VANCOUVER, Nov. 2, 2015 /PRNewswire/ -- City Office
REIT, Inc. (NYSE: CIO) ("City Office" or the "Company"), announced
today that it has entered into definitive agreements to internalize
its management effective February 1,
2016.
The internalization will allow City Office to realize economies
of scale and enhance its earnings potential as the Company
grows. The transaction, which was negotiated and approved by
a committee of independent directors, provides for the Company to
acquire its current external advisor and directly employ the
advisor's existing management team and other employees. The
independent directors of the Company believe that the effective
termination of the external advisory relationship and
internalization of management will reduce expenses as the Company
grows and further align the interests of management, the Board of
Directors and shareholders.
Key Aspects of the Internalization:
- Continuity of Management Team – The management
team of the Company's external advisor, including the Company's
current executive officers, will become employees of City
Office. The Company will enter into employment agreements
with each of its Chief Executive Officer, its President and its
Chief Financial Officer providing a seamless transition and clarity
as to future senior leadership.
- Favorable Internalization Economics – In
connection with the internalization, City Office will enter into an
administrative services agreement to provide certain affiliates of
the external advisor administrative services and support and will
receive an aggregate of $3.25 million
for such services over the three years following closing of the
internalization. In addition, the agreements provide for the
immediate elimination of the 1.0% acquisition fee payable by the
Company to the advisor under the advisory agreement.
- Economies of Scale and Accretion – Through the
immediate elimination of the acquisition fee and the elimination of
the base management fee effective February
1, 2016, the transaction permits economies of scale as the
Company's equity capital grows. Excluding the one-time costs
associated with the internalization, the Company expects the
transaction to be accretive to FFO, and as the Company grows,
accretive to both Core FFO and AFFO.
- Alignment of Interests – The internal management
structure creates a stronger alignment of interests among
management, the Board of Directors and shareholders. It also
empowers the Board of Directors and the internal management team
with full strategic and operational control. The Company also
believes an internal management structure is preferred by the
investment community over an external management structure allowing
for greater diversity in its shareholder base.
The Company's current Advisory Agreement, amended to provide for
elimination of the acquisition fee payable, remains in effect until
February 1, 2016. Effective
February 1, 2016, City Office will
acquire the external advisor (City Office Real Estate Management
Inc.), in exchange for an aggregate of 297,321 shares of City
Office common stock. This was determined based on a
$3.5 million purchase price and using
the 10 day volume weighted average stock price of approximately
$11.77 at October 30, 2015. City Office will also pay
up to an additional $3.5 million of
cash if, but only if, the Company achieves the following fully
diluted market capitalization thresholds prior to December 31, 2016: $1.0
million upon achieving a $200
million fully diluted market capitalization, an additional
$1.0 million upon achieving a
$225 million fully diluted market
capitalization and an additional $1.5
million upon achieving a $250
million fully diluted market capitalization.
"The decision to internalize management is both a testament to
our progress since completing our April
2014 IPO and an important step in our future growth and
earnings potential. Over this time, we have significantly
enhanced the value of our properties and completed over
$250 million of acquisitions.
We believe that the accelerated internalization benefits our
shareholders by positioning the Company to realize economies of
scale and expand our potential investor universe," said
James Farrar, Chief Executive
Officer.
"The independent directors have unanimously decided that it is
in the best interests of City Office and its shareholders to
accelerate the planned timetable for internalizing management,"
stated independent director William R.
Flatt. "The independent directors firmly believe that
the opportunity to reduce expenses going forward and secure its
management team directly provided for greater control and
execution. This made it an optimal time to establish a clear
and efficient structure going forward."
The Company has posted a presentation providing specific details
on the internalization under the Investor Relations section of its
website at www.cityofficereit.com.
Wunderlich Securities, Inc. acted as financial advisor to the
special committee of independent directors of the Company's Board
of Directors in connection with the transaction and provided a
fairness opinion on the terms of the transaction.
About City Office REIT, Inc.
City Office REIT is a real estate company focused on acquiring,
owning and operating high-quality office properties located in
leading markets primarily in the Southern and Western United
States. City Office currently owns or has an interest in 3.3
million square feet of office properties. Additional information
about City Office is available on the Company's website at
www.cityofficereit.com. The Company has elected to be
taxed as a real estate investment trust for U.S. federal income tax
purposes.
Forward-looking Statements
This press release contains "forward looking statements" within
the meaning of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and other federal
securities laws. All statements that are not statements of
historical facts are, or may be deemed to be, forward looking
statements. Forward looking statements reflect our current
expectations concerning future results, objectives, plans and
goals, and involve known and unknown risks, uncertainties and other
factors that are difficult to predict and which may cause future
results, performance or achievements to differ. These
statements include, but are not limited to, those pertaining to the
Company's expectations regarding growth, future reductions in
expenses and future management. These risks, uncertainties
and other factors include factors described in our news releases
and filings with the Securities and Exchange Commission, including
our Annual Report on Form 10-K for the year ended December 31, 2014, which has been filed with the
Securities and Exchange Commission. Readers of this press
release are cautioned to consider these risks and uncertainties and
not to place undue reliance on any forward-looking
statements. The Company does not undertake any obligation to
update any forward-looking statement, whether written or oral,
relating to matters discussed in this press release, except as may
be required by applicable securities laws.
Contact
City Office REIT, Inc.
Anthony Maretic, CFO
+1-604-806-3366
investorrelations@cityofficereit.com
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SOURCE City Office REIT, Inc.