City Office REIT(CIO) - 2021 Q3 - Quarterly Report

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