UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 4, 2014
City Office REIT, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland | 001-36409 | 98-1141883 | ||
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
1075 West Georgia Street, Suite 2600, Vancouver, British Columbia, |
V6E 3C9 | |||
(Address of principal executive offices) | (Zip Code) |
(604) 806-3366
(Registrants telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
This Form 8-K/A amends and supplements the Registrants Form 8-K, as filed on June 9, 2014, to include historical financial statements and unaudited pro forma financial information, required by Item 9.01 (a) and (b), for the Registrants acquisition of a three building 197,000 square foot office property in the Greenwood Village submarket of Denver, Colorado.
Item 9.01 Financial Statements and Exhibits.
(a) | Financial Statements of Property Acquired |
The following Statement of Revenues and Certain Expenses is set forth in Exhibit 99.1 which are attached hereto and incorporated by reference.
Report of Independent Auditors.
Statement of Revenues and Certain Expenses for the three months ended March 31, 2014 and the year ended December 31, 2013.
Notes to the Statement of Revenues and Certain Expenses for the three months ended March 31, 2014 and the year ended December 31, 2013.
(b) | Pro Forma Financial Information |
The following pro forma financial statements are set forth in Exhibit 99.2 which are attached and incorporated herein by reference.
Unaudited Pro Forma Consolidated and Combined Balance Sheet as of March 31, 2014.
Unaudited Pro Forma Consolidated and Combined Statement of Operations for the quarter ended March 31, 2014 and the year ended December 31, 2013.
Notes to Unaudited Pro Forma Consolidated and Combined Financial Statements.
(c) | Not applicable. |
(d) | Exhibits: |
Exhibit Number |
Description |
|
99.1 |
Financial Statements of Property Acquired |
|
99.2 | Unaudited Pro Forma Financial Information |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CITY OFFICE REIT, INC. | ||||
Date: August 7, 2014 |
By: |
/s/ James Farrar |
||
Name: | James Farrar | |||
Title: | Chief Executive Officer |
EXHIBIT INDEX
Exhibit
|
Description |
|
99.1 | Financial Statements of Property Acquired | |
99.2 | Unaudited Pro Forma Financial Information |
Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and the Stockholders of City Office REIT, Inc.
We have audited the accompanying statement of revenue and certain expenses of Plaza 25 (the Property) for the year ended December 31, 2013, and the related notes to the financial statement.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the statement of revenues and certain expenses in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statements of revenues and certain expenses that are free of material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the statement of revenues and certain expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and certain expenses are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues and certain expenses. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the statements of revenues and certain expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Propertys preparation and fair presentation of the statement of revenues and certain expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Propertys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenues and certain expenses.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the statement of revenue and certain expenses referred to above present fairly, in all material respects, the revenue and certain expenses, as described in note 2, for the year ended December 31, 2013 in conformity with U.S. generally accepted accounting principles.
Basis of Accounting
As described in note 2 to the financial statements, the statement of revenue and certain expenses has been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K of City Office REIT, Inc., and are not intended to be a complete presentation of the Propertys revenues and expenses. Our opinion is not modified in this respect.
/s/ KPMG LLP
Vancouver, Canada
August 5, 2014
1
PLAZA 25, DENVER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Year Ended
December 31, 2013 |
Three Months
Ended March 31, 2014 (Unaudited) |
|||||||
Revenues: |
||||||||
Rental revenue |
$ | 3,189,660 | $ | 943,167 | ||||
|
|
|
|
|||||
Total Revenues |
3,189,660 | 943,167 | ||||||
|
|
|
|
|||||
Certain Expenses: |
||||||||
Property operating expenses |
1,136,854 | 326,317 | ||||||
Insurance |
34,131 | 8,715 | ||||||
Property taxes |
543,211 | 135,002 | ||||||
Management fees |
63,914 | 17,499 | ||||||
|
|
|
|
|||||
Total Certain Expenses |
1,778,110 | 487,553 | ||||||
|
|
|
|
|||||
Revenues in Excess of Certain Expenses |
$ | 1,411,550 | $ | 455,634 | ||||
|
|
|
|
See accompanying notes to statement of revenues and certain expenses.
2
PLAZA 25, DENVER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
1. Organization
The accompanying statements of revenue and certain expenses include the operations of Plaza 25 (the Property) which consists of a three building office complex and parking spaces. The Property is located in a suburban market of Denver, Colorado.
2. Basis of Presentation and Significant Accounting Policies
The accompanying statements of revenue and certain expenses (the statements) have been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The statements are not intended to be a complete presentation of the revenues and expenses of the Property. Accordingly, the statements exclude expenses not directly related to the future operations of the Property such as depreciation and amortization, amortization of intangible assets and liabilities, asset management fees, finance costs, and other costs not directly related to the proposed future operations of the property.
Revenue Recognition
Minimum rental revenue is recognized on a straight-line basis over the term of the leases. The leases provide for the reimbursement by the tenants of real estate taxes, insurance and certain property operating expenses to the owner of the Property. These reimbursements are recognized as revenue in the period the expenses are incurred.
The Property increased rental income by $106,977 and $95,406 to record revenue on a straightline basis during the year ended December 31, 2013 and three months ended March 31, 2014, respectively.
Use of Estimates
The preparation of the statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the statements and accompanying notes. Actual results could differ from those estimates.
Unaudited interim statement
The statement of revenue and certain expenses for the three months ended March 31, 2014 is unaudited. In the opinion of management, the statement reflects all adjustments necessary for a fair presentation of the results of the interim period. All such adjustments are of a normal recurring nature.
3. Rental Revenue
The Property is leased to tenants under operating leases with expiration dates ranging from 2014 to 2019. Three tenants accounted for approximately 64.8% of rental revenue at December 31, 2013. The minimum rental amounts due under the leases are subject to scheduled fixed increases. The leases also require that the tenants reimburse the Property for certain operating costs and real estate taxes which increase rental revenue by $184,733 for the year ended December 31, 2013 and increased rental revenue by $51,213 for the three months ended March 31, 2014.
3
PLAZA 25, DENVER
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Future minimum rents to be received over each of the next five years and thereafter under the non-cancelable operating leases in effect at December 31, 2013 are as follows:
Year ending December 31, |
||||
2014 |
$ | 3,372,223 | ||
2015 |
3,487,417 | |||
2016 |
3,240,743 | |||
2017 |
2,713,923 | |||
2018 |
2,181,415 | |||
Thereafter |
375,248 | |||
|
|
|||
Total |
$ | 15,370,969 | ||
|
|
Leases generally require reimbursement of the tenants proportional share of common area, real estate taxes and other operating expenses which are in excess of a base year operating expense amount. These reimbursements are excluded from the amounts above.
4. Subsequent Events
The Property has evaluated subsequent events through August 5, 2014, the date the statements were available to be issued. The Property was acquired by City Office REIT Inc., on June 4, 2014 from a nonaffiliated third party for approximately $25.1 million.
4
Exhibit 99.2
City Office REIT, Inc.
Pro Forma Consolidated Financial Statements
(Unaudited)
As previously announced, on June 4, 2014, City Office REIT, Inc. closed on the acquisition of a three building 197,000 square foot office property in the Greenwood Village submarket of Denver, Colorado (Plaza 25). The contract purchase price for the three building office property was $25.1 million, exclusive of closing costs. The Company funded 100% of the purchase with cash. Plaza 25 is 93% occupied as of the date of the closing.
The accompanying unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2014 reflects the acquisition of Plaza 25 as if the purchase had occurred on March 31, 2014. The unaudited Pro Forma Statement of Operations for the quarter ended March 31, 2014 and the year ended December 31, 2013 reflects the acquisition of Plaza 25 as if the purchase had occurred on January 1, 2013. The Pro Forma Consolidated Balance Sheet and Consolidated Statement of Operations for the quarter ended March 31, 2014 of the Company, prior to the Plaza 25 acquisition has been derived from the unaudited Pro Forma Consolidated Balance Sheet and Consolidated Statement of Operations included in the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the SEC on May 23, 2014 adjusted to reclassify the noncontrolling interest portion of the net proceeds from the offering from common stock and additional paid in capital to noncontrolling interest in operating partnership. The accompanying unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2013 of the Company, prior to the Plaza 25 acquisition was derived from the unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2013 included in the Companys Prospectus filing on Form 424B4 filed with the SEC on April 16, 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 Companys results would not have differed significantly from those set forth below if the acquisition had actually occurred on January 1, 2013. 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 date indicated, nor are they indicative of our future financial position or results of operations. Readers are cautioned not to place undue reliance on such information and the Company makes no representations regarding the information set forth below or its ultimate performance compared to it. 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 March 31, 2014
(Unaudited)
Pro Forma
City Office REIT Inc. Prior to Acquisition |
Plaza 25
Acquisition |
Pro Forma
Reflecting Acquisition |
||||||||||
Assets |
||||||||||||
Real estate properties, net |
144,805,273 | 20,250,815 | (A) | 165,056,088 | ||||||||
Cash and cash equivalents |
40,186,667 | (24,583,749 | ) | 15,602,918 | ||||||||
Restricted cash |
4,968,690 | | 4,968,690 | |||||||||
Rents receivable, net |
5,526,962 | | 5,526,962 | |||||||||
Deferred financing costs, net |
2,373,261 | | 2,373,261 | |||||||||
Deferred leasing costs, net |
2,246,430 | | 2,246,430 | |||||||||
Acquired lease intangible assets, net |
24,105,435 | 4,671,780 | (A) | 28,777,215 | ||||||||
Prepaid expenses and other assets |
646,913 | 1,926 | (B) | 648,839 | ||||||||
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|
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Total Assets |
224,859,631 | 340,772 | 225,200,403 | |||||||||
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Liabilities and Equity |
||||||||||||
Liabilities: |
||||||||||||
Mortgage loans payable |
155,189,971 | | 155,189,971 | |||||||||
Accounts payable and accrued liabilities |
5,557,301 | 228,187 | (B) | 5,785,488 | ||||||||
Deferred rent |
910,833 | 15,135 | (B) | 925,968 | ||||||||
Tenant rent deposits |
1,483,427 | 397,307 | (B) | 1,880,734 | ||||||||
Acquired lease intangible liabilities, net |
393,389 | | 393,389 | |||||||||
Other liabilities |
6,000,000 | | 6,000,000 | |||||||||
|
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|
|
|
|||||||
Total Liabilities |
169,534,921 | 640,629 | 170,175,550 | |||||||||
Commitments and Contingencies |
||||||||||||
Equity |
||||||||||||
Stockholders Equity: |
||||||||||||
Common stock and additional paid in capital |
39,580,106 | (299,857 | ) (C) | 39,280,249 | ||||||||
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|
|
|
|
|||||||
Total Stockholder Equity |
39,580,106 | (299,857 | ) | 39,280,249 | ||||||||
Noncontrolling interests in operating partnership |
17,076,033 | | 17,076,033 | |||||||||
Noncontrolling interests in properties |
(1,331,429 | ) | | (1,331,429 | ) | |||||||
|
|
|
|
|
|
|||||||
Total Equity |
55,324,710 | (299,857 | ) | 55,024,853 | ||||||||
|
|
|
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|
|
|||||||
Total Liabilities and Stockholder Equity |
224,859,631 | 340,772 | 225,200,403 | |||||||||
|
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|
|
|
City Office REIT, Inc.
Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 2014
(Unaudited)
Pro Forma
City Office REIT Inc. Prior to Acquisition |
Plaza 25
Acquisition |
Pro Forma
Reflecting Acquisition |
||||||||||
Revenue: |
||||||||||||
Rental income |
7,236,758 | 889,879 | (AA) | 8,126,637 | ||||||||
Expense reimbursement |
450,043 | 51,213 | (BB) | 501,256 | ||||||||
Other |
295,660 | 2,075 | 297,735 | |||||||||
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|
|
|
|
|||||||
Total Revenues |
7,982,461 | 943,167 | 8,925,628 | |||||||||
Operating Expenses: |
||||||||||||
Property operating expenses |
2,304,462 | 326,317 | 2,630,779 | |||||||||
Insurance |
152,858 | 8,715 | 161,573 | |||||||||
Property taxes |
461,104 | 135,002 | 596,106 | |||||||||
Property acquisition costs |
| | | |||||||||
Base management fee |
205,073 | | 205,073 | |||||||||
General and administrative |
369,250 | | 369,250 | |||||||||
Property management fees |
207,617 | 17,499 | 225,116 | |||||||||
Stock based compensation |
366,950 | | 366,950 | |||||||||
Depreciation and amortization |
3,159,977 | 55,800 | (CC) | 3,215,777 | ||||||||
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|
|||||||
Total Operating Expenses |
7,227,291 | 543,333 | 7,770,624 | |||||||||
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|
|||||||
Operating Income |
755,170 | 399,834 | 1,155,004 | |||||||||
Interest expense, net |
1,840,005 | | 1,840,005 | |||||||||
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|||||||
Net Income |
(1,084,835 | ) | 399,834 | (685,001 | ) | |||||||
Net Income Attributable to properties |
99,203 | | 99,203 | |||||||||
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(985,632 | ) | 399,834 | (585,798 | ) | ||||||||
Net Income Attributable to Noncontrolling Interests in Operating Partnership |
280,055 | | 280,055 | |||||||||
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Net Income Attributable to City Office REIT, Inc. |
(705,577 | ) | 399,834 | (305,743 | ) | |||||||
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Pro forma weighted average common shares outstanding - basic and diluted |
8,545,187 | |||||||||||
Pro forma basic earnings per share |
$ | (0.04 | ) | |||||||||
Pro Forma weighted average number of common units held by Noncontrolling interest in operating partnership outstanding |
3,251,903 |
City Office REIT, Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2013
(Unaudited)
Pro Forma
City Office REIT Inc. Prior to Acquisition |
Plaza 25
Acquisition |
Pro Forma
Reflecting Acquisition |
||||||||||
Revenue: |
||||||||||||
Rental income |
29,598,376 | 3,000,086 | (AA) | 32,598,462 | ||||||||
Expense reimbursement |
2,185,817 | 184,733 | (BB) | 2,370,550 | ||||||||
Other |
785,162 | 4,841 | 790,003 | |||||||||
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Total Revenues |
32,569,355 | 3,189,660 | 35,759,015 | |||||||||
Operating Expenses: |
||||||||||||
Property operating expenses |
8,873,869 | 1,136,854 | 10,010,723 | |||||||||
Insurance |
610,906 | 34,131 | 645,037 | |||||||||
Property taxes |
1,805,440 | 543,211 | 2,348,651 | |||||||||
Property acquisition costs |
1,479,292 | | 1,479,292 | |||||||||
Base management fee |
951,365 | | 951,365 | |||||||||
General and administrative |
1,477,000 | | 1,477,000 | |||||||||
Property management fees |
665,325 | 63,914 | 729,239 | |||||||||
Stock based compensation |
1,467,792 | | 1,467,792 | |||||||||
Depreciation and amortization |
13,065,765 | 223,200 | (CC) | 13,288,965 | ||||||||
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|||||||
Total Operating Expenses |
30,396,754 | 2,001,310 | 32,398,064 | |||||||||
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|||||||
Operating Income |
2,172,601 | 1,188,350 | 3,360,951 | |||||||||
Canadian offering costs |
1,983,195 | | 1,983,195 | |||||||||
Interest expense, net |
7,197,139 | | 7,197,139 | |||||||||
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|||||||
Net Income |
(7,007,733 | ) | 1,188,350 | (5,819,383 | ) | |||||||
Net Income Attributable to properties |
(190,624 | ) | | (190,624 | ) | |||||||
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|||||||
(7,198,357 | ) | 1,188,350 | (6,010,007 | ) | ||||||||
Net Income Attributable to Noncontrolling Interests in Operating Partnership |
2,358,069 | | 2,358,069 | |||||||||
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Net Income Attributable to City Office REIT, Inc. |
(4,840,288 | ) | 1,188,350 | (3,651,938 | ) | |||||||
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|||||||
Pro forma weighted average common shares outstanding - basic and diluted |
8,545,187 | |||||||||||
Pro forma basic earnings per share |
$ | (0.43 | ) | |||||||||
Pro Forma weighted average number of common units held by Noncontrolling interest in operating partnership outstanding |
3,251,903 |
City Office REIT, Inc.
Notes and Managements Assumption to Unaudited Pro Forma Consolidated Financial Statements
Basis of Pro Forma Presentation
1. Notes to the Unaudited Pro Forma Consolidated Balance Sheet as of March 31, 2014
(A) The acquisition of the Plaza 25 was accounted for using preliminary estimates of the fair value of the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition and are therefore subject to change.
(B) Reflects the working capital acquired and assumed through the Plaza 25 acquisition.
(C) Reflects the acquisition costs incurred upon closing of the transaction.
2. Notes to the Unaudited Pro Forma Consolidated Statements of Operations for the three month period ended March 31, 2014 and the year ended December 31, 2013
(AA) Reflects the effect of straight line rental revenue of Plaza 25.
(BB) Reflects the operating expenses incurred by lessor and reimbursed by the tenant.
(CC) Reflects the estimated depreciation expense based on the preliminary estimates of fair value for the tangible and intangible assets acquired and are therefore subject to change.