EX-99.2 3 d919264dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

City Office REIT, Inc.

Pro Forma Consolidated Financial Statements

(Unaudited)

City Office REIT, Inc. (“Company,” “we,” “our” or “us”) was organized in the state of Maryland 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 in our Operating Partnership. Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions (the “Formation Transactions”).

Neither the Company nor the Operating Partnership had any business activity prior to completion of the IPO and related Formation Transactions on April 21, 2014. Since completion of the IPO and the related Formation Transactions, the Company, through the Operating Partnership and its subsidiaries, has completed the acquisition of three properties during the year ended December 31, 2014 —the Plaza 25 property purchased on June 4, 2014, the Lake Vista Pointe property purchased on July 18, 2014, and the Florida Research Park property purchased on November 18, 2014. During the first quarter of 2015, the Company also acquired the Logan Tower property on February 4, 2015.

The Company announced on April 20, 2015 that it had entered into an Agreement of Purchase and Sale to acquire Superior Pointe in the Denver, Colorado metropolitan area (“the Property”) for a purchase price of $25.8 million. The principal conditions to the acquisition have been satisfied and the transaction is anticipated to close in June 2015. However, there can be no assurance as to the timing of the closing or whether the closing will actually occur. The Company does not have a material relationship with the seller of the Property and the acquisition will not be an affiliated transaction.

The accompanying unaudited Pro Forma Consolidated Balance Sheet is presented to reflect the historical consolidated balance sheet of the Company at December 31, 2014 (which includes the acquisition of Plaza 25, Lake Vista Pointe and Florida Research Park properties), the acquisition of the Logan Tower property, and the probable acquisition of the Superior Pointe property, as if they had all been completed on December 31, 2014. The accompanying unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014 reflects the historical operations of the Predecessor for the period from January 1, 2014 through April 20, 2014 and the historical results of operations of the Company for the period from April 21, 2014 through December 31, 2014 and are presented as if the IPO and related Formation Transactions, and the acquisitions of Plaza 25, Lake Vista Pointe, Florida Research Park, Logan Tower and Superior Pointe properties were completed on January 1, 2014.

Pro forma information is intended to provide investors with information about the impact of transactions by showing how specific transactions might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical financial information give effect to events that are directly attributable to the acquisition of the property and are factually supportable. The unaudited Pro Forma Consolidated Financial Statements are prepared in accordance with Article 11 of Regulation S-X.

The unaudited Pro Forma Consolidated Financial Statements set forth below are not fact and there can be no assurance that the Company’s results would not have differed significantly from those set forth below if the acquisition had actually occurred on January 1, 2014. Accordingly, the unaudited Pro Forma Consolidated


Financial Statements are presented for illustrative purposes only and do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the acquisition of the property occurred on the dates indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Company makes no representations regarding the information set forth below or its ultimate performance compared to it. The unaudited Pro Forma Consolidated Financial Statements exclude any non-recurring charges or credits directly attributable to the acquisition.


City Office REIT, Inc.

Pro Forma Consolidated Balance Sheet

As of December 31, 2014

(Unaudited)

(In thousands, except share and per share data)

 

     City Office
REIT, Inc.
    Superior
Pointe
Acquisition
(A)
    First Quarter
Acquisition -

Logan Tower
(B)
    Company
Pro Forma
 

Assets

        

Real estate properties, net

   $ 211,828      $ 22,987      $ 9,503      $ 244,318   

Cash and cash equivalents

     34,862        (22,801     (10,423     1,638   

Restricted cash

     11,093        —          —          11,093   

Rents receivable, net

     7,981        —          —          7,981   

Deferred financing costs, net of accumulated amortization

     2,901        —          —          2,901   

Deferred leasing costs, net of accumulated amortization

     2,618        —          —          2,618   

Acquired lease intangibles assets, net

     29,391        2,867        1,274        33,532   

Prepaid expenses and other assets

     832        —          —          832   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Assets

$ 301,506    $ 3,053    $ 354    $ 304,913   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

Liabilities:

Debt

$ 189,940    $ 3,000    $ —      $ 192,940   

Accounts payable and accrued liabilities

  4,080      —        48      4,128   

Deferred rent

  2,212      —        —        2,212   

Tenant rent deposits

  1,862      —        —        1,862   

Acquired lease intangibles liability, net

  606      53      306      965   

Dividends payable

  3,571      —        —        3,571   

Earn-out liability

  8,000      —        —        8,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities

  210,271      3,053      354      213,678   

Equity

Stockholders’ Equity:

Common stock, $0.01 par value, 100,000,000 shares authorized, 12,279,110 shares issued and outstanding

  123      —        —        123   

Additional paid in capital

  91,308      —        —        91,308   

Accumulated deficit

  (11,320   —        —        (11,320

Total Stockholders’ Equity

  80,111      —        —        80,111   

Operating Partnership noncontrolling interests

  11,878      —        —        11,878   

Noncontrolling interests in properties

  (754   —        —        (754
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Equity

  91,235      —        —        91,235   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Liabilities and Stockholder Equity

$ 301,506    $ 3,053    $ 354    $ 304,913   
  

 

 

   

 

 

   

 

 

   

 

 

 


City Office REIT, Inc.

Pro Forma Consolidated Statement of Operations

For the Year Ended December 31, 2014

(Unaudited)

(In thousands, except share and per share data)

 

     City Office
REIT, Inc.
    Superior
Pointe
Acquisition
(AA)
    First
Quarter
Acquisition -
Logan
Tower (BB)
    Impact of 2014
Acquisitions
(CC)
     Other Pro
Forma
Adjustments
         Company Pro
Forma
 

Revenue:

                

Rental income

   $ 33,236      $ 1,819      $ 1,383      $ 4,585       $ —           $ 41,023   

Expense reimbursement

     2,869        1,359        —          983         —             5,211   

Other

     791        —          203        6         —             1,000   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Total Revenues

  36,896      3,178      1,586      5,574      47,234   

Operating Expenses:

Property operating expenses

  14,332      1,574      611      1,773      —        18,290   

Acquisition costs

  2,133      200      649      290      —        3,272   

Stock based compensation

  1,091      —        —        —        442    (EE)   1,533   

General and administrative

  1,314      —        —        —        476    (FF)   1,790   

Base management fee

  682      —        —        —        297    (DD)   979   

Depreciation and amortization

  14,729      1,874      877      2,776      —        20,256   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Total Operating Expenses

  34,281      3,648      2,137      4,839      1,215      46,120   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Operating Income/loss

  2,615      (470   (551   735      (1,215   1,114   

Interest Expense:

Contractual interest expense

  (7,854   (90   —        —        (254 (GG)   (8,198

Amortization of deferred financing costs

  (1,443   —        —        —        765    (GG)   (678

Loss on early extinguishment of Predecessor debt

  (1,655   —        —        —        1,655   (GG)   —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 
  (10,952   (90   —        —        2,166      (8,876

Change in fair value of earn-out

  (1,048   —        —        —        —        (1,048

Gain on equity investment

  4,475      —        —        —        (4,475 ) (HH)   —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Net (loss)/income

  (4,910   (560   (551   735      (3,524   (8,810

Less:

Net (income)/loss attributable to non-controlling interests in properties

  (82   —        —        —        —        (82

Net income attributable to Predecessor

  (1,973   —        —        —        1,973    (II)   —     

Net loss attributable to Operating Partnership unitholders’ noncontrollinginterests

  1,955      —        —        —        572      2,527   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Net (loss)/income attributable to stockholders

$ (5,010 $ (560 $ (551   735      (979   (6,365
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

      

 

 

 

Pro forma weighted average common shares outstanding - basic and diluted

  8,475,697   

Pro forma basic and diluted loss per share

  (0.75
                

 

 

 

 


City Office REIT, Inc.

Notes and Management’s Assumption to Unaudited Pro Forma Consolidated Financial Statements

1. Notes to the Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2014

(A) The acquisition of Superior Pointe was accounted for using preliminary estimates of the fair value of tangible and intangible assets to be acquired and liabilities to be assumed in connection with the probable acquisition and are therefore subject to change. The Pro Forma adjustment includes the estimated cash paid and borrowings under the Secured Credit Facility to be established upon the acquisition of Superior Pointe.

(B) During the first quarter of 2015, the Company acquired the Logan Tower property which was paid for in cash. The acquisition of Logan Tower was accounted for using preliminary estimates of the fair value of tangible and intangible assets acquired and liabilities assumed in connection with the acquisition and are therefore subject to change.

2. Notes to the Unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2014

(AA) Revenue and property expenses for the Superior Pointe acquisition are based on the historical operations under the previous owners’ ownership. Pro Forma adjustments include estimated depreciation expense and interest expense. Depreciation expense is based on the preliminary estimates of fair value for the tangible and intangible assets to be acquired and is therefore subject to change. Interest expense related to the Company’s borrowings under the Secured Credit Facility are at a variable rate of LIBOR + 2.75%.

(BB) Financial results for Logan Tower are based on estimated revenue and expenses for the property. Pro Forma adjustments include estimated depreciation expense. Depreciation expense is based on the preliminary estimates of fair value for the tangible and intangible assets acquired and is therefore subject to change.

(CC) During the year ended December 31, 2014, the Company acquired Plaza 25, Lake Vista Pointe and Florida Research Park. The impact of these acquisitions on revenue and expenses has been presented as if they occurred on January 1, 2014. Revenue and property expenses prior to the acquisition of the Plaza 25 property purchased on June 4, 2014, the Lake Vista Pointe property purchased on July 18, 2014, and the Florida Research Park property purchased on November 18, 2014, are based on the historical operations under the previous owners’ ownership. Pro Forma adjustments include estimated depreciation expense and interest expense.

(DD) City Office will pay the advisor an advisory fee in accordance with the advisory agreement. The adjustment reflects the pro-forma impact as the IPO and related Formation Transactions are presented as if they occurred on January 1, 2014.

(EE) Reflects a pro rata portion of the expense of stock-based compensation to be granted to the Advisor as part of the formation transactions for the periods presented. The expense will be amortized over the vesting period.

 


(FF) Reflects the estimated costs to operate the entity as a public company comprised of insurance, directors, public reporting and other miscellaneous costs.

(GG) Reflects the reduction of interest expense from the repayment of mortgage debt upon consummation of the IPO. Additionally, reflects the increase in interest expense for the periods presented on the $95 million and $23.5 million mortgage loans to be guaranteed by the OP as to certain “non-recourse covenants” and secured by a mortgage on the fee simple interest in the Cherry Creek Corporate Campus, City Center and Corporate Parkway properties and the AmberGlen properties. A secured revolving credit facility of $30 million authorized and available was obtained following the formation. Pro forma reflects the amortization of the associated financing costs on the mortgage loans and the secured revolving credit facility for the periods presented. Pro forma also reflects the increase in interest expense relating to presenting the acquisitions of Plaza 25, Lake Vista Pointe and Florida Research Park as if they occurred on January 1, 2014.

In connection with the prepayment of the mortgage loan secured by Cherry Creek Corporate Campus, City Center, Corporate Parkway and Central Fairwinds, $1.1 million of deferred financing costs were written-off. Additionally prepayment costs of approximately $1.7 million were incurred.

(HH) Reflects reversal of gain on equity investment as the acquisition of the remaining 57.7% interest in Cherry Creek are presented as if it occurred on January 1, 2014.

(II) Reflects reversal of net income attributable to the Predecessor as the IPO and related Formation Transactions are presented as if they occurred on January 1, 2014.