[10-Q] City Office REIT, Inc. Quarterly Earnings Report
City Office REIT (CIO) reported Q3 results with rental and other revenues of $37,275 thousand and operating income of $4,214 thousand. The quarter reflected ongoing portfolio repositioning and merger-related activity.
The company closed the sale of six Phoenix properties for $266.0 million on August 15, recognized a year-to-date impairment of real estate of $102,229 thousand tied to the planned Phoenix Portfolio disposition, and ended the quarter with assets held for sale of $35,784 thousand for Pima Center. Year-to-date, net loss attributable to common stockholders was $116,415 thousand, or $2.89 per share; for Q3, the net loss attributable to common stockholders was $5,669 thousand, or $0.14 per share.
Balance sheet and liquidity shifted as total principal debt declined to $399,970 thousand from $649,514 thousand at year-end, aided by disposition proceeds and repayment of a $25 million term loan. The credit facility was amended, reduced to $150 million, and extended to January 2026 with an option to November 2026, subject to conditions. An event of default occurred October 1 at Intellicenter upon loan maturity; discussions with the lender are underway. Cash from operations was $38,709 thousand year-to-date; investing provided $235,759 thousand and financing used $269,145 thousand.
Merger update: stockholders approved the cash merger at $7.00 per share on October 16, subject to customary closing conditions.
- None.
- None.
Insights
Large asset sale cut debt; impairment and a loan default offset.
City Office REIT completed a major Phoenix sale for
The repositioning carried costs: a year‑to‑date real estate impairment of
The approved cash merger at
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction |
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(IRS Employer |
of incorporation or organization) |
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Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol(s) |
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Name of each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at November 4, 2025 was
Table of Contents
City Office REIT, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2025
Table of Contents
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PART I. |
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FINANCIAL INFORMATION |
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1 |
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Item 1. |
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Financial Statements |
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Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 |
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Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025 and 2024 |
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Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2025 and 2024 |
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Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2025 and 2024 |
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 |
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Notes to the Condensed Consolidated Financial Statements |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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Item 4. |
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Controls and Procedures |
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PART II. |
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OTHER INFORMATION |
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Item 1. |
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Legal Proceedings |
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Item 1A. |
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Risk Factors |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. |
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Defaults Upon Senior Securities |
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Item 4. |
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Mine Safety Disclosures |
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Item 5. |
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Other Information |
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Item 6. |
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Exhibits |
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Signatures |
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Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
City Office REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value and share data)
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September 30, |
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December 31, |
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Assets |
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Real estate properties |
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Land |
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$ |
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Building and improvement |
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Tenant improvement |
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Furniture, fixtures and equipment |
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Accumulated depreciation |
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Cash and cash equivalents |
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Restricted cash |
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Rents receivable, net |
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Deferred leasing costs, net |
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Acquired lease intangible assets, net |
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Other assets |
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Assets held for sale |
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Total Assets |
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Liabilities and Equity |
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Liabilities: |
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Debt |
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Accounts payable and accrued liabilities |
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Deferred rent |
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Tenant rent deposits |
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Acquired lease intangible liabilities, net |
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Other liabilities |
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Liabilities related to assets held for sale |
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Total Liabilities |
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Commitments and Contingencies (Note 9) |
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Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total Stockholders’ Equity |
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Non-controlling interests in properties |
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Total Equity |
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Total Liabilities and Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Table of Contents
City Office REIT, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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2025 |
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2024 |
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2025 |
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2024 |
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Rental and other revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Property operating expenses |
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General and administrative |
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Depreciation and amortization |
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Impairment of real estate |
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Merger and transaction-related costs |
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— |
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— |
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Total operating expenses |
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Operating income/(loss) |
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Interest expense: |
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Contractual interest expense |
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( |
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( |
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Amortization of deferred financing costs and debt fair value |
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( |
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( |
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Net loss on disposition of real estate property |
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( |
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( |
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Net loss |
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Less: |
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Net income attributable to non-controlling interests in properties |
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Net loss attributable to the Company |
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( |
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( |
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( |
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( |
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Preferred stock distributions |
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( |
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( |
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( |
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Net loss attributable to common stockholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net loss per common share: |
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Basic |
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$ |
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$ |
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$ |
( |
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( |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic |
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Diluted |
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Dividend distributions declared per common share |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
City Office REIT, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
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Three Months Ended |
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Nine Months Ended |
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2025 |
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2024 |
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2025 |
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2024 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Unrealized cash flow hedge gain/(loss) |
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( |
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Amounts reclassified to interest expense |
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( |
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( |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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( |
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( |
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Comprehensive loss |
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( |
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Less: |
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Comprehensive income attributable to non-controlling interests in |
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( |
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( |
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( |
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Comprehensive loss attributable to the Company |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
City Office REIT, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(In thousands)
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Number of |
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Preferred |
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Number of |
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Common |
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Additional |
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Retained |
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Accumulated |
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Total |
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Non- |
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Total |
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Balance —December 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Restricted stock award grants and vesting |
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— |
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— |
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( |
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— |
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— |
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Common stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Preferred stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Contributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net (loss)/income |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Balance —March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Restricted stock award grants and vesting |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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Common stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Preferred stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Contributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net (loss)/income |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Balance —June 30, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Restricted stock award grants and vesting |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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Common stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Preferred stock dividend distribution declared |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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— |
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( |
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Contributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Net (loss)/income |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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( |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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( |
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Balance — September 30, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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4
Table of Contents
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Number of |
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Preferred |
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Number of |
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Common |
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Additional |
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Retained |
|
Accumulated |
|
Total |
|
Non- |
|
Total |
|
||||||||||
Balance —December 31, 2023 |
|
|
$ |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||||||
Restricted stock award grants and vesting |
|
— |
|
|
— |
|
|
|
|
|
|
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|||
Common stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Preferred stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Distributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
Net (loss)/income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
|
|
( |
) |
|
Other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
||||
Balance —March 31, 2024 |
|
|
$ |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
Restricted stock award grants and vesting |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
( |
) |
|
— |
|
|
|
|
— |
|
|
|
|||
Common stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Preferred stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Contributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
||
Distributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
Net (loss)/income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
|
|
( |
) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
Balance —June 30, 2024 |
|
|
$ |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
Restricted stock award grants and vesting |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
( |
) |
|
— |
|
|
|
|
— |
|
|
|
|||
Common stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Preferred stock dividend distribution declared |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
Contributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
||
Distributions |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
Net (loss)/income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
— |
|
|
( |
) |
|
|
|
( |
) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
( |
) |
|
( |
) |
|
( |
) |
|
( |
) |
Balance — September 30, 2024 |
|
|
$ |
|
|
|
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
City Office REIT, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
Nine Months Ended |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Amortization of deferred financing costs and debt fair value |
|
|
|
|
|
|
||
Amortization of above and below market leases |
|
|
|
|
|
( |
) |
|
Straight-line rent/expense |
|
|
( |
) |
|
|
( |
) |
Non-cash stock compensation |
|
|
|
|
|
|
||
Net loss on disposition of real estate property |
|
|
|
|
|
|
||
Impairment of real estate |
|
|
|
|
|
|
||
Changes in non-cash working capital: |
|
|
|
|
|
|
||
Rents receivable, net |
|
|
( |
) |
|
|
|
|
Other assets |
|
|
|
|
|
|
||
Accounts payable and accrued liabilities |
|
|
|
|
|
|
||
Deferred rent |
|
|
|
|
|
( |
) |
|
Tenant rent deposits |
|
|
( |
) |
|
|
|
|
Net Cash Provided By Operating Activities |
|
|
|
|
|
|
||
Cash Flows from/(to) Investing Activities: |
|
|
|
|
|
|
||
Additions to real estate properties |
|
|
( |
) |
|
|
( |
) |
Net proceeds from sale of real estate property |
|
|
|
|
|
|
||
Reduction of cash on disposition of real estate property |
|
|
|
|
|
( |
) |
|
Deferred leasing costs |
|
|
( |
) |
|
|
( |
) |
Net Cash Provided By/(Used In) Investing Activities |
|
|
|
|
|
( |
) |
|
Cash Flows to Financing Activities: |
|
|
|
|
|
|
||
Debt issuance and extinguishment costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from borrowings |
|
|
|
|
|
|
||
Repayment of borrowings |
|
|
( |
) |
|
|
( |
) |
Dividend distributions paid to stockholders |
|
|
( |
) |
|
|
( |
) |
Distributions to non-controlling interests in properties |
|
|
( |
) |
|
|
( |
) |
Shares withheld for payment of taxes on restricted stock unit vesting |
|
|
( |
) |
|
|
( |
) |
Contributions from non-controlling interests in properties |
|
|
|
|
|
|
||
Net Cash Used In Financing Activities |
|
|
( |
) |
|
|
( |
) |
Net Increase/(Decrease) in Cash, Cash Equivalents and Restricted Cash |
|
|
|
|
|
( |
) |
|
Cash, Cash Equivalents and Restricted Cash, Beginning of Period |
|
|
|
|
|
|
||
Cash, Cash Equivalents and Restricted Cash, End of Period |
|
$ |
|
|
$ |
|
||
Reconciliation of Cash, Cash Equivalents and Restricted Cash: |
|
|
|
|
|
|
||
Cash and Cash Equivalents, End of Period |
|
|
|
|
|
|
||
Restricted Cash, End of Period |
|
|
|
|
|
|
||
Cash, Cash Equivalents and Restricted Cash, End of Period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
|
||
Purchase of additions in real estate properties included in accounts payable |
|
$ |
|
|
$ |
|
||
Purchase of deferred leasing costs included in accounts payable |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Table of Contents
City Office REIT, Inc.
Notes to the Condensed Consolidated Financial Statements
1. Organization and Description of Business
City Office REIT, Inc. (the “Company”) was organized in the state of Maryland on
The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of common units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the Operating Partnership’s partnership agreement to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.
The Company has elected to be taxed and expects to continue to operate in a manner that will allow it to continue to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to qualification as a REIT, the Company will be permitted to deduct dividend distributions paid to its stockholders, eliminating the U.S. federal taxation of income represented by such distributions at the Company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and, for years prior to 2018, any applicable alternative minimum tax.
On
2. Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
3. Real Estate Investments
Assets Held for Sale
On June 18, 2025, the Company entered into a purchase and sale agreement (the “Phoenix Sale Agreement”) to sell Block 23, Pima Center, 5090 N 40th St, SanTan, Papago Tech, The Quad, and Camelback Square (the “Phoenix Portfolio”) for $
7
Table of Contents
The property was classified as held for sale as of September 30, 2025 (in thousands):
Pima Center |
|
September 30, 2025 |
|
|
Real estate properties, net |
|
$ |
|
|
Deferred leasing costs, net |
|
|
|
|
Rents receivable, prepaid expenses and other assets |
|
|
|
|
Assets held for sale |
|
$ |
|
|
Accounts payable, accrued liabilities, deferred rent, tenant rent deposits, and other liabilities |
|
|
|
|
Liabilities related to assets held for sale |
|
$ |
|
|
On November 1, 2024, the Company entered into a purchase and sale agreement to sell the Superior Pointe property for
$
as held for sale as of December 31, 2024. Upon classification as held for sale, the Company recognized an impairment of $
to lower the carrying amount of the property to its estimated fair value less cost to sell. Refer to “Impairment of Real Estate” below.
As of December 31, 2024, the Company had received a deposit of $
corresponding liability in other liabilities on the Company’s condensed consolidated balance sheets. On January 14, 2025, the Company completed the sale of the Superior Pointe property.
The property was classified as held for sale as of December 31, 2024 (in thousands):
Superior Pointe |
|
December 31, 2024 |
|
|
Real estate properties, net |
|
$ |
|
|
Deferred leasing costs, net |
|
|
|
|
Rents receivable, prepaid expenses and other assets |
|
|
|
|
Assets held for sale |
|
$ |
|
|
Accounts payable, accrued liabilities, deferred rent, tenant rent deposits, and other liabilities |
|
|
|
|
Liabilities related to assets held for sale |
|
$ |
|
|
Disposition of Real Estate Property
First Phoenix Closing
As described above, on August 15, 2025, the Company closed on the sale of six of the Company’s office properties located in Phoenix, Arizona for an aggregate sales price of $
Superior Pointe
On January 14, 2025, the Company sold the Superior Pointe property in Denver, Colorado for a gross sales price of $
Cascade Station
On June 27, 2024, the Company entered into an assignment in lieu of foreclosure agreement to transfer possession and control of the Cascade Station property to the lender as a result of an event of default as defined in the property’s non-recourse loan agreement. Given the terms of the assignment in lieu of foreclosure agreement, the Company assessed whether the entity holding the property should be reassessed for consolidation as a Variable Interest Entity (“VIE”) in accordance with ASC 810 – Consolidation.
Based on its analysis, the Company concluded that it was not the primary beneficiary of the VIE and therefore deconsolidated the property as of June 27, 2024. The Company deconsolidated the net carrying value of real estate assets of $
8
Table of Contents
Impairment of Real Estate
During the three and nine months ended September 30, 2025, the Company recognized an impairment of real estate of
There was
4. Lease Intangibles
Lease intangibles and the value of assumed lease obligations as of September 30, 2025 and December 31, 2024 were comprised of the following (in thousands):
|
|
Lease Intangible Assets |
|
|
Lease Intangible Liabilities |
|
||||||||||||||||||||||
September 30, 2025 |
|
Above |
|
|
In Place |
|
|
Leasing |
|
|
Total |
|
|
Below |
|
|
Below Market |
|
|
Total |
|
|||||||
Cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Lease Intangible Assets |
|
|
Lease Intangible Liabilities |
|
||||||||||||||||||||||
December 31, 2024 |
|
Above |
|
|
In Place |
|
|
Leasing |
|
|
Total |
|
|
Below |
|
|
Below Market |
|
|
Total |
|
|||||||
Cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||||
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
9
Table of Contents
5. Debt
The following table summarizes the indebtedness as of September 30, 2025 and December 31, 2024 (dollars in thousands), including the impact of the effective interest rate swaps described in Note 6:
Property |
|
|
September 30, |
|
|
December 31, |
|
Interest Rate as |
|
|
Maturity |
|
Credit Facility (2) |
|
$ |
|
$ |
|
SOFR + |
(1)(2)(3) |
|
(2) |
|||
Mission City |
|
|
|
|
|
|
|
|
||||
Circle Point |
|
|
|
|
|
|
|
|
||||
Canyon Park (4) |
|
|
|
|
|
|
|
(4) |
||||
Intellicenter (5) |
|
|
|
|
|
|
|
(5) |
||||
2525 McKinnon |
|
|
|
|
|
|
|
|
||||
FRP Collection |
|
|
|
|
|
(6) |
|
|
||||
AmberGlen |
|
|
|
|
|
|
|
|
||||
Greenwood Blvd (7) |
|
|
|
|
|
(7) |
|
|
||||
Central Fairwinds |
|
|
|
|
|
(8) |
|
|
||||
FRP Ingenuity Drive (9) |
|
|
|
|
|
|
|
|
||||
Carillon Point |
|
|
|
|
|
(6) |
|
|
||||
Term Loan (10) |
|
|
|
|
|
- |
|
|
- |
|
||
SanTan (11) |
|
|
|
|
|
- |
|
|
- |
|
||
The Quad (11) |
|
|
|
|
|
- |
|
|
- |
|
||
5090 N 40th St (11) |
|
|
|
|
|
- |
|
|
- |
|
||
Total Principal |
|
|
|
|
|
|
|
|
|
|
||
Deferred financing costs, net |
|
|
( |
|
|
( |
|
|
|
|
|
|
Total |
|
$ |
|
$ |
|
|
|
|
|
|
10
Table of Contents
The scheduled principal repayments of indebtedness as of September 30, 2025, without consideration of extension options, are as follows (in thousands):
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
6. Fair Value of Financial Instruments
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs – quoted prices in active markets for identical assets or liabilities
Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs – unobservable inputs
In January 2023, the Company entered into an interest rate swap for a notional amount of $
In February 2023, the Company entered into an interest rate swap for a notional amount of $
In August 2023, the Company entered into an interest rate swap at FRP Collection for an initial notional amount of $
In August 2023, the Company entered into an interest rate swap at Carillon Point for an initial notional amount of $
In May 2024, the Company entered into an interest rate swap at Central Fairwinds for an initial notional amount of $
11
Table of Contents
In May 2025, the Company entered into an interest rate swap at Greenwood Blvd for an initial notional amount of $
The fair value of the interest rate swaps have been classified as Level 2 fair value measurements.
The interest rate swaps for FRP Collection, Carillon Point, Central Fairwinds and Greenwood Blvd have been designated and qualify as cash flow hedges and have been recognized on the condensed consolidated balance sheets at fair value, presented within other assets and other liabilities. Gains and losses resulting from changes in the fair value of derivatives that have been designated and qualify as cash flow hedges are reported as a component of other comprehensive income/(loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
The following table summarizes the Company’s derivative financial instruments as of September 30, 2025 and December 31, 2024 (in thousands):
|
|
|
|
|
|
|
|
|
Fair Value |
|
||||||
|
|
Notional Value September 30, 2025 |
|
|
Effective Date |
|
Maturity Date |
|
September 30, |
|
|
December 31, 2024 |
|
|||
Interest Rate Swap |
|
$ |
|
|
March 2023 |
|
November 2025 |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest Rate Swap |
|
|
|
|
August 2023 |
|
August 2028 |
|
|
( |
) |
|
|
( |
) |
|
Interest Rate Swap |
|
|
|
|
August 2023 |
|
August 2028 |
|
|
( |
) |
|
|
( |
) |
|
Interest Rate Swap |
|
|
|
|
May 2024 |
|
June 2029 |
|
|
( |
) |
|
|
( |
) |
|
Interest Rate Swap |
|
|
|
|
May 2025 |
|
May 2028 |
|
|
( |
) |
|
|
|
||
Interest Rate Swap |
|
|
|
|
January 2023 |
|
August 2025 |
|
|
|
|
|
|
|||
|
|
$ |
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
For the nine months ended September 30, 2025, approximately $
Cash and Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and Accrued Liabilities
The Company estimates that the fair value approximates carrying value due to the relatively short-term nature of these instruments.
Fair Value of Financial Instruments Not Carried at Fair Value
With the exception of fixed rate mortgage loans payable, the carrying amounts of the Company’s financial instruments approximate their fair value. The Company determines the fair value of its fixed rate mortgage loans payable based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments was $
7. Related Party Transactions
Administrative Services Agreements
During the nine months ended September 30, 2025 and 2024, the Company earned $
12
Table of Contents
8. Leases
Lessor Accounting
The Company is focused on acquiring, owning and operating office properties for lease to a stable and diverse tenant base. The Company’s properties have both full-service gross and net leases which are generally classified as operating leases. Rental income related to such leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments, which principally consist of tenant expense reimbursements for certain property operating expenses as provided under the lease.
The Company recognized fixed and variable lease payments for operating leases for the three and nine months ended September 30, 2025 and 2024 as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Fixed payments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable payments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company ceased recognizing rental lease income with respect to the Cascade Station property on the deconsolidation of the entity on June 27, 2024. Refer to Note 3 for further details.
Future minimum lease payments to be received by the Company as of September 30, 2025 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands):
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
The Company’s leases may include various provisions such as scheduled rent increases, renewal options and termination options. The majority of the Company’s leases include defined rent increases rather than variable payments based on an index or unknown rate.
Lessee Accounting
As a lessee, the Company has ground and office leases which are classified as operating and financing leases. The lessee lease at the property classified as held for sale as at September 30, 2025 has been excluded from the following disclosures. Refer to Note 3 for further details. As of September 30, 2025, the Company's leases had remaining terms of one to
|
|
September 30, 2025 |
|
|
December 31, 2024 |
|
||
Right-of-use asset – operating leases |
|
$ |
|
|
$ |
|
||
Lease liability – operating leases |
|
$ |
|
|
$ |
|
||
Right-of-use asset – financing leases |
|
$ |
|
|
$ |
|
||
Lease liability – financing leases |
|
$ |
|
|
$ |
|
||
Lease liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of
13
Table of Contents
Right-of-use assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Future minimum lease payments to be paid by the Company as a lessee for operating leases as of September 30, 2025 for the next five years and thereafter are as follows (in thousands):
|
|
Operating Leases |
|
|
2025 |
|
$ |
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Discount |
|
|
( |
) |
Total |
|
$ |
|
|
9. Commitments and Contingencies
The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
The Company believes that it is in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such non-compliance, liability, claim or expenditure will not arise in the future.
The Company is involved from time to time in lawsuits and other disputes which arise in the ordinary course of business. As of September 30, 2025, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
10. Stockholders’ Equity
Share Repurchase Plan
On May 4, 2023, the Company's Board of Directors (the “Board of Directors”) approved a share repurchase plan (“Repurchase Program”) authorizing the Company to repurchase up to $
Repurchased shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional paid-in capital by the amount that the purchase price for the shares of common stock repurchased exceed the par value.
There were
14
Table of Contents
Preferred Stock Distributions
On
Equity Incentive Plan
The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certain non-executive employees, and with approval of the Board of Directors, for subsidiaries and their respective affiliates. The Equity Incentive Plan provides for grants of restricted common stock, restricted stock units, phantom shares, stock options, dividend equivalent rights and other equity-based awards (including the grant of Operating Partnership long-term incentive plan units), subject to the total number of shares available for issuance under the plan. The Equity Incentive Plan is administered by the compensation committee of the Board of Directors (the “Compensation Committee”). On May 1, 2025, the Company's stockholders approved an amendment to the Equity Incentive Plan increasing the maximum number of shares of common stock that may be issued under the Equity Incentive Plan from
On May 2, 2024, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement (the “Performance RSU Award Agreement”) that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Equity Incentive Plan. The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a
During the first quarter of 2025, the Performance RSU Awards granted in January 2022, with a January 1, 2022 through December 31, 2024 Measurement Period, were earned at 50% of the target number of shares granted based on achievement of a TSR that was at or above the 26th percentile of the 2022 Peer Group.
During the first quarter of 2024, the Performance RSU Awards granted in January 2021, with a January 1, 2021 through December 31, 2023 Measurement Period, were earned at 120% of the target number of shares granted based on achievement of a TSR that was at or above the 60th percentile of the 2021 Peer Group.
15
Table of Contents
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and nine months ended September 30, 2025:
|
|
Number |
|
|
Number of |
|
||
Outstanding at December 31, 2024 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
( |
) |
Outstanding at March 31, 2025 |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Outstanding at June 30, 2025 |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Outstanding at September 30, 2025 |
|
|
|
|
|
|
||
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and nine months ended September 30, 2024:
|
|
Number |
|
|
Number of |
|
||
Outstanding at December 31, 2023 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
( |
) |
Outstanding at March 31, 2024 |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Outstanding at June 30, 2024 |
|
|
|
|
|
|
||
Issuance of dividend equivalents |
|
|
|
|
|
|
||
Outstanding at September 30, 2024 |
|
|
|
|
|
|
||
During the nine months ended September 30, 2025 and September 30, 2024, the Company granted the following restricted stock unit awards (“RSU Awards”) and Performance RSU Awards to directors, executive officers and certain non-executive employees:
|
|
Units Granted |
|
|
|
|
|
Weighted |
|
|||||||
|
|
RSUs |
|
|
Performance |
|
|
Fair Value |
|
|
Fair Value |
|
||||
2025 |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
The RSU Awards are contractually scheduled to vest in three equal, annual installments on each of the first three anniversaries of the date of grant. The Performance RSU Awards are contractually scheduled to vest on the last day of the Measurement Period.
During the three months ended September 30, 2025 and September 30, 2024, the Company recognized net compensation expense for the RSU Awards and Performance RSU Awards as follows (in thousands):
|
|
RSUs |
|
|
Performance |
|
|
Total |
|
|||
2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
16
Table of Contents
During the nine months ended September 30, 2025 and September 30, 2024, the Company recognized net compensation expense for the RSU Awards and Performance RSU Awards as follows (in thousands):
|
|
RSUs |
|
|
Performance |
|
|
Total |
|
|||
2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
11. Segment Information
The Company is a REIT focused on real estate investments and currently operates in
The CODM use both consolidated net income and net operating income (“NOI”) as the profit or loss measures to evaluate the performance of our operating segment and allocate resources. Refer to the accompanying condensed consolidated statements of operations for the presentation of consolidated net loss for the three and nine months ended September 30, 2025 and 2024. NOI is a measure which includes the revenues and certain expenses directly attributable to our office properties. NOI is defined as rental and other revenues less property operating expenses. NOI is used by the CODM to make operating decisions as we believe it provides information useful in understanding the core operations and operating performance of our portfolio. Total assets are not utilized by the CODM to assess performance.
The following table presents segment NOI for the three and nine months ended September 30, 2025 and 2024 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Rental and other revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Property operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment net operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Presented below is a reconciliation of the reportable segment NOI to the consolidated net loss for the three and nine months ended September 30, 2025 and 2024 (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Segment net operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Impairment of real estate |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Merger and transaction-related costs |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Contractual interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs and debt fair value |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss on disposition of real estate property |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Consolidated net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
17
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form 10-Q (this “Report”).
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to City Office REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including City Office REIT Operating Partnership L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership, except where it is clear from the context that the term only means City Office REIT, Inc.
Cautionary Statement Regarding Forward-Looking Statements
This Report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “hypothetical,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
18
Table of Contents
The forward-looking statements contained in this Report are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Risk Factors” and elsewhere in this Form 10-Q and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or other public filings with the SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our IPO of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.
On July 23, 2025, the Company entered into a Merger Agreement with MCME Carell under which, subject to the satisfaction of the conditions set forth in the Merger Agreement, MCME Carell will acquire (other than shares owned by the Buyer, the Company or their respective affiliates) all of the issued and outstanding shares of the Company for $7.00 per share of common stock in cash. The Merger is subject to the satisfaction of a number of customary closing conditions more thoroughly described in the Merger Agreement. On October 16, 2025, the Company’s common stockholders approved the Merger.
19
Table of Contents
Revenue Base
As of September 30, 2025, we owned 16 properties comprised of 33 office buildings with a total of approximately 4.2 million square feet of net rentable area (“NRA”). As of September 30, 2025, our properties were approximately 84.5% leased.
Office Leases
Historically, most leases for our properties have been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense “stop,” whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries within rental and other revenues on our condensed consolidated statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected as tenant recoveries. We are also a lessor for a fee simple ground lease at the AmberGlen property.
Factors That May Influence Our Operating Results and Financial Condition
Business and Strategy
We focus on owning office properties in our footprint of growth markets predominantly in the Sun Belt. Our markets generally possess growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally lower-cost centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. A majority of our properties are well located, have good access and functionality to our markets, are new or in new condition, attract high-quality tenants and are professionally managed. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate property and leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation.
Rental Revenue and Tenant Recoveries
The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. As of September 30, 2025, the operating properties in our portfolio were 84.5% leased, with 0.7% of our leases scheduled to expire over the remainder of the calendar year, without regard to renewal options. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. Our leases typically include rent escalation provisions designed to provide annual growth in our rental income as well as an ability to pass through cost escalations to our tenants, and in the normal course of business we do not typically waive these rent escalation provisions. Certain leases contain termination provisions which permit the tenant to terminate the arrangement generally upon payment of a termination fee, which we believe acts as a deterrent to cancelling the lease. These early termination provisions applied to approximately 20.1% of the NRA in our portfolio as of September 30, 2025. In 2025, no tenant has exercised an early termination provision. Negative trends in one or more of these factors could adversely affect our rental revenue in future periods. We continually monitor our tenants’ ability to meet their lease obligations to pay us rent to determine if any adjustments should be reflected currently. General Services Administration (“GSA”) tenants represent approximately 5.1% of the base rental revenue from our properties as of September 30, 2025, with all federal or state governmental agencies representing 7.7%. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants’ industries, including as a result of high interest rates and the fluctuating likelihood of a U.S. recession, that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.
20
Table of Contents
Leasing Activity
The following table presents our leasing activity for the three months ended September 30, 2025.
Three Months Ended September 30, 2025 Leasing Activity |
|
New Leasing |
|
|
Renewal Leasing |
|
|
Total Leasing |
|
|||
Square Feet (000's) |
|
|
38 |
|
|
|
67 |
|
|
|
105 |
|
Average Effective Rents per Square Foot |
|
$ |
45.50 |
|
|
$ |
40.25 |
|
|
$ |
42.13 |
|
Tenant Improvements per Square Foot |
|
$ |
53.21 |
|
|
$ |
15.01 |
|
|
$ |
28.71 |
|
Leasing Commissions per Square Foot |
|
$ |
23.48 |
|
|
$ |
6.97 |
|
|
$ |
12.89 |
|
% Change in Renewal Cash Rent vs. Expiring |
|
|
|
|
|
3.7 |
% |
|
|
|
||
Retention Rate % |
|
|
|
|
|
68 |
% |
|
|
|
||
Our Properties
As of September 30, 2025, we owned 16 properties comprised of 33 office buildings with a total of approximately 4.2 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of September 30, 2025.
Metropolitan Area |
|
Property |
|
Year of |
|
Economic |
|
|
NRA |
|
|
In Place |
|
|
Annualized |
|
|
Annualized Base |
|
|
Annualized |
|
|
Annualized Base Rent(3) |
|
|||||||
Tampa, FL |
|
Park Tower |
|
1973 |
|
|
94.8 |
% |
|
|
482 |
|
|
|
93.9 |
% |
|
$ |
29.21 |
|
|
$ |
30.13 |
|
|
$ |
30.13 |
|
|
$ |
13,628 |
|
(25.3% of NRA) |
|
City Center |
|
1984 |
|
|
95.0 |
% |
|
|
242 |
|
|
|
79.1 |
% |
|
$ |
34.77 |
|
|
$ |
35.58 |
|
|
$ |
35.58 |
|
|
$ |
6,803 |
|
|
|
Intellicenter |
|
2008 |
|
|
100.0 |
% |
|
|
204 |
|
|
|
76.1 |
% |
|
$ |
24.31 |
|
|
$ |
26.46 |
|
|
$ |
26.46 |
|
|
$ |
4,100 |
|
|
|
Carillon Point |
|
2007 |
|
|
100.0 |
% |
|
|
124 |
|
|
|
100.0 |
% |
|
$ |
30.40 |
|
|
$ |
32.38 |
|
|
$ |
32.38 |
|
|
$ |
4,021 |
|
Orlando, FL |
|
Florida Research Park |
|
1999 |
|
|
96.6 |
% |
|
|
398 |
|
|
|
93.8 |
% |
|
$ |
26.43 |
|
|
$ |
27.20 |
|
|
$ |
28.69 |
|
|
$ |
10,133 |
|
(17.3%) |
|
Central Fairwinds |
|
1982 |
|
|
97.0 |
% |
|
|
168 |
|
|
|
87.3 |
% |
|
$ |
29.63 |
|
|
$ |
29.87 |
|
|
$ |
29.87 |
|
|
$ |
4,388 |
|
|
|
Greenwood Blvd |
|
1997 |
|
|
100.0 |
% |
|
|
155 |
|
|
|
57.2 |
% |
|
$ |
26.11 |
|
|
$ |
25.74 |
|
|
$ |
25.74 |
|
|
$ |
2,284 |
|
Denver, CO |
|
Denver Tech |
|
1997; 1999 |
|
|
100.0 |
% |
|
|
381 |
|
|
|
78.4 |
% |
|
$ |
23.08 |
|
|
$ |
24.16 |
|
|
$ |
32.97 |
|
|
$ |
7,217 |
|
(15.7%) |
|
Circle Point |
|
2001 |
|
|
100.0 |
% |
|
|
272 |
|
|
|
92.9 |
% |
|
$ |
20.22 |
|
|
$ |
21.34 |
|
|
$ |
37.00 |
|
|
$ |
5,400 |
|
Raleigh, NC |
|
Bloc 83 |
|
2019; 2021 |
|
|
100.0 |
% |
|
|
493 |
|
|
|
94.6 |
% |
|
$ |
41.25 |
|
|
$ |
40.55 |
|
|
$ |
40.90 |
|
|
$ |
18,922 |
|
(11.8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Dallas, TX |
|
The Terraces |
|
2017 |
|
|
100.0 |
% |
|
|
173 |
|
|
|
85.6 |
% |
|
$ |
39.00 |
|
|
$ |
39.45 |
|
|
$ |
59.95 |
|
|
$ |
5,830 |
|
(6.8%) |
|
2525 McKinnon |
|
2003 |
|
|
100.0 |
% |
|
111 |
|
|
|
45.9 |
% |
|
$ |
29.83 |
|
|
$ |
31.86 |
|
|
$ |
50.86 |
|
|
$ |
1,629 |
|
|
San Diego, CA |
|
Mission City |
|
1990-2007 |
|
|
100.0 |
% |
|
|
281 |
|
|
|
94.4 |
% |
|
$ |
39.28 |
|
|
$ |
41.08 |
|
|
$ |
41.08 |
|
|
$ |
10,909 |
|
(6.8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Seattle, WA |
|
Canyon Park |
|
1993; 1999 |
|
|
100.0 |
% |
|
|
207 |
|
|
|
100.0 |
% |
|
$ |
22.31 |
|
|
$ |
25.32 |
|
|
$ |
31.32 |
|
|
$ |
5,235 |
|
(5.0%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Portland, OR |
|
AmberGlen |
|
1984-1998 |
|
|
76.0 |
% |
|
|
203 |
|
|
|
52.5 |
% |
|
$ |
25.71 |
|
|
$ |
28.41 |
|
|
$ |
28.41 |
|
|
$ |
3,036 |
|
(4.8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total / Weighted Average - Excluding Assets Held for Sale(4) |
|
|
|
3,894 |
|
|
|
85.5 |
% |
|
$ |
30.13 |
|
|
$ |
31.12 |
|
|
$ |
34.89 |
|
|
$ |
103,535 |
|
|||||||
Phoenix, AZ |
|
Pima Center |
|
2006-2008 |
|
|
100.0 |
% |
|
|
272 |
|
|
|
70.8 |
% |
|
$ |
28.20 |
|
|
$ |
30.38 |
|
|
$ |
30.38 |
|
|
$ |
5,843 |
|
(6.5%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Total / Weighted Average - September 30, 2025(4) |
|
|
|
4,166 |
|
|
|
84.5 |
% |
|
$ |
30.03 |
|
|
$ |
31.08 |
|
|
$ |
34.64 |
|
|
$ |
109,378 |
|
|||||||
Operating Expenses
Our operating expenses generally consist of utilities, property and ad valorem taxes, insurance and site maintenance costs. Increases in these expenses over tenants’ base years (until the base year is reset at expiration) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties.
Conditions in Our Markets
Positive or negative changes in economic or other conditions in the markets we operate in, including state budgetary shortfalls, employment rates, natural hazards and other factors, may impact our overall performance. While we generally expect the trend of positive population and economic growth in our Sun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and elevated interest rates as well as potential changes in tax policy, trade policy,
21
Table of Contents
immigration policy, fiscal policy and monetary policy. It is uncertain and impossible to estimate the potential impact that the work-from-home trend or the effects of widespread use of artificial intelligence will have on the short- and long-term demand for office space in our markets.
Critical Accounting Policies and Estimates
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, 2024 included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Results of Operations
Comparison of Three Months Ended September 30, 2025 to Three Months Ended September 30, 2024
Rental and Other Revenues. Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues decreased $5.1 million, or 12%, to $37.3 million for the three months ended September 30, 2025 compared to $42.4 million for the three months ended September 30, 2024. Revenue decreased due to the disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 which reduced revenue by $4.2 million and $0.8 million, respectively. Block 23, 5090 N 40th St, SanTan, Papago Tech, The Quad and Camelback Square comprised the six Phoenix properties which were sold in August 2025. Revenue also decreased at AmberGlen by $0.6 million due to lower occupancy at the property compared to the prior year. Offsetting these decreases, revenue increased at Bloc 83 by $0.4 million due to higher occupancy at the property compared to the prior year. The remaining properties’ rental and other revenues were relatively unchanged.
Operating Expenses
Property Operating Expenses. Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and re-leasing costs. Property operating expenses decreased $2.2 million, or 12%, to $15.6 million for the three months ended September 30, 2025, from $17.8 million for the three months ended September 30, 2024. The disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 decreased property operating expenses by $1.8 million and $0.5 million, respectively. The remaining property operating expenses were relatively unchanged in comparison to the prior year period.
General and Administrative. General and administrative expenses are comprised of public company reporting costs and the compensation of our employees and Board of Directors, as well as non-cash stock-based compensation expenses. General and administrative expenses were unchanged at $3.8 million for the three months ended September 30, 2025 and 2024.
Depreciation and Amortization. Depreciation and amortization decreased $4.0 million, or 28%, to $10.6 million for the three months ended September 30, 2025, from $14.6 million reported in the prior year period. The disposition of six Phoenix properties in August 2025 and the Superior Pointe property in January 2025 decreased depreciation and amortization expense by $3.3 million and $0.2 million, respectively. The remaining properties’ depreciation expenses were $0.5 million lower in comparison to the prior year period.
Merger and Transaction-related costs. The Company incurred $3.1 million in merger and transaction-related costs during the third quarter of 2025.
Other Expense (Income)
Interest Expense. Interest expense decreased $1.0 million, or 12%, to $7.6 million for the three months ended September 30, 2025, from $8.6 million for the three months ended September 30, 2024. The proceeds from the disposition of the six Phoenix properties in August 2025 were used to repay property-level debt for the disposed properties and partially repay the credit facility which resulted in decreased interest expense of $0.9 million. The remaining properties’ interest expenses were relatively unchanged in comparison to the prior year period.
22
Table of Contents
Net Loss on Disposition of Real Estate Property. The disposition of six Phoenix properties in August 2025 resulted in a net loss on disposition of real estate properties of $0.4 million for the three months ended September 30, 2025.
Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024
Rental and Other Revenues. Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues decreased $7.3 million, or 6%, to $121.9 million for the nine months ended September 30, 2025 compared to $129.2 million for the nine months ended September 30, 2024. Revenue decreased year over year due to the dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 which reduced revenue by $4.7 million, $2.4 million and $1.0 million, respectively. Revenue also decreased at 2525 McKinnon and AmberGlen by $1.4 million and $0.9 million, respectively, due to lower occupancy at the properties compared to the prior year. Revenue also decreased at The Terraces by $0.7 million, largely due to the downsize of WeWork in the prior period resulting in lower income in the current period. Offsetting these decreases, revenue increased year over year at Bloc 83, Mission City and Florida Research Park’s Ingenuity Drive by $1.5 million, $1.0 million and $0.9 million, respectively, due to higher occupancy. The remaining properties’ rental and other revenues were marginally higher in comparison to the prior year period.
Operating Expenses
Property Operating Expenses. Property operating expenses are comprised mainly of building common area and maintenance expenses, insurance, property taxes, property management fees, as well as certain expenses that are not recoverable from tenants, the majority of which are related to costs necessary to maintain the appearance and marketability of vacant space. In the normal course of business, property expenses fluctuate and are impacted by various factors including, but not limited to, occupancy levels, weather, utility costs, repairs, maintenance and re-leasing costs. Property operating expenses decreased $4.8 million, or 9%, to $48.2 million for the nine months ended September 30, 2025, from $53.0 million for the nine months ended September 30, 2024. The dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 decreased property operating expenses by $1.5 million, $1.6 million and $0.5 million, respectively. Property taxes decreased across the portfolio by $1.6 million, excluding the dispositions noted above, in comparison to the prior year as property tax accruals were lower in the first three quarters of 2025 as compared to the first three quarters of 2024. In 2024, the final property tax assessments received at year end were lower than accrued in the first three quarters of 2024. The remaining property operating expenses were marginally higher in comparison to the prior period.
General and Administrative. General and administrative expenses are comprised of public company reporting costs and the compensation of our employees and Board of Directors, as well as non-cash stock-based compensation expenses. General and administrative expenses increased $0.5 million, or 5%, to $11.8 million for the nine months ended September 30, 2025, from $11.3 million reported in the prior year period primarily due to higher legal expenses.
Depreciation and Amortization. Depreciation and amortization decreased $2.6 million, or 6%, to $41.8 million for the nine months ended September 30, 2025, from $44.4 million reported in the prior year period. The dispositions of six Phoenix properties in August 2025, the Superior Pointe property in January 2025 and the Cascade Station property in June 2024 decreased depreciation and amortization expense by $3.3 million, $0.9 million and $0.4 million, respectively. Offsetting these decreases, Greenwood Blvd and Florida Research Park's Ingenuity Drive increased by $0.9 million and $0.4 million, respectively, due to higher amortization of tenant-related assets. The increase at Greenwood Blvd was due to accelerated amortization of tenant-related assets recorded in the current year associated with an early lease termination at the property. The remaining properties’ depreciation expenses were $0.7 million higher in comparison to the prior year period.
Impairment of Real Estate. Impairment of real estate was $102.2 million for the nine months ended September 30, 2025 compared to nil in the prior year period. The impairment was related to the write down of the carrying amount of the Phoenix Portfolio, which was classified as held for sale in the second quarter of 2025, to estimated fair value less cost to sell.
Merger and Transaction-related costs. The Company incurred $3.1 million in merger and transaction-related costs during the third quarter of 2025.
Other Expense (Income)
Interest Expense. Interest expense decreased $0.5 million, or 2%, to $25.0 million for the nine months ended September 30, 2025, from $25.5 million for the nine months ended September 30, 2024. The proceeds from the disposition of the six Phoenix properties in August 2025 were used to repay property-level debt for the disposed properties and partially repay the credit facility
23
Table of Contents
which resulted in decreased interest expense of $0.9 million. Further, the disposition of the Cascade Station property in June 2024 decreased interest expense by $0.4 million. Offsetting these decreases, higher interest rates on the refinance of the Greenwood Blvd property in May 2025 and the Central Fairwinds property in May 2024 resulted in higher interest expense of $0.2 million and $0.2 million, respectively. The remaining properties’ interest expenses were $0.4 million higher in comparison to the prior year period.
Net Loss on Disposition of Real Estate Property. The disposition of six Phoenix properties in August 2025 resulted in a net loss on disposition of real estate properties of $0.4 million for the nine months ended September 30, 2025. During the second quarter of 2024, the Company entered into an assignment in lieu of foreclosure agreement to transfer possession and control of the Cascade Station property to the lender as a result of an event of default as defined in the property’s loan agreement. Given the terms of the assignment in lieu of foreclosure agreement, the Company deconsolidated the entity holding the property and related assets and liabilities during the second quarter of 2024. For the nine months ended September 30, 2024, the Company recognized a loss on deconsolidation of $1.5 million.
Cash Flows
Comparison of Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024
Cash, cash equivalents and restricted cash were $39.3 million and $43.0 million as of September 30, 2025 and September 30, 2024, respectively.
Cash flow from operating activities. Net cash provided by operating activities decreased by $11.3 million to $38.7 million for the nine months ended September 30, 2025 compared to $50.0 million for the nine months ended September 30, 2024. The decrease was primarily attributable to changes in working capital and a decrease in net income related to the First Phoenix Closing.
Cash flow from investing activities. Net cash provided by investing activities increased by $265.6 million to $235.8 million for the nine months ended September 30, 2025 compared to $29.8 million of net cash used in investing activities for the nine months ended September 30, 2024. The increase in net cash provided by investing activities was primarily attributable to the sale of Superior Pointe and the First Phoenix Closing in the current year for proceeds of $268.0 million. This increase was partially offset by an increase in additions to real estate properties for the nine months ended September 30, 2025.
Cash flow to financing activities. Net cash used in financing activities increased by $248.5 million to $269.1 million for the nine months ended September 30, 2025 compared to $20.6 million for the nine months ended September 30, 2024. The increase in net cash used in financing activities was primarily attributable to increased repayment of borrowings and decreased proceeds from borrowings for the nine months ended September 30, 2025.
Non-GAAP Supplemental Measures: NOI
NOI is a non-GAAP measure which includes the revenue and expense directly attributable to our office properties. NOI is calculated as rental and other revenues less property operating expenses.
We use NOI as a supplemental performance measure because, in excluding real estate depreciation and amortization expense, general and administrative expenses, interest expense, gains (or losses) on sale of real estate and other non-operating items, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We also believe that NOI will be useful to investors as a basis to compare our operating performance with that of other REITs. However, because NOI excludes depreciation and amortization expense and captures neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our properties (all of which have real economic effect and could materially impact our results from operations), the utility of NOI as a measure of our performance is limited. Other equity REITs may not calculate NOI in a similar manner and, accordingly, our NOI may not be comparable to such other REITs’ NOI. Accordingly, NOI should be considered only as a supplement to net income as a measure of our performance. NOI should not be used as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs. NOI should not be used as a substitute for cash flow from operating activities in accordance with GAAP.
24
Table of Contents
Refer to Note 11 to our condensed consolidated financial statements for the revenue and expense items comprising NOI. Presented below is a reconciliation of the reportable segment NOI to the consolidated net loss (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
2025 |
|
|
2024 |
|
||||
Segment net operating income |
|
$ |
21,660 |
|
|
$ |
24,588 |
|
|
$ |
73,675 |
|
|
$ |
76,187 |
|
General and administrative |
|
|
(3,780 |
) |
|
|
(3,790 |
) |
|
|
(11,835 |
) |
|
|
(11,321 |
) |
Depreciation and amortization |
|
|
(10,573 |
) |
|
|
(14,642 |
) |
|
|
(41,762 |
) |
|
|
(44,440 |
) |
Impairment of real estate |
|
|
— |
|
|
|
— |
|
|
|
(102,229 |
) |
|
|
— |
|
Merger and transaction-related costs |
|
|
(3,093 |
) |
|
|
— |
|
|
|
(3,093 |
) |
|
|
— |
|
Contractual interest expense |
|
|
(6,836 |
) |
|
|
(8,274 |
) |
|
|
(23,452 |
) |
|
|
(24,502 |
) |
Amortization of deferred financing costs and debt fair value |
|
|
(776 |
) |
|
|
(369 |
) |
|
|
(1,510 |
) |
|
|
(1,030 |
) |
Net loss on disposition of real estate property |
|
|
(378 |
) |
|
|
— |
|
|
|
(378 |
) |
|
|
(1,462 |
) |
Consolidated net loss |
|
$ |
(3,776 |
) |
|
$ |
(2,487 |
) |
|
$ |
(110,584 |
) |
|
$ |
(6,568 |
) |
Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately $21.3 million of cash and cash equivalents and $17.9 million of restricted cash as of September 30, 2025.
On March 15, 2018, the Company entered into a credit agreement for the Credit Facility that provided for commitments of up to $250 million. On September 27, 2019, the Company entered into a five-year $50 million term loan, increasing its authorized borrowings under the Company’s Credit Facility from $250 million to $300 million. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement that increased the total authorized borrowings from $300 million to $350 million. On January 5, 2023, the Company entered into a second amendment to the Amended and Restated Credit Agreement for the Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. On September 27, 2024, the $50 million term loan matured and was repaid with proceeds from the Credit Facility, reducing total authorized borrowings from $375 million to $325 million. On August 15, 2025, the Company repaid the $25 million term loan and entered into a third amendment to the Amended and Restated Credit Agreement to, among other things, decrease the total authorized borrowing from $325 million to $150 million and provide for the pledge of certain of the Company's assets as security. Subsequent to quarter-end, on October 3, 2025, the Company entered into a fourth amendment to the Amended and Restated Credit Agreement to extend the maturity date from November 2025 to January 2026, with a further option to extend to November 2026, provided the Company meets certain conditions. As of September 30, 2025, of the $150 million total authorized borrowings, we had approximately $115.0 million outstanding under our Credit Facility and a $2.5 million letter of credit to satisfy escrow requirements for a mortgage lender.
On May 28, 2025, the Company entered into an amended and restated loan agreement for Greenwood Blvd, extending the term for an additional three years and amending the interest rate from fixed to floating. The loan bears interest at a rate equal to the daily-simple SOFR rate plus a margin of 250 basis points. The Company also entered into a three-year interest rate swap agreement, effectively fixing the SOFR component of the borrowing rate of the loan at 3.84%.
On February 26, 2020, the Company and the Operating Partnership entered into equity distribution agreements (collectively, the “Agreements”) with certain investment banks acting as sales agents (the “Sales Agents”), pursuant to which the Company may issue and sell from time to time up to 15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals (the “ATM Program”). In the event that the Company elects to make sales under the ATM Program, the Company will file a prospectus supplement to the prospectus included in the Company's Registration Statement on Form S-3. The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the nine months ended September 30, 2025.
Following changes in property-level occupancy rates, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders’ remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations. As of September 30, 2025, the lender for our mortgage borrowings at the Intellicenter property have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. On October 1, 2025, the non-recourse property loan at the Intellicenter property matured, and an event of default occurred under the terms of the Intellicenter loan, following
25
Table of Contents
non-payment of the principal amount outstanding at loan maturity. The Company is in discussions with the lender to extend the maturity of the loan. Further, under the terms of the loan modification and extension agreement at the FRP Ingenuity Drive property, signed in the second quarter of 2024, property cash flows from this property will be directed into lender-controlled restricted cash accounts through the maturity of the loan. For these two properties, the total restricted cash as of September 30, 2025 was $3.8 million.
Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our ATM Program, and borrowings under our mortgage loans and our Credit Facility.
Our long-term liquidity needs consist primarily of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term secured indebtedness and the issuance of equity and debt securities. We also may fund property acquisitions and non-recurring capital improvements using our Credit Facility pending longer term financing.
We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, we cannot provide assurance that this is or will continue to be the case. Our ability to incur additional debt is dependent on a number of factors, including our degree of leverage, interest rates, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
In addition to the incurrence of debt and the offering of equity securities, dispositions of properties may serve as additional capital resources and sources of liquidity. We may recycle capital from stabilized assets or from sales of properties. Capital from these types of transactions is intended to be redeployed into property acquisitions, capital improvements, or to pay down existing debt.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of September 30, 2025, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.
|
|
Payments Due by Period (in thousands) |
|
|||||||||||||||||
Contractual Obligations |
|
Total |
|
|
2025 |
|
|
2026-2027 |
|
|
2028-2029 |
|
|
More than |
|
|||||
Principal payments on indebtedness |
|
$ |
399,970 |
|
|
$ |
145,422 |
|
|
$ |
146,925 |
|
|
$ |
107,623 |
|
|
$ |
— |
|
Interest payments (1) |
|
|
37,794 |
|
|
|
4,930 |
|
|
|
27,635 |
|
|
|
5,229 |
|
|
|
— |
|
Tenant-related commitments |
|
|
11,113 |
|
|
|
9,531 |
|
|
|
1,582 |
|
|
|
— |
|
|
|
— |
|
Lease obligations |
|
|
2,001 |
|
|
|
74 |
|
|
|
483 |
|
|
|
346 |
|
|
|
1,098 |
|
Total |
|
$ |
450,878 |
|
|
$ |
159,957 |
|
|
$ |
176,625 |
|
|
$ |
113,198 |
|
|
$ |
1,098 |
|
Inflation
Substantially all of our office leases include expense reimbursement provisions that provide for property operating expense escalations. In addition, most of the leases provide for fixed rent increases. We believe that expense increases due to inflation may be at least partially offset by these contractual rent increases and expense escalations. However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. See Note 6 to our condensed consolidated financial statements in Item 1 of this Report for more information regarding our derivatives.
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We currently consider our interest rate exposure to be moderate because as of September 30, 2025, approximately $285.0 million, or 71.2%, of our debt had fixed interest rates, or effectively fixed rates when factoring in interest rate swaps, and $115.0 million, or 28.8%, had variable interest rates. The interest rate swaps effectively fix the SOFR component of the borrowing rates until maturity of the debt. A 1% increase in SOFR would result in a $1.2 million increase to our annual interest costs on debt outstanding as of September 30, 2025 and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Credit Facility. A 1% decrease in SOFR would result in a $1.2 million decrease to our annual interest costs on debt outstanding as of September 30, 2025 and would increase the fair value of our outstanding debt, as well as decrease interest costs associated with future debt issuances or borrowings under our Credit Facility.
Interest rate risk amounts are our management’s estimates based on our Company’s capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company’s financial structure.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended) were effective as of September 30, 2025.
Management’s Report on Internal Control Over Financial Reporting
There have been no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of business. As of September 30, 2025, management does not believe that any such litigation will have a material adverse effect, individually or in the aggregate, on our financial position or results of operations.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, except for the one below. Any of those risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.
The announcement and pendency of the Merger Agreement could have an adverse effect on our business, financial condition and results of operations.
The announcement and pendency of the Merger could cause disruption in our business, including the potential loss or disruption of commercial relationships prior to the completion of the Merger. For example, some of our tenants, prospective tenants or vendors may delay or defer decisions, which could negatively affect our revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. Similarly, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Merger, which may adversely affect our ability to attract and retain key personnel during the pendency of the Merger.
The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in the ordinary course of business pending consummation of the Merger, but includes certain contractual restrictions on the conduct of our business prior to completion of the Merger. Due to these operating restrictions, during the pendency of the Merger Agreement we may be unable to pursue strategic transactions, undertake significant capital projects, undertake certain financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
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The Merger Agreement also contains provisions that limit our ability to pursue alternatives to the Merger and that could discourage a potential competing acquirer of us from making a favorable alternative transaction proposal. In addition, matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which could divert their time and attention. We have also incurred, and will continue to incur, significant non-recurring costs in connection with the Merger that we may be unable to recover.
Completion of the Merger is subject to the satisfaction or waiver of certain conditions.
Completion of the Merger remains subject to the satisfaction or waiver of certain conditions, including, among other things, (a) the absence of any law, injunction, judgment, order, decree or ruling restraining or prohibiting consummation of the Merger; (b) the receipt of certain third party consents; (c) the delivery of a written tax opinion to the effect that, as of December 31, 2014 until the Merger effective time, the Company has been organized and operated in accordance with the requirements for qualification and taxation as a REIT; and (d) no event of default that is incapable of being cured or capable of being cured but still continuing shall have occurred and be continuing under certain of the Company’s loan documents. Each party’s obligation to consummate the Merger is also subject to certain additional conditions, which include the accuracy of the other party’s representations and warranties (subject to materiality qualifiers) and the other party’s compliance with its covenants and obligations in all material respects (in each case, as contained and more fully described in the Merger Agreement).
We cannot provide assurance that these conditions to completing the Merger will be satisfied or waived, and accordingly, that our pending Merger will be completed on the timeline that we anticipate or at all. Failure to complete the Merger could negatively affect our stock price and our future business and financial results.
Failure to complete the Merger could negatively impact the stock price and the future business and financial results of the Company.
If the Merger is not completed, the ongoing business of City Office REIT, Inc. may be adversely affected and we will be subject to several risks without realizing any of the benefits of having the Merger completed, including the following:
An adverse outcome in any litigation or other legal proceedings relating to the Merger Agreement could have a material adverse impact on our business and our ability to consummate the transactions contemplated by the Merger Agreement.
Transactions like the Merger are frequently the subject of litigation or other legal proceedings, including actions alleging that either our board of directors breached their respective duties to their shareholders by entering into the Merger Agreement, by failing to obtain a greater value in the transaction for their shareholders or otherwise. Since entering into the Merger Agreement, the Company has received, to its knowledge, thirteen demand letters from purported stockholders of the Company (the “Demand Letters”). Further, two complaints have been filed by purported stockholders of the Company in the New York Supreme Court (the “Complaints”). The Complaints are captioned as Eric Johnson vs. City Office REIT, Inc., et. al (Case No. 655681/2025) and Andrew Thompson v. City Office REIT, Inc., et. al (Case No. 655671/2025). The Complaints each name the Company and the members of its board of directors as defendants. We believe that such litigation or proceedings are, and any future litigation or proceedings would be, without merit. If any additional litigation or other legal proceedings are brought against us or against our board in connection with the Merger Agreement, we will defend against it, but we might not be successful in doing so. It is possible that additional or similar demand letters may be received by the Company, or that complaints making similar allegations may be filed naming the Company, the members of its board of directors and/or any other parties to the Merger as defendants. An adverse outcome in such matters, as well as
28
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the costs and efforts of a defense even if successful, could have a material adverse effect on our business, results of operation or financial position, including through the possible diversion of either company’s resources or distraction of key personnel.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended September 30, 2025, no director or officer of the Company
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Table of Contents
Item 6. Exhibits
Exhibit Number |
|
Description |
2.1 |
|
Agreement and Plan of Merger, dated July 23, 2025, by and among MCME Carell Holdings, LP, MCME Carell Merger Sub, LLC, and City Office REIT, Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Commission on July 24, 2025). |
3.1 |
|
Articles of Amendment and Restatement of the Company, as amended and supplemented (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the Commission on March 1, 2018). |
3.2 |
|
Third Amended and Restated Bylaws of the Company, effective as of August 2, 2023 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 3, 2023). |
4.1 |
|
Certificate of Common Stock of City Office REIT, Inc. (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-11/A filed with the Commission on February 18, 2014). |
4.2 |
|
Form of certificate representing the 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Commission on September 30, 2016). |
10.1 |
|
First Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated as of July 23, 2025, by and among SWVP Acquisitions LLC, a Delaware limited liability company, as buyer, and CIO 5090, Limited Partnership, a Delaware limited partnership; CIO Block 23, LLC, a Delaware limited liability company; CIO PAPAGO Tech Holdings, LLC, a Delaware limited liability company; CIO SAN TAN I, Limited Partnership, a Delaware limited partnership; CIO SAN TAN II, Limited Partnership, a Delaware limited partnership; CIO PIMA, Limited Partnership, a Delaware limited partnership; CIO QUAD, Limited Partnership, a Delaware limited partnership; and CIO CAMELBACK, Limited Partnership, a Delaware limited partnership, each as a seller (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on July 24, 2025). |
10.2 |
|
Amendment No. 3 to Executive Employment Agreement, dated as of July 23, 2025, by and among City Office Management ULC, City Office REIT Operating Partnership, and James Farrar (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Commission on July 24, 2025). |
10.3 |
|
Third Amendment, dated as of July 21, 2025 and effective as of August 15, 2025, to Amended and Restated Credit Agreement, by and among City Office REIT Operating Partnership, L.P., as borrower, City Office REIT, Inc. and certain of its subsidiaries, as guarantors, KeyBank National Association, as lender, agent and swing loan lender, the other lending institutions parties named therein, as lenders, and Keybanc Capital Markets, as sole lead arranger and sole book manager (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 15, 2025). |
31.1 |
|
Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 † |
31.2 |
|
Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 † |
32.1 |
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 † |
32.2 |
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 † |
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
|
Cover page formatted as Inline XBRL and contained in Exhibit 101 |
† Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
CITY OFFICE REIT, INC. |
||
|
|
|
|
|||
Date: November 7, 2025 |
|
|
|
By: |
|
/s/ James Farrar |
|
|
|
|
|
|
James Farrar |
|
|
|
|
|
|
Chief Executive Officer and Director |
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: November 7, 2025 |
|
|
|
By: |
|
/s/ Anthony Maretic |
|
|
|
|
|
|
Anthony Maretic |
|
|
|
|
|
|
Chief Financial Officer, Secretary and Treasurer |
|
|
|
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
31
FAQ
What were CIO's Q3 2025 revenues and earnings?
What is the status of the Phoenix Portfolio sale?
How did CIO’s debt position change in Q3 2025?
What happened with the Intellicenter loan?
Was there a significant non-cash charge in 2025?
What are the credit facility terms now?
What is the status of the merger for CIO shareholders?
