Item 2. Managements 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.
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 quarterly report on Form
10-Q,
including Item 2. Managements Discussion and Analysis
of Results of Operations and Financial Condition, 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. These forward looking statements are not based on historical facts, but rather reflect our current expectations and
projections about our future results, performance, prospects and opportunities. These forward looking statements may be identified by the use of words including anticipate, believe, expect, intend,
may, might, plan, estimate, project, should, will, result and similar terms and phrases. These forward looking statements are subject to a number of
known and unknown risks, uncertainties and other factors that are difficult to predict and which could cause our actual future results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these
forward looking statements. These risks, uncertainties and other factors include, among others
:
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adverse economic or real estate developments in the office sector or the markets in which we operate;
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changes in local, regional, national and international economic conditions;
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our inability to compete effectively;
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our inability to collect rent from tenants or renew tenants leases on attractive terms if at all;
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demand for and market acceptance of our properties for rental purposes;
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defaults on or
non-renewal
of leases by tenants;
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increased interest rates and any resulting increase in financing or operating costs;
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decreased rental rates or increased vacancy rates;
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our failure to obtain necessary financing or access the capital markets on favorable terms or at all;
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changes in the availability of acquisition opportunities;
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availability of qualified personnel;
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our inability to successfully complete real estate acquisitions;
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our failure to successfully operate acquired properties and operations;
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changes in our business strategy;
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our failure to generate sufficient cash flows to service our outstanding indebtedness;
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environmental uncertainties and risks related to adverse weather conditions and natural disasters;
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our failure to qualify and maintain our status as a real estate investment trust (REIT);
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government approvals, actions and initiatives, including the need for compliance with environmental requirements;
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outcome of claims and litigation involving or affecting us;
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financial market fluctuations;
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changes in real estate, taxation and zoning laws and other legislation and government activity and changes to real property tax rates and the taxation of REITs in general; and
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other factors described in our news releases and filings with the Securities and Exchange Commission (the SEC), including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 2016 under the heading Risk Factors and in our subsequent reports filed with the SEC.
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The forward looking statements included in this report are made only as of the date of this report, and except as otherwise required by
federal securities law, we do not have any obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our initial public offering
(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 (the Formation Transactions).
The Companys 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 Companys percentage ownership of common units. As the sole general partner
of the Operating Partnership, the Company has the exclusive power under the Operating Partnerships partnership agreement to manage and conduct the Operating Partnerships business, subject to limited approval and voting rights of the
limited partners.
The Company has elected to be taxed and will continue to operate in a manner that will allow it to qualify as a real
estate investment trust (REIT) under 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 any applicable alternative minimum tax.
On February 1, 2016, the Company
closed on the previously announced Internalization. The Company had previously entered into a Stock Purchase Agreement with certain stockholders of the Companys external advisor, City Office Real Estate Management Inc. pursuant to which the
Company acquired all of the outstanding stock of the Advisor. Pursuant to this Stock Purchase Agreement, at closing, the Company issued 297,321 shares of its common stock with a fair market value of $3.5 million to the Sellers, which include
the Companys three executive officers and Samuel Belzberg, a director of the Company. In addition, the Company was required to make cash payments to the Sellers of up to $3.5 million if the Companys fully diluted market
capitalization reached the
17
following thresholds prior to December 31, 2016: $1 million upon the Company achieving a $200 million fully diluted market capitalization, an additional $1 million upon the
Company achieving a $225 million fully diluted market capitalization and an additional $1.5 million upon the Company achieving a $250 million fully diluted market capitalization. The Company paid an additional $3.5 million in the
first quarter of 2016 representing the payments made to the Sellers upon reaching these fully diluted market capitalizations, which, together with the initial payment and professional fees, resulted in a total cost of $7.0 million in the year
ended December 31, 2016. The amount was recorded as an expense in the accompanying condensed consolidated statements of operations as it represented the cost of terminating the relationship.
In connection with the closing of the Internalization, the Company entered into an amendment to the Advisory Agreement that eliminates the
payment of acquisition fees by the Company to the Companys former external Advisor. In addition, each of the Companys executive officers entered into an employment agreement with the Company and became employees of the Company, and, at
the same time, approximately eleven additional former employees of the Advisor and its affiliates became employees of the Company.
In
connection with the closing of the transactions under the Stock Purchase Agreement, a subsidiary of the Company entered into an Administrative Services Agreement with Second City Capital II Corporation and Second City Real Estate II Corporation,
related entities controlled by Mr. Belzberg. The Administrative Services Agreement has a three year term and pursuant to the agreement, the Company will provide various administrative services and support to the related entities managing the
Second City funds. The Companys subsidiary will receive annual payments for these services under the Administrative Services Agreement as follows: first 12 months$1.5 million, second 12 months$1.15 million and third 12
months$0.625 million, for a total of $3.275 million over the three-year term.
Indebtedness
For additional information regarding these mortgage loans and the Secured Credit Facility, please refer to Liquidity and Capital
Resources below.
Revenue Base
As of March 31, 2017, we owned 19 properties comprised of 38 office buildings with a total of approximately 4.5 million square feet
of net rentable area (NRA). As of March 31, 2017, our properties were approximately 90.2% occupied.
Office Leases
Historically, most leases for our properties were 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 tenants 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 in our 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 in tenant
recoveries. The tenants in the Lake Vista Pointe, FRP Ingenuity Drive and Superior Pointe properties have triple net leases. FRP Collection has triple net leases for three of its tenants. We are also a lessor for a fee simple ground lease at the
AmberGlen property. All of our remaining leases are full-service gross leases.
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Factors That May Influence Our Operating Results and Financial Condition
Business and Strategy
We focus on owning
and acquiring office properties in our target markets. Our target markets generally possess what we believe are favorable economic growth trends, growing populations with above-average employment growth forecasts, a large number of government
offices, large international, national and regional employers across diversified industries, are generally
low-cost
centers for business operations, and exhibit favorable occupancy trends. We utilize our
managements market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term
value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and
there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns.
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 March 31, 2017, our properties were approximately 90.2% occupied. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental
rates for our portfolio of properties are generally
in-line
or slightly below the current average quoted market rates. Negative trends in one or more of these factors could adversely affect our rental revenue
in future periods. Future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants industries 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.
Our Properties
As of March 31, 2017, we owned 19 office complexes comprised of 38 office buildings with a total of approximately 4.5 million square
feet of NRA in the metropolitan areas of Boise, Dallas, Denver, Orlando, Phoenix, Portland and Tampa. The following table presents an overview of our portfolio as of March 31, 2017 (properties listed by descending NRA by market).
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Metropolitan
Area
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Property
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Economic
Interest
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NRA
(000s Square
Feet)
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In Place
Occupancy
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Annualized Base
Rent per Square
Foot
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Annualized
Gross Rent per
Square Foot
(1)
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Annualized Base
Rent
(2)
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Tampa, FL
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Park Tower
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95.0%
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473
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86.7%
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$23.31
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$23.31
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$9,549
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City Center
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95.0%
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241
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95.7%
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$24.28
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$24.28
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$5,600
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Intellicenter
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100.0%
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204
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100.0%
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$22.37
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$22.37
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$4,552
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Carillon Point
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100.0%
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124
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100.0%
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$26.29
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$26.29
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$3,265
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Denver,
CO
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Cherry Creek
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100.0%
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356
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100.0%
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$17.61
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$17.61
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$6,262
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Plaza 25
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100.0%
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196
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55.0%
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$21.12
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$21.12
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$2,271
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DTC Crossroads
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100.0%
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191
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92.4%
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$23.36
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$23.36
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$4,120
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Superior Pointe
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100.0%
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149
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95.8%
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$17.08
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$27.08
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$2,439
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Logan Tower
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100.0%
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70
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95.5%
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$19.73
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$19.73
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$1,321
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Boise, ID
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Washington Group Plaza
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100.0%
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581
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83.0%
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$17.35
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$17.35
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$8,362
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Dallas,
TX
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190 Office Center
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100.0%
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303
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88.6%
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$23.87
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$23.87
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$6,416
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Lake Vista Pointe
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100.0%
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163
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100.0%
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$14.50
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$22.50
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$2,368
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2525 McKinnon
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100.0%
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111
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97.8%
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$24.93
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$34.68
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$2,716
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Orlando,
FL
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FRP Collection
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95.0%
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272
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81.1%
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$24.56
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$26.94
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$5,408
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Central Fairwinds
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90.0%
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170
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89.8%
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$26.11
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$26.11
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$3,975
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FRP Ingenuity Drive
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100.0%
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125
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100.0%
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$20.50
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$28.50
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$2,552
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Phoenix,
AZ
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SanTan
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100.0%
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267
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100.0%
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$25.08
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$25.08
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$6,683
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5090 N 40th St
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100.0%
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176
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89.0%
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$27.49
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$27.49
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$4,304
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Portland, OR
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AmberGlen
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76.0%
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353
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90.8%
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$18.23
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$19.66
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$5,851
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Total / Weighted Average - March 31, 2017
3
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4,525
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90.2%
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$21.57
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$22.98
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$88,014
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(1)
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For Superior Pointe, FRP Ingenuity Drive and Lake Vista Pointe, the annualized base rent per square foot on a triple net basis was increased by $10, $8 and $8 respectively, to estimate a gross equivalent base rent.
AmberGlen has a net lease for one tenant which has been
grossed-up
by $7 on a pro rata basis. FRP Collection has net leases for three tenants which have been grossed up by $8 on a
pro-rata
basis. 2525 McKinnon has net leases for seven tenants which have been grossed up by $14 on a
pro-rata
basis.
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(2)
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Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended March 31, 2017 by (ii) 12.
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(3)
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Averages weighted based on the propertys NRA, adjusted for occupancy.
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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.
Summary of Significant Accounting Policies
The interim consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial
statements for the year ended December 31, 2016 included in our Annual Report on Form
10-K
for the year ended December 31, 2016.
Results of Operations
Comparison of Three Months
Ended March 31, 2017 to March 31, 2016
Revenue
Total Revenue
.
Revenue includes net rental income, including parking, signage and other income, as well as the recovery of
operating costs and property taxes from tenants. Total revenues increased $9.1 million, or 56%, to $25.4 million for the three months ended March 31, 2017 compared to $16.3 million in the corresponding period in 2016.
$0.9 million of this increase was attributed to the acquisition of Carillon Point in June 2016, $1.7 million from the acquisition of FRP Collection in July 2016, $2.7 million from the acquisition of Park Tower in November 2016,
$1.1 million from the acquisition of 5090 N 40th St in November 2016, $1.8 million from the acquisition of SanTan in December 2016 and $1.0 million from the acquisition of 2525 McKinnon in January 2017. Further contributing to the
increase, Washington Group Plaza and AmberGlen increased by $0.6 million and $0.4 million, respectively, due to the downtime in the prior year associated with tenant improvement work for new tenants at each property replacing tenants who
departed on December 31, 2015. Offsetting these increases, Corporate Parkway decreased by $0.7 million due to the sale of the property in June 2016 and Plaza 25 decreased $0.2 million as a result of lower occupancy. The remaining
properties revenues were relatively unchanged, decreased $0.2 million in comparison to three months ended March 31, 2016.
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Rental Income.
Rental income includes net rental income and income
from a ground lease. Total rental income increased $8.2 million, or 59%, to $22.3 million for the three months ended March 31, 2017 compared to $14.1 million for the three months ended March 31, 2016. The increase in rental
income was primarily due to the acquisitions described above. The acquisitions of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties contributed an additional $0.8 million, $1.4 million,
$2.4 million, $1.0 million, $1.8 million and $0.8 million in rental income, respectively, to the 2016 period rental income. Washington Group Plaza and AmberGlen also increased by $0.6 million and $0.3 million,
respectively, due to the increased occupancy described above. Corporate Parkway decreased by $0.7 million due to the sale of the property in June 2016, Plaza 25 decreased $0.2 million as result of lower occupancy.
Expense Reimbursement.
Total expense reimbursement increased $0.5 million, or 29%, to $2.3 million for the three month
period ended March 31, 2017 compared to $1.8 million for the same period in 2016, primarily due to the acquisition of the FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties described above. Offsetting these
increases, is a decrease in Plaza 25 expense reimbursement income due to reduced occupancy over the prior year.
Other.
Other revenue includes parking, signage and other miscellaneous income. Total other revenues increased $0.4 million, or 88%, to $0.8 million for the three month period ended March 31, 2017 compared to $0.4 million for the same
period in 2016. Nominal other income was generated by City Center, Central Fairwinds, Plaza 25, Logan Tower, DTC Crossroads and Park Tower with the largest contribution from City Center and Park Tower parking income.
Operating Expenses
Total Operating
Expenses.
Total operating expenses consist of property operating expenses, as well as acquisition costs, base management fees, stock-based compensation, external advisor acquisition costs, general and administrative expenses and depreciation
and amortization. Total operating expenses increased by $1.2 million, or 6%, to $22.3 million for the three months ended March 31, 2017, from $21.1 million for the same period in 2016, primarily due to acquisitions described
above offset by the decrease in corporate expenses as a result of the external advisor acquisition costs of $7.0 million which occurred in the prior year. Total operating expenses increased by $0.7 million, $1.5 million,
$2.3 million, $0.8 million, $1.6 million and $0.7 million, respectively, from the acquisition of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon. Corporate Parkway decreased operating expenses
by $0.6 million due to the sale of the property in June 2016. The remaining property operating expenses were relatively unchanged, in comparison to the prior year. The remaining increase relates to increases in general and administrative
expenses including stock-based compensation related to our growth over the prior year.
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 increased $3.5 million, or 56%, to $9.6 million for the three months ended March 31, 2017 from
$6.2 million for the same period in 2016. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525
McKinnon properties contributed an additional $0.4 million, $0.5 million, $1.2 million, $0.4 million, $0.6 million and $0.4 million in additional property operating expenses, respectively.
Acquisition Costs.
Acquisition costs were minimal for the three month period ended March 31, 2017 compared to $0 in the
prior year. The minimal acquisition costs in the current year related to unanticipated expenses related to the acquisitions which occurred in the fourth quarter of 2016. The company early adopted ASU 2017-01 and therefore the costs associated with
the 2525 McKinnon acquisition in the quarter were capitalized as part of the acquisition costs as required under the accounting for an asset acquisition.
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Base Management Fee.
Base Management Fee decreased $0.1 million, to
$0 for the three month period ended March 31, 2017. This represents the fee paid to our former external advisor in the prior year. Effective February 1, 2016, following the Internalization, no base management fees will be paid going
forward.
General and Administrative.
General and administrative expenses comprise of normal public company reporting costs
and the compensation of our management team and board of directors as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $1.0 million, or 77%, to
$2.2 million for the three month period ended March 31, 2017 compared to $1.2 million for the same period in 2016. The increase is primarily attributable to the growth of the company as well as payroll and other costs which the
external advisor paid prior to February 1, 2016 and which the Company now pays following the closing of the Internalization on February 1, 2016. Included in general and administrative expense for the three months ended March 31, 2017
was $0.8 million of
non-cash
stock-based compensation expense. Certain prior year amounts related to stock-based compensation expenses have been reclassified to General and Administrative expenses to
conform to current period presentation.
Depreciation and Amortization.
Depreciation and amortization increased
$4.0 million, or 60%, to $10.5 million for the three month period ended March 31, 2017 compared to $6.5 million for the same period in 2016, primarily due to the addition of the Carillon Point, FRP Collection, Park Tower, 5090 N
40th St, SanTan and 2525 McKinnon properties.
External Advisor Acquisition.
In the prior year, the cost associated with the
internalization of management which occurred in February 2016 was expensed.
Other Expense (Income)
Interest Expense, Net.
Interest expense increased $0.4 million, or 11%, to $4.4 million for the three month period
ended March 31, 2017, compared to $4.0 million for the corresponding period in 2016. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Carillon Point, FRP Collection, 5090 N 40
th
St, SanTan and 2525 McKinnon property level debt increased by $0.2 million, $0.3 million, $0.2 million, $0.3 million and $0.1 million respectively in 2017. Offsetting these
increase, Corporate Parkway interest expense decreased $0.2 million due to the sale of the property in June 2016 and operating line interest decreased by $0.5 million due to the capital raise which occurred in January 2017.
Cash Flows
Comparison of Period Ended
March 31, 2017 to Period Ended March 31, 2016
Cash and cash equivalents were $50.6 million and $8.2 million as
of March 31, 2017 and March 31, 2016, respectively.
Cash flow from operating activities.
Net cash provided by
operating activities decreased by $1.3 million to $3.0 million for the three months ended March 31, 2017 compared to $4.3 million for the same period in 2016. The decrease was mainly attributable to the payment of the fair value
of
earn-out,
offset by an increase in operating cash flows from the new acquisition.
Cash
flow to investing activities.
Net cash used in investing activities increased by $43.8 million to $48.3 million used for the three months ended March 31, 2017 compared to $4.5 million used for the same period in 2016. The
increase was primarily due to the of the acquisition of 2525 McKinnon.
Cash flow from financing activities.
Net cash
provided by financing activities increased by $82.1 million to $82.3 million for the three months ended March 31, 2017 compared to $0.2 million for the same period in 2016. Cash flow from financing activities increased primarily
due to proceeds from a public offering of our common stock that closed in January 2017, and proceeds from new mortgage payable, offset by repayment of borrowings from Secured Credit Facility.
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Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately $50.6 million of cash and cash equivalents and $22.6 million of restricted cash as of March 31, 2017.
On January 4, 2017, the Company closed on a $22.0 million loan secured by a first mortgage lien on the 5090 N 40th St property in
Phoenix, Arizona. The loan matures in January 2027. Interest is payable at a fixed rate of 3.92% per annum.
On January 12, 2017, the
Company, through a wholly-owned subsidiary of the Operating Partnership closed on the acquisition of 2525 McKinnon, an approximately 111,000 square foot tower located in Dallas, Texas, for $46.8 million, exclusive of closing costs.
On January 13, 2017, the Company completed a public offering pursuant to which the Company sold 5,750,000 shares of its common stock to
the public at a price of $12.40 per share, inclusive of the overallotment option. The Company raised $71.3 million in gross proceeds, resulting in net proceeds to us of approximately $68.0 million after deducting $3.3 million in
underwriting discounts and other expenses related to the offering.
On February 9, 2017, the Company closed on a $35.1 million
loan secured by a first mortgage lien on the SanTan property in Phoenix, Arizona. The loan matures in March 2027. Interest is payable at a fixed rate of 4.56% per annum.
On March 10, 2017, the Company closed on a $27.0 million loan secured by a first mortgage lien on the 2525 McKinnon property in
Dallas, Texas. The loan matures in April 2027. Interest is payable at a fixed rate of 4.24% per annum.
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, reserves established from existing cash, proceeds from our public offering, and borrowings under our mortgage loans and
Secured 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 and unsecured indebtedness and the issuance
of equity and debt securities. We also may fund property acquisitions and
non-recurring
capital improvements using our Secured 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 assure you 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, 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.
Consolidated Indebtedness as of March 31, 2017
As of March 31, 2017, we had approximately $405.6 million of outstanding consolidated indebtedness, 100% of which is fixed rate debt.
The following table sets forth information as of March 31, 2017 with respect to our outstanding indebtedness (in thousands).
23
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Debt
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March 31, 2017
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Interest Rate as of
March 31, 2017
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Maturity Date
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Secured Credit Facility
(1)
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$
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-
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LIBOR
(2)
+2.25%
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June 2018
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Washington Group Plaza
(3)
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32,817
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3.85
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July 2018
|
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AmberGlen Mortgage Loan
(4)
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24,165
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4.38
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May 2019
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Midland Life Insurance
(5)
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89,744
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4.34
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May 2021
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Lake Vista
Pointe
(3)
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18,460
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4.28
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August 2024
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FRP Ingenuity Drive
(3)(6)
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17,000
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4.44
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December 2024
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Plaza
25
(3)(7)
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17,000
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4.10
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July 2025
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190 Office Center
(7)
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41,250
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4.79
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October 2025
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Intellicenter
(7)
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33,563
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4.65
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October 2025
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FRP Collection
(7)
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30,599
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3.85
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September 2023
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Carillon Point
(7)
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16,919
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3.50
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October 2023
|
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5090 N 40
th
St
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22,000
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3.92
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January 2027
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SanTan
(7)
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35,100
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4.56
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March 2027
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2525 McKinnon
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27,000
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4.24
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April 2027
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Total
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$
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405,617
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(1)
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At March 31, 2017 the Secured Credit Facility had $100 million authorized and was undrawn. In addition, the Secured Credit Facility has an accordion feature that will permit us to borrow up to
$150 million, subject to additional collateral availability and lender approval. The Credit Agreement has a maturity date of June 26, 2018, which may be extended to June 26, 2019 at our option upon meeting certain conditions. The
Secured Credit Facility requires us to maintain a fixed charge coverage ratio of no less than 1.60x. At March 31, 2017, the Secured Credit Facility was cross-collateralized by Central Fairwinds, Logan Tower, Superior Pointe and Park Tower.
During 2016 the authorized borrowing capacity was increased from $75 million to $100 million.
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(2)
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As of March 31, 2017, the one month LIBOR rate was 0.98%
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(3)
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Interest on mortgage loan is payable monthly plus principal based on 360 months of amortization.
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(4)
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We are required to maintain a minimum net worth of $25 million and a minimum liquidity of $2 million. On May 2, 2017, in conjunction with the sale of the 1400 and 1600 buildings at the AmberGlen property,
the Company repaid the outstanding debt secured on the property of $24.1 million plus closing costs and subsequently closed on a $20 million loan secured by a first mortgage lien on the remaining buildings. The loan matures in May 2027.
Interest is payable at a fixed rate of 3.69% per annum.
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(5)
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The mortgage loan is cross-collateralized by DTC Crossroads, Cherry Creek and City Center. Interest on mortgage loan is payable monthly plus principal based on 360 months of amortization. The loan bears a fixed
interest rate of 4.34% and matures on May 6, 2021. Upon the sale of Corporate Parkway on June 15, 2016, $4 million of the loan was paid down and DTC Crossroads was substituted as collateral property.
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(6)
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We are required to maintain a minimum net worth of $17 million, minimum liquidity of $1.7 million and a debt service coverage ratio of no less than 1.15x.
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(7)
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We are required to maintain a debt service coverage ratio of no less than 1.45x, 1.15x, 1.20x, 1.40x, 1.35x and 1.20x respectively for each of Plaza 25, 190 Office Center, Intellicenter, FRP Collection, Carillon Point
and SanTan.
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Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of March 31, 2017, including any guaranteed or minimum
commitments under contractual obligations. The table does not reflect available debt extension options.
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Payments Due by Period
(in thousands)
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Contractual Obligation
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Total
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2017
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2018-2019
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2020-2021
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More than
5 years
|
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Principal payments on debt
|
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$
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405,617
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$
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2,961
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$
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64,508
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$
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93,593
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$
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244,555
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Interest payments
|
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111,044
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12,988
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31,948
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26,807
|
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39,301
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Tenant-related commitments
(1)
|
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7,171
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6,018
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1,139
|
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14
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-
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Total
|
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$
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523,832
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|
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$
|
21,967
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|
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$
|
97,595
|
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$
|
120,414
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$
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283,856
|
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(1)
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Consists principally of commitments for tenant improvements.
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24
Off-Balance
Sheet Arrangements
As of March 31, 2017, we did not have any
off-balance
sheet arrangements.
Inflation
Substantially all of our
office leases provide for real estate tax and operating expense escalations. In addition, most of the leases provide for fixed annual rent increases. We believe that inflationary increases may be at least partially offset by these contractual rent
increases and expense escalations.