and leases Contractual Obligations as of June 30, 2025 (in thousands) | Contractual Obligations | Total (in thousands) | 2025 (in thousands) | 2026-2027 (in thousands) | 2028-2029 (in thousands) | More than 5 years (in thousands) | | :---------------------- | :------------------- | :------------------ | :----------------------- | :----------------------- | :------------------------------- | | Principal payments on indebtedness | $649,245 | $289,650 | $221,371 | $138,224 | $0 | | Interest payments | $48,226 | $15,002 | $27,031 | $6,193 | $0 | | Tenant-related commitments | $15,055 | $15,055 | $0 | $0 | $0 | | Lease obligations | $2,090 | $163 | $483 | $346 | $1,098 | | Total | $714,616 | $319,870 | $248,885 | $144,763 | $1,098 | Inflation This section discusses how lease provisions are expected to mitigate the impact of inflation on the company's financial performance - The company expects expense reimbursement provisions and fixed rent increases in its leases to partially offset the impact of inflation, though prolonged inflation could affect cash flows or earnings[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk, and how it uses derivative financial instruments to manage these risks - The company's interest rate exposure is moderate, with 81.9% ($531.7 million) of its debt having fixed or effectively fixed interest rates as of June 30, 2025[145] - Derivative financial instruments, specifically interest rate swaps, are used to manage interest rate risks and are not for trading or speculative purposes[144] - A 1% increase or decrease in the Secured Overnight Financing Rate (SOFR) would result in a $1.2 million increase or decrease in annual interest costs on outstanding debt[145] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, and states that there have been no material changes to internal control over financial reporting during the period - The company's Chief Executive Officer and Chief Financial Officer determined that disclosure controls and procedures were effective as of June 30, 2025[148] - There have been no material changes to the company's internal control over financial reporting during the period covered by the report[149] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is occasionally involved in lawsuits arising from ordinary business operations, but management does not believe any current litigation will have a material adverse effect on its financial position or results of operations - The company is involved in lawsuits and disputes in the ordinary course of business[150] - Management believes that these matters will not have a material adverse effect on the company's financial position or results of operations[150] Item 1A. Risk Factors This section updates the risk factors from the previous Annual Report on Form 10-K, highlighting new or changed risks related to engaging in development or expansion projects, investing in new asset classes, and the potential adverse effects of the recently announced merger agreement - No material changes to risk factors disclosed in the 2024 Annual Report on Form 10-K, except for those detailed in this report[151] - Engaging in development or expansion projects or investing in new asset classes (e.g., condominium development) subjects the company to additional risks, including unforeseen costs, permitting delays, and potential impacts on REIT status[152][153][160] - The announcement and pendency of the merger agreement could adversely affect the business due to potential disruption of commercial relationships, employee retention issues, and contractual restrictions on business operations[156][157][158] - Completion of the merger is subject to various conditions, including shareholder approval and third-party consents, and failure to satisfy these could negatively impact the company's stock price and future financial results[159][161][162] - Any litigation related to the merger agreement, even if without merit, could have a material adverse impact due to costs and diversion of management resources[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred during the period[164] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the period[165] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[166] Item 5. Other Information This section reports that no director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the three months ended June 30, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[167] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Merger Agreement, company charter documents, various purchase and sale agreements, and certifications - Key exhibits include the Agreement and Plan of Merger (Exhibit 2.1), Articles of Amendment and Restatement (Exhibit 3.1), and Purchase and Sale Agreements (Exhibits 10.1, 10.2)[169] - Certifications by the Chief Executive Officer and Chief Financial Officer under the Sarbanes-Oxley Act are also filed as exhibits[169] Signatures This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the filing of the report on behalf of City Office REIT, Inc. Signatures This section formally certifies the report's filing with the signatures of the company's principal officers - The report was signed by James Farrar, Chief Executive Officer and Director, and Anthony Maretic, Chief Financial Officer, Secretary and Treasurer, on July 31, 2025[173]