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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-36409
 
 
CITY OFFICE REIT, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Maryland
  
98-1141883
(State or other jurisdiction
  
(I.R.S. Employer
of incorporation or organization)
  
Identification No.)
666 Burrard Street
Suite 3210
Vancouver, BC
V6C 2X8
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (604)
806-3366
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Trading Symbol(s)
  
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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer   ☐    Accelerated filer   ☒
       
Non-accelerated filer
   ☐    Smaller reporting company   ☐
       
         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  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  ☐    ☒  No
The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at
July 31
, 2023 was 39,938,451.
 
 

City Office REIT, Inc.
Quarterly Report on Form
10-Q
For the Quarter Ended June 30, 2023
Table of Contents
 
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PART I.    FINANCIAL INFORMATION
Item 1. Financial Statements
City Office REIT, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value and share data)
 
    
June 30,

2023
    
December 31,
2022
  
Assets
                 
Real estate properties
                 
Land
    $ 193,524     $ 199,537  
Building and improvement
      1,189,789       1,215,000  
Tenant improvement
      146,633       139,365  
Furniture, fixtures and equipment
      689       689  
    
 
 
    
 
 
  
       1,530,635       1,554,591  
Accumulated depreciation
      (197,062 )      (175,720 ) 
    
 
 
    
 
 
  
       1,333,573       1,378,871  
    
 
 
    
 
 
  
Cash and cash equivalents
      38,350       28,187  
Restricted cash
      14,307       16,075  
Rents receivable, net
      48,971       44,429  
Deferred leasing costs, net
      21,058       21,989  
Acquired lease intangible assets, net
      49,876       55,438  
Other assets
      31,313       29,450  
    
 
 
    
 
 
  
Total Assets
    $ 1,537,448     $ 1,574,439  
    
 
 
    
 
 
  
Liabilities and Equity
                 
Liabilities:
                 
Debt
    $ 678,380     $ 690,099  
Accounts payable and accrued liabilities
      30,625       35,753  
Deferred rent
      7,956       9,147  
Tenant rent deposits
      7,142       7,040  
Acquired lease intangible liabilities, net
      8,422       9,150  
Other liabilities
      16,035       20,076  
    
 
 
    
 
 
  
Total Liabilities
      748,560       771,265  
    
 
 
    
 
 
  
Commitments and Contingencies (Note 9)
              
Equity:
                 
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding as of June 30, 2023 and December 31, 2022
      112,000       112,000  
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,938,451 and 39,718,767 shares issued and outstanding as of June 30, 2023 and December 31, 2022
      399       397  
Additional
paid-in
capital
      436,733       436,161  
Retained earnings
      235,705       251,542  
Accumulated other comprehensive income
      3,726       2,731  
    
 
 
    
 
 
  
Total Stockholders’ Equity
      788,563       802,831  
Non-controlling
interests in properties
      325       343  
    
 
 
    
 
 
  
Total Equity
      788,888       803,174  
    
 
 
    
 
 
  
Total Liabilities and Equity
    $ 1,537,448     $ 1,574,439  
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
1
City Office REIT, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
 
    
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
    
2023
    
2022
    
2023
    
2022
  
Rental and other revenues
    $ 44,604     $ 45,498     $ 90,562     $ 90,350  
Operating expenses:
                                 
Property operating expenses
      17,246       16,836       34,966       33,325  
General and administrative
      3,668       3,614       7,433       7,070  
Depreciation and amortization
      15,768       15,701       31,072       31,516  
    
 
 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      36,682       36,151       73,471       71,911  
    
 
 
    
 
 
    
 
 
    
 
 
  
Operating income
      7,922       9,347       17,091       18,439  
Interest expense:
                                 
Contractual interest expense
      (7,981 )      (5,982 )      (15,953 )      (11,729 ) 
Amortization of deferred financing costs and debt fair value
      (323 )      (302 )      (647 )      (614 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
       (8,304 )      (6,284 )      (16,600 )      (12,343 ) 
Net (loss)/gain on disposition of real estate property
      (134 )      —         (134 )      21,658  
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss)/income
      (516 )      3,063       357       27,754  
Less:
                                 
Net income attributable to
non-controlling
interests in properties
      (164 )      (164 )      (333 )      (335 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss)/income attributable to the Company
      (680 )      2,899       24       27,419  
Preferred stock distributions
      (1,855 )      (1,855 )      (3,710 )      (3,710 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss)/income attributable to common stockholders
    $ (2,535 )    $ 1,044     $ (3,686 )    $ 23,709  
    
 
 
    
 
 
    
 
 
    
 
 
  
Net (loss)/income per common share:
                                 
Basic
    $ (0.06 )    $ 0.02     $ (0.09 )    $ 0.54  
    
 
 
    
 
 
    
 
 
    
 
 
  
Diluted
    $ (0.06 )    $ 0.02     $ (0.09 )    $ 0.53  
    
 
 
    
 
 
    
 
 
    
 
 
  
Weighted average common shares outstanding:
                                 
Basic
      39,938       43,632       39,906       43,593  
    
 
 
    
 
 
    
 
 
    
 
 
  
Diluted
      39,938       44,482       39,906       44,445  
    
 
 
    
 
 
    
 
 
    
 
 
  
Dividend distributions declared per common share
    $ 0.10     $ 0.20     $ 0.30     $ 0.40  
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
2
City Office REIT, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)
 
    
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
    
2023
    
2022
    
2023
    
2022
  
Net (loss)/income
    $ (516 )    $ 3,063     $ 357     $ 27,754  
Other comprehensive income:
                                 
Unrealized cash flow hedge gain
      3,749       450       2,284       2,064  
Amounts reclassified to interest expense
      (812 )      63       (1,289 )      203  
    
 
 
    
 
 
    
 
 
    
 
 
  
Other comprehensive income
      2,937       513       995       2,267  
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income
      2,421       3,576       1,352       30,021  
Less:
                                 
Comprehensive income attributable to
non-controlling
interests in properties
      (164 )      (164 )      (333 )      (335 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Comprehensive income attributable to the Company
    $ 2,257     $ 3,412     $ 1,019     $ 29,686  
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
3
City Office REIT, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
(In thousands)
 
 
 
Number
of shares
of
preferred
stock
 
 
Preferred
stock
 
 
Number
of
shares of
common
stock
 
 
Common
stock
 
 
Additional
paid-in

capital
 
 
Retained
earnings
 
 
Accumulated
other
comprehensive
income
 
 
Total
stockholders’
equity
 
 
Non-controlling

interests in
properties
 
 
Total
equity
 
Balance—December 31, 2022
     4,480     $ 112,000       39,718     $ 397     $ 436,161     $
 
 
 251,542     $ 2,731     $ 802,831     $ 343     $ 803,174  
Restricted stock award grants and vesting
     —         —         220       2       (535 )      (85 )      —         (618 )      —         (618 ) 
Common stock dividend distribution declared
     —         —         —         —         —         (7,988 )      —         (7,988 )      —         (7,988 ) 
Preferred stock dividend distribution declared
     —         —         —         —         —         (1,855 )      —         (1,855 )      —         (1,855 ) 
Contributions
     —         —         —         —         —         —         —         —         110       110  
Distributions
     —         —         —         —         —         —         —         —         (235 )      (235 ) 
Net income
     —         —         —         —         —         704       —         704       169       873  
Other comprehensive loss
     —         —         —         —         —         —         (1,942 )      (1,942 )      —         (1,942 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance—March 31, 2023
     4,480     $ 112,000       39,938     $ 399     $ 435,626     $ 242,318     $ 789     $ 791,132     $ 387     $ 791,519  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
                     
Restricted stock award grants and vesting
     —         —         —         —         1,107       (84 )      —         1,023       —         1,023  
Common stock dividend distribution declared
     —         —         —         —         —         (3,994 )      —         (3,994 )      —         (3,994 ) 
Preferred stock dividend distribution declared
     —         —         —         —         —         (1,855 )      —         (1,855 )      —         (1,855 ) 
Distributions
     —         —         —         —         —         —         —         —         (226 )      (226 ) 
Net (loss)/income
     —         —         —         —         —         (680 )      —         (680 )      164       (516 ) 
Other comprehensive income
     —         —         —         —         —         —         2,937       2,937       —         2,937  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance—June 30, 2023
     4,480     $ 112,000       39,938     $ 399     $ 436,733     $ 235,705     $ 3,726     $ 788,563     $ 325     $ 788,888  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
 
 
Number
of shares
of
preferred
stock
 
 
Preferred
stock
 
 
Number
of
shares of
common
stock
 
 
Common
stock
 
 
Additional
paid-in

capital
 
 
Retained
earnings
 
 
Accumulated
other
comprehensive
(loss)/income
 
 
Total
stockholders’
equity
 
 
Non-controlling

interests in
properties
 
 
Total
equity
 
Balance—December 31, 2021
     4,480     $ 112,000       43,554     $ 435     $ 482,061     $
 
 
 275,502     $ (382 )    $ 869,616     $ 979     $ 870,595  
Restricted stock award grants and vesting
     —         —         —         —         972       (68 )      —         904       —         904  
Common stock dividend distribution declared
     —         —         —         —         —         (8,711 )      —         (8,711 )      —         (8,711 ) 
Preferred stock dividend distribution declared
     —         —         —         —         —         (1,855 )      —         (1,855 )      —         (1,855 ) 
Contributions
     —         —         —         —         —         —         —         —         3       3  
Distributions
     —         —         —         —         —         —         —         —         (254 )      (254 ) 
Net income
     —         —         —         —         —         24,520       —         24,520       171       24,691  
Other comprehensive income
     —         —         —         —         —         —         1,754       1,754       —         1,754  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance—March 31, 2022
     4,480     $ 112,000       43,554     $ 435     $ 483,033     $ 289,388     $ 1,372     $ 886,228     $ 899     $ 887,127  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
                     
Restricted stock award grants and vesting
     —         —         171       2       1,020       (117 )      —         905       —         905  
Common stock repurchased
     —         —         (395 )      (4 )      (4,996 )      —         —         (5,000 )      —         (5,000 ) 
Common stock dividend distribution declared
     —         —         —         —         —         (8,580 )      —         (8,580 )      —         (8,580 ) 
Preferred stock dividend distribution declared
     —         —         —         —         —         (1,855 )      —         (1,855 )      —         (1,855 ) 
Distributions
     —         —         —         —         —         —         —         —         (180 )      (180 ) 
Net income
     —         —         —         —         —         2,899       —         2,899       164       3,063  
Other comprehensive income
     —         —         —         —         —         —         513       513       —         513  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance—June 30, 2022
     4,480     $ 112,000       43,330     $ 433     $ 479,057     $ 281,735     $ 1,885     $ 875,110     $ 883     $ 875,993  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
4

City Office REIT, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
    
Six Months Ended

June 30,
  
    
2023
    
2022
  
Cash Flows from Operating Activities:
                 
Net income
    $ 357     $ 27,754  
Adjustments to reconcile net income to net cash provided by operating activities:
                 
Depreciation and amortization
      31,072       31,516  
Amortization of deferred financing costs and debt fair value
      647       614  
Amortization of above and below market leases
      34       80  
Straight-line rent/expense
      (4,795 )      (4,356 ) 
Non-cash
stock compensation
      2,048       1,895  
Receipts from sales-type lease
      —         43,549  
Net loss/(gain) on disposition of real estate property
      134       (21,658 ) 
Changes in
non-cash
working capital:
                 
Rents receivable, net
      534       (4,109 ) 
Other assets
      (1,416 )      (764 ) 
Accounts payable and accrued liabilities
      (141 )      1,268  
Deferred rent
      (1,032 )      (1,511 ) 
Tenant rent deposits
      141       691  
    
 
 
    
 
 
  
Net Cash Provided By Operating Activities
      27,583       74,969  
    
 
 
    
 
 
  
Cash Flows to Investing Activities:
                 
Additions to real estate properties
      (17,826 )      (16,462 ) 
Reduction of cash on disposition of real estate property
      (4,051 )      —    
Deferred leasing costs
      (1,927 )      (4,786 ) 
    
 
 
    
 
 
  
Net Cash Used In Investing Activities
      (23,804 )      (21,248 ) 
    
 
 
    
 
 
  
Cash Flows from/(to) Financing Activities:
                 
Debt issuance and extinguishment costs
      (236 )      —    
Proceeds from borrowings
      35,000       31,000  
Repayment of borrowings
      (8,513 )      (30,941 ) 
Dividend distributions paid to stockholders
      (19,641 )      (21,132 ) 
Repurchases of common stock
      —         (5,000 ) 
Distributions to
non-controlling
interests in properties
      (461 )      (434 ) 
Shares withheld for payment of taxes on restricted stock unit vesting
      (1,643 )      (87 ) 
Contributions from
non-controlling
interests in properties
      110       3  
    
 
 
    
 
 
  
Net Cash Provided By/(Used In) Financing Activities
      4,616       (26,591 ) 
    
 
 
    
 
 
  
Net Increase in Cash, Cash Equivalents and Restricted Cash
      8,395       27,130  
Cash, Cash Equivalents and Restricted Cash, Beginning of Period
      44,262       42,266  
    
 
 
    
 
 
  
Cash, Cash Equivalents and Restricted Cash, End of Period
    $ 52,657     $ 69,396  
    
 
 
    
 
 
  
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
                 
Cash and Cash Equivalents, End of Period
      38,350       26,352  
Restricted Cash, End of Period
      14,307       43,044  
    
 
 
    
 
 
  
Cash, Cash Equivalents and Restricted Cash, End of Period
    $ 52,657     $ 69,396  
    
 
 
    
 
 
  
Supplemental Disclosures of Cash Flow Information:
                 
Cash paid for interest
    $ 14,827     $ 10,850  
Purchase of additions in real estate properties included in accounts payable
    $ 8,753     $ 10,301  
Purchase of deferred leasing costs included in accounts payable
    $ 1,404     $ 2,926  
The accompanying notes are an integral part of these condensed consolidated financial statements
.
 
5
City Office REIT, Inc.
Notes to the Condensed Consolidated Financial Statements
1. Organization and Description of Business
City Office REIT, Inc. (the “Company”) was organized in the state of Marylan
d on
November 26, 2013
. On
April 21, 2014
, the Company completed its initial public offering (“IPO”) of shares of the Company’s common stock. The Company contributed the net proceeds of the IPO to City Office REIT Operating Partnership, L.P., a Maryland limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (“common units”).
The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of common units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the Operating Partnership’s
partnership agreement
to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.
The Company has elected to be taxed and will continue to operate in a manner that will allow it to continue to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to qualification as a REIT, the Company will be permitted to deduct dividend distributions paid to its stockholders, eliminating the U.S. federal taxation of income represented by such distributions at the Company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and, for years prior to 2018, any applicable alternative minimum tax.
2. Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022.
During the second quarter of 2023, the Company applied the below accounting policy for Variable Interest Entities (“VIE”) in relation to the deconsolidation of the 190 Office Center property. Refer to Note 3 – Real Estate Investments for additional information.
Variable Interest Entities
The Company consolidates a VIE if the Company determines that it is the primary beneficiary of the entity. When evaluating the accounting for a VIE, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance relative to other economic interest holders. The Company determines the rights, if any, to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE by considering the economic interest in the entity, regardless of form, which may include debt, equity, management and servicing fees, or other contractual arrangements. The Company considers other relevant factors including each entity’s capital structure, contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent payments, and other contractual arrangements that may be economically significant.
 
6
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (the “FASB”) established Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)
No. 2020-04
(“ASU
2020-04”).
ASU
2020-04
provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) (“ASU
2021-01”).
ASU
2021-01
clarified the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.
ASU
2020-04
and ASU
2021-01
can be applied as of the beginning of the interim period that includes March 12, 2020, however, the guidance will only be available for optional use through December 31, 2022. In December 2022, the FASB issued ASU
No. 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU
2022-06”).
ASU
2022-06
amends the date the guidance will be available to December 31, 2024. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. During the first quarter of 2023, the Company transitioned its LIBOR-based contracts to SOFR and elected to apply the practical expedients to modifications of qualifying debt contracts and hedging relationships as continuations of the existing contracts, rather than as new contracts. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with past presentation and does not result in dedesignation of hedging relationships. Applying the expedients did not have a material impact on the consolidated financial statements. The Company has no remaining LIBOR-based contracts.
3. Real Estate Investments
Disposition of Real Estate Property
190 Office Center
On May 15, 2023, the Company consented to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s
non-recourse
loan agreement. Given the appointment of the receiver, the Company assessed whether the entity holding the property should be reassessed for consolidation as a VIE in accordance with ASC 810 – Consolidation.
Based on its analysis, the Company concluded that it is not the primary beneficiary of the VIE and therefore deconsolidated the property as of May 15, 2023. The Company deconsolidated the net carrying value of real estate assets of $
35.7
 million, the mortgage loan of $
38.6 
million, cash and restricted cash of $
4.0
 
million and net current liabilities of
 $
1.0
million. For the three months ended June 30, 2023, the Company recognized a loss on deconsolidation of $
0.1
 million, which has been included within net loss/gain on disposition of real estate property on the Company’s condensed consolidated statement of operations and statement of cash flows.
Lake Vista Pointe
During
the first quarter of 2022, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and the Company signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, the Company reassessed the classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of $
21.7
 million net of disposal-related costs. On June 15, 2022, the Company sold the Lake Vista Pointe property in Dallas, Texas for a gross sales price of $
43.8
 million.
 
7
4. Lease Intangible
s
Lease intangibles and the value of assumed lease obligations as of June 30, 2023 and December 31, 2022 were comprised of the following (in thousands):
 
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
June 30, 2023
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,786     $ 77,066     $ 33,491     $ 129,343     $ (14,968 )    $ (138 )    $ (15,106 ) 
Accumulated amortization
      (9,823 )      (51,444 )      (18,200 )      (79,467 )      6,630       54       6,684  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 8,963     $ 25,622     $ 15,291     $ 49,876     $ (8,338 )    $ (84 )    $ (8,422 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
December 31, 2022
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,793     $ 78,720     $ 34,123     $ 131,636     $ (15,682 )    $ (138 )    $ (15,820 ) 
Accumulated amortization
      (9,069 )      (49,772 )      (17,357 )      (76,198 )      6,618       52       6,670  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 9,724     $ 28,948     $ 16,766     $ 55,438     $ (9,064 )    $ (86 )    $ (9,150 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
 
2023
    $ 4,248  
2024
      6,687  
2025
      6,517  
2026
      6,204  
2027
      5,217  
Thereafter
      12,581  
    
 
 
  
     $ 41,454  
    
 
 
  
5. Debt
On January 5, 2023, the Company transitioned the borrowing rate of its unsecured credit facility (the “Unsecured Credit Facility”) and $50 million term loan from LIBOR to daily-simple SOFR. The Company applied the practical expedients available under the reference rate reform guidance and accounted for the modifications as continuations of the existing contracts.
The following table summarizes the indebtedness as of June 30, 2023 and December 31, 2022 (dollars in thousands):
 
Property
  
    June 30,    

2023
 
  
    December 31,    
2022
 
  
    Interest Rate as    
of June 30,

2023
(1)
 
 
Maturity
 
Unsecured Credit Facility 
(3)(5)
    $  205,713      $  200,500        SOFR +1.40 %
(2)
 		     November 2025  
Term Loan 
(4)
      50,000        50,000        SOFR +1.35 %
(2)
 		     September 2024  
Term Loan
(5)
      25,000        —          SOFR +2.10 %
(2)
 		     January 2026  
Mission City
      46,430        46,859        3.78 %      November 2027  
Canyon Park
(6)
      39,306        39,673        4.30 %      March 2027  
Circle Point
      39,118        39,440        4.49 %      September 2028  
SanTan
(7)
      31,794        32,140        4.56 %      March 2027  
Intellicenter
      30,991        31,297        4.65 %      October 2025  
The Quad
      30,600        30,600        4.20 %      September 2028  
2525 McKinnon
      27,000        27,000        4.24 %      April 2027  
FRP Collection
      26,401        26,784        3.10 %      September 2023  
Greenwood Blvd
      21,129        21,396        3.15 %      December 2025  
 
8
Property
  
    June 30,    

2023
 
    December 31,    
2022
 
    Interest Rate as    
of June 30,

2023
(1)
 
Maturity
 
Cascade Station
(8)
  20,989     21,192     4.55 %    May 2024  
5090 N. 40th St
     20,592     20,810     3.92 %    January 2027  
AmberGlen
      20,000     20,000     3.69 %    May 2027  
Central Fairwinds
      16,051     16,273     3.15 %    June 2024  
FRP Ingenuity Drive
(9)
      16,014     16,165     4.44 %    December 2024  
Carillon Point
      14,562     14,773     3.10 %    October 2023  
190 Office Center
(10)
      —       38,894     4.79 %    October 2025  
Total Principal
      681,690     693,796              
Deferred financing costs, net
      (3,428 )    (3,887 )             
Unamortized fair value adjustments
      118     190              
    
 
 
  
 
 
              
Total
    $ 678,380
$ 690,099              
    
 
 
  
 
 
              
 
(1)
All interest rates are fixed interest rates with the exception of the Unsecured Credit Facility and the term loans, as explained in footnotes 3, 4 and 5 below.
(2)
As of June 30, 2023, the daily-simple SOFR rate was 5.09%.
(3)
Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 235 basis points depending upon the Company’s consolidated leverage ratio. On February 9, 2023, the Company entered into a three-year interest rate swap for a notional amount of $140 million, effective March 8, 2023, effectively fixing the SOFR component of the borrowing rate for $140 million of the Unsecured Credit Facility. As of June 30, 2023, the Unsecured Credit Facility had $205.7 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.
(4)
Borrowings under the $50 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 225 basis points depending upon the Company’s consolidated leverage ratio. The SOFR component of the borrowing rate is effectively fixed by a $50 million interest rate swap.
(5)
On January 5, 2023, the Company entered into a second amendment to dated November 16, 2021 (as amended, the “Amended and Restated Credit Agreement”) for the Unsecured Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. Borrowings under the $25 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of 210 basis points. In conjunction with the term loan, the Company also entered into a three-year interest rate swap for a notional amount of $25 million, effectively fixing the SOFR component of the borrowing rate of the term loan.
(6)
The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD, the loan’s interest rate shall be adjusted to the greater of (i) the initial interest rate plus 200 basis points or (ii) the yield on the five year “on the run” treasury reported by Bloomberg market data service plus 450 basis points.
(7)
In the second quarter of 2023, the Debt Service Coverage Ratio (“DSCR”) and
d
ebt
y
ield covenants for SanTan were not met, which triggered a ‘cash-sweep period’ that began in the second quarter of 2023. As of June 30, 2023, total restricted cash for the property was $4.7 million.
(8)
In the first quarter of 2023, a ‘cash-sweep period’ began for the Cascade Station loan due to the
non-renewal
of a major tenant’s leased space in the building. As of June 30, 2023, total restricted cash for the property was $1.5 million.
(9)
As of September 30, 2022, the DSCR covenant for FRP Ingenuity Drive was not met, which triggered a ‘cash-sweep period’ that began in the fourth quarter of 2022. As of June 30, 2023, the DSCR was still not met. As of June 30, 2023 and December 31, 2022, total restricted cash for the property was $3.0 million and $2.6 million, respectively.
(10)
In
the second quarter of 2023, the
non-recourse
debt associated with the 190 Office Center property was deconsolidated as a result of the appointment of a receiver to assume possession and control of the property. The loan balance as of the date of deconsolidation was $38.6 million.
The scheduled principal repayments of debt as of June 30, 2023 are as follows (in thousands):
 
2023
    $ 43,835  
2024
      107,728  
2025
      260,288  
2026
      29,416  
2027
      176,303  
Thereafter
      64,120  
    
 
 
  
     $ 681,690  
    
 
 
  
 
9
6. Fair Value of Financial Instruments
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs – quoted prices in active markets for identical assets or liabilities

Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs – unobservable inputs
In January 2023, the Company amended the $50 million interest rate swap to transition from LIBOR to daily-simple SOFR. The Company applied the practical expedients available for hedging relationships under the reference rate reform guidance, which preserves the presentation of the derivative consistent with past presentation and does not result in dedesignation of the hedging relationship. Pursuant to the amended interest rate swap, the Company will pay a fixed rate of approximately 1.17% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
In January 2023, the Company entered into an interest rate swap for a notional amount of $25 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 3.90% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
In February 2023, the Company entered into an interest rate swap for a notional amount of $140 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 4.19% of the notional amount annually, payable quarterly, and receive floating rate daily-simple SOFR payments.
The fair value of the interest rate swaps have been classified as Level 2 fair value measurements.
The interest rate swaps have been designated and qualify as cash flow hedges and have been recognized on the condensed consolidated balance sheets at fair value, presented within other assets and other liabilities. Gains and losses resulting from changes in the fair value of derivatives that have been designated and qualify as cash flow hedges are reported as a component of other comprehensive income/(loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
The following table summarizes the Company’s derivative financial instruments as of June 30, 2023 and December 31, 2022 (in thousands):
 
    
Notional Value
     
Effective Date
     
Maturity Date
     
Fair Value

Assets/(Liabilities)
  
  
June 30, 2023
     
December 31, 2022
  
Interest Rate Swap
    $ 50,000        September 2019        September 2024      $ 2,305      $ 2,731  
Interest Rate Swap
      25,000        January 2023        January 2026        341        —    
Interest Rate Swap
      140,000        March 2023        November 2025        1,080        —    
    
 
 
                       
 
 
     
 
 
  
     $ 215,000                        $ 3,726      $ 2,731  
    
 
 
                       
 
 
     
 
 
  
For the six months ended June 30, 2023, approximately $1.3 million of realized gains were reclassified to interest expense due to payments received from the swap counterparty. For the six months ended June 30, 2022, approximately $0.2 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty.
Cash, Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and Accrued Liabilities
The Company estimates that the fair value approximates carrying value due to the relatively short-term nature of these instruments.
 
10
Fair Value of Financial Instruments Not Carried at Fair Value
With the exception of fixed rate mortgage loans payable, the carrying amounts of the Company’s financial instruments approximate their fair value. The Company determines the fair value of its fixed rate mortgage loan payable based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments was $380.3 million and $420.7 million (compared to a carrying value of $401.0 million and $443.3 million) as of June 30, 2023, and December 31, 2022, respectively. Accordingly, the fair value of mortgage loans payable have been classified as Level 3 fair value measurements.
7. Related Party Transactions
Administrative Services Agreement
For the six months ended June 30, 2023 and 2022, the Company earned $0.2 million and $0.3 million, respectively, in administrative services performed for Second City Real Estate II Corporation, Clarity Real Estate Ventures GP, Limited Partnership and their affiliates.
8. Leases
Lessor Accounting
The Company is focused on acquiring, owning and operating high-quality office properties for lease to a stable and diverse tenant base. Our properties have both full-service gross and net leases which are generally classified as operating leases. Rental income related to such leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments, which principally consist of tenant expense reimbursements for certain property operating expenses as provided under the lease.
The Company recognized fixed and variable lease payments for operating leases for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):
 
 
  
Three Months Ended

June 30,
 
  
Six Months Ended

June 30,
 
 
  
2023
 
  
2022
 
  
2023
 
  
2022
 
Fixed payments
    $ 37,571      $ 38,309      $ 76,484      $ 76,628  
Variable payments
      6,742        6,180        13,485        12,620  
    
 
 
     
 
 
     
 
 
     
 
 
  
     $  44,313      $ 44,489      $ 89,969      $ 89,248  
    
 
 
     
 
 
     
 
 
     
 
 
  
The Company ceased recognizing rental lease income with respect to the 190 Office Center property on the deconsolidation of the entity on May 15, 2023 (refer to Note 3). The Company recognized interest income of
$0.6 million and variable lease payments of $0.2 million for the sales-type lease at the Lake Vista Pointe property for the three and six months ended June 30, 2022.
Future minimum lease payments to be received by the Company as of June 30, 2023 under
non-cancellable
operating leases for the next five years and thereafter are as follows (in thousands):
 
2023
    $ 62,936  
2024
      124,703  
2025
      112,593  
2026
      101,868  
2027
      85,094  
Thereafter
      230,167  
    
 
 
  
     $ 717,361  
    
 
 
  
 
11
The Company’s leases may include various provisions such as scheduled rent increases, renewal options and termination options. The majority of the Company’s leases include defined rent increases rather than variable payments based on an index or unknown rate.
Lessee Accounting
As a lessee, the Company has ground and office leases which are classified as operating and financing leases. As of June 30, 2023, these leases had remaining terms of
three
t
o
65
years and a weighted average remaining lease term of
50
years.
Right-of-use
assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):
 
    
June 30, 2023
     
December 31, 2022
  
Right-of-use
asset – operating leases
    $ 12,720      $ 12,935  
Lease liability – operating leases
    $ 8,675      $ 8,802  
Right-of-use
asset – financing leases
    $ 9,934      $  10,054  
Lease liability – financing leases
    $ 1,511      $ 1,475  
Lease liabilities are measured at the commencement date based on the present value of future lease payments. One of the Company’s operating ground leases includes rental payment increases over the lease term based on increases in the Consumer Price Index (“CPI”). Changes in the CPI were not estimated as part of the measurement of the operating lease liability. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of 6.2% in determining its lease liabilities. The discount rates were derived from the Company’s assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments.
Right-of-use
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Operating lease expense for the three and six months ended June 30, 2023 w
a
s $0.2 million and $0.5 million, respectively. Operating lease expense for the three and six months ended June 30, 2022 w
a
s $0.3 million and $0.5 million, respectively. Financing lease expense for the three and six months ended June 30, 2023 w
a
s $0.1 million and $0.2 million, respectively. Financing lease expense for the three and six months ended June 30, 2022 w
a
s $0.1 million and $0.2 million, respectively.
Future minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of June 30, 2023 for the next five years and thereafter are as follows (in thousands):
 
    
Operating
Leases
     
Financing
Leases
  
2023
    $ 266      $ 4  
2024
      770        7  
2025
      770        8  
2026
      724        8  
2027
      587        8  
Thereafter
      26,563        6,938  
    
 
 
     
 
 
  
Total future minimum lease payments
      29,680        6,973  
Discount
      (21,005 )       (5,462 ) 
    
 
 
     
 
 
  
Total
    $ 8,675      $ 1,511  
    
 
 
     
 
 
  
 
12
9. Commitments and Contingencies
The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
The Company believes that it is in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such
non-compliance,
liability, claim or expenditure will not arise in the future.
The Company is involved from time to time in lawsuits and other disputes which arise in the ordinary course of business. As of June 30, 2023, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
10. Stockholders’ Equity
Share Repurchase Plan
On March 9, 2020, the Company’s Board of Directors (the “Board of Directors”) approved a share repurchase plan authorizing the Company to repurchase up to $100 million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase plan. On August 5, 2020, the Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of $50 million of its outstanding shares of common stock. In September 2022, the Company completed the full August 2020 share repurchase plan. On May 4, 2023, the Board of Directors approved an additional share repurchase plan (“Repurchase Program”) authorizing the Company to repurchase up to $50 million of its outstanding shares of common stock or Series A Preferred Stock. Under the share repurchase programs, the shares may be repurchased from time to time using a variety of methods, which may include open market transactions, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements.
Repurchased shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional
paid-in
capital by the amount that the purchase price for the shares of common stock repurchased exceed the par value.
There were no shares repurchased during the six months ended June 30, 2023. During the six months ended June 30, 2022, the Company completed the repurchase of 394,833 shares of its common stock for approximately $5.0 million.
Common Stock and Common Unit Distributions
On May 5, 2023, the Board of Directors approved and the Company declared a cash dividend distribution of $0.10 per common share for the quarterly period ended June 30, 2023. The dividend was paid subsequent to quarter end on July 21, 2023 to common stockholders and common unitholders of record as of the close of business on July 7, 2023, resulting in an aggregate payment of $4.0 million.
 
13
Preferred Stock Distributions
On May 5, 2023, the Board of Directors approved and the Company declared a cash dividend distribution of $0.4140625 per share of the Company’s 6.625% Series A Preferred Stock (“Series A Preferred Stock”) for an aggregate amount of $1.9 million for the quarterly period ended June 30, 2023. The dividend was paid subsequent to quarter end on July 21, 2023 to the holders of record of Series A Preferred Stock as of the close of business on July 7, 2023.
Equity Incentive Plan
The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certain
non-executive
employees, and with approval of the Board of Directors
, for subsidiaries and their respective affiliates. The Equity Incentive Plan provides for grants of restricted common stock, restricted stock units, phantom shares, stock options, dividend equivalent rights and other equity-based awards (including the grant of Operating Partnership long-term incentive plan units), subject to the total number of shares available for issuance under the plan. The Equity Incentive Plan is administered by the compensation committee of the Board of Directors (the “Compensation Committee”). The Equity Incentive Plan provides for the issuance of up to 3,763,580 shares of common stock. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
On January 27, 2020, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Equity Incentive Plan.
The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a three-year measurement period beginning January 1 of the year of grant (the “Measurement Period”) relative to the TSR of a defined peer group list of other US Office REIT companies (the “Peer Group”) as of the first trading date in the year of grant. The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum. To the extent earned, the payouts of the Performance RSU Awards are intended to be settled in the form of shares of the Company’s common stock, pursuant to the Equity Incentive Plan. Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Company’s common stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of the Company’s common stock that are earned.
During the first quarter of 2023, the Performance RSU Awards granted in January 2020, with a January 1, 2020 through December 31, 2022 Measurement Period, were earned at 150% of the target number of shares granted based on achievement of a TSR that was at or above the 75th percentile of the 2020 Peer Group.
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2023:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2022
      428,320        307,500  
Granted
      198,022        214,888  
Issuance of dividend equivalents
      9,485        —    
Vested
      (216,520 )       (97,500 ) 
    
 
 
     
 
 
  
Outstanding at March 31, 2023
      419,307        424,888  
Issuance of dividend equivalents
      14,356        —    
    
 
 
     
 
 
  
Outstanding at June 30, 2023
      433,663        424,888  
 
14
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2022:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2021
      342,159        217,500  
Granted
      237,986        90,000  
Issuance of dividend equivalents
      3,902        —  
    
 
 
     
 
 
  
Outstanding at March 31, 2022
      584,047        307,500  
Issuance of dividend equivalents
      7,451        —  
Vested
      (177,812 )       —  
    
 
 
     
 
 
  
Outstanding at June 30, 2022
      413,686        307,500  
During the six months ended June 30, 2023 and June 30, 2022, the Company granted the following restricted stock units (“RSUs”) and Performance RSU Awards to directors, executive officers and certain
non-executive
employees:
 
 
  
Units Granted
 
  
Fair Value

(in thousands)
 
  
Weighted Average
Grant Fair Value
Per Share
 
 
  
RSUs
 
  
Performance
RSUs
 
2023
      198,022        214,888      $ 3,729      $ 9.03  
2022
      237,986        90,000        5,753        17.54  
The RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the grant date. The Performance RSU Awards will vest on the last day of the three-year measurement period.
During the three months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
633
 
   
$
390
 
   
$
1,023
 
2022
   
 
652
 
   
 
340
 
   
 
992
 
During the six months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
1,276
 
   
$
771
 
   
$
2,047
 
2022
   
 
1,251
 
   
 
645
 
   
 
1,896
 
 
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is based on, and should be read in conjunction with, the condensed consolidated financial statements and the related notes thereto of the City Office REIT, Inc. contained in this Quarterly Report on Form
10-Q
(this “Report”).
As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to City Office REIT, Inc., a Maryland corporation, together with our consolidated subsidiaries, including City Office REIT Operating Partnership L.P., a Maryland limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership, except where it is clear from the context that the term only means City Office REIT, Inc.
Cautionary Statement Regarding Forward-Looking Statements
 
This Report, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains both historical and forward-looking statements. All statements, other than statements of historical fact are, or may be deemed to be, forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have used the words “approximately,” “anticipate,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking statements in this Report. All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we are expecting, including:
 
  •  
adverse economic or real estate developments in the office sector or the markets in which we operate;
 
  •  
increased interest rates, any resulting increase in financing or operating costs, the impact of inflation and a stall in economic growth or an economic recession;
 
  •  
changes in local, regional, national and international economic conditions, including as a result of the coronavirus disease
(“COVID-19”)
pandemic or any future epidemics or pandemics;
 
  •  
the extent to which “work from home” and hybrid work policies continue as a result of the
COVID-19
pandemic or any future epidemics or pandemics;
 
  •  
our inability to compete effectively;
 
  •  
our inability to collect rent from tenants or renew tenants’ leases on attractive terms if at all;
 
  •  
demand for and market acceptance of our properties for rental purposes, including as a result of near-term market fluctuations or long-term trends that result in an overall decrease in the demand for office space;
 
  •  
decreased rental rates or increased vacancy rates, including as a result of the ongoing
COVID-19
pandemic or any future epidemics or pandemics;
 
  •  
our failure to obtain necessary financing or access the capital markets on favorable terms or at all;
 
  •  
changes in the availability of acquisition opportunities;
 
  •  
availability of qualified personnel;
 
  •  
our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or at all;
 
  •  
our failure to successfully operate acquired properties and operations;
 
16
  •  
changes in our business, financing or investment strategy or the markets in which we operate;
 
  •  
our failure to generate sufficient cash flows to service our outstanding indebtedness;
 
  •  
environmental uncertainties and risks related to adverse weather conditions and natural disasters;
 
  •  
our failure to maintain our qualification as a REIT for U.S. federal income tax purposes;
 
  •  
government approvals, actions and initiatives, including the need for compliance with environmental requirements;
 
  •  
outcome of claims and litigation involving or affecting us;
 
  •  
financial market fluctuations;
 
  •  
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
 
  •  
other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 2022 under the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and in our subsequent reports filed with the SEC.
The forward-looking statements contained in this Report are based on historical performance and management’s current plans, estimates and expectations in light of information currently available to us and are subject to uncertainty and changes in circumstances. There can be no assurance that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to the factors, risks and uncertainties described above, changes in global, regional or local political, economic, business, competitive, market, regulatory and other factors described in our news releases and filings with the SEC, including but not limited to those described in our Annual Report on Form
10-K
for the year ended December 31, 2022 under the heading “Risk Factors” and in our subsequent reports filed with the SEC, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, our actual results may vary in material respects from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by applicable securities laws.
Overview
Company
We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our IPO of shares of common stock. We contributed the net proceeds of the IPO to our Operating Partnership in exchange for common units in our Operating Partnership. Both we and our Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.
Revenue Base
As of June 30, 2023, we owned 24 properties comprised of 58 office buildings with a total of approximately 5.7 million square feet of net rentable area (“NRA”). As of June 30, 2023, our properties were approximately 85.6% leased.
 
17
Office Leases
Historically, most leases for our properties have been on a full-service gross or net lease basis, and we expect to continue to use such leases in the future. A full-service gross lease generally has a base year expense “stop,” whereby we pay a stated amount of expenses as part of the rent payment while future increases (above the base year stop) in property operating expenses are billed to the tenant based on such tenant’s proportionate square footage in the property. The property operating expenses are reflected in operating expenses; however, only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries within rental and other revenues on our condensed consolidated statements of operations. In a triple net lease, the tenant is typically responsible for all property taxes and operating expenses. As such, the base rent payment does not include any operating expenses, but rather all such expenses are billed to or paid by the tenant. The full amount of the expenses for this lease type is reflected in operating expenses, and the reimbursement is reflected as tenant recoveries. We are also a lessor for a fee simple ground lease at the AmberGlen property.
Factors That May Influence Our Operating Results and Financial Condition
Economic Environment and Inflation
Economic conditions in the U.S. and globally continue to be volatile, primarily due to rising inflation. As inflation continued to reach new highs, it set off a chain reaction of events, beginning with the U.S. Federal Reserve taking and signaling severe tightening measures, interest rates rising across the yield curve, volatility and losses in the public equity and debt markets, and now increasing concerns that the U.S. economy may experience a recession. The banking and lending sector in particular has been impacted by the interest rate environment. This evolving operating environment impacts our operating activities as:
 
  •  
business leaders may generally become more reticent to make large capital allocation decisions, such as entry into a new lease, given the uncertain economic environment;
 
  •  
our cost of capital has increased due to higher interest rates and credit spreads, and private market debt financing is significantly more challenging to arrange; and
 
  •  
retaining and attracting new tenants has become increasingly challenging due to potential business layoffs, downsizing and industry slowdowns.
Despite the challenging economic environment, there is increasing evidence that many businesses have or will tighten up
in-person
work policies as economic conditions worsen. Many of these companies increased their workforce during the pandemic without increasing their available space. We expect these factors to help offset, at least partially, the recessionary headwinds to space demand.
COVID-19
Our business has been and will likely continue to be impacted by the
COVID-19
pandemic. In addition, our business has been and will likely continue to be impacted by tenant uncertainty regarding office space needs given the evolving remote and hybrid working trends as a result of the
COVID-19
pandemic. While the usage of our assets in the second quarter of 2023 was still lower than
pre-pandemic
levels, usage has been increasing year over year. Usage of our assets in the near future depends on corporate and individual decisions regarding return to usage of office space, which is impossible to estimate.
Leasing activity has been and is expected to be impacted by the
COVID-19
pandemic until and unless tenants increase utilization of their spaces. We have experienced and we expect that we will continue to experience slower new leasing, and there remains uncertainty over existing tenants’ long-term space requirements. Overall, this could reduce our anticipated rental revenues. In addition, certain tenants in our markets have and may explore opportunities to sublease all or a portion of their leased square footage to other tenants or third parties. While subleasing generally does not impact the ability to collect payment from the original lessee and will not result in any decrease in the rental revenues expected to be received from the primary tenant, this trend could reduce our ability to lease incremental square footage to new tenants, could increase the square footage of our properties that “goes dark,” could reduce anticipated rental revenue should tenants determine their long-term needs for square footage are lower than originally anticipated and could impact the pricing and competitiveness for leasing office space in our markets.
 
18
We will continue to actively evaluate business operations and strategies to optimally position ourselves given current economic and industry conditions.
Business and Strategy
We focus on owning and acquiring office properties in our footprint of growth markets predominantly in the Sun Belt. Our markets generally possess growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, generally
low-cost
centers for business operations and a high quality of life. We believe these characteristics have made our markets desirable, as evidenced by domestic net migration generally towards our geographic footprint. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate property and leasing managers to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation.
Rental Revenue and Tenant Recoveries
The amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. 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, including as a result of rising interest rates and the increasing likelihood of a U.S. recession, that impair our ability to renew or
re-let
space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, could adversely affect our ability to maintain or increase rental rates at our properties. In addition, growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria.
 
19
Our Properties
As of June 30, 2023, we owned 24 properties comprised of 58 office buildings with a total of approximately 5.7 million square feet of NRA in the metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, Raleigh, San Diego, Seattle and Tampa. The following table presents an overview of our portfolio as of June 30, 2023.
 
Metropolitan
Area              
  
Property
  
Economic
Interest
    
NRA
(000s Square
Feet)
    
In Place
Occupancy
    
Annualized Base
Rent per Square
Foot
    
Annualized Gross
Rent per Square
Foot
(1)
    
Annualized
Base Rent
(2)

($000s)
  
Phoenix, AZ

(26.7% of NRA)
   Block 23     100.0 %      307       94.5 %    $ 30.08     $ 32.37     $ 8,725  
    Pima Center     100.0 %      272       47.2 %    $ 29.15     $ 29.15     $ 3,741  
    SanTan     100.0 %      267       47.0 %    $ 32.02     $ 32.02     $ 4,013  
    5090 N. 40
th
 St		     100.0 %      175       70.2 %    $ 34.60     $ 34.60     $ 4,255  
    Camelback Square     100.0 %      172       84.4 %    $ 34.55     $ 34.55     $ 5,027  
    The Quad     100.0 %      163       92.3 %    $ 33.08     $ 33.42     $ 4,977  
    Papago Tech     100.0 %      163       88.7 %    $ 24.48     $ 24.48     $ 3,533  
Tampa, FL

(18.5%)
   Park Tower     94.8 %      478       89.2 %    $ 28.09     $ 28.09     $ 11,988  
    City Center     95.0 %      244       91.6 %    $ 30.00     $ 30.00     $ 6,706  
    Intellicenter     100.0 %      204       100.0 %    $ 26.21     $ 26.21     $ 5,333  
    Carillon Point     100.0 %      124       100.0 %    $ 30.25     $ 30.25     $ 3,757  
Denver, CO

(14.1%)
   Denver Tech     100.0 %      381       85.6 %    $ 24.48     $ 28.93     $ 7,799  
    Circle Point     100.0 %      272       90.6 %    $ 19.93     $ 34.80     $ 4,913  
    Superior Pointe     100.0 %      152       71.7 %    $ 18.62     $ 31.62     $ 2,033  
Orlando, FL

(12.7%)
   Florida Research Park     96.6 %      397       86.1 %    $ 26.03     $ 27.83     $ 8,802  
    Central Fairwinds     97.0 %      168       88.6 %    $ 28.21     $ 28.21     $ 4,206  
    Greenwood Blvd     100.0 %      155       100.0 %    $ 24.75     $ 24.75     $ 3,837  
Raleigh, NC

(8.7%)
   Bloc 83     100.0 %      495       83.5 %    $ 37.97     $ 38.20     $ 15,692  
Portland, OR

(5.8%)
   AmberGlen     76.0 %      203       100.0 %    $ 23.97     $ 27.17     $ 4,877  
    Cascade Station     100.0 %      128       100.0 %    $ 29.60     $ 31.51     $ 3,791  
Dallas, TX

(5.0%)
   The Terraces     100.0 %      173       100.0 %    $ 38.99     $ 58.99     $ 6,731  
    2525 McKinnon     100.0 %      111       97.8 %    $ 30.50     $ 51.50     $ 3,323  
San Diego, CA

(4.9%)
   Mission City     100.0 %      281       80.1 %    $ 39.57     $ 39.57     $ 8,916  
Seattle, WA

(3.6%)
   Canyon Park     100.0 %      207       100.0 %    $ 23.86     $ 29.86     $ 4,934  
               
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total / Weighted Average – June 30, 2023
(3)
 
  
 
5,692
 
  
 
85.6
% 
  
$
29.19
 
  
$
32.44
 
  
$
141,909
 
               
 
 
                            
 
 
  
 
(1)
Annualized gross rent per square foot includes adjustment for estimated expense reimbursements of triple net leases.
(2)
Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2023 by (ii) 12.
(3)
Averages weighted based on the property’s 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. While we generally expect the trend of positive population and economic growth in our Sun Belt cities to continue, there is no way for us to predict whether these trends will continue, especially in light of inflation and rising interest rates as well as the potential changes in tax policy, fiscal policy and monetary policy. In addition, it is uncertain and impossible to estimate the potential impact that the
COVID-19
pandemic will have on the short- and long-term demand for office space in our markets.
Critical Accounting Policies and Estimates
The interim condensed consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2022 included in our Annual Report on Form
10-K
for the year ended December 31, 2022, except for our election to apply the practical expedients related to Reference Rate Reform (Topic 848) and the application of our VIE policy as outlined in Note 2 of the condensed consolidated financial statements.
Results of Operations
Comparison of Three Months Ended June 30, 2023 to Three Months Ended June 30, 2022
Rental and Other Revenues.
Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues decreased $0.9 million, or 2%, to $44.6 million for the three months ended June 30, 2023 compared to $45.5 million for the three months ended June 30, 2022. Revenue decreased at SanTan by $1.4 million due to a termination fee recognized in the prior year and lower resulting occupancy in the current period associated with an early tenant departure. In addition, the dispositions of 190 Office Center in May 2023 and Lake Vista Pointe in June 2022 reduced revenue by $1.1 million and $0.8 million, respectively. Revenue also decreased at 5090, Mission City and Pima Center by $0.4 million, $0.3 million and $0.3 million, respectively, due to lower occupancy at the properties compared to the prior year. Offsetting these decreases, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, increased revenue by $1.2 million, $0.4 million and $0.2 million, respectively. In addition, higher occupancy at Park Tower, Circle Point, City Center and FRP Collection increased revenue by $0.6 million, $0.5 million, $0.3 million and $0.2 million, respectively. The remaining properties’ rental and other revenues were relatively unchanged in comparison to the prior period.
Operating Expenses
Total Operating Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased $0.5 million, or 1%, to $36.7 million for the three months ended June 30, 2023, from $36.2 million for the three months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83 and Block 23, which were undergoing first generation
lease-up
in 2022, contributed $0.8 million and $0.4 million, respectively. In addition, total operating expenses at Park Tower and City Center increased $0.4 million and $0.2 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, total operating expenses decreased at SanTan by $0.6 million due to lower occupancy at the property in comparison to the prior year. In addition, the dispositions of 190 Office Center in May 2023 and Lake Vista Pointe in June 2022 decreased total operating expenses by $0.5 million and $0.3 million, respectively. The remaining properties’ total operating expenses were relatively unchanged in comparison to the prior period.
 
21
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 $0.4 million, or 2%, to $17.2 million for the three months ended June 30, 2023, from $16.8 million for the three months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, contributed $0.3 million, $0.3 million and $0.1 million, respectively. In addition, property operating expenses at Park Tower increased $0.3 million, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, the dispositions of 190 Office Center in May 2023 and Lake Vista Pointe in June 2022 decreased property operating expenses by $0.3 million and $0.3 million, respectively. The remaining properties’ property operating expenses were relatively unchanged in comparison to the prior period.
General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as
non-cash
stock-based compensation expenses. General and administrative expenses increased $0.1 million, or 1%, to $3.7 million for the three months ended June 30, 2023, from $3.6 million reported in the prior period. General and administrative expenses increased primarily due to higher stock-based compensation expense.
Depreciation and Amortization.
Depreciation and amortization increased $0.1 million, or 0.4%, to $15.8 million for the three months ended June 30, 2023, from $15.7 million reported for the same period in 2022. Of the increase, Bloc 83 incurred higher depreciation and amortization expense of $0.5 million related to tenanting costs. Offsetting this increase, depreciation and amortization expense at our SanTan property decreased by $0.5 million mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at the property. The remaining properties’ depreciation expenses were relatively unchanged in comparison to the prior year.
Other Expense (Income)
Interest Expense.
Interest expense increased $2.0 million, or 32%, to $8.3 million for the three months ended June 30, 2023, from $6.3 million for the three months ended June 30, 2022. The increase was primarily attributable to higher amounts drawn and higher interest rates on our floating rate debt.
Net Loss on the Disposition of Real Estate Property.
 During the second quarter of 2023, the Company
consented
to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s loan agreement. Given the appointment of the receiver, the Company deconsolidated the entity holding the property and related assets and liabilities in May 2023. For the three months ended June 30, 2023, the Company recognized a loss on deconsolidation of $0.1 million.
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Rental and Other Revenues.
Rental and other revenues include net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Rental and other revenues increased $0.3 million, or 0.2%, to $90.6 million for the six months ended June 30, 2023 compared to $90.3 million for the six months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, increased revenue by $2.5 million, $1.0 million and $0.4 million, respectively. Higher occupancy at Park Tower, Circle Point, FRP Collection and City Center also increased revenue by $1.5 million, $0.9 million, $0.6 million and $0.4 million, respectively. Offsetting these increases, revenue decreased at SanTan by $2.9 million due to a termination fee recognized in the prior year and lower resulting occupancy in the current period associated with an early tenant departure. In addition, the dispositions of Lake Vista Pointe in June 2022 and 190 Office Center in May 2023 also decreased revenue by $1.9 million and $0.9 million, respectively. Revenue also decreased at Pima Center, Mission City and 5090 by $0.8 million, $0.5 million and $0.5 million, respectively, due to reduced occupancy at the property. The remaining properties’ rental and other revenues were marginally higher in comparison to the prior period.
 
22
Operating Expenses
Total Operating Expenses.
Total operating expenses consist of property operating expenses, general and administrative expenses and depreciation and amortization. Total operating expenses increased $1.6 million, or 2%, to $73.5 million for the six months ended June 30, 2023, from $71.9 million for the six months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, contributed $1.2 million, $0.9 million and $0.3 million, respectively. In addition, total operating expenses from Park Tower, FRP Collection, City Center and Circle Point increased $0.8 million, $0.4 million, $0.3 million and $0.3 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. General and administrative expenses also increased $0.3 million primarily due to higher payroll and stock-based compensation expense. Offsetting these increases, total operating expenses decreased at SanTan by $1.2 million due to lower occupancy at the property in comparison to the prior year. The dispositions of Lake Vista Pointe in June 2022 and 190 Office Center in May 2023 also decreased total operating expenses by $0.8 million and $0.5 million, respectively. In addition, depreciation and amortization for Mission City and Papago Tech decreased by $0.5 million and $0.4 million, respectively, from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. The remaining properties’ total operating expenses were marginally higher in comparison to the prior period.
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 $1.7 million, or 5%, to $35.0 million for the six months ended June 30, 2023, from $33.3 million for the six months ended June 30, 2022. Of the increase, the December 2021 acquisition of Bloc 83, Block 23 and The Terraces, which were undergoing first generation
lease-up
in 2022, contributed $0.5 million, $0.5 million and $0.2 million, respectively. In addition, property operating expenses at Park Tower, FRP Collection, City Center and Mission City increased $0.6 million, $0.3 million, $0.1 million and $0.1 million, respectively, due to higher operating costs associated with higher occupancy over the prior year. Offsetting these increases, the dispositions of Lake Vista Pointe in June 2022 and 190 Office Center in May 2023 decreased property operating expenses by $0.6 million and $
0.4 
million, respectively. The remaining properties’ property operating expenses were marginally higher in comparison to the prior period.
General and Administrative.
General and administrative expenses are comprised of public company reporting costs and the compensation of our management team and Board of Directors, as well as
non-cash
stock-based compensation expenses. General and
administrative
expenses increased $0.3 million, or 5%, to $7.4 million for the six months ended June 30, 2023, from $7.1 million reported for the
same
period in 2022. General and administrative expenses increased primarily due to higher payroll and stock-based compensation expense.
Depreciation and Amortization.
Depreciation and amortization decreased $0.4 million, or 1%, to $31.1 million for the six months ended June 30, 2023, from $31.5 million reported for the same period in 2022. Of this decrease, our SanTan property contributed $1.0 million to the decrease mainly due to accelerated amortization of tenant-related assets recorded in the prior year associated with an early lease termination at the property. Also contributing to the decrease, depreciation and amortization for Mission City and Papago Tech decreased by $
0.5 
million and $0.4 million, respectively, from the prior period as the amortization expense associated with acquired lease intangible assets has now been fully amortized. Offsetting these decreases, Bloc 83, Block 23 and Circle Point incurred higher depreciation and amortization expense of $0.7 million, $0.3 million and $0.3 million, respectively, related to tenanting costs. The remaining properties’ depreciation expenses were relatively unchanged in comparison to the prior year.
 
23
Other Expense (Income)
Interest Expense.
Interest expense increased $4.3 million, or 34%, to $16.6 million for the six months ended June 30, 2023, from $12.3 million for the six months ended June 30, 2022. The increase was primarily attributable to higher amounts drawn and higher interest rates on our floating rate debt.
Net Loss/Gain on the Disposition of Real Estate Property.
 During the second quarter of 2023, the Company consented to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s loan agreement. Given the appointment of the receiver, the Company deconsolidated the entity holding the property and related assets and liabilities during the quarter. For the six months ended June 30, 2023, the Company recognized a loss on deconsolidation of $0.1 million. In the prior year, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and we signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, we reassessed the lease classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of $21.7 million net of disposal related costs. The Lake Vista Pointe property was sold in June 2022.
Cash Flows
Comparison of Six Months Ended June 30, 2023 to Six Months Ended June 30, 2022
Cash, cash equivalents and restricted cash were $52.7 million and $69.4 million as of June 30, 2023, and June 30, 2022, respectively.
Cash flow from operating activities.
Net cash provided by operating activities decreased $47.4 million to $27.6 million for the six months ended June 30, 2023, compared to $75.0 million for the same period in 2022. The decrease was primarily attributable to receipts from the sales-type lease related to Lake Vista Pointe for the six months ended June 30, 2022.
Cash flow to investing activities.
Net cash used in investing activities increased $2.6 million to $23.8 million for the six months ended June 30, 2023, compared to $21.2 million for the same period in 2022. The increase in cash used in investing activities was primarily attributable to the reduction of cash on disposition of real estate property related to 190 Office Center for the six months ended June 30, 2023.
Cash flow from financing activities.
Net cash provided by financing activities increased $31.2 million to $4.6 million for the six months ended June 30, 2023, compared to $26.6 million used in financing activities for the same period in 2022. The increase in cash provided by financing activities was primarily attributable to higher net proceeds from borrowings for the six months ended June 30, 2023. Further, the repurchases of common stock for the six months ended June 30, 2022 increased cash used in financing activities in the prior period.
Liquidity and Capital Resources
Analysis of Liquidity and Capital Resources
We had approximately $38.4 million of cash and cash equivalents and $14.3 million of restricted cash as of June 30, 2023.
On March 15, 2018, the Company entered into a credit agreement for the Unsecured Credit Facility that provided for commitments of up to $250 million, which included an accordion feature that allowed the Company to borrow up to $500 million, subject to customary terms and conditions. On September 27, 2019, the Company entered into a five-year $50 million term loan, increasing its authorized borrowings under the Company’s Unsecured Credit Facility from $250 million to $300 million. On November 16, 2021, the Company entered into an Amended and Restated Credit Agreement that increased the total authorized borrowings from $300 million to $350 million. On January 5, 2023, the Company entered into a second amendment to the Amended and Restated Credit Agreement for the Unsecured Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. As of June 30, 2023, we had approximately $205.7 million outstanding under our Unsecured Credit Facility and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender.
 
24
On February 26, 2020, the Company and the Operating Partnership entered into equity distribution agreements (collectively, the “Agreements”) with each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc., BMO Capital Markets Corp., RBC Capital Markets, LLC, B. Riley FBR, Inc., D.A. Davidson & Co. and Janney Montgomery Scott LLC (the “Sales Agents”) pursuant to which the Company may issue and sell from time to time up to 15,000,000 shares of common stock and up to 1,000,000 shares of Series A Preferred Stock through the Sales Agents, acting as agents or principals (the “ATM Program”). On May 7, 2021 the Company delivered to D.A. Davidson & Co. a notice of termination of the Agreement, effective May 7, 2021. The Company did not issue any shares of common stock or Series A Preferred Stock under the ATM Program during the six months ended June 30, 2023.
After considering the effect of the
COVID-19
pandemic on our consolidated operations, it is possible that we could fail certain financial covenants within certain property-level mortgage borrowings. For mortgages with financial covenants, the lenders’ remedy of a covenant failure would be a requirement to escrow funds for the purpose of meeting our future debt payment obligations.
As of June 30, 2023, the lenders for three of our mortgage borrowings have elected their right to direct property cash flows into lender-controlled restricted cash accounts to fund property operations until certain thresholds are met. For these three properties, the total restricted cash as of June 30, 2023 was $9.2 million.
Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations and reserves established from existing cash. We have further sources such as proceeds from our public offerings, including under our ATM Program, and borrowings under our mortgage loans and our Unsecured 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 Unsecured 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, interest rates, the value of our unencumbered assets and borrowing restrictions that may be imposed by lenders. Our ability to access the equity capital markets is dependent on a number of factors as well, including general market conditions for REITs and market perceptions about us.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of June 30, 2023, including any guaranteed or minimum commitments under contractual obligations. The table does not reflect available debt extension options.
 
    
Payments Due by Period
(in thousands)
  
Contractual Obligations
   
Total
     
2023
     
2024-2025
     
2026-2027
     
More than
5 years
  
Principal payments on mortgage loans
    $ 681,690      $ 43,835      $ 368,016      $ 205,719      $ 64,120  
Interest payments
(1)
      85,845        15,237        52,645        15,880        2,083  
Tenant-related commitments
      12,013        12,013        —          —          —    
Lease obligations
      36,653        270        1,555        1,327        33,501  
  
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 816,201      $ 71,355      $ 422,216      $ 222,926      $ 99,704  
  
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
(1)
Contracted interest on the floating rate borrowings under our Unsecured Credit Facility was calculated based on the balance and interest rate at June 30, 2023. Contracted interest on our term loans and part of the Unsecured Credit Facility were calculated based on the interest rate swap rates fixing the SOFR component of the borrowing rates.
 
25
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. However, a longer period of inflation could affect our cash flows or earnings, or impact our borrowings, as discussed elsewhere in this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use derivative financial instruments to manage or hedge interest rate risks related to borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. We have entered, and we will only enter into, contracts with major financial institutions based on their credit rating and other factors. See Note 6 to our condensed consolidated financial statements in Item 1 of this Report for more information regarding our derivatives.
We expect that all LIBOR settings relevant to us will cease to be published or will no longer be representative after June 30, 2023. The differences between LIBOR and the Secured Overnight Financing Rate (“SOFR”), plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our results. Although SOFR is the recommended replacement rate by the Alternative Reference Rates Committee, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher borrowing costs for us. During the first quarter of 2023, our LIBOR-based borrowings and the $50 million interest rate swap were transitioned to SOFR.
We currently consider our interest rate exposure to be moderate because as of June 30, 2023, approximately $616.0 million, or 90.4%, of our debt had fixed interest rates, or effectively fixed rates when factoring in interest rate swaps, and $65.7 million, or 9.6%, had variable interest rates. The $616.0 million fixed rate debt includes a $50 million term loan, a $25 million term loan, and $140 million of the Unsecured Credit Facility against which we have applied interest rate swaps. The interest rate swaps effectively fix the SOFR component of the borrowing rates until maturity of the debt. A 1% increase in SOFR would result in a $0.7 million increase to our annual interest costs on debt outstanding as of June 30, 2023 and would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility. A 1% decrease in SOFR would result in a $0.7 million decrease to our annual interest costs on debt outstanding as of June 30, 2023 and would increase the fair value of our outstanding debt, as well as decrease interest costs associated with future debt issuances or borrowings under our Unsecured Credit Facility.
Interest rate risk amounts are our management’s estimates based on our Company’s capital structure and were determined by considering the effect of hypothetical interest rates on our financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. We may take actions to further mitigate our exposure to changes in interest rates. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our Company’s financial structure.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on the most recent evaluation, the Company’s Chief Executive Officer and Chief Financial Officer determined that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Securities and Exchange Act of 1934, as amended) were effective as of June 30, 2023.
 
26
Management’s Report on Internal Control Over Financial Reporting
There have been no changes to our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of business. As of June 30, 2023, management does not believe that any such litigation will have a material adverse effect, individually or in the aggregate, on our financial position or results of operations.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule
10b5-1
trading arrangement” or
“non-Rule
10b5-1
trading arrangement,” as each term is defined in Item 408(a) of Regulation
S-K.
On August 2, 2023, the Board of Directors approved and adopted the Third Amended and Restated Bylaws of the Company (the “Amended and Restated Bylaws”). The amendments address matters relating to Rule
14a-19
under the Exchange Act. Among other things, the Amended and Restated Bylaws:
 
  •  
Enhance disclosure and procedural requirements in connection with stockholder nominations of directors, including by (i) requiring any stockholder submitting a director nomination notice to represent as to whether such stockholder intends to solicit proxies in support of director nominees other than the Company’s nominees in accordance with Rule
14a-19
under the Exchange Act, (ii) requiring such nominating stockholder to provide reasonable evidence, at the Company’s request, that certain requirements of Rule
14a-19
have been satisfied, (iii) permitting the Company to disregard proxies or votes solicited for such stockholder’s nominees if such stockholder fails to comply with the requirements of Rule
14a-19
and (iv) incorporating other technical changes in light of the universal proxy rules adopted by the SEC;
 
  •  
Clarify that a stockholder is permitted to cast a vote by proxy filed in accordance with the procedures established by the Company, if that proxy is (i) executed by such stockholder or its agent in a manner permitted by applicable law, (ii) compliant with Maryland law and the Company’s Amended and Restated Bylaws and (iii) filed in accordance with the procedures established by the Company;
 
  •  
Clarify that the Board of Directors of the Company may determine that a meeting of stockholders may be held by means of remote communication;
 
  •  
Outline the procedures for announcing the date, time and place of a reconvened meeting of stockholders in the event a meeting of stockholders is adjourned; and
 
  •  
Other technical and administrative changes and enhancements, including as related to procedures for meetings of stockholders.
 
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The above description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Third Amended and Restated Bylaws, which is filed as Exhibit 3.2 hereto and incorporated herein reference.
Item 6. Exhibits
 
Exhibit
Number
   
Description
    3.1    Articles of Amendment and Restatement of City Office REIT, Inc., as amended and supplemented (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed on March 1, 2018).
    3.2    Third Amended and Restated Bylaws of City Office REIT, Inc., effective as of August 2, 2023. †
    4.1    Certificate of Common Stock of City Office REIT, Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-11/A filed with the Commission on February 18, 2014).
    4.2    Form of certificate representing the 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Commission on September 30, 2016).
  31.1    Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
  31.2    Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. †
  32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
  32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †
101.INS    INLINE XBRL INSTANCE DOCUMENT†
101.SCH    INLINE XBRL SCHEMA DOCUMENT†
101.CAL    INLINE XBRL CALCULATION LINKBASE DOCUMENT†
101.LAB    INLINE XBRL LABELS LINKBASE DOCUMENT†
101.PRE    INLINE XBRL PRESENTATION LINKBASE DOCUMENT†
101.DEF    INLINE XBRL DEFINITION LINKBASE DOCUMENT†
104    Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) †
†    Filed herewith.
 
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITY OFFICE REIT, INC.
Date: August 3, 2023
 
  By:  
/s/ James Farrar
    James Farrar
   
Chief Executive Officer and Director
   
(Principal Executive Officer)
Date: August 3, 2023
 
  By:  
/s/ Anthony Maretic
    Anthony Maretic
   
Chief Financial Officer, Secretary and Treasurer
   
(Principal Financial Officer and Principal Accounting Officer)
 
30

Exhibit 3.2

CITY OFFICE REIT, INC.

THIRD AMENDED AND RESTATED BYLAWS

Effective August 2, 2023

ARTICLE I

OFFICES

Section 1.    PRINCIPAL OFFICE. The principal office of City Office REIT, Inc. (the “Corporation”) in the State of Maryland shall be located at such place as the Board of Directors may designate.

Section 2.    ADDITIONAL OFFICES. The Corporation may have additional offices, including a principal executive office, at such places as the Board of Directors may from time to time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1.    PLACE. All meetings of stockholders shall be held at the principal executive office of the Corporation or at such other place as shall be set in accordance with these Bylaws and stated in the notice of the meeting. The Board of Directors may determine that a meeting not be held at any place, but instead may be held partially or solely by means of remote communication. In accordance with these Bylaws and subject to any guidelines and procedures adopted by the Board of Directors, stockholders and proxy holders may participate in any meeting of stockholders held by means of remote communication and may vote at such meeting as permitted by Maryland law. Participation in a meeting by these means constitutes presence in person at the meeting.

Section 2.    ANNUAL MEETING. An annual meeting of stockholders for the election of directors and the transaction of any business within the powers of the Corporation shall be held on the date and at the time and place set by the Board of Directors.

Section 3.    SPECIAL MEETINGS.

(a)    General. Each of the chair of the board, chief executive officer, president and Board of Directors may call a special meeting of stockholders, and the person or group who has called a special meeting shall, except as provided in Section 3(b)(5) of this Article II, set the date, time and place of such special meeting. Subject to Section 3(b) of this Article II, a special meeting of stockholders shall also be called by the secretary to act on any matter that may properly be considered at a meeting of stockholders upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast on such matter at such meeting.

(b)    Stockholder Requested Special Meetings.

(1)    Any stockholder of record seeking to have stockholders request a special meeting shall, by sending written notice to the secretary (the “Record Date Request Notice”) by registered mail, return receipt requested, request the Board of Directors to fix a record date to determine the stockholders entitled to request a special meeting (the “Request Record Date”). To be in proper form, such Record Date Request Notice shall set forth:

(i)    as to the purpose of the special meeting and to any business that the requesting stockholder proposes to bring before the special meeting, (A) a reasonably detailed description of such purpose and the business to be conducted, the stockholder’s reasons for proposing such business at the special meeting, and any material interest in such business of such stockholder or any Stockholder Associated Person (as defined below), individually or in the aggregate, including any anticipated benefit to the stockholder or the

Stockholder Associated Person therefrom, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration) and (C) a reasonably detailed description of all agreements, arrangements and understandings (I) between or among the stockholder and/or any of the Stockholder Associated Persons or (II) between or among the stockholder and/or any of the Stockholder Associated Persons, on the one hand, and any other person or entity (including their names), on the other hand, in connection with the request for the special meeting or the business proposed to be conducted at the special meeting;

(ii)    as to each requesting stockholder and Stockholder Associated Person, (A) the name and address of such stockholder or Stockholder Associated Person, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person, (B) the class, series and number of all shares of stock or other securities of the Corporation or any subsidiary thereof (collectively, the “Company Securities”), if any, which are owned (beneficially or of record) by such stockholder or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person; provided, that, for purposes of the foregoing and wherever else used in this Article II, references to “beneficial” ownership or other correlative terms shall be deemed to have the meaning given thereto under Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except that such person or entity shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such person or entity has a right to acquire beneficial ownership at any time in the future;

(iii)    as to each requesting stockholder or Stockholder Associated Person, any Disclosable Interests (as defined below in Section 11(a)(3)(iii)(C) of this Article II) or Other Disclosable Interests (as defined below in Section 11(a)(3)(iii)(D) of this Article II);

(iv)    all information relating to each requesting stockholder or Stockholder Associated Person and each matter of business proposed to be acted on at the special meeting that must be disclosed in connection with the solicitation of proxies for the election of directors in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such a solicitation, in each case pursuant to, and in accordance with, Regulation 14A (or any successor provision) under the Exchange Act and the rules and regulations promulgated thereunder; and

(v)    the signature and date of signature of each requesting stockholder (or of their agents, duly authorized in a writing accompanying the Record Date Request Notice).

In addition, each stockholder submitting a Record Date Request Notice and each Stockholder Associated Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any request to fix a Request Record Date.

(2)    Upon receiving the Record Date Request Notice, the Board of Directors may fix a Request Record Date. The Request Record Date shall not precede and shall not be more than ten days after the close of business on the date on which the resolution fixing the Request Record Date is adopted by the Board of Directors. If the Board of Directors, within ten days after the date on which a valid Record Date Request Notice is received, fails to adopt a resolution fixing the Request Record Date, the Request Record Date shall be the close of business on the tenth day after the first date on which the Record Date Request Notice is received by the secretary. If the Board of Directors shall determine that any request to fix a record date or demand to call and hold a special meeting was not properly made in accordance with this Article II, or shall determine that the stockholder or stockholders requesting that the Board of Directors fix such record date or submitting a demand to call the special meeting have not otherwise complied with this Article II, then the Board of Directors shall not be required to fix a Request Record Date and the secretary shall not be required to call a special meeting of stockholders.

(3)    In order for any stockholder to request a special meeting to act on any matter described in a Record Date Request Notice that may properly be considered at a meeting of stockholders, one or more written requests for a special meeting (collectively, the “Special Meeting Request”) signed and dated by stockholders of record (or by their agents duly authorized in a writing accompanying the Special Meeting Request) as of the applicable Request Record Date entitled to cast not less than a majority of all of the votes entitled to be cast

on such matter at such meeting (the “Special Meeting Percentage”) shall be delivered to the secretary. No business may be considered at a special meeting called by the secretary in accordance with Section 3(b) of this Article II (a “Stockholder-Requested Special Meeting”) except as described in the applicable Record Date Request Notice or at the direction of the Board of Directors. The Special Meeting Request shall be sent to the secretary by registered mail, return receipt requested, and be received by the secretary within 60 days after the Request Record Date. Any requesting stockholder (or agent duly authorized in a writing accompanying the revocation of the Special Meeting Request) may revoke his, her or its Special Meeting Request at any time by written revocation delivered to the secretary.

Each stockholder providing a Special Meeting Request (other than a stockholder that provides a Special Meeting Request in response to a solicitation made pursuant to a solicitation statement filed on Schedule 14A pursuant to, and in accordance with, Regulation 14A under the Exchange Act) shall provide the information about such stockholder and any Stockholder Associated Person required to be provided in a Record Date Request Notice pursuant to Section 3(b)(1) of this Article II (or, if applicable, shall update any information provided by such stockholder in a Record Date Request Notice), so that such information with respect to the stockholder and each Stockholder Associated Person is true and correct as of the record date for the Stockholder-Requested Special Meeting (the “Meeting Record Date”) and as of the date that is ten (10) Business Days (as defined below) prior to the date of the Stockholder-Requested Special Meeting and the date(s) of any adjournment or postponement thereof. Any such update and supplement shall be sent to the secretary by courier or registered mail, return receipt requested, and shall be received by the secretary, in the case of information required to be provided as of the Meeting Record Date, not later than five (5) Business Days after the Meeting Record Date and, in the case of information required to be provided as of the date that is ten Business Days prior to the date of such Stockholder-Requested Special Meeting and the date(s) of any adjournment or postponement thereof, not later than eight (8) Business Days prior to the date of the Stockholder-Requested Special Meeting or, if practicable, the date(s) of any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the Stockholder-Requested Special Meeting has been adjourned or postponed). In addition, each stockholder providing a Special Meeting Request and each Stockholder Associated Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any request to call a Stockholder-Requested Special Meeting.

(4)    The secretary shall inform the requesting stockholders of the reasonably estimated cost of preparing and mailing or delivering the notice of the meeting (including the Corporation’s proxy materials). The secretary shall not be required to call a Stockholder-Requested Special Meeting and such meeting shall not be held unless, in addition to the Special Meeting Request required by Section 3(b)(3) of this Article II, the secretary receives payment of such reasonably estimated cost prior to the preparation and mailing or delivery of such notice of the meeting.

(5)    A Stockholder-Requested Meeting shall be held at such place, date and time as may be designated by the Board of Directors; provided, however, that the date of any Stockholder-Requested Meeting shall be not more than 90 days after the Meeting Record Date; and provided further that if the Board of Directors fails to designate, within ten days after the date that a valid Special Meeting Request is actually received by the secretary (the “Delivery Date”), a date and time for a Stockholder-Requested Meeting, then such meeting shall be held at 2:00 p.m., Eastern Time, on the 90th day after the Meeting Record Date, or, if such 90th day is not a Business Day, on the first preceding Business Day; and provided further that in the event that the Board of Directors fails to designate a place for a Stockholder-Requested Meeting within ten days after the Delivery Date, then such meeting shall be held at the principal executive office of the Corporation. In fixing a date for any Stockholder-Requested Meeting, the chair of the board, chief executive officer, president or Board of Directors may consider such factors as he, she or it deems relevant, including, without limitation, the nature of the matters to be considered, the facts and circumstances surrounding any request for the meeting and any plan of the Board of Directors to call an annual meeting or other special meeting. In the case of any Stockholder-Requested Meeting, if the Board of Directors fails to fix a Meeting Record Date that is a date within 30 days after the Delivery Date, then the close of business on the 30th day after the Delivery Date shall be the Meeting Record Date. The Board of Directors may revoke the notice for any Stockholder-Requested Meeting in the event that the requesting stockholders fail to comply with the provisions of Section 3(b)(4) of this Article II.

(6)    If written revocations of the Special Meeting Request have been delivered to the secretary and the result is that stockholders of record (or their agents duly authorized in writing), as of the Request Record Date, entitled to cast less than the Special Meeting Percentage have delivered, and not revoked, requests for a special meeting on the matter to the secretary: (i) if the notice of meeting has not already been delivered, the secretary shall refrain from delivering the notice of the meeting and send to all requesting stockholders who have not revoked such requests written notice of any revocation of a request for a special meeting on the matter, or (ii) if the notice of meeting has been delivered and if the secretary first sends to all requesting stockholders who have not revoked requests for a special meeting on the matter written notice of any revocation of a request for the special meeting and written notice of the Corporation’s intention to revoke the notice of the meeting or for the chair of the meeting to adjourn the meeting without action on the matter, (A) the secretary may revoke the notice of the meeting at any time before ten days before the commencement of the meeting or (B) the chair of the meeting may call the meeting to order and adjourn the meeting without acting on the matter. Any request for a special meeting received after a revocation by the secretary of a notice of a meeting shall be considered a request for a new special meeting.

(7)    The chair of the board, chief executive officer, president or Board of Directors may appoint regionally or nationally recognized independent inspectors of elections to act as the agents of the Corporation for the purpose of promptly performing a ministerial review of the validity of any purported Special Meeting Request received by the secretary. For the purpose of permitting the inspectors to perform such review, no such purported Special Meeting Request shall be deemed to have been received by the secretary until the earlier of (i) five (5) Business Days after actual receipt by the secretary of such purported request and (ii) such date as the independent inspectors certify to the Corporation that the valid requests received by the secretary represent, as of the Request Record Date, stockholders of record entitled to cast not less than the Special Meeting Percentage. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any request, whether during or after such five Business Day period, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

(8)    For purposes of this Article II, “Stockholder Associated Person” of any stockholder means (i) the beneficial owner or beneficial owners, if different, of shares of stock of the Corporation at whose request the notice is given pursuant to this Article II, (ii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act) of such stockholder or, if applicable, such beneficial owner and (iii) any other person with whom such stockholder or, if applicable, such beneficial owner (or any of their respective affiliates or associates) is Acting in Concert (as defined below) or who is otherwise a participant (as defined in Instruction 3 to Item 4 of Schedule 14A under the Exchange Act) in any solicitation.

(9)    For purposes of this Article II, a person shall be deemed to be “Acting in Concert” with another person if such person knowingly acts (whether or not pursuant to an express agreement, arrangement or understanding) in concert with, or towards a common goal relating to the management, governance or control of the Corporation in parallel with, such other person where (i) each person is conscious of the other person’s conduct or intent and this awareness is an element in their decision-making processes and (ii) at least one additional factor suggests that such persons intend to act in concert or in parallel, which such additional factors may include, without limitation, exchanging information (whether publicly or privately), attending meetings, conducting discussions, or making or soliciting invitations to act in concert or in parallel; provided, that a person shall not be deemed to be Acting in Concert with any other person solely as a result of the solicitation or receipt of revocable proxies or consents from such other person in response to a solicitation made pursuant to, and in accordance with, Regulation 14A under the Exchange Act by way of a proxy or consent solicitation statement filed on Schedule 14A. A person Acting in Concert with another person shall be deemed to be Acting in Concert with any third party who is also Acting in Concert with such other person.

(10)    For purposes of these Bylaws, “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in New York City are authorized or obligated by law or executive order to close.

Section 4.    NOTICE. Not less than ten nor more than 90 days before each meeting of stockholders, the secretary shall give notice in writing or by electronic transmission of such meeting to each stockholder entitled to vote at such meeting and to each stockholder not entitled to vote who is entitled to notice of the meeting. Such

notice shall state the time and place of the meeting and, in the case of a special meeting or as otherwise may be required by any statute, the purpose for which the meeting is called. Such notice may be delivered by mail, by presenting it to such stockholder personally, by leaving it at the stockholder’s residence or usual place of business, by electronic transmission or by any other means permitted by Maryland law. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Corporation, with postage thereon prepaid. If transmitted electronically, such notice shall be deemed to be given when transmitted to the stockholder by an electronic transmission to any address or number of the stockholder at which the stockholder receives electronic transmissions. The Corporation may give a single notice to all stockholders who share an address, which single notice shall be effective as to any stockholder at such address, unless such stockholder objects to receiving such single notice or revokes a prior consent to receiving such single notice. Failure to give notice of any meeting to one or more stockholders, or any irregularity in such notice, shall not affect the validity of any meeting fixed in accordance with this Article II or the validity of any proceedings at any such meeting.

Subject to Section 11(a) of this Article II, any business of the Corporation may be transacted at an annual meeting of stockholders without being specifically designated in the notice, except such business as is required by any statute to be stated in such notice. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice. The Corporation may postpone or cancel a meeting of stockholders by making a Public Announcement (as defined in Section 11(c)(3) of this Article II) of such postponement or cancellation prior to the meeting. Notice of the date, time and place to which the meeting is postponed shall be given not less than ten days prior to such date and otherwise in the manner set forth in this section.

Section 5.    ORGANIZATION AND CONDUCT. Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chair of the meeting or, in the absence of such appointment or appointed individual, by the chair of the board or, in the case of a vacancy in the office or absence of the chair of the board, by one of the following officers present at the meeting in the following order: the vice chair of the board, if there is one, the chief executive officer, the president, the vice presidents in their order of rank and seniority, the secretary or, in the absence of such officers, a chair chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The secretary, or, in the secretary’s absence, an assistant secretary, or, in the absence of both the secretary and assistant secretaries, an individual appointed by the Board of Directors or, in the absence of such appointment, an individual appointed by the chair of the meeting shall act as secretary. In the event that the secretary presides at a meeting of stockholders, an assistant secretary, or, in the absence of all assistant secretaries, an individual appointed by the Board of Directors or the chair of the meeting, shall record the minutes of the meeting. Even if present at the meeting, the person holding office named herein may delegate to another person the power to act as chair or secretary of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chair of the meeting. The chair of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of the chair and without any action by the stockholders, are appropriate for the proper conduct of the meeting, including, without limitation, (a) restricting admission to the time set for the commencement of the meeting; (b) limiting attendance at the meeting to stockholders of record of the Corporation, their duly authorized proxies and such other individuals as the chair of the meeting may determine; (c) limiting participation at the meeting on any matter to stockholders of record of the Corporation entitled to vote on such matter, their duly authorized proxies and other such individuals as the chair of the meeting may determine; (d) limiting the time allotted to questions or comments; (e) determining when and for how long the polls should be opened and when the polls should be closed; (f) maintaining order and security at the meeting; (g) removing any stockholder or any other individual who refuses to comply with meeting procedures, rules or guidelines as set forth by the chair of the meeting; (h) concluding a meeting or recessing or adjourning the meeting to a later date and time and at a place announced at the meeting; and (i) complying with any state and local laws and regulations concerning safety and security. Unless otherwise determined by the chair of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 6.    QUORUM; ADJOURNMENTS. At any meeting of stockholders, the presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting on any matter shall constitute a quorum; but this section shall not affect any requirement under any statute or the charter of the Corporation (the “Charter”) for the vote necessary for the approval of any matter. If, however, such quorum is not established at any meeting of the stockholders, the chair of the meeting may adjourn the meeting sine die or from

time to time to a date not more than 120 days after the original record date without notice other than announcement at the meeting. The date, time and place of the meeting, as reconvened, shall be either (a) announced at the meeting or (b) provided at a future time through means announced at the meeting. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified.

The stockholders present either in person or by proxy, at a meeting which has been duly called and at which a quorum has been established, may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough stockholders to leave fewer than would be required to establish a quorum.

Section 7.    VOTING. Except as otherwise provided in the Charter of the Corporation with respect to directors to be elected by the holders of any class or series of preferred stock of the Corporation and in these Bylaws with respect to the filling of vacancies on the Board of Directors, a nominee for director shall be elected as a director only if such nominee receives the affirmative vote of a majority of the total votes cast for and against such nominee at a meeting of stockholders duly called and at which a quorum is present. However, directors shall be elected by a plurality of votes cast at a meeting of stockholders duly called and at which a quorum is present for which (i) the Secretary of the Corporation receives notice that a stockholder has nominated an individual for election as a director in compliance with the requirements of advance notice of stockholder nominees for director set forth in Section 11(a)(2), and (ii) such nomination has not been withdrawn by such stockholder on or before the close of business on the tenth (10th) day before the date of filing of the definitive proxy statement of the Corporation with the Securities and Exchange Commission, and, as a result of which, the number of nominees is then greater than the number of directors to be elected at the meeting, as determined by the Secretary of the Corporation, irrespective of whether such nomination is thereafter withdrawn by such stockholder. If the directors are to be elected by a plurality of the votes cast pursuant to the provisions of the immediately preceding sentence, stockholders shall not be permitted to vote “against” any one or more nominees but shall only be permitted to vote “for” one or more nominees or withhold their votes with respect to one or more nominees. For purposes hereof, a majority of the total votes cast means the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that director nominee, with abstentions and broker non-votes not counted as a vote cast either “for” or “against” that director nominee.

There shall be no cumulative voting. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. A majority of the votes cast at a meeting of stockholders duly called and at which a quorum is present shall be sufficient to approve any other matter which may properly come before the meeting, unless more than a majority of the votes cast is required by statute or by the Charter or these Bylaws. Unless otherwise provided by statute or by the Charter, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. Voting on any question or in any election may be viva voce unless the chair of the meeting shall order that voting be by ballot or otherwise.

Section 8.    PROXIES. A stockholder of the Corporation may vote in person or by proxy that is (a) executed by the stockholder or by the stockholder’s duly authorized agent in any manner permitted by law, (b) compliant with Maryland law and these Bylaws and (c) filed in accordance with the procedures established by the Corporation. Such proxy or evidence of authorization of such proxy shall be filed with the secretary before or at the meeting. No proxy shall be valid more than eleven months after its date unless otherwise provided in the proxy. Any stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for the exclusive use by the Board of Directors.

Section 9.    VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation registered in the name of a corporation, partnership, limited liability company, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, general partner, managing member, manager or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such stock. Any director or fiduciary may vote stock registered in the name of such person in the capacity of such director or fiduciary, either in person or by proxy.

Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date, the time after the record date within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt by the Corporation of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the holder of record of the specified stock in place of the stockholder who makes the certification.

Section 10.    INSPECTORS. The Board of Directors or the chair of the meeting, in advance of or at any meeting, may, but need not, appoint one or more inspectors for the meeting and any successor to an inspector. The inspectors, if any, shall (a) determine the number of shares of stock represented at the meeting, in person or by proxy, and the validity and effect of proxies, (b) receive and tabulate all votes, ballots or consents, (c) report such tabulation to the chair of the meeting, (d) hear and determine all challenges and questions arising in connection with the right to vote and (e) do such acts as are proper to fairly conduct the election or vote. Each such report shall be in writing and signed by the inspector or by a majority of them if there is more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 11.    ADVANCE NOTICE OF STOCKHOLDER NOMINEES FOR DIRECTOR AND OTHER STOCKHOLDER PROPOSALS.

(a)    Annual Meetings of Stockholders.

(1)    Nominations of individuals for election to the Board of Directors and proposals of other business to be considered at an annual meeting of stockholders by the stockholders may be brought only (i) pursuant to the Corporation’s notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation present in person or by proxy at the annual meeting who (A) was a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the annual meeting, at the time of giving of notice by the stockholder as provided for in this Section 11(a) of this Article II and at the time of the annual meeting (and any postponement or adjournment thereof), (B) is entitled to vote at the meeting in the election of each individual so nominated or on any such other business and (C) has complied with this Section 11(a) of this Article II. Except for proposals properly made pursuant to, and in accordance with, Rule 14a-8 under the Exchange Act, and included in the notice of meeting given by or at the direction of the Board of Directors, the foregoing clause (iii) shall be the exclusive means for a stockholder to nominate individuals for election as directors at, or propose business to be brought before, an annual meeting of the stockholders.

(2)    For any nomination or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 11(a)(1)(iii) of this Article II, the stockholder must have given timely notice (as defined below) thereof in writing and in proper form to the secretary, provided any updates or supplements to such notice at the times and in the forms required by this Section 11 of this Article II and any such other business must otherwise be a proper matter for action by the stockholders. To be timely, a stockholder’s notice shall set forth all information and certifications required under this Section 11 of this Article II and shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 150th day nor later than 5:00 p.m., Eastern Time, on the 120th day prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the preceding year’s annual meeting; provided, however, that in connection with the Corporation’s first annual meeting or in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual

meeting, in order for notice by the stockholder to be timely, such notice must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which Public Announcement of the date of such meeting is first made. The Public Announcement of a postponement or adjournment of an annual meeting shall not commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(3)    To be in proper form, such stockholder’s notice to the secretary shall set forth:

(i)    as to each individual whom the stockholder proposes to nominate for election or reelection as a director (each, a “Proposed Nominee”): (A) all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to, and in accordance with, Regulation 14A (or any successor provision) under the Exchange Act (including the Proposed Nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) a reasonably detailed description of any direct or indirect material interest in any material contract or agreement between or among the stockholder proposing to nominate individuals for election as directors and any Stockholder Associated Person, on the one hand, and each Proposed Nominee or his or her respective associates or any other participants in such solicitation, on the other hand, with respect to the Corporation, any Proposed Nominee, the nomination of any Proposed Nominee or the solicitation of proxies with respect to any such Proposed Nominee; and (C) a completed and signed questionnaire, and certificate as provided in paragraph (a)(4) of this Section 11;

(ii)    as to any other business that the stockholder proposes to bring before the meeting, (A) a reasonably detailed description of such business, the stockholder’s reasons for proposing such business at the meeting and any material interest in such business of such stockholder or any Stockholder Associated Person, individually or in the aggregate, including any anticipated benefit to the stockholder or the Stockholder Associated Person therefrom, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration), (C) a reasonably detailed description of all agreements, arrangements and understandings (I) between or among the stockholder and/or any of the Stockholder Associated Persons or (II) between or among the stockholder and/or any of the Stockholder Associated Persons, on the one hand, and any other person or entity (including their names), on the other hand, in connection with the proposal of such business by such stockholder, the Corporation, or the solicitation of proxies with respect to any such proposal and (D) any other information relating to such item of business that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies in support of the business proposed to be brought before the meeting pursuant to Regulation 14A (or any successor provision) under the Exchange Act;

(iii)    as to the stockholder giving the notice, any Proposed Nominee and any Stockholder Associated Person,

(A)    the class, series and number of all shares of Company Securities, if any, which are owned (beneficially or of record) by such stockholder, Proposed Nominee or Stockholder Associated Person, the date on which each such Company Security was acquired and the investment intent of such acquisition, and any short interest (including any opportunity to profit or share in any benefit from any decrease in the price of such stock or other security) in any Company Securities of any such person,

(B)    the nominee holder for, and number of, any Company Securities owned beneficially but not of record by such stockholder, Proposed Nominee or Stockholder Associated Person,

(C)    (I) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such stockholder, any Proposed Nominee and any Stockholder Associated Person, the purpose or effect of which is to give such stockholder, Proposed Nominee or Stockholder Associated Person economic risk similar to ownership

of shares or units of any Company Securities, including due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares or units of any Company Securities, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares or units of any Company Securities (“Synthetic Equity Interests”), which Synthetic Equity Interests shall be disclosed without regard to whether (x) the derivative, swap or other transactions convey any voting rights in such shares or units to such stockholder, Proposed Nominee or Stockholder Associated Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or units or (z) such stockholder, Proposed Nominee or Stockholder Associated Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (II) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Regulation 14A under the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such stockholder, Proposed Nominee or Stockholder Associated Person has or shares a right to vote any shares or units of any Company Securities, (III) any agreement, arrangement, understanding or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholder, Proposed Nominee or Stockholder Associated Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares or units of any Company Securities held by, manage the risk of price changes for, or increase or decrease the voting power of, such stockholder, Proposed Nominee or Stockholder Associated Person with respect to the shares or units of any Company Securities, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares or units of any Company Securities (“Short Interests”), (IV) any rights to dividends on the shares or units of any Company Securities owned beneficially by such stockholder, Proposed Nominee or Stockholder Associated Person that are separated or separable from the underlying Company Securities, (V) any performance-related fees (other than an asset based fee) that such stockholder, Proposed Nominee or any Stockholder Associated Person is entitled to based on any increase or decrease in the price or value of shares or units of any Company Securities, or any Synthetic Equity Interests or Short Interests, if any, (VI) (x) if such stockholder or any Stockholder Associated Person with an interest or ownership, or that has taken an action referred to in Section 11(a)(3)(ii) or (iii) (other than this Section 11(a)(3)(C),(VI)) is not a natural person, the identity of the natural person or persons associated with such stockholder or Stockholder Associated Person responsible for the formulation of and decision to propose the business to be brought before the meeting or nominate any such Proposed Nominee (such person or persons, the “Responsible Person”), the manner in which such Responsible Person was selected, any fiduciary duties owed by such Responsible Person to the equity holders or other beneficiaries of such stockholder or Stockholder Associated Person, the qualifications and background of such Responsible Person and any material interests or relationships of such Responsible Person that are not shared generally by any other record or beneficial holder of the shares or units of any Company Securities and that reasonably could have influenced the decision of such stockholder or Stockholder Associated Person to propose such business to be brought before the meeting or nominate any such Proposed Nominee, and (y) if such stockholder or any such Stockholder Associated Person is a natural person, the qualifications and background of such natural person and any material interests or relationships of such natural person that are not shared generally by any other record or beneficial holder of the shares or units of any Company Securities and that reasonably could have influenced the decision of such stockholder or Stockholder Associated Person to propose such business to be brought before the meeting or nominate any such Proposed Nominee, (VII) any significant equity interests or any Synthetic Equity Interests or Short Interests in any principal competitor of the Corporation held by such stockholder, any Proposed Nominee and any Stockholder Associated Person, (VIII) any direct or indirect interest of such

stockholder, any Proposed Nominee and any Stockholder Associated Person in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), (IX) any pending or threatened litigation in which such stockholder, any Proposed Nominee or any Stockholder Associated Person is a party or material participant involving the Corporation or any of its officers or directors, or any affiliate of the Corporation, (X) any material transaction occurring during the prior twelve months between such stockholder, Proposed Nominee and any Stockholder Associated Person, on the one hand, and the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation, on the other hand, (XI) a summary of any material discussions regarding the business proposed to be brought before the meeting or the nomination or identify of the Proposed Nominee (x) between or among any stockholder, Proposed Nominee and any Stockholder Associated Person or (y) between or among any stockholder, Proposed Nominee and any Stockholder Associated Person and any other record or beneficial holder of the shares or units of any Company Securities (including their names), or (z) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) under the Exchange Act or an amendment pursuant to Rule 13d-2(a) under the Exchange Act if such a statement were required to be filed under the Exchange Act and the rules and regulations promulgated thereunder by such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, if any, and (XII) any other information relating to such stockholder, Proposed Nominee and any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such stockholder and any Stockholder Associated Person in support of the business proposed to be brought before the meeting or the election of any Proposed Nominee pursuant to, and in accordance with, Regulation 14A under the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (I) and (XII) are referred to as “Disclosable Interests”); provided, however, that the Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner,

(D)    Without limiting the foregoing, any other substantial interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship with the Corporation), by security holdings or otherwise, of such stockholder, Proposed Nominee or Stockholder Associated Person, in the Corporation or any subsidiary thereof, other than an interest arising from the ownership of Company Securities where such stockholder, Proposed Nominee or Stockholder Associated Person receives no extra or special benefit not shared on a pro rata basis by all other holders of the same class or series (the disclosures to be made pursuant this Sub-Section (D) are referred to as “Other Disclosable Interests”); provided, however, that the Other Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner, and

(E)    a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the stockholder and/or any Stockholder Associated Person, on the one hand, and each Proposed Nominee, his or her respective affiliates and associates and any other persons with whom such Proposed Nominee (or any of his or her respective affiliates and associates) is Acting in Concert, on the other hand, with respect to the Corporation, any Proposed Nominee, the nomination of any Proposed Nominee or the solicitation of proxies with respect to any such Proposed Nominee, including, without limitation, all information that would be required to be

disclosed pursuant to Item 404 under Regulation S-K if such stockholder and any Stockholder Associated Person were the “registrant” for purposes of such rule and the Proposed Nominee were a director or executive officer of such registrant (the disclosures to be made pursuant to this paragraph are referred to as “Nominee Information”);

(iv)    as to the stockholder giving the notice, any Stockholder Associated Person with an interest or ownership referred to in Sections 11(a)(3)(ii) or (iii) of this Article II and any Proposed Nominee,

(A)    the name and address of such stockholder, as they appear on the Corporation’s stock ledger, and the current name and business address, if different, of each such Stockholder Associated Person and any Proposed Nominee, and

(B)    the investment strategy or objective, if any, of such stockholder and each such Stockholder Associated Person who is not an individual and a copy of the prospectus, offering memorandum or similar document, if any, provided to investors or potential investors in such stockholder and each such Stockholder Associated Person;

(v)    as to any stockholder giving notice with respect to nomination of individuals for election to the Board of Directors: (A) a representation as to whether such stockholder intends or is part of a group which intends to (i) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect any nominee and (ii) solicit the holders of shares representing at least 67% of the voting power of shares entitled to vote on the election of directors in support of director nominees other than the Corporation’s nominees in accordance with Rule 14a-19 promulgated under the Exchange Act; and (B) any other information relating to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such stockholder or Stockholder Associated Person for the election of directors in a contested election pursuant to Section 14(a) of the Exchange Act or the regulations promulgated thereunder;

(vi)    as to any stockholder giving notice with respect to any other business to bring before the meeting: (A) a representation that such stockholder intends or is part of a group which intends to deliver a proxy statement or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or otherwise solicit proxies from stockholders in support of such proposal; and (B) any other information relating to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such stockholder or Stockholder Associated Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act or the regulations promulgated thereunder; and

(vii)    to the extent known by the stockholder giving the notice, the name and address of any other person supporting the nominee for election or reelection as a director or the proposal of other business on the date of such stockholder’s notice.

(4)    Such stockholder’s notice shall, with respect to any Proposed Nominee, (A) be accompanied by a certificate executed by the Proposed Nominee certifying that such Proposed Nominee (I) will serve as a director of the Corporation, if elected, (II) will notify the Corporation simultaneously with the notification to the stockholder of the Proposed Nominee’s actual or potential unwillingness or inability to serve as a director and (III) does not need any permission or consent from any third party to serve as a director of the Corporation, if elected, that has not been obtained, including any employer or any other board or governing body on which such Proposed Nominee serves; (B) is not and will not become a party to (I) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such Proposed Nominee, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (II) any Voting Commitment that could limit or interfere with such Proposed Nominee’s ability to comply, if elected as a director of the Corporation, with such Proposed Nominee’s duties under applicable law, that has not been disclosed to the Corporation; (C) is not, and will

not become a party to, any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed to the Corporation; and (D) would be in compliance, if elected as a director of the Corporation, and will comply with applicable publicly disclosed corporate governance, conflict of interest, confidentiality, stock ownership and trading policies and guidelines of the Corporation; (ii) an attached, signed and completed Proposed Nominee questionnaire (which questionnaire shall be provided by the Corporation, upon request, to the stockholder providing the notice and shall include all information relating to the Proposed Nominee that would be required to be disclosed in connection with the solicitation of proxies for the election of the Proposed Nominee as a director in an election contest (even if an election contest is not involved), or would otherwise be required in connection with such solicitation, in each case pursuant to, and in accordance with, Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder, or would be required pursuant to the rules of any national securities exchange or over-the-counter market on which the Corporation’s stock is listed or admitted to trading); and (iii) a certificate executed by the stockholder certifying that such stockholder will: (A) comply with Rule 14a-19 promulgated under the Exchange Act in connection with such stockholder’s solicitation of proxies in support of any Proposed Nominee; (B) notify the Corporation as promptly as practicable of any determination by the stockholder to no longer solicit proxies for the election of any Proposed Nominee as a director at the meeting; (C) furnish such other or additional information as the Corporation may request for the purpose of determining whether the requirements of this Section 11 have been complied with and of evaluating any nomination or other business described in the stockholder’s notice; and (D) appear in person or by proxy at the meeting to nominate any Proposed Nominees or to bring such business before the meeting, as applicable.

(5)    Notwithstanding anything in this Section 11(a) of this Article II to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased, and there is no Public Announcement of such action at least 130 days prior to the first anniversary of the date of the proxy statement (as defined in Section 11(c)(3) of this Article II) for the preceding year’s annual meeting, a stockholder’s notice required by this Section 11(a) of this Article II shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive office of the Corporation not later than 5:00 p.m., Eastern Time, on the tenth day following the day on which such Public Announcement is first made by the Corporation.

(b)    Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting, as specified by Section 3 of Article II. No stockholder may make a proposal of other business to be considered at a special meeting or, except as contemplated by and in accordance with the next two sentences of this Section 11(b), nominate an individual for election to the Board of Directors at a special meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors, or (ii) provided that the special meeting has been called in accordance with Section 3(a) of this Article II for the purpose of electing directors, by any stockholder of the Corporation present in person or by proxy at the special meeting who is a stockholder of record at the record date set by the Board of Directors for the purpose of determining stockholders entitled to vote at the special meeting, at the time of giving of notice provided for in this Section 11 of this Article II (and any postponement or adjournment thereof) and at the time of the special meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the notice procedures set forth in this Section 11 of this Article II. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more individuals to the Board of Directors, any stockholder may nominate an individual or individuals (as the case may be) for election as a director as specified in the Corporation’s notice of meeting, if the stockholder’s notice, containing the information and certifications required by Section 11(a)(3) and 11(a)(4) of this Article II, shall be delivered to the secretary at the principal executive office of the Corporation not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The Public Announcement of a postponement or adjournment of a special meeting shall not commence a new time period for the giving of a stockholder’s notice as described above.

(c)    General.

(1)    A stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders shall update and supplement their notice to the Corporation as necessary so that the information and certifications provided or required to be provided by such stockholder, any Proposed Nominee and any Stockholder Associated Person in such notice pursuant to this Section 11 of this Article II shall be true and correct as of the record date for stockholders entitled to vote at the meeting and as of the date that is ten (10) Business Days prior to the meeting or any postponement or adjournment thereof, and such update and supplement shall be delivered to, or mailed and received by, the secretary at the principal executive offices of the Corporation not later than five (5) Business Days after the record date for stockholders entitled to vote at the meeting (in the case of the update and supplement required to be made as of such record date), and not later than eight (8) Business Days prior to the date for the meeting or, if practicable, any postponement or adjournment thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of the update and supplement required to be made as of ten (10) Business Days prior to the meeting or any postponement or adjournment thereof). Further, if any information or certifications submitted pursuant to this Section 11 of this Article II by any stockholder proposing a nominee for election as a director or any proposal for other business at a meeting of stockholders, including any certification from a Proposed Nominee, shall be inaccurate in any material respect, such information or certification may be deemed not to have been provided in accordance with this Section 11 of this Article II. Any such stockholder shall notify the Corporation of any inaccuracy or change (within two (2) Business Days of becoming aware of such inaccuracy or change) in any such information or certification. Upon written request by the secretary or the Board of Directors, any such stockholder or Proposed Nominee shall provide, within five (5) Business Days of delivery of such request (or such other period as may be specified in such request), (A) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 11 of this Article II, and (B) a written update of any information (including, if requested, by the Corporation, written confirmation by such stockholder that it continues to bring such nomination or other business proposal before the meeting and, if applicable, satisfy the requirements of Rule 14a-19(a)(3)) submitted by the stockholder pursuant to this Section 11 of this Article II as of an earlier date and (C) an updated certification by each Proposed Nominee that such individual will serve as a director of the Corporation if elected. If a stockholder or Proposed Nominee fails to provide such written verification, update or certification within such period, the information as to which such written verification, update or certification was requested may be deemed not to have been provided in accordance with this Section 11 of this Article II. For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other section of these bylaws shall not limit the corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any proposal, substitute or replace any Proposed Nominee, or to submit any new proposal, including by changing or adding matters, business or resolutions proposed to be brought before a meeting of the stockholders

(2)    Only such individuals who are nominated in accordance with this Section 11 of this Article II shall be eligible for election by stockholders as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with this Section 11 of this Article II. A stockholder proposing a Proposed Nominee shall have no right to (i) nominate a number of Proposed Nominees that exceeds the number of directors to be elected at the meeting or (ii) substitute or replace any Proposed Nominee unless such substitute or replacement is nominated in accordance with this Section 11 (including the timely provision of all information and certifications with respect to such substitute or replacement Proposed Nominee in accordance with the deadlines set forth in this Section 11). If the Corporation provides notice to a stockholder that the number of Proposed Nominees proposed by such stockholder exceeds the number of directors to be elected at a meeting, the stockholder must provide written notice to the Corporation within five (5) Business Days stating the names of the Proposed Nominees that have been withdrawn so that the number of Proposed Nominees proposed by such stockholder no longer exceeds the number of directors to be elected at a meeting. If any individual who is nominated in accordance with this Section 11 becomes unwilling or unable to serve on the Board of Directors, then the nomination with respect to such individual shall no longer be valid and no votes may validly be cast for such individual. The chair of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with these Bylaws and, if such nomination or other business was not made in accordance with these Bylaws, to

declare that no action shall be taken on such nomination or other business and such nomination or other business shall be disregarded, notwithstanding that proxies or votes in respect of such nomination or other business may have been received by the Corporation.

(3)    For purposes of this Section 11, (a) “the date of the proxy statement” shall have the same meaning as “the date of the company’s proxy statement released to shareholders” as used in Rule 14a-8(e) promulgated under the Exchange Act, as interpreted by the Securities and Exchange Commission (“SEC”) from time to time, and “Public Announcement” shall mean disclosure (i) in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or other widely circulated news or wire service or (ii) in a document publicly filed by the Corporation with the SEC pursuant to the Exchange Act.

(4)    In addition to the foregoing provisions of this Section 11 and Section 3 of this Article II, as applicable, a stockholder shall also comply with all applicable requirements of state and federal law, including the Exchange Act, with respect to the matters set forth in this Section 11. Without limiting the generality of the foregoing, and in addition to the other requirements in these Bylaws, unless otherwise required by law, (i) no stockholder, Proposed Nominee or Stockholder Associated Person shall solicit proxies in support of any nominees other than the Board of Directors’ nominees unless such person has complied with Rule 14a-19 promulgated under the Exchange Act in connection with the solicitation of such proxies, and (ii) if any stockholder, Proposed Nominee or Stockholder Associated Person (1) provides notice pursuant to Rule 14a-19(b) promulgated under the Exchange Act or includes the information required by Rule 14a-19(b) in a preliminary or definitive proxy statement previously filed by such person (it being understood that such notice or filing shall be in addition to the stockholder’s notice required by Section 11(a) or Section 11(b), as applicable), and (2) subsequently fails to comply with any of the requirements of Rule 14a-19 promulgated under the Exchange Act or any other rules and regulations thereunder, then the Corporation shall disregard the stockholder’s nomination of any Proposed Nominees and any proxies or votes solicited for any Proposed Nominees. Upon request by the Corporation, such stockholder, Proposed Nominee or Stockholder Associated Person, as applicable, shall deliver to the Corporation, no later than seven (7) Business Days prior to the applicable meeting of stockholders, reasonable evidence that it has met the requirements of Rule 14a-19 promulgated under the Exchange Act.

(5)    Nothing in this Section 11 of this Article II shall be deemed to affect any right of a stockholder to request inclusion of a proposal in, or the right of the Corporation to omit a proposal from, the Corporation’s proxy statement pursuant to, and in accordance with, Rule 14a-8 (or any successor provision) under the Exchange Act. Nothing in this Section 11 of this Article II shall require disclosure of revocable proxies received by, or routine solicitation contacts made by or on behalf of, the stockholder or Stockholder Associated Person pursuant to a solicitation of proxies after the filing of an effective Schedule 14A by such stockholder or Stockholder Associated Person pursuant to, and in accordance with, Regulation 14A under the Exchange Act.

(6)    Notwithstanding anything in these Bylaws to the contrary, except as otherwise determined by the chair of the meeting, if the stockholders giving notice as provided for in Section 11 does not appear in person or by proxy at such annual or special meeting to present each nominee for election as a director or the proposed business, as applicable, such matter shall not be considered at the meeting.

Section 12.    CONTROL SHARE ACQUISITION ACT. Notwithstanding any other provision of the Charter or these Bylaws, Subtitle 7 of Title 3 of the Maryland General Corporation Law, or any successor statute (the “MGCL”), shall not apply to any acquisition by any person of shares of stock of the Corporation. This Section 12 of Article II may not be amended, altered or repealed, in whole or in part, unless such amendment, alteration or repeal is first approved by the affirmative vote of at least a majority of the votes cast on the matter by stockholders of the Corporation entitled to vote generally in the election of directors.

ARTICLE III

DIRECTORS

Section 1.    GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors.

Section 2.    NUMBER, TENURE, QUALIFICATION, AND RESIGNATIONS. At any regular meeting or at any special meeting called for that purpose, a majority of the entire Board of Directors may establish, increase or decrease the number of directors, provided that the number thereof shall never be less than the minimum number required by the MGCL, nor more than 15, and further provided that the tenure of office of a director shall not be affected by any decrease in the number of directors. Any director of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chair of the board or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation.

Section 3.    ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors shall be held immediately after and at the same place as the annual meeting of stockholders, no notice other than this Bylaw being necessary. In the event such meeting is not so held, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors. The Board of Directors may provide, by resolution, the time and place for the holding of regular meetings of the Board of Directors without other notice than such resolution.

Section 4.    SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the chair of the board, the chief executive officer, the president or a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them. The Board of Directors may provide, by resolution, the time and place for the holding of special meetings of the Board of Directors without other notice than such resolution.

Section 5.    NOTICE. Notice of any special meeting of the Board of Directors shall be delivered personally or by telephone, electronic mail, facsimile transmission, courier or United States mail to each director at his or her business or residence address. Notice by personal delivery, telephone, electronic mail or facsimile transmission shall be given at least 24 hours prior to the meeting. Notice by United States mail shall be given at least three days prior to the meeting. Notice by courier shall be given at least two days prior to the meeting. Telephone notice shall be deemed to be given when the director or his or her agent is personally given such notice in a telephone call to which the director or his or her agent is a party. Electronic mail notice shall be deemed to be given upon transmission of the message to the electronic mail address given to the Corporation by the director. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. Notice by United States mail shall be deemed to be given when deposited in the United States mail properly addressed, with postage thereon prepaid. Notice by courier shall be deemed to be given when deposited with or delivered to a courier properly addressed. Neither the business to be transacted at, nor the purpose of, any annual, regular or special meeting of the Board of Directors need be stated in the notice, unless specifically required by statute or these Bylaws.

Section 6.    QUORUM. A majority of the directors shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that, if less than a majority of such directors is present at such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice, and provided further that if, pursuant to applicable law, the Charter or these Bylaws, the vote of a majority or other percentage of a particular group of directors is required for action, a quorum must also include a majority or such other percentage of such group.

The directors present at a meeting which has been duly called and at which a quorum has been established may continue to transact business until adjournment, notwithstanding the withdrawal from the meeting of enough directors to leave fewer than required to establish a quorum.

Section 7.    VOTING. The action of a majority of the directors present at a meeting at which a quorum is present shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws. If enough directors have withdrawn from a meeting to leave fewer than required to establish a quorum, but the meeting is not adjourned, the action of the majority of that number of directors necessary to constitute a quorum at such meeting shall be the action of the Board of Directors, unless the concurrence of a greater proportion is required for such action by applicable law, the Charter or these Bylaws.

Section 8.    ORGANIZATION. At each meeting of the Board of Directors, the chair of the board or, in the absence of the chair, the vice chair of the board, if any, shall act as chair of the meeting. In the absence of both the chair and vice chair of the board, the chief executive officer or, in the absence of the chief executive officer, the president or, in the absence of the president, a director chosen by a majority of the directors present, shall act as chair of the meeting. The secretary or, in his or her absence, an assistant secretary, or, in the absence of the secretary and all assistant secretaries, an individual appointed by the chair of the meeting, shall act as secretary of the meeting.

Section 9.    TELEPHONE MEETINGS. Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 10.    CONSENT BY DIRECTORS WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each director and is filed with the minutes of proceedings of the Board of Directors.

Section 11.    VACANCIES. If for any reason any or all of the directors cease to be directors, such event shall not terminate the Corporation or affect these Bylaws or the powers of the remaining directors hereunder. Except as may be provided by the Board of Directors in setting the terms of any class or series of preferred stock, any vacancy on the Board of Directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum. Any director elected to fill a vacancy shall serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies.

Section 12.    COMPENSATION. Directors shall not receive any stated salary for their services as directors but, by resolution of the Board of Directors, may receive compensation per year and/or per meeting and/or per visit to real property or other facilities owned or leased by the Corporation and for any service or activity they perform or engage in as directors. Directors may be reimbursed for expenses of attendance, if any, at each annual, regular or special meeting of the Board of Directors or of any committee thereof and for their expenses, if any, in connection with each property visit and any other service or activity they perform or engage in as directors; but nothing herein contained shall be construed to preclude any directors from serving the Corporation in any other capacity and receiving compensation therefor.

Section 13.    RELIANCE. Each director and officer of the Corporation shall, in the performance of his or her duties with respect to the Corporation, be entitled to rely on any information, opinion, report or statement, including any financial statement or other financial data, prepared or presented by an officer or employee of the Corporation whom the director or officer reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person, as to a matter which the director or officer reasonably believes to be within the person’s professional or expert competence, or, with respect to a director, by a committee of the Board of Directors on which the director does not serve, as to a matter within its designated authority, if the director reasonably believes the committee to merit confidence.

Section 14.    RATIFICATION. The Board of Directors or the stockholders may ratify any act, omission, failure to act or determination made not to act (an “Act”) by the Corporation or its officers to the extent that the Board of Directors or the stockholders could have originally authorized the Act, and if so ratified, such Act shall have the same force and effect as if originally duly authorized, and such ratification shall be binding upon the Corporation and its stockholders. Moreover, any action or inaction questioned in any stockholders’ derivative proceeding or any other proceeding on the ground of lack of authority, defective or irregular execution, adverse

interest of a director, officer or stockholder, non-disclosure, miscomputation, the application of improper principles or practices of accounting or otherwise, may be ratified, before or after judgment, by the Board of Directors or by the stockholders, and if so ratified, such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned action or inaction.

Section 15.    CERTAIN RIGHTS OF DIRECTORS AND OFFICERS. A director who is not also an officer of the Corporation shall have no responsibility to devote his or her full time to the affairs of the Corporation. Any director or officer, in his or her personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to, in addition to or in competition with those of or relating to the Corporation.

ARTICLE IV

COMMITTEES

Section 1.    NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may appoint from among its members an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and one or more other committees, composed of one or more directors, to serve at the pleasure of the Board of Directors.

Section 2.    POWERS. The Board of Directors may delegate to committees appointed under Section 1 of this Article IV any of the powers of the Board of Directors, except as prohibited by law.

Section 3.    MEETINGS. Notice of committee meetings shall be given in the same manner as notice for special meetings of the Board of Directors. A majority of the members of the committee shall constitute a quorum for the transaction of business at any meeting of the committee. The act of a majority of the committee members present at a meeting shall be the act of such committee. The Board of Directors may designate a chair of any committee, and such chair or, in the absence of a chair, any two members of any committee (if there are at least two members of the committee) may fix the time and place of its meeting unless the Board shall otherwise provide. In the absence of any member of any such committee, the members thereof present at any meeting, whether or not they constitute a quorum, may appoint another director to act in the place of such absent member.

Section 4.    TELEPHONE MEETINGS. Members of a committee of the Board of Directors may participate in a meeting by means of a conference telephone or other communications equipment if all persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.

Section 5.    CONSENT BY COMMITTEES WITHOUT A MEETING. Any action required or permitted to be taken at any meeting of a committee of the Board of Directors may be taken without a meeting, if a consent in writing or by electronic transmission to such action is given by each member of the committee and is filed with the minutes of proceedings of such committee.

Section 6.    VACANCIES. Subject to the provisions hereof, the Board of Directors shall have the power at any time to change the membership of any committee, to fill any vacancy, to designate an alternate member to replace any absent or disqualified member or to dissolve any such committee.

ARTICLE V

OFFICERS

Section 1.    GENERAL PROVISIONS. The officers of the Corporation shall include a president, a secretary and a treasurer and may include a chair of the board, a vice chair of the board, a chief executive officer, one or more vice presidents, a chief operating officer, a chief financial officer, one or more assistant secretaries and one or more assistant treasurers. In addition, the Board of Directors may from time to time elect such other officers with such powers and duties as it shall deem necessary or desirable. The officers of the Corporation shall be elected

annually by the Board of Directors, except that the chief executive officer or president may from time to time appoint one or more vice presidents, assistant secretaries and assistant treasurers or other officers. Each officer shall serve until his or her successor is elected and qualifies or until his or her death, or his or her resignation or removal in the manner hereinafter provided. Any two or more offices except president and vice president may be held by the same person. Election of an officer or agent shall not of itself create contract rights between the Corporation and such officer or agent.

Section 2.    REMOVAL AND RESIGNATION. Any officer or agent of the Corporation may be removed, with or without cause, by the Board of Directors but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by delivering his or her resignation to the Board of Directors, the chair of the board, the chief executive officer, the president or the secretary. Any resignation shall take effect immediately upon its receipt or at such later time specified in the resignation. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. Such resignation shall be without prejudice to the contract rights, if any, of the Corporation.

Section 3.    VACANCIES. A vacancy in any office may be filled by the Board of Directors for the balance of the term.

Section 4.    CHAIR OF THE BOARD. The Board of Directors may designate from among its members a chair of the board, who shall not, solely by reason of these Bylaws, be an officer of the Corporation. The Board of Directors may designate the chair of the board as an executive or non-executive chair. The chair of the board shall preside over the meetings of the Board of Directors. The chair of the board shall perform such other duties as may be assigned to him or her by the Board of Directors.

Section 5.    CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a chief executive officer. In the absence of such designation, the chair of the board shall be the chief executive officer of the Corporation. The chief executive officer shall have general responsibility for implementation of the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. The chief executive officer may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of chief executive officer and such other duties as may be prescribed by the Board of Directors from time to time.

Section 6.    CHIEF OPERATING OFFICER. The Board of Directors may designate a chief operating officer. The chief operating officer shall have the responsibilities and duties as determined by the Board of Directors or the chief executive officer.

Section 7.    CHIEF FINANCIAL OFFICER. The Board of Directors may designate a chief financial officer. The chief financial officer shall have the responsibilities and duties as determined by the Board of Directors or the chief executive officer.

Section 8.    PRESIDENT. In the absence of a chief executive officer, the president shall in general supervise and control all of the business and affairs of the Corporation. In the absence of a designation of a chief operating officer by the Board of Directors, the president shall be the chief operating officer. The president may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the Board of Directors from time to time.

Section 9.    VICE PRESIDENTS. In the absence of the president or in the event of a vacancy in such office, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall perform the duties of the president and when so acting shall have all the powers of and be subject to all the restrictions upon the president; and shall perform such other duties as from time to time may be assigned to such vice president by the chief executive officer, the president or the Board of Directors. The Board of Directors may designate one or more vice presidents as executive vice president, senior vice president, or vice president for particular areas of responsibility.

Section 10.    SECRETARY. The secretary shall (a) keep the minutes of the proceedings of the stockholders, the Board of Directors and committees of the Board of Directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder; (e) have general charge of the stock transfer books of the Corporation; and (f) in general perform such other duties as from time to time may be assigned to the secretary by the chief executive officer, the president or the Board of Directors.

Section 11.    TREASURER. The treasurer shall have the custody of the funds and securities of the Corporation, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors and in general perform such other duties as from time to time may be assigned to him or her by the chief executive officer, the president or the Board of Directors. In the absence of a designation of a chief financial officer by the Board of Directors, the treasurer shall be the chief financial officer of the Corporation.

The treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and Board of Directors, at the regular meetings of the Board of Directors or whenever it may so require, an account of all his or her transactions as treasurer and of the financial condition of the Corporation.

Section 12.    ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or treasurer, respectively, or by the chief executive officer, the president or the Board of Directors.

Section 13.    COMPENSATION. The compensation of the officers shall be fixed from time to time by or under the authority of the Board of Directors and no officer shall be prevented from receiving such compensation by reason of the fact that he or she is also a director.

ARTICLE VI

CONTRACTS, CHECKS AND DEPOSITS

Section 1.    CONTRACTS. The Board of Directors may authorize any officer or agent to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances. Any agreement, deed, mortgage, lease or other document shall be valid and binding upon the Corporation when duly authorized or ratified by action of the Board of Directors and executed by an authorized person.

Section 2.    CHECKS AND DRAFTS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or agent of the Corporation in such manner as shall from time to time be determined by the Board of Directors.

Section 3.    DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited or invested from time to time to the credit of the Corporation in such banks, trust companies or other financial institutions as the Board of Directors, the chief executive officer, the president, the chief financial officer, or any other officer designated by the Board of Directors may determine.

ARTICLE VII

STOCK

Section 1.    CERTIFICATES. Except as otherwise provided in these Bylaws, this Section shall not be interpreted to limit the authority of the Board of Directors to issue some or all of the shares of any or all of the Corporation’s classes or series of stock without certificates. Each stockholder, upon written request to the secretary of the Corporation, shall be entitled to a certificate or certificates which shall represent and certify the number of shares of each class of stock held by him in the Corporation, other than any shares of any class of such stock issued without certificates pursuant to authorization of the Board of Directors. In the event that the Corporation issues shares of stock represented by certificates, such certificates shall be in such form as prescribed by the Board of Directors or a duly authorized officer, shall contain the statements and information required by the MGCL and shall be signed by the officers of the Corporation in any manner permitted by the MGCL. In the event that the Corporation issues shares of stock without certificates, to the extent then required by the MGCL, the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates. There shall be no differences in the rights and obligations of stockholders based on whether or not their shares are represented by certificates.

Section 2.    TRANSFERS. All transfers of shares of stock shall be made on the books of the Corporation, by the holder of the shares, in person or by his or her attorney or agent, in such manner as the Board of Directors or any officer of the Corporation may prescribe and, if such shares are certificated, upon surrender of certificates duly endorsed. The issuance of a new certificate upon the transfer of certificated shares is subject to the determination of the Board of Directors that such shares shall no longer be represented by certificates. Upon the transfer of any uncertificated shares, to the extent then required by the MGCL, the Corporation shall provide to the record holders of such shares a written statement of the information required by the MGCL to be included on stock certificates.

The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Maryland.

Notwithstanding the foregoing, transfers of shares of any class or series of stock will be subject in all respects to the Charter and all of the terms and conditions contained therein.

Section 3.    REPLACEMENT CERTIFICATE. Any officer of the Corporation may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, destroyed, stolen or mutilated, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, destroyed, stolen or mutilated; provided, however, if such shares have ceased to be certificated, no new certificate shall be issued unless requested in writing by such stockholder and the Board of Directors has determined that such certificates may be issued. Unless otherwise determined by an officer of the Corporation, the owner of such lost, destroyed, stolen or mutilated certificate or certificates, or his or her legal representative, shall be required, as a condition precedent to the issuance of a new certificate or certificates, to give the Corporation a bond in such sums as it may direct as indemnity against any claim that may be made against the Corporation.

Section 4.    FIXING OF RECORD DATE. The Board of Directors may set, in advance, a record date for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or determining stockholders entitled to receive payment of any dividend or the allotment of any other rights, or in order to make a determination of stockholders for any other proper purpose. Such date, in any case, shall not be prior to the close of business on the day the record date is fixed and shall be not more than 90 days and, in the case of a meeting of stockholders, not less than ten days, before the date on which the meeting or particular action requiring such determination of stockholders of record is to be held or taken.

When a record date for the determination of stockholders entitled to notice of and to vote at any meeting of stockholders has been set as provided in this section, such record date shall continue to apply to the meeting if adjourned or postponed, except if the meeting is adjourned or postponed to a date more than 120 days after the record date originally fixed for the meeting, in which case a new record date for such meeting may be determined as set forth herein.

Section 5.    STOCK LEDGER. The Corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder.

Section 6.    FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may authorize the Corporation to issue fractional stock or authorize the issuance of scrip, all on such terms and under such conditions as it may determine. Notwithstanding any other provision of the Charter or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit.

ARTICLE VIII

ACCOUNTING YEAR

The Board of Directors shall have the power, from time to time, to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE IX

DISTRIBUTIONS

Section 1.    AUTHORIZATION. Dividends and other distributions upon the stock of the Corporation may be authorized by the Board of Directors, subject to the provisions of law and the Charter. Dividends and other distributions may be paid in cash, property or stock of the Corporation, subject to the provisions of law and the Charter.

Section 2.    CONTINGENCIES. Before payment of any dividends or other distributions, there may be set aside out of any assets of the Corporation available for dividends or other distributions such sum or sums as the Board of Directors may from time to time, in its absolute discretion, think proper as a reserve fund for contingencies, for equalizing dividends or other distributions, for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors shall determine, and the Board of Directors may modify or abolish any such reserve.

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the Charter, the Board of Directors may from time to time adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion.

ARTICLE XI

SEAL

Section 1.    SEAL. The Board of Directors may authorize the adoption of a seal by the Corporation. The seal shall contain the name of the Corporation and the year of its incorporation and the words “Incorporated Maryland.” The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof.

Section 2.    AFFIXING SEAL. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to meet the requirements of any law, rule or regulation relating to a seal to place the word “(SEAL)” adjacent to the signature of the person authorized to execute the document on behalf of the Corporation.

ARTICLE XII

INDEMNIFICATION AND ADVANCE OF EXPENSES

To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. The rights to indemnification and advance of expenses provided by the Charter and these Bylaws shall vest immediately upon election of a director or officer. The Corporation may, with the approval of its Board of Directors, provide such indemnification and advance for expenses to an individual who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. The indemnification and payment or reimbursement of expenses provided in these Bylaws shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any bylaw, resolution, insurance, agreement or otherwise.

Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of the Charter or these Bylaws inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph of this Article XII with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice of a meeting is required to be given pursuant to the Charter or these Bylaws or pursuant to applicable law, a waiver thereof in writing or by electronic transmission, given by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting need be set forth in the waiver of notice of such meeting, unless specifically required by statute. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except where such person attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting has not been lawfully called or convened.

ARTICLE XIV

AMENDMENT OF BYLAWS

The Board of Directors shall have the power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws (subject, however, to any provision of these Bylaws expressly requiring approval thereof by the stockholders).

Any provision of these Bylaws may also be adopted, altered or repealed, and new Bylaws may be made, pursuant to a binding proposal that is (a) submitted to the stockholders for approval at a duly called annual meeting or special meeting of stockholders by (i) the Board of Directors or (ii) a stockholder who provides to the Corporation a timely notice of such proposal that satisfies the notice procedures and all other relevant provisions of Sections 11

of Article II and who is, at the time such notice is delivered to the Corporation and as of such meeting, a stockholder that satisfies the ownership and other eligibility requirements of Section 11 of Article II and Rule 14a-8 under the Exchange Act, and (b) approved by the affirmative vote of the holders of a majority of the votes entitled to be cast on such proposal. In addition, and notwithstanding the first two sentences of this Article XIV, any amendment, alteration or repeal of Section 12 of Article II of these Bylaws shall be subject to any stockholder approval requirement as may be set forth therein, and unless any such amendment, alteration or repeal is the subject of a binding proposal complying with (a)(ii) and (b) above, it shall continue to require any stockholder approval as may be set forth in Section 12 of Article II of these Bylaws.

Exhibit 31.1

Certification

I, James Farrar, certify that:

 

  1.

I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2023 of City Office REIT, Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 3, 2023            /s/ James Farrar
Date      

James Farrar

Chief Executive Officer and Director

(Principal Executive Officer)

 

Exhibit 31.2

Certification

I, Anthony Maretic, certify that:

 

  1.

I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2023 of City Office REIT, Inc.;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

 

  a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

August 3, 2023            /s/ Anthony Maretic
Date      

Anthony Maretic

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

 

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q for the period ended June 30, 2023 of City Office REIT, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Farrar, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

August 3, 2023            /s/ James Farrar
Date      

James Farrar

Chief Executive Officer and Director

(Principal Executive Officer)

This written report is being furnished to the Securities and Exchange Commission as an exhibit to the Report. A signed original of this written statement required by Section 906 has been provided to City Office REIT, Inc. and will be retained by City Office REIT, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q for the period ended June 30, 2023 of City Office REIT, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Maretic, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

August 3, 2023            /s/ Anthony Maretic
Date      

Anthony Maretic

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

This written report is being furnished to the Securities and Exchange Commission as an exhibit to the Report. A signed original of this written statement required by Section 906 has been provided to City Office REIT, Inc. and will be retained by City Office REIT, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

v3.23.2
Cover Page - shares
 6 Months Ended
Jun. 30, 2023
Jul. 31, 2023
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2023  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q2  
Entity Interactive Data Current Yes  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Registrant Name CITY OFFICE REIT, INC.  
Entity Central Index Key 0001593222  
Entity Filer Category Accelerated Filer  
Entity Shell Company false  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   39,938,451
Entity Address, State or Province BC  
Document Quarterly Report true  
Document Transition Report false  
Entity File Number 001-36409  
Entity Incorporation, State or Country Code MD  
Entity Tax Identification Number 98-1141883  
Entity Address, City or Town Vancouver  
Entity Address, Address Line One 666 Burrard Street  
Entity Address, Address Line Two Suite 3210  
Entity Address, Postal Zip Code V6C 2X8  
City Area Code 604  
Local Phone Number 806-3366  
Common Stock [Member]    
Document Information [Line Items]    
Trading Symbol CIO  
Security Exchange Name NYSE  
Title of 12(b) Security Common Stock  
6.625% Series A Cumulative Redeemable Preferred Stock [Member]    
Document Information [Line Items]    
Trading Symbol CIO.PrA  
Security Exchange Name NYSE  
Title of 12(b) Security 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share  
v3.23.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Real estate properties    
Land $ 193,524 $ 199,537
Building and improvement 1,189,789 1,215,000
Tenant improvement 146,633 139,365
Furniture, fixtures and equipment 689 689
Real estate properties, gross 1,530,635 1,554,591
Accumulated depreciation (197,062) (175,720)
Real estate properties, net 1,333,573 1,378,871
Cash and cash equivalents 38,350 28,187
Restricted cash 14,307 16,075
Rents receivable, net 48,971 44,429
Deferred leasing costs, net 21,058 21,989
Acquired lease intangible assets, net 49,876 55,438
Other assets 31,313 29,450
Total Assets 1,537,448 1,574,439
Liabilities:    
Debt 678,380 690,099
Accounts payable and accrued liabilities 30,625 35,753
Deferred rent 7,956 9,147
Tenant rent deposits 7,142 7,040
Acquired lease intangible liabilities, net 8,422 9,150
Other liabilities 16,035 20,076
Total Liabilities 748,560 771,265
Commitments and Contingencies (Note 9)  
Equity:    
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 shares authorized, 4,480,000 issued and outstanding as of June 30, 2023 and December 31, 2022 112,000 112,000
Common stock, $0.01 par value, 100,000,000 shares authorized, 39,938,451 and 39,718,767 shares issued and outstanding as of June 30, 2023 and December 31, 2022 399 397
Additional paid-in capital 436,733 436,161
Retained earnings 235,705 251,542
Accumulated other comprehensive income 3,726 2,731
Total Stockholders' Equity 788,563 802,831
Non-controlling interests in properties 325 343
Total Equity 788,888 803,174
Total Liabilities and Equity $ 1,537,448 $ 1,574,439
v3.23.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
 6 Months Ended 12 Months Ended
Jun. 30, 2023
Dec. 31, 2022
Statement of Financial Position [Abstract]    
Preferred stock, Dividend rate percentage 6.625% 6.625%
Preferred stock, par value per share $ 0.01 $ 0.01
Preferred stock, shares authorized 5,600,000 5,600,000
Preferred stock, shares issued 4,480,000 4,480,000
Preferred stock, shares outstanding 4,480,000 4,480,000
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 39,938,451 39,718,767
Common stock, shares outstanding 39,938,451 39,718,767
v3.23.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Income Statement [Abstract]        
Rental and other revenues $ 44,604 $ 45,498 $ 90,562 $ 90,350
Operating expenses:        
Property operating expenses 17,246 16,836 34,966 33,325
General and administrative 3,668 3,614 7,433 7,070
Depreciation and amortization 15,768 15,701 31,072 31,516
Total operating expenses 36,682 36,151 73,471 71,911
Operating income 7,922 9,347 17,091 18,439
Interest expense:        
Contractual interest expense (7,981) (5,982) (15,953) (11,729)
Amortization of deferred financing costs and debt fair value (323) (302) (647) (614)
Interest expense, net (8,304) (6,284) (16,600) (12,343)
Net (loss)/gain on disposition of real estate property (134) 0 (134) 21,658
Net (loss)/income (516) 3,063 357 27,754
Net income attributable to non-controlling interests in properties (164) (164) (333) (335)
Net (loss)/income attributable to the Company (680) 2,899 24 27,419
Preferred stock distributions (1,855) (1,855) (3,710) (3,710)
Net (loss)/income attributable to common stockholders $ (2,535) $ 1,044 $ (3,686) $ 23,709
Net (loss)/income per common share:        
Basic $ (0.06) $ 0.02 $ (0.09) $ 0.54
Diluted $ (0.06) $ 0.02 $ (0.09) $ 0.53
Weighted average common shares outstanding:        
Basic 39,938 43,632 39,906 43,593
Diluted 39,938 44,482 39,906 44,445
Dividend distributions declared per common share $ 0.1 $ 0.2 $ 0.3 $ 0.4
v3.23.2
Condensed Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Statement of Comprehensive Income [Abstract]        
Net (loss)/income $ (516) $ 3,063 $ 357 $ 27,754
Other comprehensive income:        
Unrealized cash flow hedge gain 3,749 450 2,284 2,064
Amounts reclassified to interest expense (812) 63 (1,289) 203
Other comprehensive income 2,937 513 995 2,267
Comprehensive income 2,421 3,576 1,352 30,021
Comprehensive income attributable to non-controlling interests in properties (164) (164) (333) (335)
Comprehensive income attributable to the Company $ 2,257 $ 3,412 $ 1,019 $ 29,686
v3.23.2
Condensed Consolidated Statements of Changes in Equity - USD ($)
$ in Thousands
Total
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained earnings [Member]
Accumulated Other Comprehensive Income [Member]
Total stockholders' equity [Member]
Non-controlling Interests in Properties [Member]
Beginning balance at Dec. 31, 2021 $ 870,595 $ 112,000 $ 435 $ 482,061 $ 275,502 $ (382) $ 869,616 $ 979
Beginning balance, shares at Dec. 31, 2021   4,480,000 43,554,000          
Restricted stock award grants and vesting, values 904     972 (68)   904  
Common stock dividend distribution declared (8,711)       (8,711)   (8,711)  
Preferred stock dividend distribution declared (1,855)       (1,855)   (1,855)  
Contributions 3             3
Distributions (254)             (254)
Net (loss)/income 24,691       24,520   24,520 171
Other comprehensive income (loss) 1,754         1,754 1,754  
Ending balance at Mar. 31, 2022 887,127 $ 112,000 $ 435 483,033 289,388 1,372 886,228 899
Ending balance, shares at Mar. 31, 2022   4,480,000 43,554,000          
Beginning balance at Dec. 31, 2021 870,595 $ 112,000 $ 435 482,061 275,502 (382) 869,616 979
Beginning balance, shares at Dec. 31, 2021   4,480,000 43,554,000          
Common stock repurchased, values $ (5,000)              
Common stock repurchased, shares 394,833              
Net (loss)/income $ 27,754              
Other comprehensive income (loss) 2,267              
Ending balance at Jun. 30, 2022 875,993 $ 112,000 $ 433 479,057 281,735 1,885 875,110 883
Ending balance, shares at Jun. 30, 2022   4,480,000 43,330,000          
Beginning balance at Mar. 31, 2022 887,127 $ 112,000 $ 435 483,033 289,388 1,372 886,228 899
Beginning balance, shares at Mar. 31, 2022   4,480,000 43,554,000          
Restricted stock award grants and vesting, values 905   $ 2 1,020 (117)   905  
Restricted stock award grants and vesting, shares     171,000          
Common stock repurchased, values (5,000)   $ (4) (4,996)     (5,000)  
Common stock repurchased, shares     (395)          
Common stock dividend distribution declared (8,580)       (8,580)   (8,580)  
Preferred stock dividend distribution declared (1,855)       (1,855)   (1,855)  
Distributions (180)             (180)
Net (loss)/income 3,063       2,899   2,899 164
Other comprehensive income (loss) 513         513 513  
Ending balance at Jun. 30, 2022 875,993 $ 112,000 $ 433 479,057 281,735 1,885 875,110 883
Ending balance, shares at Jun. 30, 2022   4,480,000 43,330,000          
Beginning balance at Dec. 31, 2022 803,174 $ 112,000 $ 397 436,161 251,542 2,731 802,831 343
Beginning balance, shares at Dec. 31, 2022   4,480,000 39,718,000          
Restricted stock award grants and vesting, values (618)   $ 2 (535) (85)   (618)  
Restricted stock award grants and vesting, shares     220,000          
Common stock dividend distribution declared (7,988)       (7,988)   (7,988)  
Preferred stock dividend distribution declared (1,855)       (1,855)   (1,855)  
Contributions 110             110
Distributions (235)             (235)
Net (loss)/income 873       704   704 169
Other comprehensive income (loss) (1,942)         (1,942) (1,942)  
Ending balance at Mar. 31, 2023 791,519 $ 112,000 $ 399 435,626 242,318 789 791,132 387
Ending balance, shares at Mar. 31, 2023   4,480,000 39,938,000          
Beginning balance at Dec. 31, 2022 $ 803,174 $ 112,000 $ 397 436,161 251,542 2,731 802,831 343
Beginning balance, shares at Dec. 31, 2022   4,480,000 39,718,000          
Common stock repurchased, shares 0              
Net (loss)/income $ 357              
Other comprehensive income (loss) 995              
Ending balance at Jun. 30, 2023 788,888 $ 112,000 $ 399 436,733 235,705 3,726 788,563 325
Ending balance, shares at Jun. 30, 2023   4,480,000 39,938,000          
Beginning balance at Mar. 31, 2023 791,519 $ 112,000 $ 399 435,626 242,318 789 791,132 387
Beginning balance, shares at Mar. 31, 2023   4,480,000 39,938,000          
Restricted stock award grants and vesting, values 1,023   $ 0 1,107 (84)   1,023  
Restricted stock award grants and vesting, shares     0          
Common stock dividend distribution declared (3,994)       (3,994)   (3,994)  
Preferred stock dividend distribution declared (1,855)       (1,855)   (1,855)  
Distributions (226)             (226)
Net (loss)/income (516)       (680)   (680) 164
Other comprehensive income (loss) 2,937         2,937 2,937  
Ending balance at Jun. 30, 2023 $ 788,888 $ 112,000 $ 399 $ 436,733 $ 235,705 $ 3,726 $ 788,563 $ 325
Ending balance, shares at Jun. 30, 2023   4,480,000 39,938,000          
v3.23.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Cash Flows from Operating Activities:    
Net (loss)/income $ 357 $ 27,754
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 31,072 31,516
Amortization of deferred financing costs and debt fair value 647 614
Amortization of above and below market leases 34 80
Straight-line rent/expense (4,795) (4,356)
Non-cash stock compensation 2,048 1,895
Receipts from sales-type lease 0 43,549
Net loss/(gain) on disposition of real estate property 134 (21,658)
Changes in non-cash working capital:    
Rents receivable, net 534 (4,109)
Other assets (1,416) (764)
Accounts payable and accrued liabilities (141) 1,268
Deferred rent (1,032) (1,511)
Tenant rent deposits 141 691
Net Cash Provided By Operating Activities 27,583 74,969
Cash Flows to Investing Activities:    
Additions to real estate properties (17,826) (16,462)
Reduction of cash on disposition of real estate property (4,051) 0
Deferred leasing costs (1,927) (4,786)
Net Cash Used In Investing Activities (23,804) (21,248)
Cash Flows from/(to) Financing Activities:    
Debt issuance and extinguishment costs (236) 0
Proceeds from borrowings 35,000 31,000
Repayment of borrowings (8,513) (30,941)
Dividend distributions paid to stockholders (19,641) (21,132)
Repurchased of common stock 0 (5,000)
Distributions to non-controlling interests in properties (461) (434)
Shares withheld for payment of taxes on restricted stock unit vesting (1,643) (87)
Contributions from non-controlling interests in properties 110 3
Net Cash Provided By/(Used In) Financing Activities 4,616 (26,591)
Net Increase in Cash, Cash Equivalents and Restricted Cash 8,395 27,130
Cash, Cash Equivalents and Restricted Cash, Beginning of Period 44,262 42,266
Cash, Cash Equivalents and Restricted Cash, End of Period 52,657 69,396
Reconciliation of Cash, Cash Equivalents and Restricted Cash:    
Cash and Cash Equivalents, End of Period 38,350 26,352
Restricted Cash, End of Period 14,307 43,044
Cash, Cash Equivalents and Restricted Cash, End of Period 52,657 69,396
Supplemental Disclosures of Cash Flow Information:    
Cash paid for interest 14,827 10,850
Purchase of additions in real estate properties included in accounts payable 8,753 10,301
Purchase of deferred leasing costs included in accounts payable $ 1,404 $ 2,926
v3.23.2
Pay vs Performance Disclosure - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Pay vs Performance Disclosure        
Net Income (Loss) $ (680) $ 2,899 $ 24 $ 27,419
v3.23.2
Insider Trading Arrangements
 3 Months Ended
Jun. 30, 2023
Trading Arrangements, by Individual  
Rule 10b5-1 Arrangement Adopted false
Non-Rule 10b5-1 Arrangement Adopted false
Rule 10b5-1 Arrangement Terminated false
Non-Rule 10b5-1 Arrangement Terminated false
v3.23.2
Organization and Description of Business
 6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Description of Business
1. Organization and Description of Business
City Office REIT, Inc. (the “Company”) was organized in the state of Marylan
d on
November 26, 2013
. On
April 21, 2014
, the Company completed its initial public offering (“IPO”) of shares of the Company’s common stock. The Company contributed the net proceeds of the IPO to City Office REIT Operating Partnership, L.P., a Maryland limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (“common units”).
The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of common units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the Operating Partnership’s
partnership agreement
to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.
The Company has elected to be taxed and will continue to operate in a manner that will allow it to continue to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). Subject to qualification as a REIT, the Company will be permitted to deduct dividend distributions paid to its stockholders, eliminating the U.S. federal taxation of income represented by such distributions at the Company level. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and, for years prior to 2018, any applicable alternative minimum tax.
v3.23.2
Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
2. Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022.
During the second quarter of 2023, the Company applied the below accounting policy for Variable Interest Entities (“VIE”) in relation to the deconsolidation of the 190 Office Center property. Refer to Note 3 – Real Estate Investments for additional information.
Variable Interest Entities
The Company consolidates a VIE if the Company determines that it is the primary beneficiary of the entity. When evaluating the accounting for a VIE, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance relative to other economic interest holders. The Company determines the rights, if any, to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE by considering the economic interest in the entity, regardless of form, which may include debt, equity, management and servicing fees, or other contractual arrangements. The Company considers other relevant factors including each entity’s capital structure, contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent payments, and other contractual arrangements that may be economically significant.
 
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (the “FASB”) established Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)
No. 2020-04
(“ASU
2020-04”).
ASU
2020-04
provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) (“ASU
2021-01”).
ASU
2021-01
clarified the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.
ASU
2020-04
and ASU
2021-01
can be applied as of the beginning of the interim period that includes March 12, 2020, however, the guidance will only be available for optional use through December 31, 2022. In December 2022, the FASB issued ASU
No. 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU
2022-06”).
ASU
2022-06
amends the date the guidance will be available to December 31, 2024. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. During the first quarter of 2023, the Company transitioned its LIBOR-based contracts to SOFR and elected to apply the practical expedients to modifications of qualifying debt contracts and hedging relationships as continuations of the existing contracts, rather than as new contracts. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with past presentation and does not result in dedesignation of hedging relationships. Applying the expedients did not have a material impact on the consolidated financial statements. The Company has no remaining LIBOR-based contracts.
v3.23.2
Real Estate Investments
 6 Months Ended
Jun. 30, 2023
Real Estate [Abstract]  
Real Estate Investments
3. Real Estate Investments
Disposition of Real Estate Property
190 Office Center
On May 15, 2023, the Company consented to the appointment of a receiver to assume possession and control of the 190 Office Center property as a result of an event of default as defined in the property’s
non-recourse
loan agreement. Given the appointment of the receiver, the Company assessed whether the entity holding the property should be reassessed for consolidation as a VIE in accordance with ASC 810 – Consolidation.
Based on its analysis, the Company concluded that it is not the primary beneficiary of the VIE and therefore deconsolidated the property as of May 15, 2023. The Company deconsolidated the net carrying value of real estate assets of $
35.7
 million, the mortgage loan of $
38.6 
million, cash and restricted cash of $
4.0
 
million and net current liabilities of
 $
1.0
million. For the three months ended June 30, 2023, the Company recognized a loss on deconsolidation of $
0.1
 million, which has been included within net loss/gain on disposition of real estate property on the Company’s condensed consolidated statement of operations and statement of cash flows.
Lake Vista Pointe
During
the first quarter of 2022, the sole tenant at the Lake Vista Pointe property exercised its lease option to purchase the building and the Company signed a purchase and sale agreement with the tenant. At the time the tenant exercised the option, the Company reassessed the classification of the lease, in accordance with ASC 842 – Leases, and determined that the lease should be reclassified from an operating lease to a sales-type lease. This reclassification resulted in a gain on sale of $
21.7
 million net of disposal-related costs. On June 15, 2022, the Company sold the Lake Vista Pointe property in Dallas, Texas for a gross sales price of $
43.8
 million.
v3.23.2
Lease Intangibles
 6 Months Ended
Jun. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Lease Intangibles
4. Lease Intangible
s
Lease intangibles and the value of assumed lease obligations as of June 30, 2023 and December 31, 2022 were comprised of the following (in thousands):
 
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
June 30, 2023
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,786     $ 77,066     $ 33,491     $ 129,343     $ (14,968 )    $ (138 )    $ (15,106 ) 
Accumulated amortization
      (9,823 )      (51,444 )      (18,200 )      (79,467 )      6,630       54       6,684  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 8,963     $ 25,622     $ 15,291     $ 49,876     $ (8,338 )    $ (84 )    $ (8,422 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
December 31, 2022
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,793     $ 78,720     $ 34,123     $ 131,636     $ (15,682 )    $ (138 )    $ (15,820 ) 
Accumulated amortization
      (9,069 )      (49,772 )      (17,357 )      (76,198 )      6,618       52       6,670  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 9,724     $ 28,948     $ 16,766     $ 55,438     $ (9,064 )    $ (86 )    $ (9,150 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
 
2023
    $ 4,248  
2024
      6,687  
2025
      6,517  
2026
      6,204  
2027
      5,217  
Thereafter
      12,581  
    
 
 
  
     $ 41,454  
    
 
 
  
v3.23.2
Debt
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Debt
5. Debt
On January 5, 2023, the Company transitioned the borrowing rate of its unsecured credit facility (the “Unsecured Credit Facility”) and $50 million term loan from LIBOR to daily-simple SOFR. The Company applied the practical expedients available under the reference rate reform guidance and accounted for the modifications as continuations of the existing contracts.
The following table summarizes the indebtedness as of June 30, 2023 and December 31, 2022 (dollars in thousands):
 
Property
  
    June 30,    

2023
 
  
    December 31,    
2022
 
  
    Interest Rate as    
of June 30,

2023
(1)
 
 
Maturity
 
Unsecured Credit Facility 
(3)(5)
    $  205,713      $  200,500        SOFR +1.40 %
(2)
 		     November 2025  
Term Loan 
(4)
      50,000        50,000        SOFR +1.35 %
(2)
 		     September 2024  
Term Loan
(5)
      25,000        —          SOFR +2.10 %
(2)
 		     January 2026  
Mission City
      46,430        46,859        3.78 %      November 2027  
Canyon Park
(6)
      39,306        39,673        4.30 %      March 2027  
Circle Point
      39,118        39,440        4.49 %      September 2028  
SanTan
(7)
      31,794        32,140        4.56 %      March 2027  
Intellicenter
      30,991        31,297        4.65 %      October 2025  
The Quad
      30,600        30,600        4.20 %      September 2028  
2525 McKinnon
      27,000        27,000        4.24 %      April 2027  
FRP Collection
      26,401        26,784        3.10 %      September 2023  
Greenwood Blvd
      21,129        21,396        3.15 %      December 2025  
 
Property
  
    June 30,    

2023
 
    December 31,    
2022
 
    Interest Rate as    
of June 30,

2023
(1)
 
Maturity
 
Cascade Station
(8)
  20,989     21,192     4.55 %    May 2024  
5090 N. 40th St
     20,592     20,810     3.92 %    January 2027  
AmberGlen
      20,000     20,000     3.69 %    May 2027  
Central Fairwinds
      16,051     16,273     3.15 %    June 2024  
FRP Ingenuity Drive
(9)
      16,014     16,165     4.44 %    December 2024  
Carillon Point
      14,562     14,773     3.10 %    October 2023  
190 Office Center
(10)
      —       38,894     4.79 %    October 2025  
Total Principal
      681,690     693,796              
Deferred financing costs, net
      (3,428 )    (3,887 )             
Unamortized fair value adjustments
      118     190              
    
 
 
  
 
 
              
Total
    $ 678,380
$ 690,099              
    
 
 
  
 
 
              
 
(1)
All interest rates are fixed interest rates with the exception of the Unsecured Credit Facility and the term loans, as explained in footnotes 3, 4 and 5 below.
(2)
As of June 30, 2023, the daily-simple SOFR rate was 5.09%.
(3)
Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 235 basis points depending upon the Company’s consolidated leverage ratio. On February 9, 2023, the Company entered into a three-year interest rate swap for a notional amount of $140 million, effective March 8, 2023, effectively fixing the SOFR component of the borrowing rate for $140 million of the Unsecured Credit Facility. As of June 30, 2023, the Unsecured Credit Facility had $205.7 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.
(4)
Borrowings under the $50 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 225 basis points depending upon the Company’s consolidated leverage ratio. The SOFR component of the borrowing rate is effectively fixed by a $50 million interest rate swap.
(5)
On January 5, 2023, the Company entered into a second amendment to dated November 16, 2021 (as amended, the “Amended and Restated Credit Agreement”) for the Unsecured Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. Borrowings under the $25 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of 210 basis points. In conjunction with the term loan, the Company also entered into a three-year interest rate swap for a notional amount of $25 million, effectively fixing the SOFR component of the borrowing rate of the term loan.
(6)
The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD, the loan’s interest rate shall be adjusted to the greater of (i) the initial interest rate plus 200 basis points or (ii) the yield on the five year “on the run” treasury reported by Bloomberg market data service plus 450 basis points.
(7)
In the second quarter of 2023, the Debt Service Coverage Ratio (“DSCR”) and
d
ebt
y
ield covenants for SanTan were not met, which triggered a ‘cash-sweep period’ that began in the second quarter of 2023. As of June 30, 2023, total restricted cash for the property was $4.7 million.
(8)
In the first quarter of 2023, a ‘cash-sweep period’ began for the Cascade Station loan due to the
non-renewal
of a major tenant’s leased space in the building. As of June 30, 2023, total restricted cash for the property was $1.5 million.
(9)
As of September 30, 2022, the DSCR covenant for FRP Ingenuity Drive was not met, which triggered a ‘cash-sweep period’ that began in the fourth quarter of 2022. As of June 30, 2023, the DSCR was still not met. As of June 30, 2023 and December 31, 2022, total restricted cash for the property was $3.0 million and $2.6 million, respectively.
(10)
In
the second quarter of 2023, the
non-recourse
debt associated with the 190 Office Center property was deconsolidated as a result of the appointment of a receiver to assume possession and control of the property. The loan balance as of the date of deconsolidation was $38.6 million.
The scheduled principal repayments of debt as of June 30, 2023 are as follows (in thousands):
 
2023
    $ 43,835  
2024
      107,728  
2025
      260,288  
2026
      29,416  
2027
      176,303  
Thereafter
      64,120  
    
 
 
  
     $ 681,690  
    
 
 
  
v3.23.2
Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
6. Fair Value of Financial Instruments
Fair value measurements are based on assumptions that market participants would use in pricing an asset or a liability. The hierarchy for inputs used in measuring fair value is as follows:
Level 1 Inputs – quoted prices in active markets for identical assets or liabilities

Level 2 Inputs – observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 Inputs – unobservable inputs
In January 2023, the Company amended the $50 million interest rate swap to transition from LIBOR to daily-simple SOFR. The Company applied the practical expedients available for hedging relationships under the reference rate reform guidance, which preserves the presentation of the derivative consistent with past presentation and does not result in dedesignation of the hedging relationship. Pursuant to the amended interest rate swap, the Company will pay a fixed rate of approximately 1.17% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
In January 2023, the Company entered into an interest rate swap for a notional amount of $25 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 3.90% of the notional amount annually, payable monthly, and receive floating rate daily-simple SOFR payments.
In February 2023, the Company entered into an interest rate swap for a notional amount of $140 million. Pursuant to the interest rate swap, the Company will pay a fixed rate of approximately 4.19% of the notional amount annually, payable quarterly, and receive floating rate daily-simple SOFR payments.
The fair value of the interest rate swaps have been classified as Level 2 fair value measurements.
The interest rate swaps have been designated and qualify as cash flow hedges and have been recognized on the condensed consolidated balance sheets at fair value, presented within other assets and other liabilities. Gains and losses resulting from changes in the fair value of derivatives that have been designated and qualify as cash flow hedges are reported as a component of other comprehensive income/(loss) and reclassified into earnings in the periods during which the hedged forecasted transaction affects earnings.
The following table summarizes the Company’s derivative financial instruments as of June 30, 2023 and December 31, 2022 (in thousands):
 
    
Notional Value
     
Effective Date
     
Maturity Date
     
Fair Value

Assets/(Liabilities)
  
  
June 30, 2023
     
December 31, 2022
  
Interest Rate Swap
    $ 50,000        September 2019        September 2024      $ 2,305      $ 2,731  
Interest Rate Swap
      25,000        January 2023        January 2026        341        —    
Interest Rate Swap
      140,000        March 2023        November 2025        1,080        —    
    
 
 
                       
 
 
     
 
 
  
     $ 215,000                        $ 3,726      $ 2,731  
    
 
 
                       
 
 
     
 
 
  
For the six months ended June 30, 2023, approximately $1.3 million of realized gains were reclassified to interest expense due to payments received from the swap counterparty. For the six months ended June 30, 2022, approximately $0.2 million of realized losses were reclassified to interest expense due to payments made to the swap counterparty.
Cash, Cash Equivalents, Restricted Cash, Rents Receivable, Accounts Payable and Accrued Liabilities
The Company estimates that the fair value approximates carrying value due to the relatively short-term nature of these instruments.
 
Fair Value of Financial Instruments Not Carried at Fair Value
With the exception of fixed rate mortgage loans payable, the carrying amounts of the Company’s financial instruments approximate their fair value. The Company determines the fair value of its fixed rate mortgage loan payable based on a discounted cash flow analysis using a discount rate that approximates the current borrowing rates for instruments of similar maturities. Based on this, the Company has determined that the fair value of these instruments was $380.3 million and $420.7 million (compared to a carrying value of $401.0 million and $443.3 million) as of June 30, 2023, and December 31, 2022, respectively. Accordingly, the fair value of mortgage loans payable have been classified as Level 3 fair value measurements.
v3.23.2
Related Party Transactions
 6 Months Ended
Jun. 30, 2023
Related Party Transactions [Abstract]  
Related Party Transactions
7. Related Party Transactions
Administrative Services Agreement
For the six months ended June 30, 2023 and 2022, the Company earned $0.2 million and $0.3 million, respectively, in administrative services performed for Second City Real Estate II Corporation, Clarity Real Estate Ventures GP, Limited Partnership and their affiliates.
v3.23.2
Leases
 6 Months Ended
Jun. 30, 2023
Leases [Abstract]  
Leases
8. Leases
Lessor Accounting
The Company is focused on acquiring, owning and operating high-quality office properties for lease to a stable and diverse tenant base. Our properties have both full-service gross and net leases which are generally classified as operating leases. Rental income related to such leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments, which principally consist of tenant expense reimbursements for certain property operating expenses as provided under the lease.
The Company recognized fixed and variable lease payments for operating leases for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):
 
 
  
Three Months Ended

June 30,
 
  
Six Months Ended

June 30,
 
 
  
2023
 
  
2022
 
  
2023
 
  
2022
 
Fixed payments
    $ 37,571      $ 38,309      $ 76,484      $ 76,628  
Variable payments
      6,742        6,180        13,485        12,620  
    
 
 
     
 
 
     
 
 
     
 
 
  
     $  44,313      $ 44,489      $ 89,969      $ 89,248  
    
 
 
     
 
 
     
 
 
     
 
 
  
The Company ceased recognizing rental lease income with respect to the 190 Office Center property on the deconsolidation of the entity on May 15, 2023 (refer to Note 3). The Company recognized interest income of
$0.6 million and variable lease payments of $0.2 million for the sales-type lease at the Lake Vista Pointe property for the three and six months ended June 30, 2022.
Future minimum lease payments to be received by the Company as of June 30, 2023 under
non-cancellable
operating leases for the next five years and thereafter are as follows (in thousands):
 
2023
    $ 62,936  
2024
      124,703  
2025
      112,593  
2026
      101,868  
2027
      85,094  
Thereafter
      230,167  
    
 
 
  
     $ 717,361  
    
 
 
  
 
The Company’s leases may include various provisions such as scheduled rent increases, renewal options and termination options. The majority of the Company’s leases include defined rent increases rather than variable payments based on an index or unknown rate.
Lessee Accounting
As a lessee, the Company has ground and office leases which are classified as operating and financing leases. As of June 30, 2023, these leases had remaining terms of
three
t
o
65
years and a weighted average remaining lease term of
50
years.
Right-of-use
assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):
 
    
June 30, 2023
     
December 31, 2022
  
Right-of-use
asset – operating leases
    $ 12,720      $ 12,935  
Lease liability – operating leases
    $ 8,675      $ 8,802  
Right-of-use
asset – financing leases
    $ 9,934      $  10,054  
Lease liability – financing leases
    $ 1,511      $ 1,475  
Lease liabilities are measured at the commencement date based on the present value of future lease payments. One of the Company’s operating ground leases includes rental payment increases over the lease term based on increases in the Consumer Price Index (“CPI”). Changes in the CPI were not estimated as part of the measurement of the operating lease liability. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of 6.2% in determining its lease liabilities. The discount rates were derived from the Company’s assessment of the credit quality of the Company and adjusted to reflect secured borrowing, estimated yield curves and long-term spread adjustments.
Right-of-use
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
Operating lease expense for the three and six months ended June 30, 2023 w
a
s $0.2 million and $0.5 million, respectively. Operating lease expense for the three and six months ended June 30, 2022 w
a
s $0.3 million and $0.5 million, respectively. Financing lease expense for the three and six months ended June 30, 2023 w
a
s $0.1 million and $0.2 million, respectively. Financing lease expense for the three and six months ended June 30, 2022 w
a
s $0.1 million and $0.2 million, respectively.
Future minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of June 30, 2023 for the next five years and thereafter are as follows (in thousands):
 
    
Operating
Leases
     
Financing
Leases
  
2023
    $ 266      $ 4  
2024
      770        7  
2025
      770        8  
2026
      724        8  
2027
      587        8  
Thereafter
      26,563        6,938  
    
 
 
     
 
 
  
Total future minimum lease payments
      29,680        6,973  
Discount
      (21,005 )       (5,462 ) 
    
 
 
     
 
 
  
Total
    $ 8,675      $ 1,511  
    
 
 
     
 
 
  
v3.23.2
Commitments and Contingencies
 6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
9. Commitments and Contingencies
The Company is obligated under certain tenant leases to fund tenant improvements and the expansion of the underlying leased properties.
Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, generated, released, manufactured or discharged from, on, at, under, or in a property. As such, the Company may be potentially liable for costs associated with any potential environmental remediation at any of its formerly or currently owned properties.
The Company believes that it is in compliance in all material respects with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Management is not aware of any environmental liability that it believes would have a material adverse impact on the Company’s financial position or results of operations. Management is unaware of any instances in which the Company would incur significant environmental costs if any or all properties were sold, disposed of or abandoned. However, there can be no assurance that any such
non-compliance,
liability, claim or expenditure will not arise in the future.
The Company is involved from time to time in lawsuits and other disputes which arise in the ordinary course of business. As of June 30, 2023, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.
v3.23.2
Stockholder's Equity
 6 Months Ended
Jun. 30, 2023
Federal Home Loan Banks [Abstract]  
Stockholder's Equity
10. Stockholders’ Equity
Share Repurchase Plan
On March 9, 2020, the Company’s Board of Directors (the “Board of Directors”) approved a share repurchase plan authorizing the Company to repurchase up to $100 million of its outstanding shares of common stock. In July 2020, the Company completed the full March 2020 share repurchase plan. On August 5, 2020, the Board of Directors approved an additional share repurchase plan authorizing the Company to repurchase up to an additional aggregate amount of $50 million of its outstanding shares of common stock. In September 2022, the Company completed the full August 2020 share repurchase plan. On May 4, 2023, the Board of Directors approved an additional share repurchase plan (“Repurchase Program”) authorizing the Company to repurchase up to $50 million of its outstanding shares of common stock or Series A Preferred Stock. Under the share repurchase programs, the shares may be repurchased from time to time using a variety of methods, which may include open market transactions, privately negotiated transactions or otherwise, all in accordance with the rules of the SEC and other applicable legal requirements.
Repurchased shares of common stock will be classified as authorized and unissued shares. The Company recognizes the cost of shares of common stock it repurchases, including direct costs incurred, as a reduction in stockholders’ equity. Such reductions of stockholders equity due to the repurchases of shares of common stock will be applied first, to reduce common stock in the amount of the par value associated with the shares of common stock repurchased and second, to reduce additional
paid-in
capital by the amount that the purchase price for the shares of common stock repurchased exceed the par value.
There were no shares repurchased during the six months ended June 30, 2023. During the six months ended June 30, 2022, the Company completed the repurchase of 394,833 shares of its common stock for approximately $5.0 million.
Common Stock and Common Unit Distributions
On May 5, 2023, the Board of Directors approved and the Company declared a cash dividend distribution of $0.10 per common share for the quarterly period ended June 30, 2023. The dividend was paid subsequent to quarter end on July 21, 2023 to common stockholders and common unitholders of record as of the close of business on July 7, 2023, resulting in an aggregate payment of $4.0 million.
 
Preferred Stock Distributions
On May 5, 2023, the Board of Directors approved and the Company declared a cash dividend distribution of $0.4140625 per share of the Company’s 6.625% Series A Preferred Stock (“Series A Preferred Stock”) for an aggregate amount of $1.9 million for the quarterly period ended June 30, 2023. The dividend was paid subsequent to quarter end on July 21, 2023 to the holders of record of Series A Preferred Stock as of the close of business on July 7, 2023.
Equity Incentive Plan
The Company has an equity incentive plan (“Equity Incentive Plan”) for executive officers, directors and certain
non-executive
employees, and with approval of the Board of Directors
, for subsidiaries and their respective affiliates. The Equity Incentive Plan provides for grants of restricted common stock, restricted stock units, phantom shares, stock options, dividend equivalent rights and other equity-based awards (including the grant of Operating Partnership long-term incentive plan units), subject to the total number of shares available for issuance under the plan. The Equity Incentive Plan is administered by the compensation committee of the Board of Directors (the “Compensation Committee”). The Equity Incentive Plan provides for the issuance of up to 3,763,580 shares of common stock. To the extent an award granted under the Equity Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
On January 27, 2020, each of the Board of Directors and the Compensation Committee approved a new form of performance-based restricted unit award agreement that will be used to grant performance-based restricted stock unit awards (“Performance RSU Awards”) pursuant to the Equity Incentive Plan.
The Performance RSU Awards are based upon the total stockholder return (“TSR”) of the Company’s common stock over a three-year measurement period beginning January 1 of the year of grant (the “Measurement Period”) relative to the TSR of a defined peer group list of other US Office REIT companies (the “Peer Group”) as of the first trading date in the year of grant. The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum. To the extent earned, the payouts of the Performance RSU Awards are intended to be settled in the form of shares of the Company’s common stock, pursuant to the Equity Incentive Plan. Upon satisfaction of the vesting conditions, dividend equivalents in an amount equal to all regular and special dividends declared with respect to the Company’s common stock during each annual measurement period during the Measurement Period are determined and paid on a cumulative, reinvested basis over the term of the applicable Performance RSU Award, at the time such award vests and based on the number of shares of the Company’s common stock that are earned.
During the first quarter of 2023, the Performance RSU Awards granted in January 2020, with a January 1, 2020 through December 31, 2022 Measurement Period, were earned at 150% of the target number of shares granted based on achievement of a TSR that was at or above the 75th percentile of the 2020 Peer Group.
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2023:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2022
      428,320        307,500  
Granted
      198,022        214,888  
Issuance of dividend equivalents
      9,485        —    
Vested
      (216,520 )       (97,500 ) 
    
 
 
     
 
 
  
Outstanding at March 31, 2023
      419,307        424,888  
Issuance of dividend equivalents
      14,356        —    
    
 
 
     
 
 
  
Outstanding at June 30, 2023
      433,663        424,888  
 
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2022:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2021
      342,159        217,500  
Granted
      237,986        90,000  
Issuance of dividend equivalents
      3,902        —  
    
 
 
     
 
 
  
Outstanding at March 31, 2022
      584,047        307,500  
Issuance of dividend equivalents
      7,451        —  
Vested
      (177,812 )       —  
    
 
 
     
 
 
  
Outstanding at June 30, 2022
      413,686        307,500  
During the six months ended June 30, 2023 and June 30, 2022, the Company granted the following restricted stock units (“RSUs”) and Performance RSU Awards to directors, executive officers and certain
non-executive
employees:
 
 
  
Units Granted
 
  
Fair Value

(in thousands)
 
  
Weighted Average
Grant Fair Value
Per Share
 
 
  
RSUs
 
  
Performance
RSUs
 
2023
      198,022        214,888      $ 3,729      $ 9.03  
2022
      237,986        90,000        5,753        17.54  
The RSU Awards will vest in three equal, annual installments on each of the first three anniversaries of the grant date. The Performance RSU Awards will vest on the last day of the three-year measurement period.
During the three months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
633
 
   
$
390
 
   
$
1,023
 
2022
   
 
652
 
   
 
340
 
   
 
992
 
During the six months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
1,276
 
   
$
771
 
   
$
2,047
 
2022
   
 
1,251
 
   
 
645
 
   
 
1,896
 
v3.23.2
Summary of Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2023
Accounting Policies [Abstract]  
Basis of Preparation and Summary of Significant Accounting Policies
Basis of Preparation and Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with Securities and Exchange Commission (“SEC”) rules and regulations and generally accepted accounting principles in the United States of America (“US GAAP”) and in the opinion of management contain all adjustments (including normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2022.
During the second quarter of 2023, the Company applied the below accounting policy for Variable Interest Entities (“VIE”) in relation to the deconsolidation of the 190 Office Center property. Refer to Note 3 – Real Estate Investments for additional information.
Variable Interest Entities
Variable Interest Entities
The Company consolidates a VIE if the Company determines that it is the primary beneficiary of the entity. When evaluating the accounting for a VIE, the Company considers the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance relative to other economic interest holders. The Company determines the rights, if any, to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE by considering the economic interest in the entity, regardless of form, which may include debt, equity, management and servicing fees, or other contractual arrangements. The Company considers other relevant factors including each entity’s capital structure, contractual rights to earnings (losses), subordination of the Company’s interests relative to those of other investors, contingent payments, and other contractual arrangements that may be economically significant.
Recent Accounting Pronouncements
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (the “FASB”) established Topic 848, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, by issuing Accounting Standards Update (“ASU”)
No. 2020-04
(“ASU
2020-04”).
ASU
2020-04
provides companies with optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. For contracts affected by reference rate reform, if certain criteria are met, companies can elect to not remeasure contracts at the modification date or reassess a previous accounting conclusion. Companies can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. Further, in January 2021, the FASB issued ASU
No. 2021-01,
Reference Rate Reform (Topic 848) (“ASU
2021-01”).
ASU
2021-01
clarified the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.
ASU
2020-04
and ASU
2021-01
can be applied as of the beginning of the interim period that includes March 12, 2020, however, the guidance will only be available for optional use through December 31, 2022. In December 2022, the FASB issued ASU
No. 2022-06,
Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 (“ASU
2022-06”).
ASU
2022-06
amends the date the guidance will be available to December 31, 2024. The new standard applies prospectively to contract modifications and hedging relationships and may be elected over time as reference rate reform activities occur. During the first quarter of 2023, the Company transitioned its LIBOR-based contracts to SOFR and elected to apply the practical expedients to modifications of qualifying debt contracts and hedging relationships as continuations of the existing contracts, rather than as new contracts. Application of the hedge accounting expedients preserves the presentation of derivatives consistent with past presentation and does not result in dedesignation of hedging relationships. Applying the expedients did not have a material impact on the consolidated financial statements. The Company has no remaining LIBOR-based contracts.
v3.23.2
Lease Intangibles (Tables)
 6 Months Ended
Jun. 30, 2023
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Lease Intangibles and Value of Assumed Lease Obligations
Lease intangibles and the value of assumed lease obligations as of June 30, 2023 and December 31, 2022 were comprised of the following (in thousands):
 
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
June 30, 2023
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,786     $ 77,066     $ 33,491     $ 129,343     $ (14,968 )    $ (138 )    $ (15,106 ) 
Accumulated amortization
      (9,823 )      (51,444 )      (18,200 )      (79,467 )      6,630       54       6,684  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 8,963     $ 25,622     $ 15,291     $ 49,876     $ (8,338 )    $ (84 )    $ (8,422 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     
    
Lease Intangible Assets
    
Lease Intangible Liabilities
  
December 31, 2022
   
Above

Market
Leases
    
In Place

Leases
    
Leasing
Commissions
    
Total
    
Below
Market
Leases
    
Below
Market
Ground
Lease
    
Total
  
Cost
    $ 18,793     $ 78,720     $ 34,123     $ 131,636     $ (15,682 )    $ (138 )    $ (15,820 ) 
Accumulated amortization
      (9,069 )      (49,772 )      (17,357 )      (76,198 )      6,618       52       6,670  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 9,724     $ 28,948     $ 16,766     $ 55,438     $ (9,064 )    $ (86 )    $ (9,150 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Estimated Aggregate Amortization Expense for Lease Intangibles
The estimated aggregate amortization expense for lease intangibles for the next five years and in the aggregate are as follows (in thousands):
 
2023
    $ 4,248  
2024
      6,687  
2025
      6,517  
2026
      6,204  
2027
      5,217  
Thereafter
      12,581  
    
 
 
  
     $ 41,454  
    
 
 
  
v3.23.2
Debt (Tables)
 6 Months Ended
Jun. 30, 2023
Debt Disclosure [Abstract]  
Summary of Outstanding Indebtness
The following table summarizes the indebtedness as of June 30, 2023 and December 31, 2022 (dollars in thousands):
 
Property
  
    June 30,    

2023
 
  
    December 31,    
2022
 
  
    Interest Rate as    
of June 30,

2023
(1)
 
 
Maturity
 
Unsecured Credit Facility 
(3)(5)
    $  205,713      $  200,500        SOFR +1.40 %
(2)
 		     November 2025  
Term Loan 
(4)
      50,000        50,000        SOFR +1.35 %
(2)
 		     September 2024  
Term Loan
(5)
      25,000        —          SOFR +2.10 %
(2)
 		     January 2026  
Mission City
      46,430        46,859        3.78 %      November 2027  
Canyon Park
(6)
      39,306        39,673        4.30 %      March 2027  
Circle Point
      39,118        39,440        4.49 %      September 2028  
SanTan
(7)
      31,794        32,140        4.56 %      March 2027  
Intellicenter
      30,991        31,297        4.65 %      October 2025  
The Quad
      30,600        30,600        4.20 %      September 2028  
2525 McKinnon
      27,000        27,000        4.24 %      April 2027  
FRP Collection
      26,401        26,784        3.10 %      September 2023  
Greenwood Blvd
      21,129        21,396        3.15 %      December 2025  
 
Property
  
    June 30,    

2023
 
    December 31,    
2022
 
    Interest Rate as    
of June 30,

2023
(1)
 
Maturity
 
Cascade Station
(8)
  20,989     21,192     4.55 %    May 2024  
5090 N. 40th St
     20,592     20,810     3.92 %    January 2027  
AmberGlen
      20,000     20,000     3.69 %    May 2027  
Central Fairwinds
      16,051     16,273     3.15 %    June 2024  
FRP Ingenuity Drive
(9)
      16,014     16,165     4.44 %    December 2024  
Carillon Point
      14,562     14,773     3.10 %    October 2023  
190 Office Center
(10)
      —       38,894     4.79 %    October 2025  
Total Principal
      681,690     693,796              
Deferred financing costs, net
      (3,428 )    (3,887 )             
Unamortized fair value adjustments
      118     190              
    
 
 
  
 
 
              
Total
    $ 678,380
$ 690,099              
    
 
 
  
 
 
              
 
(1)
All interest rates are fixed interest rates with the exception of the Unsecured Credit Facility and the term loans, as explained in footnotes 3, 4 and 5 below.
(2)
As of June 30, 2023, the daily-simple SOFR rate was 5.09%.
(3)
Borrowings under the Unsecured Credit Facility bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 235 basis points depending upon the Company’s consolidated leverage ratio. On February 9, 2023, the Company entered into a three-year interest rate swap for a notional amount of $140 million, effective March 8, 2023, effectively fixing the SOFR component of the borrowing rate for $140 million of the Unsecured Credit Facility. As of June 30, 2023, the Unsecured Credit Facility had $205.7 million drawn and a $4.2 million letter of credit to satisfy escrow requirements for a mortgage lender. The Unsecured Credit Facility matures in November 2025 and may be extended 12 months at the Company’s option upon meeting certain conditions. The Unsecured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.50x.
(4)
Borrowings under the $50 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of between 135 to 225 basis points depending upon the Company’s consolidated leverage ratio. The SOFR component of the borrowing rate is effectively fixed by a $50 million interest rate swap.
(5)
On January 5, 2023, the Company entered into a second amendment to dated November 16, 2021 (as amended, the “Amended and Restated Credit Agreement”) for the Unsecured Credit Facility and entered into a three-year $25 million term loan, increasing its total authorized borrowings from $350 million to $375 million. Borrowings under the $25 million term loan bear interest at a rate equal to the daily-simple SOFR rate plus a margin of 210 basis points. In conjunction with the term loan, the Company also entered into a three-year interest rate swap for a notional amount of $25 million, effectively fixing the SOFR component of the borrowing rate of the term loan.
(6)
The mortgage loan anticipated repayment date (“ARD”) is March 1, 2027. The final scheduled maturity date can be extended up to 5 years beyond the ARD. If the loan is not paid off at ARD, the loan’s interest rate shall be adjusted to the greater of (i) the initial interest rate plus 200 basis points or (ii) the yield on the five year “on the run” treasury reported by Bloomberg market data service plus 450 basis points.
(7)
In the second quarter of 2023, the Debt Service Coverage Ratio (“DSCR”) and
d
ebt
y
ield covenants for SanTan were not met, which triggered a ‘cash-sweep period’ that began in the second quarter of 2023. As of June 30, 2023, total restricted cash for the property was $4.7 million.
(8)
In the first quarter of 2023, a ‘cash-sweep period’ began for the Cascade Station loan due to the
non-renewal
of a major tenant’s leased space in the building. As of June 30, 2023, total restricted cash for the property was $1.5 million.
(9)
As of September 30, 2022, the DSCR covenant for FRP Ingenuity Drive was not met, which triggered a ‘cash-sweep period’ that began in the fourth quarter of 2022. As of June 30, 2023, the DSCR was still not met. As of June 30, 2023 and December 31, 2022, total restricted cash for the property was $3.0 million and $2.6 million, respectively.
(10)
In
the second quarter of 2023, the
non-recourse
debt associated with the 190 Office Center property was deconsolidated as a result of the appointment of a receiver to assume possession and control of the property. The loan balance as of the date of deconsolidation was $38.6 million.
Schedule of Principal Repayments of Mortgage Payable
The scheduled principal repayments of debt as of June 30, 2023 are as follows (in thousands):
 
2023
    $ 43,835  
2024
      107,728  
2025
      260,288  
2026
      29,416  
2027
      176,303  
Thereafter
      64,120  
    
 
 
  
     $ 681,690  
    
 
 
  
v3.23.2
Fair Value of Financial Instruments (Tables)
 6 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Summary of company's derivative financial instruments
The following table summarizes the Company’s derivative financial instruments as of June 30, 2023 and December 31, 2022 (in thousands):
 
    
Notional Value
     
Effective Date
     
Maturity Date
     
Fair Value

Assets/(Liabilities)
  
  
June 30, 2023
     
December 31, 2022
  
Interest Rate Swap
    $ 50,000        September 2019        September 2024      $ 2,305      $ 2,731  
Interest Rate Swap
      25,000        January 2023        January 2026        341        —    
Interest Rate Swap
      140,000        March 2023        November 2025        1,080        —    
    
 
 
                       
 
 
     
 
 
  
     $ 215,000                        $ 3,726      $ 2,731  
    
 
 
                       
 
 
     
 
 
  
v3.23.2
Leases (Tables)
 6 Months Ended
Jun. 30, 2023
Leases [Abstract]  
Operating Lease Lease Income
The Company recognized fixed and variable lease payments for operating leases for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):
 
 
  
Three Months Ended

June 30,
 
  
Six Months Ended

June 30,
 
 
  
2023
 
  
2022
 
  
2023
 
  
2022
 
Fixed payments
    $ 37,571      $ 38,309      $ 76,484      $ 76,628  
Variable payments
      6,742        6,180        13,485        12,620  
    
 
 
     
 
 
     
 
 
     
 
 
  
     $  44,313      $ 44,489      $ 89,969      $ 89,248  
    
 
 
     
 
 
     
 
 
     
 
 
  
Schedule of future minimum rental payments for operating leases
Future minimum lease payments to be received by the Company as of June 30, 2023 under
non-cancellable
operating leases for the next five years and thereafter are as follows (in thousands):
 
2023
    $ 62,936  
2024
      124,703  
2025
      112,593  
2026
      101,868  
2027
      85,094  
Thereafter
      230,167  
    
 
 
  
     $ 717,361  
    
 
 
  
Schedule of supplemental balance sheet information related to leases
Right-of-use
assets and lease liabilities have been included within other assets and other liabilities on the Company’s condensed consolidated balance sheet as follows (in thousands):
 
    
June 30, 2023
     
December 31, 2022
  
Right-of-use
asset – operating leases
    $ 12,720      $ 12,935  
Lease liability – operating leases
    $ 8,675      $ 8,802  
Right-of-use
asset – financing leases
    $ 9,934      $  10,054  
Lease liability – financing leases
    $ 1,511      $ 1,475  
Schedule future minimum lease payments to be paid
Future minimum lease payments to be paid by the Company as a lessee for operating and financing leases as of June 30, 2023 for the next five years and thereafter are as follows (in thousands):
 
    
Operating
Leases
     
Financing
Leases
  
2023
    $ 266      $ 4  
2024
      770        7  
2025
      770        8  
2026
      724        8  
2027
      587        8  
Thereafter
      26,563        6,938  
    
 
 
     
 
 
  
Total future minimum lease payments
      29,680        6,973  
Discount
      (21,005 )       (5,462 ) 
    
 
 
     
 
 
  
Total
    $ 8,675      $ 1,511  
    
 
 
     
 
 
  
v3.23.2
Stockholder's Equity (Tables)
 6 Months Ended
Jun. 30, 2023
Federal Home Loan Banks [Abstract]  
Summary of Activity of Awards under Equity Incentive Plan
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2023:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2022
      428,320        307,500  
Granted
      198,022        214,888  
Issuance of dividend equivalents
      9,485        —    
Vested
      (216,520 )       (97,500 ) 
    
 
 
     
 
 
  
Outstanding at March 31, 2023
      419,307        424,888  
Issuance of dividend equivalents
      14,356        —    
    
 
 
     
 
 
  
Outstanding at June 30, 2023
      433,663        424,888  
 
The following table summarizes the activity of the awards under the Equity Incentive Plan for the three and six months ended June 30, 2022:
 
    
Number
of RSUs
     
Number of
Performance
RSUs
  
Outstanding at December 31, 2021
      342,159        217,500  
Granted
      237,986        90,000  
Issuance of dividend equivalents
      3,902        —  
    
 
 
     
 
 
  
Outstanding at March 31, 2022
      584,047        307,500  
Issuance of dividend equivalents
      7,451        —  
Vested
      (177,812 )       —  
    
 
 
     
 
 
  
Outstanding at June 30, 2022
      413,686        307,500  
Summary of Restricted Stock Units ("RSUs") and Performance RSU
During the six months ended June 30, 2023 and June 30, 2022, the Company granted the following restricted stock units (“RSUs”) and Performance RSU Awards to directors, executive officers and certain
non-executive
employees:
 
 
  
Units Granted
 
  
Fair Value

(in thousands)
 
  
Weighted Average
Grant Fair Value
Per Share
 
 
  
RSUs
 
  
Performance
RSUs
 
2023
      198,022        214,888      $ 3,729      $ 9.03  
2022
      237,986        90,000        5,753        17.54  
Summary of Recognized Compensation Expense for RSUs and Performance RSU
During the three months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
633
 
   
$
390
 
   
$
1,023
 
2022
   
 
652
 
   
 
340
 
   
 
992
 
During the six months ended June 30, 2023 and June 30, 2022, the Company recognized net compensation expense for the RSUs and Performance RSU Awards as follows (in thousands):
 
 
  
RSUs
 
  
Performance
RSUs
 
  
Total
 
2023
   
$
1,276
 
   
$
771
 
   
$
2,047
 
2022
   
 
1,251
 
   
 
645
 
   
 
1,896
 
v3.23.2
Organization and Description of Business - Additional Information (Detail)
 6 Months Ended
Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Company formation date Nov. 26, 2013
Operation commencement date Apr. 21, 2014
v3.23.2
Real Estate Investments - Additional Information (Detail) - USD ($)
$ in Millions
 3 Months Ended
Jun. 15, 2022
Jun. 30, 2023
Mar. 31, 2022
May 15, 2023
Lake Vista Pointe [Member]        
Real Estate [Line Items]        
Sales-type Lease, Selling Profit (Loss)     $ 21.7  
Proceeds from Sale of Real Estate $ 43.8      
190 Office Center [Member] | Variable Interest Entity, Not Primary Beneficiary [Member]        
Real Estate [Line Items]        
Loss on deconsolidation   $ 0.1    
Real estate assets deconsolidated in the period       $ 35.7
Mortgage loan deconsolidated in the period       38.6
Cash and restricted cash deconsolidated in the period       4.0
Net current liabilities deconsolidated in the period       $ 1.0
v3.23.2
Lease Intangibles - Schedule of Lease Intangibles and Value of Assumed Lease Obligations (Detail) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Assets $ 129,343 $ 131,636
Accumulated amortization, Lease Intangible Assets (79,467) (76,198)
Total, Lease Intangible Assets 49,876 55,438
Cost, Lease Intangible Liabilities (15,106) (15,820)
Accumulated amortization, Lease Intangible Liabilities 6,684 6,670
Total, Lease Intangible Liabilities (8,422) (9,150)
Above Market Leases [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Assets 18,786 18,793
Accumulated amortization, Lease Intangible Assets (9,823) (9,069)
Total, Lease Intangible Assets 8,963 9,724
In Place Leases [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Assets 77,066 78,720
Accumulated amortization, Lease Intangible Assets (51,444) (49,772)
Total, Lease Intangible Assets 25,622 28,948
Leasing Commissions [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Assets 33,491 34,123
Accumulated amortization, Lease Intangible Assets (18,200) (17,357)
Total, Lease Intangible Assets 15,291 16,766
Below Market Tenant Lease [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Liabilities (14,968) (15,682)
Accumulated amortization, Lease Intangible Liabilities 6,630 6,618
Total, Lease Intangible Liabilities (8,338) (9,064)
Below Market Ground Lease [Member]    
Finite-Lived Intangible Assets [Line Items]    
Cost, Lease Intangible Liabilities (138) (138)
Accumulated amortization, Lease Intangible Liabilities 54 52
Total, Lease Intangible Liabilities $ (84) $ (86)
v3.23.2
Lease Intangibles - Estimated Aggregate Amortization Expense for Lease Intangibles (Detail)
$ in Thousands
Jun. 30, 2023
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
2023 $ 4,248
2024 6,687
2025 6,517
2026 6,204
2027 5,217
Thereafter 12,581
Total $ 41,454
v3.23.2
Debt - Summary of Outstanding Indebtedness (Detail) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2023
Jan. 05, 2023
Dec. 31, 2022
Debt Instrument [Line Items]      
Indebtedness $ 681,690   $ 693,796
Deferred financing costs, net (3,428)   (3,887)
Unamortized fair value adjustments 118   190
Total 678,380   690,099
Unsecured Debt [Member] | Term loan [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 50,000   50,000
Interest Rate, terms 1.35    
Interest Rate, spread 1.35%    
Maturity 2024-09    
Debt Instrument, Face Amount   $ 50,000  
Unsecured Debt [Member] | Term loan [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 25,000   0
Interest Rate, terms 2.10    
Interest Rate, spread 2.10%    
Maturity 2026-01    
Debt Instrument, Face Amount   25,000  
Credit Facility [Member] | Unsecured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 205,713   200,500
Interest Rate, terms 1.40    
Interest Rate, spread 1.40%    
Maturity 2025-11    
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Unsecured Debt [Member] | Term loan [Member]      
Debt Instrument [Line Items]      
Debt Instrument, Face Amount   $ 50,000  
Mission City [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 46,430   46,859
Interest Rate 3.78%    
Maturity 2027-11    
Canyon Park [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 39,306   39,673
Interest Rate 4.30%    
Maturity 2027-03    
Circle Point [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 39,118   39,440
Interest Rate 4.49%    
Maturity 2028-09    
190 Office Center [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 0   38,894
Interest Rate 4.79%    
Maturity 2025-10    
SanTan [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 31,794   32,140
Interest Rate 4.56%    
Maturity 2027-03    
Intellicenter [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 30,991   31,297
Interest Rate 4.65%    
Maturity 2025-10    
The Quad [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 30,600   30,600
Interest Rate 4.20%    
Maturity 2028-09    
2525 McKinnon [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 27,000   27,000
Interest Rate 4.24%    
Maturity 2027-04    
FRP Collection [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 26,401   26,784
Interest Rate 3.10%    
Maturity 2023-09    
Greenwood Blvd [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 21,129   21,396
Interest Rate 3.15%    
Maturity 2025-12    
Cascade Station [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 20,989   21,192
Interest Rate 4.55%    
Maturity 2024-05    
5090 N. 40th St [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 20,592   20,810
Interest Rate 3.92%    
Maturity 2027-01    
AmberGlen Property [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 20,000   20,000
Interest Rate 3.69%    
Maturity 2027-05    
Central Fairwinds [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 16,051   16,273
Interest Rate 3.15%    
Maturity 2024-06    
FRP Ingenuity Drive [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 16,014   16,165
Interest Rate 4.44%    
Maturity 2024-12    
Carillon Point [Member] | Secured Debt [Member]      
Debt Instrument [Line Items]      
Indebtedness $ 14,562   $ 14,773
Interest Rate 3.10%    
Maturity 2023-10    
v3.23.2
Debt - Summary of Outstanding Indebtedness (Parenthetical) (Detail) - USD ($)
$ in Thousands
 6 Months Ended
Jun. 30, 2023
May 15, 2023
Feb. 09, 2023
Jan. 06, 2023
Jan. 05, 2023
Dec. 31, 2022
Debt Instrument [Line Items]            
Derivative, Notional Amount $ 215,000          
Interest Rate Swap [Member]            
Debt Instrument [Line Items]            
Derivative, Notional Amount     $ 140,000 $ 50,000 $ 25,000  
Unsecured Debt [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 1.35%          
Term loan         50,000  
Unsecured Debt [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 2.10%          
Term loan         25,000  
Unsecured Debt [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Term loan         50,000  
Unsecured Debt [Member] | Margin [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 210.00%          
Unsecured Debt [Member] | Minimum [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 135.00%          
Unsecured Debt [Member] | Maximum [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 225.00%          
190 Office Center [Member] | Secured Debt [Member] | Variable Interest Entity, Not Primary Beneficiary [Member]            
Debt Instrument [Line Items]            
Mortgage loan deconsolidated in the period   $ 38,600        
SanTan [Member] | Debt Service Coverage Ratio [Member] | Debt Yield [Member]            
Debt Instrument [Line Items]            
Restricted Cash $ 4,700          
Canyon Park [Member] | Secured Debt [Member] | Minimum [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 200.00%          
Canyon Park [Member] | Secured Debt [Member] | Maximum [Member]            
Debt Instrument [Line Items]            
Interest Rate, Description 450.00%          
Cascade Station [Member]            
Debt Instrument [Line Items]            
Restricted Cash $ 1,500          
FRP Ingenuity Drive [Member] | Debt Service Coverage Ratio [Member]            
Debt Instrument [Line Items]            
Restricted Cash 3,000         $ 2,600
Credit Facility [Member]            
Debt Instrument [Line Items]            
Revolving Credit Facility, outstanding     $ 140,000      
Credit Facility [Member] | Letter of Credit [Member]            
Debt Instrument [Line Items]            
Revolving Credit Facility, outstanding 4,200          
Credit Facility [Member] | Unsecured Debt [Member]            
Debt Instrument [Line Items]            
Revolving Credit Facility, outstanding $ 205,700          
Interest Rate, Description 1.40%          
Credit Facility [Member] | Unsecured Debt [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Term loan [Member]            
Debt Instrument [Line Items]            
One month SOFR rate 5.09%          
Credit Facility [Member] | Unsecured Debt [Member] | Minimum [Member]            
Debt Instrument [Line Items]            
Revolving Credit Facility, authorized amount         350,000  
Interest Rate, Description 135.00%          
Fixed charge coverage ratio 1.50%          
Credit Facility [Member] | Unsecured Debt [Member] | Maximum [Member]            
Debt Instrument [Line Items]            
Revolving Credit Facility, authorized amount         $ 375,000  
Interest Rate, Description 235.00%          
v3.23.2
Debt - Schedule of Principal Repayments of Mortgage Payable (Detail) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Debt Disclosure [Abstract]    
2023 $ 43,835  
2024 107,728  
2025 260,288  
2026 29,416  
2027 176,303  
Thereafter 64,120  
Total $ 681,690 $ 693,796
v3.23.2
Fair Value of Financial Instruments - Summary of Company's Derivative Financial Instruments (Detail) - USD ($)
$ in Thousands
Jun. 30, 2023
Feb. 09, 2023
Jan. 06, 2023
Jan. 05, 2023
Dec. 31, 2022
Derivatives, Fair Value [Line Items]          
Notional Value $ 215,000        
Fair Value 3,726       $ 2,731
Interest Rate Swap [Member]          
Derivatives, Fair Value [Line Items]          
Notional Value   $ 140,000 $ 50,000 $ 25,000  
September 2024 [Member] | Interest Rate Swap [Member]          
Derivatives, Fair Value [Line Items]          
Notional Value 50,000        
Fair Value, Assets 2,305       2,731
January 2026 [Member] | Interest Rate Swap [Member]          
Derivatives, Fair Value [Line Items]          
Notional Value 25,000        
Fair Value, Assets 341       0
November 2025 [Member] | Interest Rate Swap [Member]          
Derivatives, Fair Value [Line Items]          
Notional Value 140,000        
Fair Value, Assets $ 1,080       $ 0
v3.23.2
Fair Value of Financial Instruments - Additional Information (Detail) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Mar. 08, 2023
Feb. 09, 2023
Jan. 06, 2023
Jan. 05, 2023
Dec. 31, 2022
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]                  
Notional amount $ 215,000   $ 215,000            
Interest rate swap gain (loss) reclassified to interest expense 812 $ (63) 1,289 $ (203)          
Debt instrument carrying amount 681,690   681,690           $ 693,796
Interest Rate Swap [Member]                  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]                  
Notional amount           $ 140,000 $ 50,000 $ 25,000  
Fixed interest rate         4.19%   1.17% 3.90%  
Interest rate swap gain (loss) reclassified to interest expense     1,300 $ (200)          
Fair Value, Inputs, Level 3 [Member]                  
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]                  
Mortgage loans payable, fair value 380,300   380,300           420,700
Debt instrument carrying amount $ 401,000   $ 401,000           $ 443,300
v3.23.2
Related Party Transactions - Additional Information (Detail) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Related Party Transaction [Line Items]        
Annual payment receivable for services $ 44,604 $ 45,498 $ 90,562 $ 90,350
Administrative Services Agreement [Member] | SCRE II [Member] | Clarity Real Estate Ventures GP, Limited [Member]        
Related Party Transaction [Line Items]        
Annual payment receivable for services     $ 200 $ 300
v3.23.2
Leases - Additional Information (Detail) - USD ($)
$ in Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Operating Lease cost $ 0.2 $ 0.3 $ 0.5 $ 0.5
Operating Lease, Weighted Average Remaining Lease Term 50 years   50 years  
Operating Lease, Weighted Average Discount Rate, Percent 6.20%   6.20%  
Finance Lease, Weighted Average Remaining Lease Term 50 years   50 years  
Finance Lease, Weighted Average Discount Rate, Percent 6.20%   6.20%  
Financing Lease Cost $ 0.1 0.1 $ 0.2 0.2
Lake Vista Pointe [Member]        
Interest income on sales type lease   0.6   0.6
Variable lease payments on sales type lease   $ 0.2   $ 0.2
Maximum [Member]        
Remaining lease terms 65 years   65 years  
Remaining lease terms, Financing leases 65 years   65 years  
Minimum [Member]        
Remaining lease terms 3 years   3 years  
Remaining lease terms, Financing leases 3 years   3 years  
v3.23.2
Leases - Schedule of Operating Leases (Detail) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Fixed payments $ 37,571 $ 38,309 $ 76,484 $ 76,628
Variable payments 6,742 6,180 13,485 12,620
Operating Lease, Lease Income $ 44,313 $ 44,489 $ 89,969 $ 89,248
Operating Lease, Lease Income, Statement of Income or Comprehensive Income [Extensible Enumeration] Operating Income (Loss) Operating Income (Loss) Operating Income (Loss) Operating Income (Loss)
v3.23.2
Leases - Schedule of Future Minimum Lease Payments under Non-cancellable Operating Leases (Detail)
$ in Thousands
Jun. 30, 2023
USD ($)
Leases [Abstract]  
2023 $ 62,936
2024 124,703
2025 112,593
2026 101,868
2027 85,094
Thereafter 230,167
Total future minimum lease payments to be received $ 717,361
v3.23.2
Leases - Schedule of Operating Right-of-Use Assets and Lease Liabilities (Detail) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
Right-of-use asset - operating leases $ 12,720 $ 12,935
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] Other Assets Other Assets
Lease liability – operating leases $ 8,675 $ 8,802
Operating Lease, Liability, Statement of Financial Position [Extensible List] Other Liabilities Other Liabilities
Right-of-use asset – financing leases $ 9,934 $ 10,054
Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] Other Assets Other Assets
Lease liability – financing leases $ 1,511 $ 1,475
Finance Lease, Liability, Statement of Financial Position [Extensible Enumeration] Other Liabilities Other Liabilities
v3.23.2
Leases - Schedule Future Minimum Lease Payments To Be Paid (Detail) - USD ($)
$ in Thousands
Jun. 30, 2023
Dec. 31, 2022
2023 $ 266  
2024 770  
2025 770  
2026 724  
2027 587  
Thereafter 26,563  
Total future minimum lease payments 29,680  
Discount (21,005)  
Total 8,675 $ 8,802
2023 4  
2024 7  
2025 8  
2026 8  
2027 8  
Thereafter 6,938  
Total future minimum lease payments 6,973  
Discount (5,462)  
Total $ 1,511 $ 1,475
v3.23.2
Stockholder's Equity - Additional Information (Detail) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 6 Months Ended 12 Months Ended
Jul. 21, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Dec. 31, 2022
May 04, 2023
May 04, 2022
Aug. 05, 2020
Mar. 09, 2020
Class of Stock [Line Items]                  
Preferred stock, Dividend rate percentage     6.625%   6.625%        
Maximum number of shares issued under Equity Incentive Plan             3,763,580    
Stock Repurchase Program, Authorized Amount           $ 50,000   $ 50,000 $ 100,000
Stock Repurchased During Period, Shares     0 394,833          
Stock Repurchased During Period, Value   $ 5,000   $ 5,000          
Schedule of Share Based Compensation Arrangement by Share Based Payment Award For Defined Performance     The payouts under the Performance RSU Awards are evaluated on a sliding scale as follows: TSR below the 30th percentile of the Peer Group would result in a 50% payout; TSR at the 50th percentile of the Peer Group would result in a 100% payout; and TSR at or above the 75th percentile of the Peer Group would result in a 150% payout. Payouts are mathematically interpolated between these stated percentile targets, subject to a 150% maximum.            
Share-based Payment Award, Award Vesting Period     3 years 3 years          
Series A Preferred Stock [Member]                  
Class of Stock [Line Items]                  
Preferred stock, Dividend rate percentage     6.625%            
Common Stock [Member]                  
Class of Stock [Line Items]                  
Declared cash dividend distribution per share     $ 0.1            
Dividends paid, declared date     May 05, 2023            
Dividends paid date     Jul. 21, 2023            
Dividends paid, date of record     Jul. 07, 2023            
Stock Repurchased During Period, Shares   (395)              
Stock Repurchased During Period, Value   $ 4              
Common Stock [Member] | Dividend Paid [Member]                  
Class of Stock [Line Items]                  
Cash distributions $ 4,000                
Preferred Stock [Member]                  
Class of Stock [Line Items]                  
Declared cash dividend distribution per share     $ 0.4140625            
Dividends paid, declared date     May 05, 2023            
Dividends paid date     Jul. 21, 2023            
Dividends paid, date of record     Jul. 07, 2023            
Preferred Stock [Member] | Dividend Paid [Member]                  
Class of Stock [Line Items]                  
Cash distributions $ 1,900                
Executive Officer [Member]                  
Class of Stock [Line Items]                  
Share-based Payment Award, Award Vesting Period     3 years            
v3.23.2
Stockholder's Equity - Summary of Activity of Awards under Equity Incentive Plan (Detail) - shares
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Restricted Stock Units (RSUs) [Member]            
Schedule Of Share Based Compensation Restricted Stock Units Award Activity [Line Items]            
Beginning balance 419,307 428,320 584,047 342,159 428,320 342,159
Granted   198,022   237,986 198,022 237,986
Issuance of dividend equivalents 14,356 9,485 7,451 3,902    
Vested   (216,520) (177,812)      
Ending balance 433,663 419,307 413,686 584,047 433,663 413,686
Performance Restricted Stock Unit [Member]            
Schedule Of Share Based Compensation Restricted Stock Units Award Activity [Line Items]            
Beginning balance 424,888 307,500 307,500 217,500 307,500 217,500
Granted       90,000 214,888 90,000
Issuance of dividend equivalents 0 0 0 0    
Vested   (97,500) 0      
Ending balance 424,888 424,888 307,500 307,500 424,888 307,500
Performance Restricted Stock Unit including 2020 Performance Restricted Stock Unit Awards [Member]            
Schedule Of Share Based Compensation Restricted Stock Units Award Activity [Line Items]            
Granted   214,888        
v3.23.2
Stockholder's Equity - Summary of Restricted Stock Units ("RSUs") and Performance RSU (Detail) - USD ($)
$ / shares in Units, $ in Thousands
 3 Months Ended 6 Months Ended
Mar. 31, 2023
Mar. 31, 2022
Jun. 30, 2023
Jun. 30, 2022
Schedule Of Share Based Compensation Restricted Stock Units Award Activity Granted [Line Items]        
Fair Value     $ 3,729 $ 5,753
Weighted Average Grant Fair Value Per Share     $ 9.03 $ 17.54
Restricted Stock Units (RSUs) [Member]        
Schedule Of Share Based Compensation Restricted Stock Units Award Activity Granted [Line Items]        
Units Granted 198,022 237,986 198,022 237,986
Performance Restricted Stock Unit [Member]        
Schedule Of Share Based Compensation Restricted Stock Units Award Activity Granted [Line Items]        
Units Granted   90,000 214,888 90,000
v3.23.2
Stockholder's Equity - Summary of Recognized Compensation Expense for RSUs and Performance RSU (Detail) - USD ($)
$ in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Schedule Of Recognized Net Compensation Expense [Line Items]        
Share-based Payment Arrangement, Amount Capitalized $ 1,023 $ 992 $ 2,047 $ 1,896
Restricted Stock Units (RSUs) [Member]        
Schedule Of Recognized Net Compensation Expense [Line Items]        
Share-based Payment Arrangement, Amount Capitalized 633 652 1,276 1,251
Performance Restricted Stock Unit [Member]        
Schedule Of Recognized Net Compensation Expense [Line Items]        
Share-based Payment Arrangement, Amount Capitalized $ 390 $ 340 $ 771 $ 645
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