UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 5, 2015
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)) |
Item 9.01 | Financial Statements and Exhibits. |
Explanatory Note
On April 20, 2015, City Office REIT, Inc. (the Company) announced 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.
In accordance with Rule 3-14 and Article 11 of Regulation S-X and the requirements of Form S-3, the Company is filing herewith (i) certain financial statement information for the Property and (ii) and pro forma financial information for the Company that gives effect to the acquisition of the Property.
The principal conditions to the acquisition have been satisfied and the Company deems the acquisition to be probable and expects to close on the acquisition of the Property 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.
(a) Financial Statements of Property to be Acquired
The following Statements of Revenues and Certain Expenses for the property are set forth in Exhibit 99.1 which is incorporated herein by reference.
Report of Independent Auditors.
Statement of Revenues and Certain Expenses for the year ended December 31, 2014.
Notes to Statement of Revenues and Certain Expenses for the year ended December 31, 2014.
(b) Pro Forma Financial Information
The following pro forma financial statements for the Company are set forth in Exhibit 99.2 which is incorporated herein by reference.
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2014.
Unaudited Pro Forma Consolidated and Combined Statement of Operations for the year ended December 31, 2014.
Notes to Unaudited Pro Forma Consolidated and Combined Financial Statements.
(c) Not applicable.
(d) Exhibits:
Exhibit
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Description |
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99.1 | Statements of Revenues and Certain Expenses for the Property for the year ended December 31, 2014. | |
99.2 | Unaudited Pro Forma Financial Information for the Company. |
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: May 5, 2015 | By: |
/s/ James Farrar |
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Name: | James Farrar | |||||
Title: | Chief Executive Officer |
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 revenues and certain expenses of Superior Pointe (the Property) for the year ended December 31, 2014, 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 statement 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 revenues and certain expenses referred to above presents fairly, in all material respects, the revenues and certain expenses, as described in note 2, for the year ended December 31, 2014 in conformity with U.S. generally accepted accounting principles.
1
Basis of Accounting
As described in note 2 to the financial statements, the statement of revenues 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 is 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
May 5, 2015
2
SUPERIOR POINTE
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(in thousands)
Year Ended
December 31, 2014 |
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Revenues: |
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Rental revenue |
$ | 3,178 | ||
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Total Revenues |
3,178 | |||
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Certain Expenses: |
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Property operating expenses |
856 | |||
Insurance |
24 | |||
Property taxes |
563 | |||
Management fees |
131 | |||
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Total Certain Expenses |
1,574 | |||
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Revenues in Excess of Certain Expenses |
$ | 1,604 | ||
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See accompanying notes to statement of revenues and certain expenses.
3
SUPERIOR POINTE
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. Organization
The accompanying statement of revenues and certain expenses include the operations of Superior Pointe (the Property) which consists of one two-story and one three-story office building and parking spaces. The Property is located in the Northwest Denver, Colorado.
2. Basis of Presentation and Significant Accounting Policies
The accompanying statement of revenues and certain expenses (the statement) has 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 statement is not intended to be a complete presentation of the revenues and expenses of the Property. Accordingly, the statement excludes 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 decreased rental income by $6,991 to record revenue on a straight-line basis during the year ended December 31, 2014.
Use of Estimates
The preparation of the statement 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 statement and accompanying notes. Actual results could differ from those estimates.
3. Rental Revenue
The Property is leased to tenants under operating leases with expiration dates ranging from 2015 to 2019. Two tenants accounted for approximately 66.3% of rental revenue at December 31, 2014. The minimum rental amounts due under the leases are subject to scheduled fixed increases.
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, 2014 are as follows (in thousands):
Year ending December 31, | ||||
2015 | $ | 2,015 | ||
2016 | 1,266 | |||
2017 | 865 | |||
2018 | 342 | |||
2019 | 81 | |||
Thereafter | | |||
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Total | $ | 4,569 | ||
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4
SUPERIOR POINTE
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
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 May 5, 2015, the date the statement was available to be issued. City Office REIT, Inc. entered into an Agreement of Purchase and Sale on April 20, 2015 to acquire the property from a nonaffiliated third party for approximately $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.
5
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 Companys 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 Companys 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 |
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Assets |
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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 | ||||||||||||
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Total Assets |
$ | 301,506 | $ | 3,053 | $ | 354 | $ | 304,913 | ||||||||
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Liabilities and Equity |
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Liabilities: |
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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 | ||||||||||||
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Total Liabilities |
210,271 | 3,053 | 354 | 213,678 | ||||||||||||
Equity |
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Stockholders Equity: |
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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 | ) | ||||||||||
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Total Equity |
91,235 | | | 91,235 | ||||||||||||
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Total Liabilities and Stockholder Equity |
$ | 301,506 | $ | 3,053 | $ | 354 | $ | 304,913 | ||||||||
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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 |
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Revenue: |
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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 | ||||||||||||||||||||
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Total Revenues |
36,896 | 3,178 | 1,586 | 5,574 | 47,234 | |||||||||||||||||||||
Operating Expenses: |
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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 | ||||||||||||||||||||
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Total Operating Expenses |
34,281 | 3,648 | 2,137 | 4,839 | 1,215 | 46,120 | ||||||||||||||||||||
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Operating Income/loss |
2,615 | (470 | ) | (551 | ) | 735 | (1,215 | ) | 1,114 | |||||||||||||||||
Interest Expense: |
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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) | | ||||||||||||||||||
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(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) | | ||||||||||||||||||
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Net (loss)/income |
(4,910 | ) | (560 | ) | (551 | ) | 735 | (3,524 | ) | (8,810 | ) | |||||||||||||||
Less: |
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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 | ||||||||||||||||||||
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Net (loss)/income attributable to stockholders |
$ | (5,010 | ) | $ | (560 | ) | $ | (551 | ) | 735 | (979 | ) | (6,365 | ) | ||||||||||||
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Pro forma weighted average common shares outstanding - basic and diluted |
8,475,697 | |||||||||||||||||||||||||
Pro forma basic and diluted loss per share |
(0.75 | ) | ||||||||||||||||||||||||
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City Office REIT, Inc.
Notes and Managements 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 Companys 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.