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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): February 10, 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

6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share

 

CIO

CIO.PrA

 

New York Stock Exchange

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 February 10, 2021, City Office REIT, Inc. (the “Company”) closed on the sale of Core Cherry Limited Partnership, an indirect, wholly-owned subsidiary of the Company through which the Company owned the Cherry Creek property in Denver, Colorado (“Cherry Creek”), to an unaffiliated third party. The gross sales price was $95.0 million, exclusive of customary transactions costs. The Company submits this Current Report on Form 8-K to provide certain financial information related to its disposition of Cherry Creek 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, 2020

Unaudited Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2020

Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2020

Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2019

Unaudited Pro Forma Consolidated Statement of Comprehensive Income for the year ended December 31, 2019

Notes to Unaudited Pro Forma 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 February 10, 2021, City Office REIT, Inc. (the “Company,” “we,” “our” or “us”) closed on the sale of Core Cherry Limited Partnership (“Cherry Creek”) in Denver, Colorado for a gross sales price of $95.0 million. The Company does not have a material relationship with the buyer of the Cherry Creek property and the disposition is not an affiliated transaction.

The accompanying unaudited Pro Forma Consolidated Balance Sheet is presented as of September 30, 2020 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, 2020 and the year ended December 31, 2019 and include certain pro forma adjustments to illustrate the estimated effect of the Company’s disposition of the Cherry Creek property. The City Office REIT, Inc. Historical columns have been derived from the audited financial statements for the year ended December 31, 2019 and from the interim financial statements as of and for the nine-month period ended September 30, 2020.

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, 2020. On the unaudited Pro Forma Consolidated Statement of Operations, for the nine-month period ended September 30, 2020 and the year ended December 31, 2019, 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, 2019. 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, 2019. 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 its 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, 2019 and on Form 10-Q for the nine-month period ended September 30, 2020. 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, 2020

(Unaudited)

(In thousands, expect par value and share data)

 

     City Office
REIT, Inc.
Historical
    Disposition of
Cherry Creek
    City Office
REIT, Inc. Pro
Forma
 

Assets

      

Real estate properties, net

   $ 999,015     $ (40,957 ) A    $ 958,058  

Cash and cash equivalents

     38,399       48,937   B      87,336  

Restricted cash

     17,962       (1,707 ) B      16,255  

Rents receivable, net

     34,756       (2,868 ) A      31,888  

Deferred leasing costs, net

     14,954       (150 ) A      14,804  

Acquired lease intangible assets, net

     51,552       (2,571 ) A      48,981  

Other assets

     16,174       (20 ) A      16,154  
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 1,172,812     $ 664     $ 1,173,476  
  

 

 

   

 

 

   

 

 

 

Liabilities and Equity

      

Liabilities:

      

Debt

   $ 678,533     $ (46,073 ) B    $ 632,460  

Accounts payable and accrued liabilities

     32,633       (480 ) A      32,153  

Deferred rent

     6,103       (1 ) A      6,102  

Tenant rent deposits

     5,418       —         5,418  

Acquired lease intangible liabilities, net

     6,484       —         6,484  

Other liabilities

     18,523       —         18,523  
  

 

 

   

 

 

   

 

 

 

Total Liabilities

     747,694       (46,554     701,140  
  

 

 

   

 

 

   

 

 

 

Equity:

      

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

     112,000       —         112,000  

Common stock, $0.01 par value, 100,000,000 shares authorized, 43,397,117 shares issued and outstanding

     433       —         433  

Additional paid-in capital

     478,774       —         478,774  

Accumulated deficit

     (164,917     47,218  A      (117,699

Accumulated other comprehensive loss

     (2,190     —         (2,190
  

 

 

   

 

 

   

 

 

 

Total Stockholders’ Equity

     424,100       47,218       471,318  

Non-controlling interests in properties

     1,018       —         1,018  
  

 

 

   

 

 

   

 

 

 

Total Equity

     425,118       47,218       472,336  
  

 

 

   

 

 

   

 

 

 

Total Liabilities and Equity

   $ 1,172,812     $ 664     $ 1,173,476  
  

 

 

   

 

 

   

 

 

 


City Office REIT, Inc.

Pro Forma Consolidated Statement of Operations

For the Nine Months Ended September 30, 2020

(Unaudited)

(In thousands, expect per share data)

 

     City Office
REIT, Inc.
Historical
    Disposition of
Cherry Creek
    City Office
REIT, Inc. Pro
Forma
 

Rental and other revenues

   $ 121,000     $ (6,459 AA    $ 114,541  

Operating expenses:

      

Property operating expenses

     43,666       (1,922 ) AA      41,744  

General and administrative

     8,025       —         8,025  

Depreciation and amortization

     45,222       (1,755 ) AA      43,467  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     96,913       (3,677     93,236  
  

 

 

   

 

 

   

 

 

 

Operating income

     24,087       (2,782     21,305  

Interest expense:

      

Contractual interest expense

     (19,773     1,513  AA      (18,260

Amortization of deferred financing costs and debt fair value

     (993     94  AA      (899
  

 

 

   

 

 

   

 

 

 
     (20,766     1,607       (19,159

Net gain on sale of real estate property

     1,347       —         1,347  
  

 

 

   

 

 

   

 

 

 

Net income

     4,668       (1,175     3,493  

Less:

      

Net income attributable to non-controlling interests in properties

     (514     —         (514
  

 

 

   

 

 

   

 

 

 

Net income attributable to the Company

     4,154       (1,175     2,979  

Preferred stock distributions

     (5,565     —         (5,565
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (1,411   $ (1,175   $ (2,586
  

 

 

   

 

 

   

 

 

 

Net loss per common share:

      

Basic

   $ (0.03     $ (0.05
  

 

 

     

 

 

 

Diluted

   $ (0.03     $ (0.05
  

 

 

     

 

 

 

Weighted average common shares outstanding:

      

Basic

     48,508         48,508  
  

 

 

     

 

 

 

Diluted

     48,508         48,508  
  

 

 

     

 

 

 

Dividend distributions declared per common share

   $ 0.450       $ 0.450  
  

 

 

     

 

 

 


City Office REIT, Inc.

Pro Forma Consolidated Statements of Comprehensive Income

For the Nine Months Ended September 30, 2020

(Unaudited)

(In thousands)

 

     City Office
REIT, Inc.
Historical
    Disposition of
Cherry Creek
    City Office
REIT, Inc. Pro
Forma
 

Net income

   $ 4,668     $ (1,175 )AA    $ 3,493  

Other comprehensive loss:

      

Unrealized cash flow hedge loss

     (3,091     —         (3,091

Amounts reclassified to interest expense

     186       —         186  
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss

     (2,905     —         (2,905
  

 

 

   

 

 

   

 

 

 

Comprehensive income

     1,763       (1,175     588  

Less:

      

Comprehensive income attributable to non-controlling interests in properties

     (514     —         (514
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to the Company

     1,249       (1,175     74  

Preferred stock distributions

     (5,565     —         (5,565
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (4,316   $ (1,175   $ (5,491
  

 

 

   

 

 

   

 

 

 


City Office REIT, Inc.

Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2019

(Unaudited)

(In thousands, expect per share data)

 

     City Office
REIT, Inc.
Historical
    Disposition of
Cherry Creek
    City Office
REIT, Inc. Pro
Forma
 

Rental and other revenues

   $ 156,297     $ (7,439 )AA    $ 148,858  

Operating expenses:

      

Property operating expenses

     57,316       (2,340 )AA      54,976  

General and administrative

     11,066       —         11,066  

Depreciation and amortization

     59,159       (2,164 )AA      56,995  
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     127,541       (4,504     123,037  
  

 

 

   

 

 

   

 

 

 

Operating income

     28,756       (2,935     25,821  

Interest expense:

      

Contractual interest expense

     (28,401     2,034  AA      (26,367

Amortization of deferred financing costs and debt fair value

     (1,325     125  AA      (1,200
  

 

 

   

 

 

   

 

 

 
     (29,726)     2,159     (27,567)  

Net gain on sale of real estate property

     3,412       —         3,412  
  

 

 

   

 

 

   

 

 

 

Net income

     2,442       (776     1,666  

Less:

      

Net income attributable to non-controlling interests in properties

     (644     —         (644
  

 

 

   

 

 

   

 

 

 

Net income attributable to the Company

     1,798       (776     1,022  

Preferred stock distributions

     (7,420     —         (7,420
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (5,622   $ (776   $ (6,398
  

 

 

   

 

 

   

 

 

 

Net loss per common share:

      

Basic

   $ (0.13     $ (0.15
  

 

 

     

 

 

 

Diluted

   $ (0.13     $ (0.15
  

 

 

     

 

 

 

Weighted average common shares outstanding:

      

Basic

     43,997         43,997  
  

 

 

     

 

 

 

Diluted

     43,997         43,997  
  

 

 

     

 

 

 

Dividend distributions declared per common share

   $ 0.940       $ 0.940  
  

 

 

     

 

 

 


City Office REIT, Inc.

Pro Forma Consolidated Statements of Comprehensive Income

For the Year Ended December 31, 2019

(Unaudited)

(In thousands)

 

     City Office
REIT, Inc.
Historical
    Disposition of
Cherry Creek
    City Office
REIT, Inc. Pro
Forma
 

Net income

   $ 2,442     $ (776 )AA    $ 1,666  

Other comprehensive income:

      

Unrealized cash flow hedge gain

     821       —         821  

Amounts reclassified to interest expense

     (106     —         (106
  

 

 

   

 

 

   

 

 

 

Other comprehensive income

     715       —         715  
  

 

 

   

 

 

   

 

 

 

Comprehensive income

     3,157       (776     2,381  

Less:

      

Comprehensive income attributable to non-controlling interests in properties

     (644     —         (644
  

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to the Company

     2,513       (776     1,737  

Preferred stock distributions

     (7,420     —         (7,420
  

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (4,907   $ (776   $ (5,683
  

 

 

   

 

 

   

 

 

 


City Office REIT, Inc.

Notes to Unaudited Pro Forma Consolidated Financial Statements

1. Adjustments to Unaudited Pro Forma Consolidated Balance Sheet

(A) On February 10, 2021, the Company closed on the sale of the Cherry Creek property for a gross sales price of $95.0 million. The Company received the sales proceeds and removed the carrying value of the disposed Cherry Creek property as shown below.

 

(In thousands)

  

Gross sales price

   $ 95,000  

Closing and transaction costs

     (1,697
  

 

 

 

Net sales proceeds

     93,303  

Less: Carrying value of real estate assets

     (40,957

Less: Carrying value of unamortized lease intangible assets

     (2,571

Less: Carrying value of unamortized deferred leasing costs

     (150

Less: Carrying value of other assets

     (2,888

Less: Carrying value of other liabilities

     481  
  

 

 

 

Pro forma gain

   $ 47,218  
  

 

 

 

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

(B) In connection with the sale of the Cherry Creek property, debt of $46.1 million was repaid and related restricted cash escrows of $1.7 million will be released. The remaining net sales proceeds of $48.9 million are reflected as an increase to cash on the unaudited Pro Forma Consolidated Balance Sheet.

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

(AA) These pro forma adjustments remove the actual historical revenue and expenses from the operations of the Cherry Creek 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: February 16, 2021     By:  

/s/ James Farrar

    Name:   James Farrar
    Title:   Chief Executive Officer and Director
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