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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 2, 2021

 

 

City Office REIT, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Maryland   001-36409   98-1141883
(State or other jurisdiction
of incorporation) 		  (Commission
File Number) 		  (I.R.S. Employer
Identification No.)

 

666 Burrard Street, Suite 3210,
Vancouver, British Columbia, 		  V6C 2X8
(Address of principal executive offices)   (Zip Code)

(604) 806-3366

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Ticker Symbols:

 

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value   CIO   New York Stock Exchange
6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share   CIO.PrA   New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

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.  ☐

 

 

 

Item 2.01

Completion of Acquisition or Disposition of Assets.

On December 2, 2021, City Office REIT, Inc. (the “Company”) closed on the sale of the Sorrento Mesa portfolio (“Sorrento Mesa”) in San Diego, California, to an unaffiliated third party. The gross sales price was $576.0 million, exclusive of customary transaction costs. The Company submits this Current Report on Form 8-K to provide certain financial information related to its disposition of Sorrento Mesa as required by Item 9.01(b) of Form 8-K.

 

Item 9.01

Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 2021

Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2021

Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2021

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2020

Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the year ended December 31, 2020

Notes to Unaudited Pro Form Consolidated Financial Statements

(d) Exhibits.

 

Exhibit
Number

  

Description

  104    Cover Page Interactive Data File (embedded within the Inline XBRL document).

Pro Forma Consolidated Financial Statements

(Unaudited)

On December 2, 2021, City Office REIT, Inc. (the “Company,” “we,” “our” or “us”) closed on the sale of the Sorrento Mesa Portfolio (“Sorrento Mesa”) in San Diego, California for a gross sales price of $576.0 million. The Company does not have a material relationship with the buyer of Sorrento Mesa and the disposition is not an affiliated transaction.

The accompanying unaudited Pro Forma Consolidated Balance Sheet is presented as of September 30, 2021 and the unaudited Pro Forma Consolidated Statements of Operations and unaudited Pro Forma Consolidated Statements of Comprehensive Income are presented for the nine-month period ended September 30, 2021 and the year ended December 31, 2020 and include certain pro forma adjustments to illustrate the estimated effect of the Company’s disposition of Sorrento Mesa. The City Office REIT, Inc. Historical columns have been derived from the audited financial statements for the year ended December 31, 2020 and from the unaudited interim financial statements as of and for the nine-month period ended September 30, 2021.

On the unaudited Pro Forma Consolidated Balance Sheet, the pro forma adjustments reflect the removal of the disposed property as if the transaction had occurred on September 30, 2021. On the unaudited Pro Forma Consolidated Statement of Operations, for the nine-month period ended September 30, 2021 and the year ended December 31, 2020, the pro forma adjustments reflect the removal of historical revenues and expenses of the disposed property for the periods presented as if the transaction had occurred on January 1, 2020. The unaudited Pro Forma Consolidated Statements of Operations exclude any nonrecurring charges or credits directly attributable to the disposition.

The unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there can be no assurance that the Company’s results would not have differed significantly from those set forth below if the disposition had actually occurred on January 1, 2020. Accordingly, the unaudited Pro Forma Consolidated Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the disposition of the property occurred on the date indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Company makes no representations regarding the information set forth below or the Company’s ultimate performance compared to it.

Pro forma information is intended to provide investors with information about the impact of transactions by showing how specific transactions might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. This pro forma consolidated information should not be viewed as indicative of the Company’s financial results in the future and should be read in conjunction with the Company’s financial statements as filed on Form 10-K for the year ended December 31, 2020 and on Form 10-Q for the nine-month period ended September 30, 2021. The adjustments made to historical financial information give effect to events that are directly attributable to the disposition of the property and are factually supportable. The unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Article 11 of Regulation S-X.

City Office REIT, Inc.

Pro Forma Consolidated Balance Sheet

As of September 30, 2021

(Unaudited)

(In thousands, except par value and share data)

 

     City Office
REIT, Inc.
Historical 		    Disposition of
Sorrento Mesa 		    City Office
REIT, Inc. Pro
Forma 		 

Assets

      

Real estate properties, net

   $ 868,248     $ —       $ 868,248  

Cash and cash equivalents

     17,697       42,439   A      60,136  

Restricted cash

     52,484       505,253   A      557,737  

Rents receivable, net

     29,221       —         29,221  

Deferred leasing costs, net

     18,415       —         18,415  

Acquired lease intangible assets, net

     30,183       —         30,183  

Other assets

     17,753       —         17,753  

Assets held for sale

     118,382       (118,382 ) A      —    
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,152,383     $ 429,310     $ 1,581,693  
  

 

 

   

 

 

   

 

 

 

Liabilities and Equity

      

Liabilities:

      

Debt

   $ 603,334     $ —       $ 603,334  

Accounts payable and accrued liabilities

     32,096       —         32,096  

Deferred rent

     10,460       —         10,460  

Tenant rent deposits

     5,542       —         5,542  

Acquired lease intangible liabilities, net

     3,868       —         3,868  

Other liabilities

     47,662       —         47,662  

Liabilities related to assets held for sale

     2,873       (2,873 ) A      —    
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     705,835       (2,873 )      702,962  
  

 

 

   

 

 

   

 

 

 

Equity:

      

6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 shares issued and outstanding

     112,000       —         112,000  

Common stock, $0.01 par value per share, 100,000,000 shares authorized, 43,554,375 shares issued and outstanding

     435       —         435  

Additional paid-in capital

     481,345       —         481,345  

Accumulated deficit

     (146,930 )      432,183   A      285,253  

Accumulated other comprehensive loss

     (1,063 )      —         (1,063 ) 
  

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity

     445,787       432,183       877,970  

Non-controlling interests in properties

     761       —         761  
  

 

 

   

 

 

   

 

 

 

Total Equity

     446,548       432,183       878,731  
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,152,383     $ 429,310     $ 1,581,693  
  

 

 

   

 

 

   

 

 

 

City Office REIT, Inc.

Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2021

(Unaudited)

(In thousands, except per share data)

 

     City Office
REIT, Inc.
Historical 		    Disposition of
Sorrento Mesa 		    City Office
REIT, Inc. Pro
Forma 		 

Rental and other revenues

   $ 124,369     $ (9,375 ) AA    $ 114,994  

Operating expenses:

      

Property operating expenses

     43,477       (1,981 ) AA      41,496  

General and administrative

     13,768       —         13,768  

Depreciation and amortization

     44,017       (3,423 ) AA      40,594  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     101,262       (5,404 )      95,858  
  

 

 

   

 

 

   

 

 

 

Operating income

     23,107       (3,971 )      19,136  

Interest expense:

      

Contractual interest expense

     (17,533 )      —         (17,533 ) 

Amortization of deferred financing costs and debt fair value

     (869 )      —         (869 ) 
  

 

 

   

 

 

   

 

 

 
     (18,402 )      —         (18,402 ) 

Net gain on sale of real estate property

     47,400       —         47,400  
  

 

 

   

 

 

   

 

 

 

Net income

     52,105       (3,971 )      48,134  

Less:

      

Net income attributable to non-controlling interests in properties

     (760 )      —       (760 ) 
  

 

 

   

 

 

   

 

 

 

Net income attributable to the Company

     51,345       (3,971 )      47,374  

Preferred stock distributions

     (5,565 )      —         (5,565 ) 
  

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 45,780     $ (3,971 )    $ 41,809  
  

 

 

   

 

 

   

 

 

 

Net income per common share:

      

Basic

   $ 1.05       $ 0.96  
  

 

 

     

 

 

 

Diluted

   $ 1.04       $ 0.95  
  

 

 

     

 

 

 

Weighted average common shares outstanding:

      

Basic

     43,478         43,478  
  

 

 

     

 

 

 

Diluted

     44,091         44,091  
  

 

 

     

 

 

 

Dividend distributions declared per common share

   $ 0.45       $ 0.45  
  

 

 

     

 

 

 

City Office REIT, Inc.

Pro Forma Consolidated Statement of Comprehensive Income

For the Nine Months Ended September 30, 2021

(Unaudited)

(In thousands)

 

     City Office
REIT, Inc.
Historical 		    Disposition of
Sorrento Mesa 		    City Office
REIT, Inc. Pro
Forma 		 

Net income

   $ 52,105     $ (3,971 )AA    $ 48,134  

Other comprehensive income:

      

Unrealized cash flow hedge gain

     458       —         458  

Amounts reclassified to interest expense

     439       —         439  
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

     897       —         897  
  

 

 

   

 

 

   

 

 

 

Comprehensive income

     53,002       (3,971 )      49,031  

Less:

      

Comprehensive income attributable to non-controlling interests in properties

     (760 )      —         (760 ) 
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to the Company

   $ 52,242     $ (3,971 )    $ 48,271  
  

 

 

   

 

 

   

 

 

 

City Office REIT, Inc.

Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2020

(Unaudited)

(In thousands, except per share data)

 

     City Office
REIT, Inc.
Historical 		    Disposition of
Sorrento Mesa 		    City Office
REIT, Inc. Pro
Forma 		 

Rental and other revenues

   $ 160,840     $ (9,921 )AA    $ 150,919  

Operating expenses:

      

Property operating expenses

     58,312       (1,892 )AA      56,420  

General and administrative

     10,690       —         10,690  

Depreciation and amortization

     60,367       (3,747 )AA      56,620  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     129,369       (5,639 )      123,730  
  

 

 

   

 

 

   

 

 

 

Operating income

     31,471       (4,282 )      27,189  

Interest expense:

      

Contractual interest expense

     (26,363 )      —         (26,363 ) 

Amortization of deferred financing costs and debt fair value

     (1,326 )      —         (1,326 ) 
  

 

 

   

 

 

   

 

 

 
     (27,689 )      —         (27,689 ) 

Net gain on sale of real estate property

     1,347       —         1,347  
  

 

 

   

 

 

   

 

 

 

Net income

     5,129       (4,282 )      847  

Less:

      

Net income attributable to non-controlling interests in properties

     (602 )      —       (602 ) 
  

 

 

   

 

 

   

 

 

 

Net income attributable to the Company

     4,527       (4,282 )      245  

Preferred stock distributions

     (7,420 )      —         (7,420 ) 
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (2,893 )    $ (4,282 )    $ (7,175 ) 
  

 

 

   

 

 

   

 

 

 

Net loss per common share:

      

Basic

   $ (0.06 )      $ (0.15 ) 
  

 

 

     

 

 

 

Diluted

   $ (0.06 )      $ (0.15 ) 
  

 

 

     

 

 

 

Weighted average common shares outstanding:

      

Basic

     47,223         47,223  
  

 

 

     

 

 

 

Diluted

     47,223         47,223  
  

 

 

     

 

 

 

Dividend distributions declared per common share

   $ 0.60       $ 0.60  
  

 

 

     

 

 

 

City Office REIT, Inc.

Pro Forma Consolidated Statement of Comprehensive Income

For the Year Ended December 31, 2020

(Unaudited)

(In thousands)

 

     City Office
REIT, Inc.
Historical 		    Disposition of
Sorrento Mesa 		    City Office
REIT, Inc. Pro
Forma 		 

Net income

   $ 5,129     $ (4,282 )AA    $ 847  

Other comprehensive loss:

      

Unrealized cash flow hedge loss

     (3,003 )      —         (3,003 ) 

Amounts reclassified to interest expense

     328       —         328  
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss

     (2,675 )      —         (2,675 ) 
  

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss)

     2,454       (4,282 )      (1,828 ) 

Less:

      

Comprehensive income attributable to non-controlling interests in properties

     (602 )      —         (602 ) 
  

 

 

   

 

 

   

 

 

 

Comprehensive income/(loss) attributable to the Company

   $ 1,852     $ (4,282 )    $ (2,430 ) 
  

 

 

   

 

 

   

 

 

 

City Office REIT, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

1. Adjustments to Unaudited Pro Forma Consolidated Balance Sheet

(A) On December 2, 2021, the Company closed on the sale of the Sorrento Mesa property for a gross sales price of $576.0 million. The Company received the sales proceeds and removed the carrying value of the disposed Sorrento Mesa property as shown below, with such amounts having been presented as assets held for sale of $118.4 million and liabilities related to assets held for sale of $2.9 million as at September 30, 2021.

 

(In thousands)

  

Gross sales price

   $ 576,000  

Closing and transaction costs

     (28,308 ) 
  

 

 

 

Net sales proceeds

     547,692  

Less: Carrying value of real estate assets

     (108,587 ) 

Less: Carrying value of unamortized lease intangible assets

     (3,493 ) 

Less: Carrying value of unamortized deferred leasing costs

     (3,308 ) 

Less: Carrying value of other assets

     (2,994 ) 

Less: Carrying value of unamortized lease intangible liabilities

     1,005  

Less: Carrying value of other liabilities

     1,868  
  

 

 

 

Pro forma gain

   $ 432,183  
  

 

 

 

The pro forma gain is not reflected in the unaudited Pro Forma Consolidated Statement of Operations as the effect of the gain is nonrecurring.

The net proceeds of $547.7 million are reflected as an increase to cash and cash equivalents and restricted cash on the unaudited Pro Forma Consolidated Balance Sheet. Proceeds from the sale, excluding the proceeds for two of the buildings (5910 Pacific Center Boulevard and 9985 Pacific Heights Boulevard), will be applied in a like-kind exchange so as to qualify for tax-deferred treatment under Section 1031 of the Code (“1031 Exchange”). The two buildings which will not be a part of the 1031 Exchange are Taxable REIT subsidiaries (“TRS”). As such, the net proceeds for these two buildings of $42.4 million will be held in cash and cash equivalents on the unaudited Pro Forma Consolidated Balance Sheet and the net proceeds for the remaining properties of $505.3 million will be held as restricted cash on the unaudited Pro Forma Consolidated Balance Sheet.

2. Adjustments to Unaudited Pro Forma Consolidated Statement of Operations and Unaudited Pro Forma Consolidated Statement of Comprehensive Income

(AA) These pro forma adjustments remove the actual historical revenue and expenses for the nine months ended September 30, 2021 and twelve months ended December 31, 2020 from the operations of the Sorrento Mesa property under the Company’s ownership.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    CITY OFFICE REIT, INC.
Date: December 6, 2021     By:  

/s/ James Farrar

    Name:   James Farrar
    Title:   Chief Executive Officer and Director
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