City Office REIT, Inc. (Form: 10-Q, Received: 08/04/2017 16:37:21)

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

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, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file no: 001-36409

CITY OFFICE REIT, INC .

Maryland

98-1141883

(State or other jurisdiction of

incorporation)

(IRS Employer

Identification No.)

1075 West Georgia Street

Suite 2010

Vancouver, BC

V6E 3C9

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (604) 806-3366

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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, 2017 was 30,262,086.

City Office REIT, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2017

Table of Contents


PART I. FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016	4

	Condensed Consolidated Statement of Changes in Equity as of June 30, 2017 and December 31, 2016	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29

Item 4.	Controls and Procedures	30

PART II. OTHER INFORMATION		31

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	31

Signatures		33

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,			December 31,
	2017			2016
Assets
Real estate properties
Land	$	111,268		$	115,634
Building and improvement		436,207			423,707
Tenant improvement		44,183			49,813
Furniture, fixtures and equipment		232			222

		591,890			589,376
Accumulated depreciation		(41,270	)		(39,052	)

		550,620			550,324

Cash and cash equivalents		68,149			13,703
Restricted cash		24,049			15,948
Rents receivable, net		18,831			17,257
Deferred leasing costs, net		5,351			5,422
Acquired lease intangibles assets, net		49,799			56,214
Prepaid expenses and other assets		2,259			2,626
Assets held for sale		38,289			—

Total Assets	$	757,347		$	661,494

Liabilities and Equity
Liabilities:
Debt	$	411,110		$	370,057
Accounts payable and accrued liabilities		12,092			12,976
Deferred rent		2,629			5,558
Tenant rent deposits		2,387			2,621
Acquired lease intangibles liability, net		5,807			4,302
Dividend distributions payable		8,967			7,521
Earn-out liability		—			2,400
Liabilities related to assets held for sale		1,445			—

Total Liabilities		444,437			405,435

Commitments and Contingencies (Note 9)
Equity:
6.625% Series A Preferred stock, $0.01 par value per share, 5,600,000 and		112,000			112,000
4,600,000 shares authorized, 4,480,000 issued and outstanding
Common stock, $0.01 par value, 100,000,000 shares authorized, 30,257,448 and		303			244
24,382,226 shares issued and outstanding
Additional paid-in capital		264,785			195,566
Accumulated deficit		(64,781	)		(53,608	)

Total Stockholders’ Equity		312,307			254,202
Operating Partnership unitholders’ non-controlling interests		—			108
Non-controlling interests in properties		603			1,749

Total Equity		312,910			256,059

Total Liabilities and Equity	$	757,347		$	661,494

The accompanying notes are an integral part of these condensed consolidated financial statements .

City Office REIT, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenues:
Rental income	$	21,635		$	14,203		$	43,948		$	28,276
Expense reimbursement		2,847			1,562			5,141			3,344
Other		675			327			1,466			750

Total Revenues		25,157			16,092			50,555			32,370

Operating Expenses:
Property operating expenses		10,674			6,236			20,284			12,398
General and administrative		1,597			1,544			3,790			2,787
Base management fee		—			—			—			109
External advisor acquisition		—			—			—			7,045
Acquisition Costs		—			87			—			87
Depreciation and amortization		9,148			6,520			19,646			13,071

Total Operating Expenses		21,419			14,387			43,720			35,497

Operating income/(loss)		3,738			1,705			6,835			(3,127	)
Interest Expense:
Contractual interest expense		(4,356	)		(3,139	)		(8,429	)		(6,885	)
Amortization of deferred financing costs		(331	)		(250	)		(655	)		(471	)

		(4,687	)		(3,389	)		(9,084	)		(7,356	)
Change in fair value of contingent consideration		2,000			—			2,000			—
Net gain on sale of real estate property		12,116			15,934			12,116			15,934

Net income		13,167			14,250			11,867			5,451
Less:
Net income attributable to noncontrolling interests in properties		(3,104	)		(110	)		(3,272	)		(177	)
Net income attributable to Operating Partnership unitholders’ non-controlling interests		—			(2,613	)		—			(874	)

Net income attributable to the Company		10,063			11,527			8,595			4,400
Preferred stock distributions		(1,855	)		—			(3,701	)		—

Net income attributable to common stockholders	$	8,208		$	11,527		$	4,894		$	4,400

Net income per common share and unit:
Basic	$	0.27		$	0.56		$	0.16		$	0.26
Diluted	$	0.27		$	0.48		$	0.16		$	0.22

Weighted average common shares outstanding:
Basic		30,257			20,729			29,886			16,746
Diluted		30,563			24,235			30,186			20,237

Dividend distributions declared per common share and unit	$	0.235		$	0.235		$	0.235		$	0.235

The accompanying notes are an integral part of these condensed consolidated financial statements .

City Office REIT, Inc.

Condensed Consolidated Statement 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			Accumulated deficit			Total stockholders’ equity			Operating Partnership unitholders’ non- controlling interests			Non- controlling interests in properties			Total equity
Balance – January 1, 2016		—	$	—		12,518	$	125	$	95,318		$	(29,598	)	$	65,845		$	8,550		$	(675	)	$	73,720
Conversion of OP units to shares		—		—		3,206		32		10,754			—			10,786			(10,786	)		—			—
Restricted stock award grants and vesting		—		—		164		2		2,434			—			2,436			—			—			2,436
Internalization payment in shares		—		—		297		3		3,461			—			3,464			—			—			3,464
Earn out payment in shares		—		—		147		2		767			—			769			3,009			—			3,778
Net proceeds from sale of common stock		—		—		8,050		80		86,705			—			86,785			—			—			86,785
Net proceeds from sale of preferred stock		4,480		112,000		—		—		(3,873	)		—			108,127			—			—			108,127
Common stock dividend distributions declared		—		—		—		—		—			(21,386	)		(21,386	)		(1,530	)		—			(22,916	)
Preferred stock dividend distributions declared		—		—		—		—		—			(1,781	)		(1,781	)		—			—			(1,781	)
Contributions		—		—		—		—		—			—			—			—			2,525			2,525
Distributions		—		—		—		—		—			—			—			—			(455	)		(455	)
Net (loss)/income		—		—		—		—		—			(843	)		(843	)		865			354			376

Balance – December 31, 2016		4,480		112,000		24,382		244		195,566			(53,608	)		254,202			108			1,749			256,059
Conversion of OP units to shares		—		—		40		—		108			—			108			(108	)		—			—
Restricted stock award grants and vesting		—		—		85		1		1,178			—			1,179			—			—			1,179
Net proceeds from sale of common stock		—		—		5,750		58		67,933			—			67,991			—			—			67,991
Common stock dividend distributions declared		—		—		—		—		—			(15,573	)		(15,573	)		—			—			(15,573	)
Preferred stock dividend distributions declared		—		—		—		—		—			(4,195	)		(4,195	)		—			—			(4,195	)
Distributions		—		—		—		—		—			—			—			—			(4,418	)		(4,418	)
Net income		—		—		—		—		—			8,595			8,595			—			3,272			11,867

Balance - June 30, 2017		4,480	$	112,000		30,257	$	303	$	264,785		$	(64,781	)	$	312,307		$	—		$	603		$	312,910

City Office REIT, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2017			2016
Cash Flows from Operating Activities:
Net income	$	11,867		$	5,451
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,646			13,071
Amortization of deferred financing costs		655			471
Amortization of above/below market leases		(77	)		120
Increase in straight-line rent		(1,960	)		(2,911	)
Non-cash stock compensation		1,179			1,157
Earn-out termination payment		(2,400	)		—
Internalization shares issued		—			3,464
Net gain on sale of real estate property		(12,116	)		(15,934	)
Changes in non-cash working capital:
Rents receivable, net		(1,135	)		(2,438	)
Prepaid expenses and other assets		(26	)		(955	)
Accounts payable and accrued liabilities		(764	)		995
Deferred rent		(2,620	)		(727	)
Tenant rent deposits		(313	)		(150	)

Net Cash Provided By Operating Activities		11,936			1,614

Cash Flows (to) / from Investing Activities:
Additions to real estate properties		(4,038	)		(6,012	)
Acquisition of real estate		(46,035	)		(25,842	)
Net proceeds from sale of real estate		16,993			42,983
Deferred leasing costs		(1,810	)		(689	)

Net Cash (Used In) / Provided By Investing Activities		(34,890	)		10,440

Cash Flows from / (to) Financing Activities:
Proceeds from sale of common stock		67,991			86,786
Debt issuance and extinguishment costs		(753	)		(226	)
Proceeds from mortgage loan payable		119,340			—
Repayment of mortgage loans payable		(25,836	)		(51,685	)
Repayment of Secured Credit Facility		(52,500	)		—
Distributions to noncontrolling interests in properties		(4,418	)		(242	)
Dividend distributions paid to stockholders and Operating Partnership unitholders		(18,323	)		(9,364	)
Change in restricted cash		(8,101	)		(37,805	)

Net Cash Provided By / (Used In) Financing Activities		77,400			(12,536	)

Net Increase / (Decrease) in Cash and Cash Equivalents		54,446			(482	)
Cash and Cash Equivalents, Beginning of Period		13,703			8,138

Cash and Cash Equivalents, End of Period	$	68,149		$	7,656

Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	8,596		$	7,100
Earn-out payment in common stock	$	—		$	3,778
Purchases of additions in real estate properties included in accounts payable	$	677		$	—
Purchases of deferred leasing costs included in accounts payable	$	223		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements .

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 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 of limited partnership interest in the Operating Partnership (“common units”). Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions (the “Formation Transactions”).

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 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 any applicable alternative minimum tax.

On February 1, 2016, the Company closed on the previously announced management internalization (“the Internalization”). The Company had previously entered into a Stock Purchase Agreement (“Stock Purchase Agreement”) with certain stockholders of the Company’s external advisor, City Office Real Estate Management Inc. (the “Advisor”) pursuant to which the Company acquired all of the outstanding stock of the Advisor. Pursuant to this Stock Purchase Agreement, at closing, the Company issued 297,321 shares of its common stock with a fair market value of $3.5 million to the stockholders of the Advisor (the “Sellers”), which included the Company’s three executive officers and Samuel Belzberg, a director of the Company. In addition, the Company was required to make cash payments to the Sellers of up to $3.5 million if the Company’s fully diluted market capitalization reached the following thresholds prior to December 31, 2016: $1 million upon the Company achieving a $200 million fully diluted market capitalization, an additional $1 million upon the Company achieving a $225 million fully diluted market capitalization and an additional $1.5 million upon the Company achieving a $250 million fully diluted market capitalization. The Company paid an additional $3.5 million in the first quarter of 2016 representing the payments to be made to the Sellers upon reaching these fully diluted market capitalizations, which, together with the initial payment and professional fees, resulted in a total cost of $7.0 million in the year ended December 31, 2016. The amount was recorded as an expense in the accompanying condensed consolidated statements of operations as it represented the cost of terminating the relationship.

In connection with the closing of the Internalization, the Company entered into an amendment to the Advisory Agreement between the Company, the Operating Partnership and the Company’s former external Advisor (“Advisory Agreement”) that eliminates the payment of acquisition fees by the Company to the Advisor. In addition, each of the Company’s executive officers entered into an employment agreement with the Company and became employees of the Company, and, at the same time, approximately eleven additional former employees of the Advisor and its affiliates became employees of the Company.

In connection with the closing of the transactions under the Stock Purchase Agreement, a subsidiary of the Company entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Second City Capital II Corporation and Second City Real Estate II Corporation, related entities controlled by Mr. Belzberg. The Administrative Services Agreement has a three year term and pursuant to the agreement, the Company will provide various administrative services and support to the related entities managing the Second City funds. The Company’s subsidiary will receive annual payments for these services under the Administrative Services Agreement as follows: first 12 months—$1.5 million, second 12 months—$1.15 million and third 12 months—$0.625 million, for a total of $3.275 million over the three-year term.

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 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 interim 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, 2016.

New Accounting Pronouncements

Adopted in the Current Year

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The new standard provides an initial screening test to determine when a set of assets and activities is not a business. The test requires that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This standard is effective for annual periods beginning after December 15, 2017 and interim periods within those periods, with early adoption permitted. The Company adopted the guidance on the issuance date effective January 2017. The Company expects that most of its real estate acquisitions will be considered asset acquisitions under the new guidance and that transaction costs will be capitalized to the investment basis which is then subject to a purchase price allocation based on relative fair value.

To be Adopted in Future Years

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which creates a new Topic Accounting Standards Codification (Topic 606). The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a Company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. This standard is effective for interim or annual periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. Early adoption of this standard is permitted, but not prior to the original effective date of January 1, 2017. The new standard will be effective for the Company on January 1, 2018. We are currently evaluating the impact the adoption of Topic 606 will have on our financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

In August of 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides clarified guidance on the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company is currently assessing the impact of the guidance on our statement of cash flows.

In November of 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new standard requires that the statement of cash flows explain the changes during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This standard is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. The Company is currently assessing the impact of the guidance on our statement of cash flows.

3. Real Estate Investments

Acquisitions

During the six months ended June 30, 2017 and 2016 the Company acquired the following properties:


Property	Date Acquired		Percentage Owned
2525 McKinnon		January 2017		100	%
Carillon Point		June 2016		100	%

2525 McKinnon has been accounted for as an asset acquisition. Carillon Point was accounted for as a business combination.

The following table summarizes the Company’s allocations of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 2017 (in thousands):


	2525 McKinnon
Land	$	10,629
Buildings and improvements		33,357
Tenant improvements		1,158
Acquired intangible assets		3,267
Accounts payable and other liabilities		(190	)
Lease intangible liabilities		(2,186	)

Total consideration	$	46,035

The following table summarizes the Company’s allocations of the purchase price of assets acquired and liabilities assumed during the six months ended June 30, 2016 (in thousands):


	Carillon Point
Land	$	5,030
Buildings and improvements		14,100
Tenant improvements		2,739
Acquired intangible assets		4,140
Prepaid expenses and other assets		73
Accounts payable and other liabilities		(217	)
Lease intangible liabilities		(23	)

Total consideration	$	25,842

Consideration paid on acquisitions was in the form of cash and debt.

Change in Fair Value of Contingent Consideration

On June 28, 2017, the Company received a $2 million refund from a third party escrow account related to the Park Tower acquisition when certain leasing thresholds were not achieved as a condition of that purchase in the prior year.

Sale of Real Estate Property

On May 2, 2017, the Company sold the 1400 and 1600 buildings at the AmberGlen property in Portland, Oregon, and its related assets and liabilities, for a sales price of $18.9 million, resulting in an aggregate net gain of $12.1 million, net of $2.0 million in costs, which has been classified as net gain on sale of real estate property in the condensed consolidated statements of operations. In connection with the sale of the property, certain debt repayments were made. In accordance with ASU 2014-08, the sale was not considered a discontinued operation.

Assets Held for Sale

On September 21, 2016, we entered into a Purchase and Sale agreement to sell the Washington Group Plaza property for $86.5 million. The transaction is anticipated to close in April 2018, subject to customary closing conditions. Either party has the right to accelerate closing by providing at least 120 days’ advance notice.

The property has been classified as held for sale as of June 30, 2017:


June 30, 2017	Washington Group Plaza
Real estate properties, net	$	34,539
Deferred leasing costs, net		1,295
Acquired lease intangibles asset, net		817
Rents receivable, prepaid expenses and other assets		1,638

Assets held for sale	$	38,289

Accounts payable, accrued expenses, deferred rent and tenant rent deposits		(1,445	)

Liabilities realated to assets held for sale	$	(1,445	)

4. Lease Intangibles

Lease intangibles and the value of assumed lease obligations as of June 30, 2017 and December 31, 2016 were comprised as follows (in thousands):


June 30, 2017	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	6,143		$	55,451		$	23,219		$	84,813		$	(7,743	)	$	(138	)	$	(7,881	)
Accumulated amortization		(2,958	)		(24,375	)		(7,681	)		(35,014	)		2,044			30			2,074

	$	3,185		$	31,076		$	15,538		$	49,799		$	(5,699	)	$	(108	)	$	(5,807	)


December 31, 2016	Above Market Leases			In Place Leases			Leasing Commissions			Total			Below Market Leases			Below Market Ground Lease			Total
Cost	$	7,796		$	59,370		$	25,693		$	92,859		$	(5,587	)	$	(138	)	$	(5,725	)
Accumulated amortization		(3,779	)		(24,384	)		(8,482	)		(36,645	)		1,395			28			1,423

	$	4,017		$	34,986		$	17,211		$	56,214		$	(4,192	)	$	(110	)	$	(4,302	)

The estimated aggregate amortization expense for lease intangibles for the five succeeding years and in the aggregate are as follows (in thousands):


2017	$	7,334
2018		10,912
2019		9,370
2020		7,798
2021		5,555
Thereafter		3,023

	$	43,992

5. Debt

The following table summarizes the secured indebtedness as of June 30, 2017 and December 31, 2016 (in thousands):


Property	June 30, 2017			December 31, 2016			Interest Rate as of June 30, 2017			Maturity
Secured Credit Facility ⁽¹⁾	$	—		$	52,500			LIBOR +2.25	% ⁽²⁾		June 2018
Washington Group Plaza ⁽³⁾		32,644			32,995			3.85			July 2018
AmberGlen Mortgage Loan ⁽⁴⁾		—			24,280			4.38			May 2019
Midland Life Insurance ⁽⁵⁾		89,361			90,124			4.34			May 2021
Lake Vista Pointe ⁽³⁾		18,460			18,460			4.28			August 2024
FRP Ingenuity Drive ⁽³⁾⁽⁶⁾		17,000			17,000			4.44			December 2024
Plaza 25 ⁽³⁾⁽⁷⁾		17,000			17,000			4.10			July 2025
190 Office Center ⁽⁷⁾		41,250			41,250			4.79			October 2025
Intellicenter ⁽⁷⁾		33,563			33,563			4.65			October 2025
FRP Collection ⁽⁷⁾		30,458			30,737			3.85			September 2023
Carillon Point ⁽⁷⁾		16,837			17,000			3.50			October 2023
5090 N 40 ^th St		22,000			—			3.92			January 2027
SanTan ⁽⁷⁾		35,100			—			4.56			March 2027
2525 McKinnon		27,000			—			4.24			April 2027
AmberGlen ⁽⁷⁾		20,000			—			3.69			May 2027
Central Fairwinds ⁽⁷⁾		15,240			—			4.00			June 2024

Total Principal		415,913			374,909
Deferred financing costs, net		(4,803	)		(4,852	)

Total	$	411,110		$	370,057

All interest rates are fixed interest rates with the exception of the secured credit facility (“Secured Credit Facility”) as explained in footnote 1 below.

(1)

At June 30, 2017 the Secured Credit Facility had $100 million authorized and was undrawn. In addition, the Secured Credit Facility has an accordion feature that will permit the Company to borrow up to $150 million, subject to additional collateral availability and lender approval. The Credit Agreement has a maturity date of June 26, 2018, which may be extended to June 26, 2019 at the Company’s option upon meeting certain conditions. The Secured Credit Facility requires the Company to maintain a fixed charge coverage ratio of no less than 1.60x. At June 30, 2017, the Secured Credit Facility was cross-collateralized by Logan Tower, Superior Pointe and Park Tower. During 2016 the authorized borrowing capacity was increased from $75 million to $100 million.

(2)	As of June 30, 2017, the one month LIBOR rate was 1.22%.

(3)	Interest on mortgage loan is payable monthly plus principal based on 360 months of amortization.

(4)

The Company is required to maintain a minimum net worth of $25 million and a minimum liquidity of $2 million. On May 2, 2017, in conjunction with the sale of the 1400 and 1600 buildings at the AmberGlen property, the Company repaid the outstanding debt secured on the property of $24.1 million plus closing costs and subsequently closed on a $20 million loan secured by a first mortgage lien on the remaining buildings.

(5)

The mortgage loan is cross-collateralized by DTC Crossroads, Cherry Creek and City Center. Interest on mortgage loan is payable monthly plus principal based on 360 months of amortization. The loan bears a fixed interest rate of 4.34% and matures on May 6, 2021. Upon the sale of Corporate Parkway on June 15, 2016, $4 million of the loan was paid down and DTC Crossroads was substituted in as collateral property.

(6)	The Company is required to maintain a minimum net worth of $17 million, minimum liquidity of $1.7 million and a debt service coverage ratio of no less than 1.15x.

(7)	The Company is required to maintain a debt service coverage ratio of no less than 1.45x, 1.15x, 1.20x, 1.40x, 1.35x,1.20x, 1.15x and 1.35x respectively for each of Plaza 25, 190 Office Center, Intellicenter, FRP Collection, Carillon Point, SanTan, AmberGlen and Central Fairwinds.

The scheduled principal repayments of debt as of June 30, 2017 are as follows (in thousands):


2017	$	1,962
2018		36,206
2019		5,050
2020		6,087
2021		88,111
Thereafter		278,497

Total	$	415,913

On January 4, 2017, the Company closed on a $22.0 million loan secured by a first mortgage lien on the 5090 N 40th St property in Phoenix, Arizona. The loan matures in January 2027. Interest is payable at a fixed rate of 3.92% per annum.

On February 9, 2017, the Company closed on a $35.1 million loan secured by a first mortgage lien on the SanTan property in Phoenix, Arizona. The loan matures in March 2027. Interest is payable at a fixed rate of 4.56% per annum.

On March 10, 2017, the Company closed on a $27.0 million loan secured by a first mortgage lien on the 2525 McKinnon property in Dallas, Texas. The loan matures in April 2027. Interest is payable at a fixed rate of 4.24% per annum.

On May 2, 2017, in conjunction with the sale of the 1400 and 1600 buildings at the AmberGlen property, the Company repaid the outstanding debt secured on the property of $24.1 million plus closing costs and subsequently closed on a $20 million loan secured by a first mortgage lien on the remaining buildings. The loan matures in May 2027. Interest is payable at a fixed rate of 3.69% per annum.

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

As of June 30, 2017 and December 31, 2016, the Company did not have any hedges or derivatives.

The estimated fair value of the earn-out liability decreased from $2.4 million at December 31, 2016 to $0 million at June 30, 2017. On February 15, 2017, the Company entered into a Termination and Mutual Release Agreement with Second City that terminated our obligation to make any future earn-out payments associated with the Central Fairwinds property in exchange for a cash payment of $2.4 million was made to Second City on February 21, 2017.

Cash Equivalents, Restricted Cash, Accounts 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 $420.3 million and $323.7 million as of June 30, 2017 and December 31, 2016, respectively. Although the Company has determined the majority of the inputs used to value its fixed rate debt fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its fixed rate debt utilize Level 3 inputs, such as estimates of current credit spreads. Accordingly, mortgage loans payable have been classified as Level 3 fair value measurements.

7. Related Party Transactions

Property Management Fees

Five of the Company’s properties (City Center, Central Fairwinds, AmberGlen, FRP Collection and Park Tower) have engaged related parties to perform asset and property management services for a fee ranging from 2.0% to 3.5% of gross revenue. Management fees paid to the minority partners of these five properties totaled $0.5 million and $0.3 million for the six months ended June 30, 2017 and 2016, respectively.

8. Future Minimum Rent Schedule

Future minimum lease payments to be received as of June 30, 2017 under noncancellable operating leases for the next five years and thereafter are as follows (in thousands):


2017		40,670
2018		76,165
2019		66,120
2020		59,199
2021		51,708
Thereafter		121,742

	$	415,604

The above minimum lease payments to be received do not include reimbursements from tenants for certain operating expenses and real estate taxes and do not include early termination payments provided for in certain leases.

Thirteen state government tenants currently have the exercisable right to terminate their leases if the applicable state legislation does not appropriate rent in its annual budget. The Company has determined that the occurrence of any government tenant not being appropriated the rent in the applicable annual budget is a remote contingency and accordingly recognizes lease revenue on a straight-line basis over the respective lease term. These tenants represent approximately 14.3% of the Company’s total future minimum lease payments as of June 30, 2017.

9. Commitments and Contingencies

Other

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, 2017, 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

On February 1, 2016, the Company closed on the Internalization. Upon closing of the Internalization, the Company and certain of its subsidiaries acquired all of the outstanding stock of the Advisor. Pursuant to the Stock Purchase Agreement, at closing, the Company issued 297,321 shares of its common stock to the sellers. In addition, the Company recorded $3.5 million in the first quarter of 2016 in payments to the sellers upon reaching certain fully diluted market capitalization thresholds.

On January 13, 2017, the Company completed a public offering pursuant to which the Company sold 5,750,000 shares of its common stock to the public at a price of $12.40 per share, inclusive of the overallotment option. The Company raised $71.3 million in gross proceeds, resulting in net proceeds to us of approximately $68.0 million after deducting $3.3 million in underwriting discounts and other expenses related to the offering.

On June 16, 2017, the Company and the Operating Partnership entered into separate equity distribution agreements (the “Sales Agreements”) with each of KeyBanc Capital Markets Inc., Raymond James & Associates, Inc. and BMO Capital Markets Corp. (collectively, the “Sales Agents”), pursuant to which the Company may issue and sell from time to time up to 6,000,000 shares of its common stock, $0.01 par value per share, and up to 1,000,000 shares of its 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (collectively, the “Shares”), through the Sales Agents, acting as agents or principals (the “ATM Program”).

Pursuant to the Sales Agreements, the Shares may be offered and sold through the Sales Agents in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act including sales made directly on the New York Stock Exchange or sales made to or through a market maker other than on an exchange or, with the prior consent of the Company, in privately negotiated transactions. The Sales Agents will be entitled to compensation of up to 2.0% of the gross proceeds of Shares sold through the Sales Agents from time to time under the Sales Agreements. The Company has no obligation to sell any of the Shares under the Sales Agreements and may at any time suspend solicitations and offers under, or terminate, the Sales Agreements.

During the six month period ended June 30, 2017, we did not sell any Shares under the ATM Program.

Non-controlling Interests

Non-controlling interests in the Company represent common units not held by the Company or its consolidated subsidiaries. There were no non-controlling interests in the Company as of June 30, 2017. Common units and shares of common stock have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of the Operating Partnership. Beginning on or after the date which is 12 months after the date on which a person first became a holder of common units, each limited partner and assignees of limited partners will have the right, subject to the terms and conditions set forth in the partnership agreement, to require the Operating Partnership to redeem all or a portion of the common units held by such limited partner or assignee in exchange for a cash amount per common unit equal to the value of one share of common stock, determined in accordance with and subject to adjustment under the partnership agreement. The Company has the sole option at its discretion to redeem the tendered common units by issuing common stock on a one-for-one basis. The Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to its percentage ownership of common units.

During the six months ended June 30, 2017, 40,000 common units were redeemed for shares of common stock.

Common Stock and Common Unit Distributions

On June 27, 2017, the Company’s board of directors approved and the Company declared a cash dividend distribution of $0.235 per share for the quarterly period ended June 30, 2017. The dividend was paid on July 25, 2017 to common stockholders and common unitholders of record as of July 11, 2017 for an aggregate of $7.1 million.

Preferred Stock Distributions

During the quarter ended June 30, 2017, the Company’s board of directors approved and the Company declared a cash dividend of $0.4140625 per share for an aggregate amount of $1.9 million. The dividend was paid subsequent to quarter end on July 25, 2017.

Restricted Stock Units

The Company has an equity incentive plan (“Equity Incentive Plan”) for certain officers, directors, advisors and personnel, 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 LTIP 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 “plan administrator”).

The maximum number of shares of common stock that may be issued under the Equity Incentive Plan is 1,263,580 shares. 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.

During the six months ended June 30, 2017, 117,478 restricted stock units (“RSUs”) were granted to directors and non-executive employees with a fair value of $1.5 million. The awards will vest in three equal, annual installments on each of the first three anniversaries of the date of grant. For the six months ended June 30, 2017 the Company recognized net compensation expense of $1.2 million related to the RSUs.

A RSU award represents the right to receive shares of the Company’s common stock in the future, after the applicable vesting criteria, determined by the plan administrator, has been satisfied. The holder of an award of RSU has no rights as a stockholder until shares of common stock are issued in settlement of vested RSUs. The plan administrator may provide for a grant of dividend equivalent rights in connection with the grant of RSU; provided, however, that if the RSUs do not vest solely upon satisfaction of continued employment or service, any payment in respect to the related dividend equivalent rights will be held by the Company and paid when, and only to the extent that, the related RSU vest.

11. Subsequent Events

Subsequent to June 30, 2017 the Company, through the Operating Partnership, entered into an Agreement of Purchase and Sale to acquire a portfolio of properties in San Diego, California for $174.5 million, which is expected to close at the end of the third quarter of 2017, subject to customary closing conditions.

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.

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 quarterly report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition,” 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. These forward looking statements are not based on historical facts, but rather reflect our current expectations and projections about our future results, performance, prospects and opportunities. These forward looking statements may be identified by the use of words including “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “result” and similar terms and phrases. These forward looking statements are subject to a number of known and unknown risks, uncertainties and other factors that are difficult to predict and which could cause our actual future results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward looking statements. These risks, uncertainties and other factors include, among others:

•

adverse economic or real estate developments in the office sector or the markets in which we operate;

•

changes in local, regional, national and international economic conditions;

•

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;

•

defaults on or non-renewal of leases by tenants;

•

increased interest rates and any resulting increase in financing or operating costs;

•

decreased rental rates or increased vacancy rates;

•

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;

•

our failure to successfully operate acquired properties and operations;

•

changes in our business strategy;

•

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 qualify and maintain our status as a real estate investment trust (“REIT”);

•

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 Securities and Exchange Commission (the “SEC”), including but not limited to those described in our Annual Report on Form 10-K for the year ended December 31, 2016 under the heading “Risk Factors” and in our subsequent reports filed with the SEC.

The forward looking statements included in this report are made only as of the date of this report, and except as otherwise required by federal securities law, we do not have any obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.

Overview

Company

We were formed as a Maryland corporation on November 26, 2013. On April 21, 2014, we completed our initial public offering (“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 (the “Formation Transactions”).

The Company has elected to be taxed and will continue to operate in a manner that will allow it to qualify as a real estate investment trust (“REIT”) under 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 any applicable alternative minimum tax.

On February 1, 2016, the Company closed on the previously announced Internalization. The Company had previously entered into a Stock Purchase Agreement with certain stockholders of the Company’s external advisor, City Office Real Estate Management Inc. pursuant to which the Company acquired all of the outstanding stock of the Advisor. Pursuant to this Stock Purchase Agreement, at closing, the Company issued 297,321 shares of its common stock with a fair market value of $3.5 million to the Sellers, which include the Company’s three executive officers and Samuel Belzberg, a director of the Company. In addition, the Company was required to make cash payments to the Sellers of up to $3.5 million if the Company’s fully diluted market capitalization reached the

following thresholds prior to December 31, 2016: $1 million upon the Company achieving a $200 million fully diluted market capitalization, an additional $1 million upon the Company achieving a $225 million fully diluted market capitalization and an additional $1.5 million upon the Company achieving a $250 million fully diluted market capitalization. The Company paid an additional $3.5 million in the first quarter of 2016 representing the payments made to the Sellers upon reaching these fully diluted market capitalizations, which, together with the initial payment and professional fees, resulted in a total cost of $7.0 million in the year ended December 31, 2016. The amount was recorded as an expense in the accompanying condensed consolidated statements of operations as it represented the cost of terminating the relationship.

In connection with the closing of the Internalization, the Company entered into an amendment to the Advisory Agreement that eliminates the payment of acquisition fees by the Company to the Company’s former external Advisor. In addition, each of the Company’s executive officers entered into an employment agreement with the Company and became employees of the Company, and, at the same time, approximately eleven additional former employees of the Advisor and its affiliates became employees of the Company.

In connection with the closing of the transactions under the Stock Purchase Agreement, a subsidiary of the Company entered into an Administrative Services Agreement with Second City Capital II Corporation and Second City Real Estate II Corporation, related entities controlled by Mr. Belzberg. The Administrative Services Agreement has a three year term and pursuant to the agreement, the Company will provide various administrative services and support to the related entities managing the Second City funds. The Company’s subsidiary will receive annual payments for these services under the Administrative Services Agreement as follows: first 12 months—$1.5 million, second 12 months—$1.15 million and third 12 months—$0.625 million, for a total of $3.275 million over the three-year term.

Indebtedness

For additional information regarding these mortgage loans and the Secured Credit Facility, please refer to “Liquidity and Capital Resources” below.

Revenue Base

As of June 30, 2017, we owned 19 properties comprised of 36 office buildings with a total of approximately 4.4 million square feet of net rentable area (“NRA”). As of June 30, 2017, our properties were approximately 90.1% occupied.

Office Leases

Historically, most leases for our properties were 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 in our 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 in tenant recoveries. The tenants in the Lake Vista Pointe, FRP Ingenuity Drive and Superior Pointe properties have triple net leases. FRP Collection has triple net leases for three of its tenants. 2525 McKinnon has triple net leases for seven of its tenants. We are also a lessor for a fee simple ground lease at the AmberGlen property. All of our remaining leases are full-service gross leases.

Factors That May Influence Our Operating Results and Financial Condition

Business and Strategy

We focus on owning and acquiring office properties in our target markets. Our target markets generally possess what we believe are favorable economic growth trends, growing populations with above-average employment growth forecasts, a large number of government offices, large international, national and regional employers across diversified industries, are generally low-cost centers for business operations, and exhibit favorable occupancy trends. We utilize our management’s market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation. Our target markets are attractive, among other reasons, because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public REITs and there is a relatively low level of participation of large institutional investors. We believe that these factors result in attractive pricing levels and risk-adjusted returns.

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. As of June 30, 2017, our properties were approximately 90.1% occupied. The amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties. We believe that the average rental rates for our portfolio of properties are generally in-line or slightly below the current average quoted market rates. 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 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.

Our Properties

As of June 30, 2017, we owned 19 office complexes comprised of 36 office buildings with a total of approximately 4.4 million square feet of NRA in the metropolitan areas of Boise, Dallas, Denver, Orlando, Phoenix, Portland and Tampa. The following table presents an overview of our portfolio as of June 30, 2017 (properties listed by descending NRA by market).


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⁾
Tampa, FL	Park Tower		94.8	%		473		80.5	%	$	23.61	$	23.61	$	8,983
	City Center		95.0	%		241		100.0	%	$	24.31	$	24.31	$	5,859
	Intellicenter		100.0	%		204		100.0	%	$	22.82	$	22.82	$	4,645
	Carillon Point		100.0	%		124		100.0	%	$	26.68	$	26.68	$	3,313
Denver, CO	Cherry Creek		100.0	%		356		100.0	%	$	17.61	$	17.61	$	6,262
	Plaza 25		100.0	%		196		55.0	%	$	21.46	$	21.46	$	2,307
	DTC Crossroads		100.0	%		191		92.4	%	$	23.36	$	23.36	$	4,120
	Superior Pointe		100.0	%		149		95.8	%	$	17.08	$	27.08	$	2,439
	Logan Tower		100.0	%		70		95.5	%	$	19.72	$	19.72	$	1,320
Boise, ID	Washington Group Plaza		100.0	%		581		83.0	%	$	17.53	$	17.53	$	8,448
Dallas, TX	190 Office Center		100.0	%		303		88.6	%	$	23.96	$	23.96	$	6,438
	Lake Vista Pointe		100.0	%		163		100.0	%	$	15.00	$	23.00	$	2,450
	2525 McKinnon		100.0	%		111		100.0	%	$	26.29	$	36.04	$	2,927


Orlando, FL	FRP Collection	95.0	%	272	82.2	%	$	22.36	$	24.74	$	4,992
	Central Fairwinds	90.0	%	170	89.0	%	$	26.08	$	26.08	$	3,937
	FRP Ingenuity Drive	100.0	%	125	100.0	%	$	20.50	$	28.50	$	2,552
Phoenix, AZ	SanTan	100.0	%	267	100.0	%	$	26.53	$	26.53	$	7,070
	5090 N 40th St	100.0	%	176	89.0	%	$	27.58	$	27.58	$	4,317
Portland, OR	AmberGlen	76.0	%	201	96.0	%	$	19.17	$	21.68	$	3,702
Total / Weighted Average - June 30, 2017 ³				4,373	90.1	%	$	21.85	$	23.33	$	86,081

(1)

For Superior Pointe, FRP Ingenuity Drive and Lake Vista Pointe, the annualized base rent per square foot on a triple net basis was increased by $10, $8 and $8 respectively, to estimate a gross equivalent base rent. AmberGlen has a net lease for one tenant which has been grossed-up by $7 on a pro rata basis. FRP Collection has net leases for three tenants which have been grossed up by $8 on a pro-rata basis. 2525 McKinnon has net leases for seven tenants which have been grossed up by $14 on a pro-rata basis.

(2)	Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents before abatements) for the month ended June 30, 2017 by (ii) 12.

(3)	Averages weighted based on the property’s NRA, adjusted for occupancy.

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.

Summary of Significant Accounting Policies

The interim consolidated financial statements follow the same policies and procedures as outlined in the audited consolidated financial statements for the year ended December 31, 2016 included in our Annual Report on Form 10-K for the year ended December 31, 2016.

Results of Operations

Comparison of Three Months Ended June 30, 2017 to June 30, 2016

Total Revenue. Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Total revenues increased $9.1 million, or 57%, to $25.2 million for the three months ended June 30, 2017 compared to $16.1 million in the corresponding period in 2016. $0.9 million of this increase was attributed to the acquisition of Carillon Point in June 2016, $1.3 million from the acquisition of FRP Collection in July 2016, $2.9 million from the acquisition of Park Tower in November 2016, $1.2 million from the acquisition of 5090 N 40th St in November 2016, $1.9 million from the acquisition of SanTan in December 2016 and $1.4 million from the acquisition of 2525 McKinnon in January 2017. Further contributing to the increase, Washington Group Plaza increased by $0.8 million due to the downtime in the prior year associated with tenant improvement work for new tenants at the property replacing a tenant who departed on December 31, 2015. Offsetting these increases, Corporate Parkway decreased by $0.6 million due to the sale of the property in June 2016, AmberGlen decreased by $0.2 million primarily due to the sale of two of the five buildings in the complex in May 2017, and Plaza 25 decreased $0.4 million as a result of lower occupancy. The remaining properties revenues were relatively unchanged, decreased $0.1 million in comparison to three months ended June 30, 2016.

Rental Income. Rental income includes net rental income and income from a ground lease. Total rental income increased $7.4 million, or 52%, to $21.6 million for the three months ended June 30, 2017 compared to $14.2 million for the three months ended June 30, 2016. The increase in rental income was primarily due to the acquisitions described above. The acquisitions of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties contributed an additional $0.9 million, $1.1 million, $2.5 million, $1.1 million, $1.8 million and $0.9 million in rental income, respectively, to the 2016 period rental income. Washington Group Plaza also increased by $0.7 million due to the increased occupancy described above. Corporate Parkway decreased by $0.6 million due to the sale of the property in June 2016, Plaza 25 decreased $0.3 million as result of lower occupancy.

Expense Reimbursement. Total expense reimbursement increased $1.3 million, or 87%, to $2.8 million for the three month period ended June 30, 2017 compared to $1.5 million for the same period in 2016, primarily due to the acquisition of the FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties described above. Offsetting these increases is a decrease in Plaza 25 expense reimbursement income due to reduced occupancy over the prior year.

Other. Other revenue includes parking, signage and other miscellaneous income. Total other revenues increased $0.4 million, or 133%, to $0.7 million for the three month period ended June 30, 2017 compared to $0.3 million for the same period in 2016. Nominal other income was generated by City Center, Central Fairwinds, Plaza 25, Logan Tower, DTC Crossroads and Park Tower with the largest contribution from City Center and Park Tower parking income.

Operating Expenses

Total Operating Expenses. Total operating expenses consist of property operating expenses, as well as acquisition costs, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $7.0 million, or 49%, to $21.4 million for the three months ended June 30, 2017, from $14.4 million for the same period in 2016, primarily due to acquisitions described above. Total operating expenses increased by $0.7 million, $1.5 million, $2.3 million, $0.9 million, $1.7 million and $1.0 million, respectively, from the acquisitions of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon. Corporate Parkway decreased operating expenses by $0.5 million due to the sale of the property in June 2016. Washington Group Plaza operating expenses decreased by $0.4 million as a result of two offsetting changes. Depreciation decreased by $0.9 million as the property was designated as held for sale during the quarter at which point the property ceased depreciation offset by higher property operating expenses incurred due to the higher occupancy at the property. The remaining property operating expenses were relatively unchanged, in comparison to the prior year.

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 releasing costs. Property operating expenses increased $4.5 million, or 72%, to $10.7 million for the three months ended June 30, 2017 from $6.2 million for the same period in 2016. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties contributed an additional $0.4 million, $0.5 million, $1.2 million, $0.4 million, $0.7 million and $0.6 million in additional property operating expenses, respectively.

Acquisition Costs. Acquisition costs were $0 for the three month period ended June 30, 2017 compared to $0.1 million in the prior year. The company early adopted ASU 2017-01 and therefore costs associated with acquisitions are capitalized for the three months ended June 30, 2017 as part of the acquisition costs as required under the accounting for an asset acquisition.

General and Administrative. General and administrative expenses comprise of normal 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 were relatively unchanged at $1.5 million for the three month period ended June 30, 2017 compared to the same period in 2016. Expense growth including payroll and other costs were offset by lower stock compensation costs. Included in general and administrative expense for the three months ended June 30, 2017 was $0.4 million of non-cash stock-based compensation expense. Certain prior year amounts related to stock-based compensation expenses have been reclassified to general and administrative expenses to conform to current period presentation.

Depreciation and Amortization. Depreciation and amortization increased $2.6 million, or 40%, to $9.1 million for the three month period ended June 30, 2017 compared to $6.5 million for the same period in 2016, primarily due to the addition of the Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties offset by a decrease at Washington Group Plaza which ceased depreciation during the quarter due to the classification as held for sale and Corporate Parkway which decreased by $0.5 million due to the sale of the property in June 2016.

Other Expense (Income)

Interest Expense, Net. Interest expense increased $1.3 million, or 38%, to $4.7 million for the three month period ended June 30, 2017, compared to $3.4 million for the corresponding period in 2016. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Carillon Point, FRP Collection, 5090 N 40 ^th St, SanTan and 2525 McKinnon property level debt increased by $0.2 million, $0.3 million, $0.2 million, $0.4 million and $0.3 million respectively in 2017. Offsetting these increase, Corporate Parkway interest expense decreased $0.2 million due to the sale of the property in June 2016 and operating line interest decreased by $0.1 million due to the capital raise which occurred in January 2017.

Net Gain on the Sale of Real Estate Property. Net gain on the sale of real estate property relates to the sale of 2 buildings in our AmberGlen complex in May 2017. In the prior year, amounts relate to the sale of Corporate Parkway in June 2016.

Change in Fair Value of Contingent Consideration. On June 28, 2017 we received a $2 million refund from a third party escrow account related to the Park Tower acquisition when certain leasing thresholds were not achieved as a condition of that purchase in the prior year. No similar arrangements were in place in the prior year.

Comparison of Six Months Ended June 30, 2017 to Six Months Ended June 30, 2016

Total Revenue. Revenue includes net rental income, including parking, signage and other income, as well as the recovery of operating costs and property taxes from tenants. Total revenues increased $18.2 million, or 56%, to $50.6 million for the six month period ended June 30, 2017 compared to $32.4 million in the corresponding period in 2016. $1.8 million of this increase was attributed to the acquisition of Carillon Point in June 2016, $3.1 million from the acquisition of FRP Collection in July 2016, $5.6 million from the acquisition of Park Tower in November 2016, $2.3 million from the acquisition of 5090 N 40th St in November 2016, $3.8 million from the acquisition of SanTan in December 2016 and $2.4 million from the acquisition of 2525 McKinnon in January 2017. Further contributing to the increase, Washington Group Plaza increased by $1.4 million due to the downtime in the prior year associated with tenant improvement work for new tenants at the property replacing a tenant who departed on December 31, 2015. Offsetting these increases, Corporate Parkway decreased by $1.3 million due to the sale of the property in June 2016, and Plaza 25 decreased $0.6 million as a result of lower occupancy. The remaining properties revenues were relatively unchanged, decreased $0.2 million in comparison to three months ended June 30, 2016.

Rental Income. Rental income includes net rental income and income from a ground lease. Total rental income increased $15.6 million, or 55%, to $43.9 million for the six month period ended June 30, 2017 compared to $28.3 million for the six months ended June 30, 2016. The increase in rental income was primarily due to the acquisitions described above. The acquisitions of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties contributed an additional $1.7 million, $2.6 million, $4.9 million, $2.2 million, $3.7 million and $1.6 million in rental income, respectively, to the 2016 period rental income. Washington Group Plaza also increased by $1.3 million due to the increased occupancy described above. Corporate Parkway decreased by $1.3 million due to the sale of the property in June 2016, Plaza 25 decreased $0.5 million as result of lower occupancy.

Expense Reimbursement. Total expense reimbursement increased $1.8 million, or 54%, to $5.1 million for the six month period ended June 30, 2017 compared to $3.3 million for the same period in 2016, primarily due to the acquisition of the FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties described above. Offsetting these increases is a decrease in Plaza 25 expense reimbursement income due to reduced occupancy over the prior year.

Other. Other revenue includes parking, signage and other miscellaneous income. Total other revenues increased $0.8 million, or 114%, to $1.5 million compared to $0.7 million for the same period in 2016. Nominal other income was generated by City Center, Central Fairwinds, Plaza 25, Logan Tower, DTC Crossroads and Park Tower with the largest contribution from City Center and Park Tower parking income.

Operating Expenses

Total Operating Expenses. Total operating expenses consist of property operating expenses, as well as acquisition costs, base management fees, stock-based compensation, external advisor acquisition costs, general and administrative expenses and depreciation and amortization. Total operating expenses increased by $8.2 million, or 23%, to $43.7 million for the six month period ended June 30, 2017, from $35.5 million for the same period in 2016, primarily due to the property acquisitions described above offset by the external advisor acquisition costs of $7.0 million which occurred on February 1, 2016. Total operating expenses increased by $1.4 million, $3.0 million, $4.6 million, $1.7 million, $3.2 million and $1.7 million, respectively, from the acquisitions of Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon. Corporate Parkway decreased operating expenses by $1.1 million due to the sale of the property in June 2016. The remaining property operating expenses were relatively unchanged, in comparison to the prior year. The remaining increase relates to increases in general and administrative expenses including stock-based compensation related to our growth over the prior year.

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 releasing costs. Property operating expenses increased $7.9 million, or 64%, to $20.3 million for the six month period ended June 30, 2017 from $12.4 million for the same period in 2016. The increase in property operating expenses was primarily due to the acquisitions described above. The acquisition of the Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties contributed an additional $0.7 million, $1.1 million, $2.4 million, $0.8 million, $1.3 million and $0.8 million in additional property operating expenses, respectively.

Acquisition Costs. Acquisition costs were $0 for the six month period ended June 30, 2017 compared to $0.1 million in the prior year. The company early adopted ASU 2017-01 and therefore costs associated with acquisitions are capitalized for the six months ended June 30, 2017 as part of the acquisition costs as required under the accounting for an asset acquisition.

Base Management Fee. Base Management Fee was $0 for the six month period ended June 30, 2017 compared to $0.1 million for the six months ended June 30, 2016 representing the fee paid to our former external advisor. Effective February 1, 2016, with the acquisition of the external advisor, no base management fees will be paid going forward.

General and Administrative. General and administrative expenses increased $1.0 million, or 36%, to $3.8 million for the six month period ended June 30, 2017 compared to the same period in 2016. The increase is primarily attributable to payroll and other costs which the external advisor paid prior to February 1, 2016 and which the Company will pay going forward following the Internalization. Included in general and administrative expense for the six months ended June 30, 2017 was $1.2 million of non-cash stock-based compensation expense. Certain prior year amounts related to stock-based compensation expenses have been reclassified to general and administrative expenses to conform to current period presentation.

Depreciation and Amortization. Depreciation and amortization increased $6.5 million, or 50%, to $19.6 million for the six month period ended June 30, 2017 compared to $13.1 million for the same period in 2016, primarily due to the addition of the Carillon Point, FRP Collection, Park Tower, 5090 N 40th St, SanTan and 2525 McKinnon properties offset by a decrease at Washington Group Plaza which ceased depreciation during the quarter due to the classification as held for sale and Corporate Parkway which decreased by $1.1 million due to the sale of the property in June 2016.

Other Expense (Income)

Interest Expense, Net. Interest expense increased $1.7 million, or 23%, to $9.1 million for the six month period ended June 30, 2017, compared to $7.4 million for the corresponding period in 2016. The increase was primarily due to interest expense related to acquisitions. Interest expense for the Carillon Point, FRP Collection, 5090 N 40 ^th St, SanTan and 2525 McKinnon property level debt increased by $0.3 million, $0.6 million, $0.4 million, $0.7 million and $0.4 million respectively in 2017. Offsetting these increase, Corporate Parkway interest expense decreased $0.4 million due to the sale of the property in June 2016 and operating line interest decreased by $0.6 million due to the capital raise which occurred in January 2017.

Change in Fair Value of Contingent Consideration. On June 28, 2017 we received a $2 million refund from a third party escrow account related to the Park Tower acquisition when certain leasing thresholds were not achieved as a condition to that purchase in the prior year. No similar arrangements were in place in the prior year.

Cash Flows

Comparison of Six Months Ended June 30, 2017 to Six Months Ended June 30, 2016

Cash and cash equivalents were $68.1 million and $7.7 million as of June 30, 2017 and June 30, 2016, respectively.

Cash flow from operating activities. Net cash provided by operating activities increased by $10.3 million to $11.9 million for the six months ended June 30, 2017 compared to $1.6 million for the same period in 2016. The increase was mainly attributable to an increase in operating cash flows from the new acquisitions, offset by payment of the fair value of earn-out.

Cash flow to investing activities. Net cash used in investing activities increased by $45.3 million to $34.9 million used for the six months ended June 30, 2017 compared to $10.4 million provided by investing activities for the same period in 2016. The increase was primarily due to the of the acquisition of 2525 McKinnon.

Cash flow from financing activities. Net cash provided by financing activities increased by $89.9 million to $77.4 million for the six months ended June 30, 2017 compared to $12.5 million used for the same period in 2016. Cash flow from financing activities increased primarily due to proceeds from a public offering of our common stock that closed in January 2017, and proceeds from new mortgage payables, offset by repayment of borrowings from Secured Credit Facility

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $68.1 million of cash and cash equivalents and $24.0 million of restricted cash as of June 30, 2017.

On January 12, 2017, the Company, through a wholly-owned subsidiary of the Operating Partnership closed on the acquisition of 2525 McKinnon, an approximately 111,000 square foot tower located in Dallas, Texas, for $46.8 million, exclusive of closing costs.

On June 5, 2017, the Company closed on a $15.2 million loan secured by a first mortgage lien on the Central Fairwinds property in Orlando, Florida. The loan matures in June 2024. Interest is payable at a fixed rate of 4.00% per annum. In connection with the financing Central Fairwinds was removed as collateral on the Secured Credit Facility.

During the six month period ended June 30, 2017, we did not sell any Shares under the ATM Program.

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, reserves established from existing cash, proceeds from our public offerings, including under our ATM program, and borrowings under our mortgage loans and Secured 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 Secured 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, 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.

Consolidated Indebtedness as of June 30, 2017

As of June 30, 2017, we had approximately $415.9 million of outstanding consolidated indebtedness, 100% of which is fixed rate debt. The following table sets forth information as of June 30, 2017 with respect to our outstanding indebtedness (in thousands).


Debt	June 30, 2017		Interest Rate as of June 30, 2017			Maturity Date
Secured Credit Facility ⁽¹⁾	$	—		LIBOR ⁽²⁾ +2.25	%		June 2018
Washington Group Plaza ⁽³⁾		32,644		3.85			July 2018
AmberGlen Mortgage Loan ⁽⁴⁾		—		4.38			May 2019
Midland Life Insurance ⁽⁵⁾		89,361		4.34			May 2021
Lake Vista Pointe ⁽³⁾		18,460		4.28			August 2024
FRP Ingenuity Drive ⁽³⁾⁽⁶⁾		17,000		4.44			December 2024
Plaza 25 ⁽³⁾⁽⁷⁾		17,000		4.10			July 2025
190 Office Center ⁽⁷⁾		41,250		4.79			October 2025
Intellicenter ⁽⁷⁾		33,563		4.65			October 2025
FRP Collection ⁽⁷⁾		30,458		3.85			September 2023
Carillon Point ⁽⁷⁾		16,837		3.50			October 2023
5090 N 40 ^th St		22,000		3.92			January 2027
SanTan ⁽⁷⁾		35,100		4.56			March 2027
2525 McKinnon		27,000		4.24			April 2027
AmberGlen ⁽⁷⁾		20,000		3.69			May 2027
Central Fairwinds ⁽⁷⁾		15,240		4.00			June 2024

Total	$	415,913

(1)

At June 30, 2017 the Secured Credit Facility had $100 million authorized and was undrawn. In addition, the Secured Credit Facility has an accordion feature that will permit us to borrow up to $150 million, subject to additional collateral availability and lender approval. The Credit Agreement has a maturity date of June 26, 2018, which may be extended to June 26, 2019 at our option upon meeting certain conditions. The Secured Credit Facility requires us to maintain a fixed charge coverage ratio of no less than 1.60x. At June 30, 2017, the Secured Credit Facility was cross-collateralized by Logan Tower, Superior Pointe and Park Tower. During 2016 the authorized borrowing capacity was increased from $75 million to $100 million.

(2)	As of June 30, 2017, the one month LIBOR rate was 1.22%.

(3)	Interest on mortgage loan is payable monthly plus principal based on 360 months of amortization.

(4)

We are required to maintain a minimum net worth of $25 million and a minimum liquidity of $2 million. On May 2, 2017, in conjunction with the sale of the 1400 and 1600 buildings at the AmberGlen property, the Company repaid the outstanding debt secured on the property of $24.1 million plus closing costs and subsequently closed on a $20 million loan secured by a first mortgage lien on the remaining buildings.

(5)

(6)	We are required to maintain a minimum net worth of $17 million, minimum liquidity of $1.7 million and a debt service coverage ratio of no less than 1.15x.

(7)	We are required to maintain a debt service coverage ratio of no less than 1.45x, 1.15x, 1.20x, 1.40x, 1.35x,1.20x, 1.15x and 1.35x respectively for each of Plaza 25, 190 Office Center, Intellicenter, FRP Collection, Carillon Point, SanTan, AmberGlen and Central Fairwinds.

Contractual Obligations and Other Long-Term Liabilities

The following table provides information with respect to our commitments as of June 30, 2017, 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 Obligation	Total		2017		2018-2019		2020-2021		More than 5 years
Principal payments on debt	$	415,913	$	1,962	$	41,256	$	94,198	$	278,497
Interest payments		116,081		8,853		33,153		29,423		44,652
Tenant-related commitments ⁽¹⁾		7,885		6,715		1,156		14		—

Total	$	539,879	$	17,530	$	75,565	$	123,635	$	323,149

(1)	Consists principally of commitments for tenant improvements.

Off-Balance Sheet Arrangements

As of June 30, 2017, we did not have any off-balance sheet arrangements.

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.

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 have used, and will 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. As of June 30, 2017, our Company did not have any outstanding derivatives.

The primary market risk to which we are exposed is interest rate risk. Our primary interest rate exposure is LIBOR. We primarily use fixed interest rate financing to manage our exposure to fluctuations in interest rates.We consider our interest rate exposure to be minimal because as of June 30, 2017, approximately $415.9 million, or 100%, of our debt had fixed interest rates. A 10% increase in LIBOR would not impact our interest costs on debt outstanding as of June 30, 2017, but would decrease the fair value of our outstanding debt, as well as increase interest costs associated with future debt issuances or borrowings under our Secured Credit Facility.

Interest 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, 2017.

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.

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 their business. Our management does not believe that any such litigation will materially affect our financial position or operations.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the section entitled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.

Item 2. U nregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Ite m 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

On July 19, 2017, we, through a wholly-owned subsidiary of the Operating Partnership, entered into an Agreement of Purchase and Sale and Joint Escrow Instructions (the “PSA”), the form of which is filed hereto as Exhibit 10.5, to acquire a ten-building portfolio of properties in San Diego, California from an unaffiliated real estate company for $174.5 million, exclusive of closing costs. As of August 2, 2017, we have waived our due diligence conditions precedent under the PSA and have made a $10.0 million non-refundable deposit to the seller. The transaction is expected to close at the end of the third quarter of 2017, subject to customary closing conditions.

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 3, 2017).

3.2		Articles Supplementary to the Articles of Amendment and Restatement of City Office REIT, Inc. designating the Company’s 6.625% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share, dated June 16, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 20, 2017).

3.3		Second Amended and Restated Bylaws of City Office REIT, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 14, 2017).

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).

10.1		Third Amendment to the Amended and Restated Agreement of Limited Partnership of City Office REIT Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 20, 2017).

10.2		Equity Distribution Agreement, dated June 16, 2017, by and among City Office REIT, Inc., City Office Operating Partnership, L.P. and KeyBanc Capital Markets Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 20, 2017).



10.3		Equity Distribution Agreement, dated June 16, 2017, by and among City Office REIT, Inc., City Office Operating Partnership, L.P. and Raymond James & Associates, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 20, 2017).

10.4		Equity Distribution Agreement, dated June 16, 2017, by and among City Office REIT, Inc., City Office Operating Partnership, L.P. and BMO Capital Markets Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 20, 2017).

10.5		Form of Agreement of Purchase and Sale and Joint Escrow Instructions, dated July 19, 2017. †

12.1		Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends †

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		INSTANCE DOCUMENT*

101.SCH		SCHEMA DOCUMENT*

101.CAL		CALCULATION LINKBASE DOCUMENT*

101.LAB		LABELS LINKBASE DOCUMENT*

101.PRE		PRESENTATION LINKBASE DOCUMENT*

101.DEF		DEFINITION LINKBASE DOCUMENT*

†	Filed herewith.

Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.

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 4, 2017


By:		/s/ James Farrar
		James Farrar

		Chief Executive Officer and Director (Principal Executive Officer)

Date: August 4, 2017


By:		/s/ Anthony Maretic
		Anthony Maretic

		Chief Financial Officer, Secretary and Treasurer
		(Principal Financial Officer and Principal Accounting Officer)

Exhibit 10.5

FORM OF AGREEMENT OF PURCHASE AND SALE

AND JOINT ESCROW INSTRUCTIONS

SUMMARY AND DEFINITION OF BASIC TERMS

This Agreement of Purchase and Sale and Joint Escrow Instructions (this “ Agreement ”), dated as of the Effective Date set forth in Section 1 of the Summary of Basic Terms, below, is made by and between CITY OFFICE DEVELOPMENT, LLC, a Delaware limited liability company (“ Buyer ”), and a Delaware limited partnership (“ Seller ”) ¹ . The terms set forth below shall have the meanings set forth below when used in the Agreement.


TERMS OF AGREEMENT (first reference in the Agreement)		DESCRIPTION

1.	Effective Date (Introductory Paragraph):	July 19, 2017.

2.	Buildings ( Recital A ):	The buildings located on the “Land” situated in the City of San Diego, County of San Diego, California (each, a “ Building ,” and collectively, the “ Buildings ”).

3.	Broker ( Section 15 ):	None.

4.	Buyer’s Notice Address ( Section 14 ):	City Office Development, LLC 1075 W. Georgia Street, Suite 2010 Vancouver, BC V6E 3C9 Attn: Mr. Dave Seeley Fax No.: (614)-687-0769 Email: dseeley@cityofficereit.com With a copy to: Miller, Canfield, Paddock and Stone, P.L.C. 101 N. Main Street, 7th Floor Ann Arbor, MI 48104 Attention: Joseph M. Fazio Fax No.: (734) 747-7147 E-mail: fazio@millercanfield.com

¹ The legal name of the Seller has been removed throughout in order to preserve the Seller’s confidentiality at the Seller’s request.



5.	Purchase Price ( Section 2.1 ):	$174,500,000.00

6.	Initial Deposit ( Section 2.2.1 ):	$5,000,000.00

7.	Additional Deposit ( Section 2.2.2 ):	$5,000,000.00

8.	Escrow Holder and Escrow Holder’s Notice Address ( Section 3 ):	Fidelity National Title Insurance Co. 1300 Dove Street, Suite 310 Newport Beach, California 92660 Attn: Valerie Rapp VP, National Commercial Services Fax No.: (866) 935-6314 E-Mail: Valerie.rapp@fnf.com

9.	Contingency Date ( Section 4.1 ):	Wednesday, August 2, 2017

10.	Closing Date ( Section 3.2 ):	Thursday, September 28, 2017, subject to extension as set forth in Section 3.2.1 , below.

11.	Estoppel Certificate Percentage ( Section 4.3.2 ):	Seventy-five percent (75%) of the leased rentable square footage of the Buildings (inclusive of “Estoppel Certificates” for each of the “Major Tenants,” as those terms are defined in, and pursuant to the terms of, Section 4.3.2 , below).

12.	Title Company ( Section 4.2 ):	Fidelity National Title Insurance Co. 1300 Dove Street, Suite 310 Newport Beach, California 92660 Attn: Justin VanderVeen, VP, Nat’l Commercial Services Fax No.: (866) 477-3616 E-Mail: Justin.vanderveen@fnf.com

III

RECITALS

A. Seller owns those certain parcels of land located in the City of San Diego, County of San Diego, State of California and which is more particularly described on Exhibit A attached hereto (the “ Land ”), which Land is improved with the Buildings (other than an unimproved portion of the Land).

B. Seller desires to sell and convey to Buyer and Buyer desires to purchase and acquire from Seller all of Seller’s right, title and interest in and to the following:

i. The Land and all of Seller’s interest in all rights, privileges, easements and appurtenances benefiting the Land and/or the “Improvements,” as defined below, including, without limitation, Seller’s interest, if any, in all mineral and water rights and all easements, rights-of-way and other appurtenances used or connected with the beneficial use or enjoyment of the Land and/or the Improvements (the Land, the Improvements and all such rights, privileges, easements and appurtenances are sometimes collectively hereinafter referred to as the “ Real Property ”);

ii. The Building, associated parking and landscaped areas and all other improvements located on the Land (the “ Improvements ”);

iii. To the extent they are in effect on the Closing Date, all leases, licenses and occupancy agreements covering the Land and Improvements, a list of which is attached hereto as Exhibit I and any new leases which may be entered into with Buyer’s approval subsequent to the Effective Date and other new leases or amendments to leases permitted hereunder (said leases and agreements, together with any and all amendments, modifications or supplements thereto, are hereinafter referred to collectively as the “ Leases ”), subject to the exclusions contained in paragraph vi below;

iv. The Approved Contracts (as hereinafter defined);

v. All personal property, equipment, supplies and fixtures (collectively, the “ Personal Property ”) owned by Seller and located on, and used solely in connection with the operation and maintenance of, the Real Property, which Personal Property shall be more particularly identified in Schedule 1 to Exhibit G-1 attached hereto; provided, however such Personal Property expressly excludes the “ Seller Retained Personal Property ” identified on Exhibit G-2 ; and

vi. To the extent assignable, any intangible property issued to, or otherwise owned by, Seller in connection with the foregoing (i.e., the Real Property, Leases, Personal Property and applicable Contracts), warranties, guaranties, licenses, permits, entitlements, governmental approvals and certificates of occupancy which benefit the Real Property, the Improvements, and/or the Personal Property but excluding (i) any right to the use or ownership of any other similar name; (ii) any rights of Seller against third parties including, without limitation, tenants, with respect to the period prior to Closing, unless and to the extent otherwise expressly provided in this Agreement to the contrary, and (iii) the rights of Seller to rents and other income from tenants and other third parties for the period prior to the Closing Date, unless and to the extent otherwise expressly provided in this Agreement to the contrary (collectively, the “ Excluded Rights ”), (the “ Intangible Personal Property ”). The Real Property, the Improvements, the Personal Property, the Approved Contracts, Seller’s interest as lessor under the Leases and the Intangible Personal Property are sometimes collectively hereinafter referred to as the “ Property .”

C. Prior to the Contingency Date (and thereafter, as applicable), Buyer will have the opportunity to conduct all due diligence with regard to the Property as set forth in Sections 4.1 and 4.2 , below (collectively, the “ Due Diligence Investigations ”).

AGREEMENT

NOW, THEREFORE, in consideration of the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree as follows, and hereby instruct Escrow Holder as follows.

1. Purchase and Sale . Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, the Property upon the terms and conditions set forth in this Agreement.

2. Purchase Price .

2.1 Purchase Price . Subject to the terms, conditions and provisions of this Agreement, Buyer shall pay the Purchase Price for the Property as hereinafter provided in this Section 2 (as increased or decreased by prorations and adjustments as herein provided).

2.2 Deposit .

2.2.1 Initial Deposit . Within one (1) business day following the “Opening of Escrow,” as that term is defined in Section 3.1 , below, Buyer shall deliver to Escrow Holder the Initial Deposit. The Initial Deposit shall be deposited by Escrow Holder in an interest-bearing account at a federally insured institution as Escrow Holder, Seller and Buyer deem appropriate and consistent with the timing requirements of this Agreement. The interest thereon shall accrue to the benefit of the party receiving the Deposit pursuant to the terms of this Agreement, and Buyer and Seller hereby acknowledge that there may be penalties or interest forfeitures if the applicable instrument is redeemed prior to its specified maturity. The term “ Deposit ” hereunder shall include all interest so earned thereon. Buyer agrees to provide its Federal Tax Identification Number to Escrow Holder upon the Opening of Escrow. Provided that Buyer has affirmatively elected to proceed beyond the “Property Approval Period,” as that term is defined in Section 4.1.2 , below) pursuant to Section 4.1.4 , below, then upon the expiration of the Property Approval Period, the Initial Deposit shall become non-refundable except as otherwise provided in this Agreement. If prior to the expiration of the Property Approval Period Buyer delivers a Termination Notice or otherwise fails to deliver Buyer’s Notice to Proceed, then this Agreement shall be automatically terminated and the Initial Deposit, together with all interest accrued thereon, shall be returned to Buyer. If this Agreement has not been so terminated, then, after the expiration of the Property Approval Period, the Initial Deposit together with interest accrued thereon shall be: (i) applied and credited toward payment of the Purchase Price at the Close of Escrow, or (ii) retained by Seller as liquidated damages pursuant to Section 16.2 , below, or (iii) returned to Buyer if (A) this Agreement is terminated, and the provisions of Sections 4.4 or 13 apply, (B) this Agreement is terminated because of a breach by Seller, or (C) any other provision of this Agreement expressly provides that Buyer is entitled to a return of the Deposit.

2.2.2 Additional Deposit . Provided that Buyer has not delivered a Termination Notice and has delivered the Buyer’s Notice to Proceed prior to the expiration of the Property Approval Period, Buyer shall deliver to Escrow Holder the Additional Deposit on or before expiration of such Property Approval Period (the Additional Deposit, together with the Initial Deposit and any “Extension Deposit” (as set forth in Section 3.2.1 , below), shall be hereafter referred to as the “ Deposit ”). Upon receipt by Escrow Holder, the Additional Deposit shall become non-refundable except as otherwise provided in this Agreement. The Additional Deposit (and Extension Deposit, if applicable) together with interest accrued thereon shall be (i) applied and credited toward payment of the Purchase Price at the

Close of Escrow, or (ii) retained by Seller as liquidated damages pursuant to Section 16.2 , below, or (iii) returned to Buyer if (A) this Agreement is terminated and the provisions of Sections 4.4 or 13 apply, (B) this Agreement is terminated because of a breach by Seller, or (C) any other provision of this Agreement expressly provides that Buyer is entitled to a return of the Deposit.

2.3 Cash Balance . Prior to 10:00 a.m. (Pacific time) on the Closing Date, Buyer shall deposit with Escrow Holder cash by means of a confirmed wire transfer through the Federal Reserve System or cashier’s check in the amount of the balance of the Purchase Price, plus or minus Buyer’s share of expenses and prorations as described in this Agreement.

2.4 Independent Consideration . Concurrently with Buyer’s execution of this Agreement, Buyer shall deliver to Seller, by means of a wire transfer via Escrow, an amount equal to One Hundred and No/100 Dollars ($100.00) as independent consideration for Seller’s performance under this Agreement (“ Independent Consideration ”), in addition to the Deposit and the Purchase Price. The Independent Consideration is independent of any other consideration provided hereunder, shall be deemed fully earned by Seller upon the Effective Date hereof, shall be promptly forwarded by Escrow Holder to Seller and is not refundable under any circumstances.

3. Escrow and Title .

3.1 Opening of Escrow . Buyer and Seller shall promptly deliver a fully executed original of this Agreement to Escrow Holder (which delivery may be in counterparts), and the date of Escrow Holder’s receipt thereof is referred to as the “ Opening of Escrow ”; provided, however, the parties’ electronic delivery of such counterparts may be used for the Opening of Escrow to the extent their “wet-ink” original counterparts are concurrently delivered to Escrow Holder via Federal Express or other overnight courier or personal delivery. Seller and Buyer shall execute and deliver to Escrow Holder any additional or supplementary instructions as may be necessary or convenient to implement the terms of this Agreement and close the transactions contemplated hereby, provided such instructions are consistent with and merely supplement this Agreement and shall not in any way modify, amend or supersede this Agreement. Such supplementary instructions, together with the escrow instructions set forth in this Agreement, as they may be amended from time to time by the parties, shall collectively be referred to as the “ Escrow Instructions .” The Escrow Instructions may be amended and supplemented by such standard terms and provisions as the Escrow Holder may request the parties hereto to execute; provided, however, that the parties hereto and Escrow Holder acknowledge and agree that in the event of a conflict between any provision of such standard terms and provisions supplied by the Escrow Holder and the Escrow Instructions, the Escrow Instructions shall prevail.

3.2 Close of Escrow/Closing . For purposes of this Agreement, the “ Close of Escrow ” or the “ Closing ” shall mean the date on which the “Deed” (as defined in Section 5.1.1 , below) is recorded in the Official Records of the County where the Land is located (the “ Official Records ”), or if the Closing occurs with Seller’s consent prior to date on which the Deed is recorded as a part of a “gap” closing, the date on which such gap Closing occurs. The Close of Escrow shall occur on the Closing Date, subject to extension of the Closing as provided in the other provisions of this Agreement.

3.2.1 Extension of Closing Date . Buyer shall have one (1) option to extend the date of the Closing for a period of up to thirty (30) days following the otherwise scheduled Closing Date (the “ Extension Option ”). Buyer shall exercise the Extension Option, if at all, by delivering written notice to the Seller and Escrow Holder at least five (5) business days prior to the otherwise scheduled Closing Date (the “ Option Exercise Notice ”), which Option Exercise Notice shall specify the extended Closing Date. In addition, Buyer’s exercise of the Extension Option shall only be effective if, within two

(2) business days following the date of Buyer’s delivery of the Option Exercise Notice, Buyer delivers to Escrow Holder an additional deposit equal to Five Million and No/100 Dollars ($5,000,000.00) (the “ Extension Deposit ”). The Extension Deposit shall be part of the Deposit hereunder and applied pursuant to the terms of Section 2.2.2 , above.

3.3 Title Insurance . At the Close of Escrow, and as a condition precedent thereto, the Title Company shall issue to Buyer an ALTA (2006 form) extended coverage Owner’s Policy of Title Insurance (the “ Title Policy ”) with liability in the amount of the Purchase Price, showing fee simple title to the Property vested in Buyer, including “gap” coverage, if applicable, and subject only to (i) exceptions approved or deemed approved by Buyer pursuant to Section 4.2 , (ii) the Leases, (iii) non-delinquent real property taxes and special assessments, and (iv) any exceptions arising from Buyer’s actions, local, state and federal laws, ordinances or governmental regulations, including, but not limited to, building and zoning laws, ordinances and regulations, now or hereafter in effect relating to the Property (collectively, the “ Permitted Exceptions ”). Subject to the terms of Section 4.2 , Buyer shall be responsible to have prepared and delivered to the Title Company an ALTA survey of the Property, at Buyer’s expense; provided, however, if Buyer fails to so provide an ALTA survey for the Property acceptable to the Title Company for purposes of issuing the Title Policy, then the Title Policy to be issued on the Close of Escrow shall be an ALTA extended coverage Owner’s Policy of Title Insurance which shall include a general survey exception. Buyer shall pay the additional premium for extended coverage in excess of a standard CLTA policy and any endorsements requested by Buyer. Without limitation of the foregoing condition precedent to the Close of Escrow or the terms of Section 4.2 below, the Property Approval Period and Close of Escrow shall not be extended due to Buyer’s Title Policy requirements, except as otherwise agreed to by the Seller and Buyer.

4. Contingencies; Conditions Precedent to the Close of Escrow .

4.1 Buyer’s Review .

4.1.1 Delivery of Due Diligence Materials by Seller . To the extent within the possession or control of Seller, within three (3) business days following the Opening of Escrow, Seller shall make available (or continue to make available, if applicable) to Buyer and Buyer’s representatives vis-à-vis Seller’s online due diligence room relating to the Property for Buyer’s inspection and downloading and/or at Seller’s offices for inspection and right to copy, at Buyer’s expense, any environmental studies, soils studies, plans, specifications, maps, past surveys and other similar materials relating to the physical and environmental condition of the Property (“ Reports ”), excluding any privileged, confidential or proprietary materials or information (including, without limitation, internal memoranda of Seller, budgets, financial analyses or projections (other than current operating budgets), appraisal reports, organizational, financial and other documents relating to Seller or its affiliates, or any report or studies that have been superseded by subsequent reports or studies). Seller makes no representations or warranties regarding the sufficiency, truthfulness, completeness or accuracy of the Reports or that the Reports are complete copies of the same. Buyer acknowledges and understands that all such materials made available by Seller are only for Buyer’s convenience in making its own examination and determination prior to the Contingency Date as to whether it wishes to purchase the Property, and, in so doing, Buyer shall rely exclusively upon its own independent investigation, verification and evaluation of every aspect of the Property and not upon any of the Reports or materials supplied by Seller.

Without limiting the generality of the foregoing, within three (3) business days following the Opening of Escrow, Seller shall also make available (or continue to make available, if applicable) vis-à-vis Seller’s online due diligence room relating to the Property and/or at Seller’s offices for review and

copying, at Buyer’s expense, the following due diligence items (together with the Reports, collectively, “ Due Diligence Items ”): (i) to the extent in the possession of Seller or Seller’s property manager, any plans and specifications and elevator and generator permits for the Property, (ii) copies of all service contracts or service agreements relating to the operation and maintenance of the Property including, without limitation, the service contracts set forth on Exhibit J hereto (but expressly excluding any contracts Seller determines are “master contracts” affecting properties other than the Property, which shall in all circumstances constitute “Disapproved Contracts” (as set forth in Section 4.1.3 , below) under this Agreement) (collectively, the “ Contracts ”); (iii) property tax bills for the last three (3) fiscal tax years (or, if the Property has been owned by Seller for less than three (3) years, for such period of Seller’s ownership), and the property tax bill for the current year to the extent in the possession of Seller; (iv) a current operating budget and operating statements for the Property for the last two (2) calendar years and the current year-to-date; (v) to the extent in the possession of Seller, any existing ALTA surveys (unless superseded by the “Updated Surveys,” as that term is defined below); (vi) a rent roll for the Property, dated as of July 1, 2017, and copies of all Leases, together with all amendments, modifications, and supplements thereto, and tenant correspondence that is available onsite at Seller’s offices in hard files; and (viii) a statement of, and information regarding, historical capital expenditures and improvements for the last three (3) calendar years. In no event shall Seller be obligated to provide to Buyer any confidential or proprietary information, any appraisal or other valuation information or any documents or information subject to attorney-client privilege or that constitute attorney work product. Seller acknowledges Buyer may desire to (a) discuss or otherwise inquire about matters related to the Property with various governmental entities and utilities and other third parties, and (b) conduct customary tenant interview with tenants under the Leases (such third parties and tenants under the Leases are, collectively, the “ Third Parties ”). In this regard, Buyer is permitted to contact all necessary Third Parties, and discuss Due Diligence Items with such Third Parties (subject to Buyer’s confidentiality obligations hereunder); provided, however, that Buyer shall first provide Seller with written notice (which may be made by email) and a reasonable opportunity to be present at such contact or discussions at a time and location reasonably convenient to Seller. With respect to discussions with any tenant, Buyer shall give Seller not less than two (2) business days prior notice of its desire to meet with a certain tenant; (ii) Seller shall arrange the meeting with such tenant, and Buyer shall have no right to contact such tenant directly; (iii) Buyer shall not disclose to any tenant any of the terms or conditions which are set forth in this Agreement; (iv) Seller shall have the right to have a representative present at all times during each meeting with a tenant; and (v) Buyer shall not enter into any agreement with or make any commitment of any nature whatsoever to any tenant that would in any way be binding upon Seller. Notwithstanding anything to the contrary contained herein, Buyer may freely contact and communicate with state, county, and municipal and other governmental and quasi-governmental authorities in connection with publically available information regarding the Property. Seller shall, within one (1) business day following any such upload, but in no event later than one (1) business day prior to the Contingency Date, notify Purchaser (which notification shall be made by e-mail) of any item that is first uploaded to Seller’s online due diligence room or otherwise made available for review at Seller’s offices (to the extent not otherwise uploaded) after the Effective Date or that relates to the Property.

Notwithstanding the foregoing, in the event that Seller delivers notice of any new and material Due Diligence Items (“ New Due Diligence Items ”) to Buyer after the date that is three (3) business days prior to the Contingency Date (the “ New Due Diligence Items Date ”), the Property Approval Period, as it exclusively applies to such New Due Diligence Items, shall be extended by the number of days after the New Due Diligence Items Date that Seller delivers such New Due Diligence Items.

4.1.2 Entry Rights . Between the Effective Date and the Contingency Date (the “ Property Approval Period ”) and thereafter during the pendency of this Agreement, subject to the rights of tenants under the Leases, Buyer shall have the right to review and investigate the Due Diligence Items,

the physical and environmental condition of the Property, the character, quality, value and general utility of the Property, the zoning, land use, environmental and building requirements and restrictions applicable to the Property, the state of title to the Property, and any other factors or matters relevant to Buyer’s decision to purchase the Property. Buyer, in Buyer’s sole and absolute discretion, may determine whether or not the Property is acceptable to Buyer within the Property Approval Period and whether Buyer can secure appropriate financing thereon. Buyer shall provide Seller with at least two (2) business days’ prior email notice or telephone notice with a confirmation email of its desire to enter upon the Real Property for inspection and/or testing and any such inspections or testing shall be conducted at a time and manner reasonably approved by Seller and to minimize disruption or interference with any tenants. Seller shall have the right to be present at any such inspections or testings. Prior to conducting any inspections or testing, Buyer or its consultants shall deliver to Seller a certificate of insurance naming Seller as additional insured (on a primary, non-contributing basis) evidencing commercial general liability and property damage insurance with limits of not less than Two Million Dollars ($2,000,000) for liability coverage (plus Medical Expenses coverage with a limit of not less than Five Thousand and No/100 Dollars ($5,000.00) per incident), and not less than Two Million Dollars ($2,000,000) for property damage. In addition, prior to conducting any inspections or testing, Buyer or its consultants shall also deliver to Seller proof of (i) statutory Worker’s Compensation and (ii) Employer’s Liability Insurance with minimum limits of not less than One Million and No/100 Dollars ($1,000,000.00) each accident/employee/disease. Notwithstanding the foregoing, Buyer shall not be permitted to undertake any air or paint sampling or any intrusive or destructive testing of the Property, including, without limitation, a “Phase II” environmental assessment (collectively, the “ Intrusive Tests ”), without in each instance first obtaining Seller’s prior written consent thereto, which consent Seller may give or withhold in Seller’s sole and absolute discretion; provided, however, that if any “Phase I” environmental assessment identifies a recognized environmental condition or the potential for soil contamination and recommends further testing, Seller’s consent to a Phase II environmental assessment, the consultant performing such assessment, and the corresponding scope of work relating to such recommendation, may not be unreasonably withheld, conditioned or delayed. If Seller fails to advise Buyer of its approval of any proposed Intrusive Tests within such two (2) business day period, such failure shall be deemed Seller’s disapproval thereof. Buyer shall restore the Property to substantially its original condition, ordinary wear and tear and casualty excepted, immediately after any and all testing and inspections conducted by or on behalf of Buyer. Buyer hereby agrees to indemnify, defend and hold the Seller Group (as defined below), and the Property harmless from any and all costs, loss, damages or expenses of any kind or nature arising out of or resulting from any entry and/or activities upon the Property by Buyer and/or Buyer’s agents, employees, contractors or consultants; provided, however, such indemnification obligation shall not be applicable to the extent of (i) Buyer’s mere discovery of any pre-existing adverse physical condition at the Property, (ii) any such costs, loss, damages or expenses to extent arising out of the negligence or willful misconduct of Seller or any other member of the Seller Group, or (iii) any consequential, punitive, or specials damages. Notwithstanding anything to the contrary in this Agreement, Buyer shall not be relieved of its obligation to indemnify, defend and hold harmless Seller in the event that any pre-existing condition is aggravated by Buyer and/or Buyer’s representatives in connection with any inspection of the Property; provided, however, that such obligation of Buyer shall be limited to the extent of Buyer’s aggravation of the pre-existing condition. Buyer’s indemnification obligations under this section shall survive the Close of Escrow or any termination of this Agreement. Buyer agrees that the provisions of this Section 4.1.2 shall supersede any prior access agreements between Buyer (or its affiliate) and Seller, as of the date of this Agreement.

4.1.3 Contracts . Seller shall terminate, at its sole cost, expense, and liability, all Contracts at or prior to the Closing (the “ Disapproved Contracts ”); provided, however, in no event shall Seller be required to terminate any Contracts which by their terms are not terminable prior to the Closing or otherwise not terminable without payment by Seller of a penalty, charge or premium (“ Non-

Terminable Contracts ”), a true, correct, and complete list of which Non-Terminable Contracts is included on Exhibit J attached hereto and incorporated herein by reference. Notwithstanding anything to the contrary contained herein, all property management, listing, and brokerage agreements shall be deemed Disapproved Contracts and shall in no event constitute Non-Terminable Contracts, regardless of the terms thereof. Seller shall provide written notice of termination to those applicable third parties with respect to such Disapproved Contracts on or before the Closing. Notwithstanding the foregoing, Buyer may elect, by written notice to Seller delivered prior to the expiration of the Property Approval Period, to assume one or more Contracts at Closing (such Contracts, together with the Non-Terminable Contracts (collectively, the “ Approved Contracts ”) shall be assigned by Seller to Buyer at the Closing. Seller shall assign its rights and interests under the Approved Contracts to Buyer at the Closing pursuant to the Assignment of Contracts and Assumption Agreement, in substantially the form attached hereto as Exhibit F and made a part hereof.

4.1.4 Termination . If Buyer determines, in its sole and absolute discretion, that it disapproves the Property, then Buyer shall have the right to terminate this Agreement by delivering written notice thereof to Seller and Escrow Holder (the “ Termination Notice ”) prior to 5:00 p.m. (Pacific time) on the Contingency Date, and upon such timely delivery of such Termination Notice this Agreement shall be automatically terminated and the Deposit, together with all interest accrued thereon, shall be returned to Buyer. Without limitation of the immediately preceding sentence, in the event Buyer fails to deliver to Seller and Escrow Holder on or before the expiration of the Property Approval Period a written notice of its affirmative election to proceed beyond the Property Approval Period (“ Buyer’s Notice to Proceed ”), together with the delivery to Escrow of the Additional Deposit, then such failure shall have the same effect as though Buyer delivered a Termination Notice prior to the expiration of the Property Approval Period, and this Agreement shall be automatically terminated and the Deposit, together with all interest accrued thereon, shall be returned to Buyer.

4.1.5 Due Diligence Materials . In the event Buyer does not purchase the Property for any reason, within five (5) days after the date this Agreement is terminated Buyer shall return to Seller (or shall otherwise destroy) all documents, information and other materials supplied by Seller to Buyer, and, in the event Buyer does not purchase the Property for any reason other than a termination pursuant to Section 16.1 of this Agreement, at Seller’s written request, without warranty or representation of any kind, any inspection reports, studies, surveys, and other reports and/or test results relating to the Property which were developed by or on behalf of Buyer or prepared by consultants retained by Buyer in contemplation of this Agreement, at no charge to Seller (except for any reproduction, copying, or delivery costs charged by such consultants, which shall be paid by Seller); provided, however, in no event shall Buyer be obligated to deliver to Seller any documents, materials, or information that are confidential, proprietary, privileged, or that constitute attorney work product. Notwithstanding the foregoing, Buyer shall be entitled to retain copies of such documents supplied by Seller to Buyer to the extent required for audit purposes.

4.2 Title Report and Additional Title Matters . Within five (5) business days after the Effective Date, Seller shall cause Title Company to deliver to Buyer one or more preliminary title reports for the Property (collectively, the “ PTR ”), and copies of all underlying title documents described in the PTR. Additionally, as soon as is practicable after the Opening of Escrow, Seller shall deliver to Buyer, at Seller’s sole cost and expense, one or more ALTA/NSPS Land Title Surveys covering the Real Property performed by one or more surveyors or engineers licensed by, or otherwise legally qualified to perform such surveys in, the State of California, which shall be dated within thirty (30) days of the Effective Date, and which shall include the following Table A items: 1, 2, 3, 4, 6(a), 6(b), 7(a), 7(b)(1), 7(c), 8, 9, 11, 13, 14, 16, 17, 19, and 20 (collectively, the “ Updated Surveys ”); provided, however, following the initial delivery of such Updated Surveys to Buyer, Seller shall thereafter use commercially reasonable efforts to

cause the surveyors to address Buyer’s comments on, and requests for revisions to, such Updated Surveys. Buyer shall have until the date that is five (5) business days following its receipt of all of the PTR, underlying title documents described therein, and the Updated Surveys (the “ Interim Date ”) to provide written notice (the “ Title Notice ”) to Seller and Escrow Holder of any matters shown by the PTR, underlying title documents, or Updated Surveys which are not satisfactory to Buyer. If Seller has not received such written notice from Buyer by the Interim Date, that shall be deemed Buyer’s unconditional approval of the condition of title to the Property. Notwithstanding the foregoing to the contrary, all liens secured by deeds of trust securing loans made to Seller, mechanics’ liens relating to work pursuant to any agreements to which Seller is a party, judgment liens against Seller, delinquent taxes and all judgment liens against Seller securing an ascertainable amount and arising by, through, or under any parties other than the Buyer or any tenants under the Leases (herein “ Monetary Liens ”) shall be removed by Seller on or before the Closing Date, Buyer shall have no obligation to affirmatively object to the same in the Title Notice, and in no event shall any Monetary Liens constitute Permitted Exceptions. Except with respect to the removal of all Monetary Liens, Seller shall have no obligation whatsoever to expend or agree to expend any funds, to undertake or agree to undertake any obligations or otherwise to cure or agree to cure any title objections. To the extent Buyer timely delivers a Title Notice, then Seller shall deliver, on or before that date that is three (3) business days following the delivery or the Title Notice, written notice to Buyer and Escrow Holder identifying which disapproved items (other than Monetary Liens) Seller shall undertake to cure or not cure (“ Seller’s Response ”). If Seller does not timely deliver a Seller’s Response, Seller shall be deemed to have elected to not remove or otherwise cure any exceptions disapproved by Buyer. If Seller elects, or is deemed to have elected, not to remove or otherwise cure an exception disapproved in the Title Notice, Buyer shall have until the date that is two (2) business days following its receipt of Seller’s Response to notify Seller and Escrow Holder, in writing, of Buyer’s election to either (i) waive the objection or (ii) terminate this Agreement and the Escrow. If Seller and Escrow Holder have not received written notice from Buyer by the Contingency Date, that shall be deemed Buyer’s election to terminate this Agreement under subpart (ii) above; provided, however, Buyer’s timely delivery of Buyer’s Notice to Proceed in accordance with Section 4.1.4 , above, shall be deemed Buyer’s approval of the actual or deemed Seller’s Response. Except for Monetary Liens, all matters shown in the PTR and Updated Surveys with respect to which Buyer fails to give a Title Notice on or before the Interim Date shall be deemed to be approved by Buyer.

4.3 Conditions Precedent to Buyer’s Obligations :

4.3.1 Title Policy . On or before the Closing, Title Company shall have irrevocably committed to issue to Buyer the Title Policy described in Section 3.3 .

4.3.2 Tenant Estoppel Certificates . On or before the date which is three (3) business days prior to the Closing Date (the “ Estoppel Delivery Date ”), Seller shall have delivered to Buyer an Estoppel Certificate in the form of Exhibit E-1 attached hereto (or in the form a tenant is required to deliver under its Lease if the Lease specifies a specific, attached form of estoppel certificate) (the “ Estoppel Certificate ”) from (i) all Major Tenants (except as otherwise provided below) and (ii) any additional tenants who, collectively with such Major Tenants, lease no less than the Estoppel Certificate Percentage (the “ Estoppel Delivery Condition ”). Prior to delivering Estoppel Certificates to the tenants for execution (which in no event shall occur prior to August 15, 2017; provided, however, if Buyer exercises its Extension Option in accordance with Section 3.2.1 of this Agreement prior to August 15, 2017, then Seller shall delay the delivery of the Estoppel Certificates to the tenants until the date that is forty-five (45) days prior to the extended Closing Date), Seller shall first deliver drafts thereof to Buyer for its review and approval, which drafts shall be deemed approved by Buyer if Buyer fails to comment on such drafts within three (3) business days of Buyer’s receipt of the same. In the event Seller is unable to obtain Estoppel Certificates sufficient to satisfy the Estoppel Delivery Condition by the Estoppel

Delivery Date, Buyer may elect to (A) extend the Estoppel Delivery Date by up to thirty (30) days (thereby automatically extending the Closing Date by the same amount of time), (B) terminate the Agreement and Escrow pursuant to Section 4.4 , below, or (C) waive such condition and proceed to the Closing. To the extent that an Estoppel Certificate executed by a tenant is a “Non-Complying Tenant Estoppel Certificate” (as defined in the following sentence), Buyer shall have two (2) business days after receipt of such Non-Complying Estoppel Certificate to approve or disapprove the applicable Estoppel Certificate so received (and the failure to timely do so shall constitute approval thereof). A “ Non-Complying Tenant Estoppel Certificate ” means an Estoppel Certificate which (a) discloses material adverse terms of the applicable Lease that were not disclosed to Buyer (whether in the applicable Lease, this Agreement or any other document delivered to Buyer) prior to the date of the delivery of such Estoppel Certificate to Buyer, (b) alleges a material default of Seller (as landlord) under the applicable Lease, (c) discloses a material dispute between the landlord and a tenant in connection with the applicable Lease, or (d) is not (or will not be) dated within forty-five (45) days of the Closing Date; provided, however, that any Estoppel Certificate that would otherwise satisfy this subsection (d) and that becomes “stale” solely by reason of Buyer’s exercise of its Extension Option shall be deemed to satisfy this subsection (d). Notwithstanding anything to the contrary contained herein, Seller shall use commercially reasonable efforts to obtain Estoppel Certificates from all tenants under the Leases. If Seller is unable to obtain enough Estoppel Certificates to achieve the Estoppel Certificate Percentage by the Estoppel Delivery Date, Seller may (but is not required to) deliver estoppel certificates (each, a “ Seller Estoppel Certificate ”) substantially in the form of Exhibit E-2 attached hereto (or such other form or requirements as may be provided for in the applicable Lease) executed by Seller covering such leases as are sufficient, when aggregated with the Estoppel Certificates previously delivered to Buyer, to satisfy the Estoppel Certificate Percentage, provided that Buyer shall not be obligated to accept Seller Estoppel Certificates that (1) collectively cover in excess of ten percent (10%) of the area of the Property actually rented to tenants, or (2) cover any Major Tenant. Seller’s representations and warranties in any Seller Estoppel Certificates will survive the Closing, subject to the limitations contained in this Agreement with respect to all other representations of Seller. In the event that Buyer receives an estoppel certificate from a tenant complying with the requirements of this Section and for which Seller previously delivered a Seller Estoppel Certificate, Seller shall be automatically released from any liability or obligation under Seller’s Estoppel Certificate.

4.3.3 Seller’s Performance . Seller shall have duly performed in all material respects each and every covenant of Seller hereunder.

4.3.4 Accuracy of Representations and Warranties . On the Closing Date, all representations and warranties made by Seller in Section 11 shall be true and correct in all material respects as if made on and as of the Closing Date except for (i) any inaccuracies therein known by Buyer prior to the Contingency Date, (ii) any changes in circumstances contemplated or permitted by this Agreement and (iii) except that the representations and warranties in Section 11.5 shall not be deemed remade at Closing and any change in such representations and warranties subsequent to the date hereof shall not give Buyer the right to terminate the Agreement, to a return of the Deposit or to any other rights or remedies against Seller, except, in each case, for the Lease-related representations and warranties otherwise expressly set forth in Section 11.12 .

4.4 Failure of Conditions Precedent to Buyer’s Obligations . Buyer’s obligations with respect to the transactions contemplated by this Agreement are subject to the satisfaction of the conditions precedent to such obligations for Buyer’s benefit set forth in Section 4.3 . If Buyer delivers (or is deemed to have delivered) a Termination Notice or if Buyer terminates this Agreement by notice to Seller because of the failure of such conditions precedent, then (i) Escrow Holder shall return the Deposit to Buyer (plus interest accrued on the Deposit only while held by Escrow Holder) in accordance with

Buyer’s written instructions within three (3) business days following such termination, (ii) Seller and Buyer shall each pay one-half (1/2) of any Escrow cancellation fees or charges, and (iii) except for Buyer’s indemnity and confidentiality obligations and any other provisions under the Agreement which expressly survive termination of the Agreement, the parties shall have no further rights or obligations to one another under this Agreement.

4.5 Conditions Precedent to Seller’s Obligations . The Close of Escrow and Seller’s obligations with respect to the transactions contemplated by this Agreement are subject to the timely satisfaction or waiver of the following conditions: (i) Buyer shall have duly performed in all material respects each and every covenant of Buyer hereunder, and (ii) Buyer’s representations and warranties set forth in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on and as of the Closing Date. Without limitation of the foregoing, Buyer shall have timely delivered the Purchase Price pursuant to the provisions of Section 2 , above.

5. Deliveries to Escrow Holder .

5.1 Seller’s Deliveries . Seller hereby covenants and agrees to deliver or cause to be delivered to Escrow Holder at least one (1) business day prior to the Closing Date (or other date specified) the following funds, instruments and documents, the delivery of each of which shall be a condition to the Close of Escrow:

5.1.1 Deed . A Grant Deed (the “ Deed ”) in the form of Exhibit B attached hereto, duly executed and acknowledged in recordable form by Seller, conveying Seller’s fee simple interest in the Real Property to Buyer;

5.1.2 Non-Foreign Certifications . Certificates duly executed by Seller in the forms of Exhibits C-1 and C-2 attached hereto (the “ Tax Certificates ”);

5.1.3 Assignment and Assumption of Leases . Two (2) counterparts of the Assignment and Assumption of Leases in the form of Exhibit D attached hereto pursuant to which Seller shall assign to Buyer all of Seller’s right, title and interest in, under and to the Leases (the “ Lease Assignment ”);

5.1.4 Assignment of Contracts and Assumption Agreement . Two (2) counterparts of the Assignment of Contracts and Assumption Agreement (“ Assignment of Contracts ”) duly executed by Seller in the form attached hereto as Exhibit F pursuant to which Seller shall assign to Buyer all of Seller’s right, title and interest in, under and to the Approved Contracts;

5.1.5 Bill of Sale . Two (2) counterparts of a Bill of Sale (“ Bill of Sale ”) duly executed by Seller in the form attached hereto as Exhibit G-1 conveying Seller’s right, title and interest in and to the Personal Property;

5.1.6 General Assignment . Two (2) counterparts of a General Assignment duly executed by Seller in the form of Exhibit H attached hereto (the “ General Assignment ”);

5.1.7 Tenant Letter . A letter (“ Tenant Notice Letter ”) signed by Seller addressed to the tenants under the Leases advising such tenants of the sale of the Property to Buyer, the transfer of such tenant’s security deposit to Buyer, and directing that all future rent payments and other charges under the Leases be forwarded to Buyer at an address to be supplied by Buyer. Notwithstanding the foregoing, the Tenant Notice Letters shall not be delivered through Escrow but shall be sent directly by Seller to the tenants upon the Closing;

5.1.8 Letters of Credit . In accordance with Section 8.4 , below, such transfer documentation as may be necessary to transfer all tenant security deposits held by Seller under the Leases in the form of a letter of credit (“ Letters of Credit ”) or any other non-cash form, together with all original Letters of Credit (“ LC Documentation ”);

5.1.9 Proof of Authority . Such proof of Seller’s authority and authorization to enter into this Agreement and the transactions contemplated hereby, and such proof of the power and authority of the individual(s) executing and/or delivering any instruments, documents or certificates on behalf of Seller to act for and bind Seller, as may be reasonably required by Title Company;

5.1.10 Turnover . To the extent Seller is obligated under this Agreement to deliver the Personal Property and any materials, items or any other portion of the Property (e.g., keys, equipment manuals, on-site equipment, etc.) to Buyer as of the Closing, Seller shall do so either by ( i ) delivering the same directly to Buyer outside of Escrow, or ( ii ) leaving such materials and items at the management office located at the Property in an organized and readily accessible manner; provided, however, with respect to the Approved Contracts and the Leases and any Lease-related files maintained by Seller, Seller shall, to the extent in the possession of Seller, any affiliate of Seller or Seller’s property manager, deliver originals of the same to Buyer upon the Closing. Without limitation on the foregoing, Seller shall at Closing, to the extent in Seller’s, any affiliate of Seller’s or Seller’s property manager, possession as of the Closing, deliver (or leave at the Property) copies of utility bills, real property tax bills, operating statements and records which are material to the continued operation and leasing of the Property (excluding any privileged, confidential or proprietary documents) for the period of Seller’s ownership of the Property preceding the Closing.; and

5.1.11 Other Documents . Such other duly executed instruments and documents as may be reasonably necessary or customary to consummate the transaction contemplated hereby, including, without limitation, a commercially reasonable owner’s affidavit in the form required by Title Company and a closing statement evidencing, among other things, the prorations and adjustments to be made pursuant to this Agreement (the “ Closing Statement ”).

5.2 Buyer’s Deliveries . Buyer hereby covenants and agrees to deliver or cause to be delivered to Escrow Holder at least one (1) business day prior to the Closing Date (except as otherwise set forth hereinbelow) the following funds, instruments and documents, the delivery of each of which shall be a condition to the Close of Escrow:

5.2.1 Buyer’s Funds . Prior to 10:00 a.m. (Pacific time) on the Closing Date, the balance of the Purchase Price, and such additional funds, if any, necessary to comply with Buyer’s obligations hereunder regarding prorations, credits, costs and expenses;

5.2.2 Lease Assignment . Two (2) counterparts of the Lease Assignment duly executed by Buyer;

5.2.3 Assignment of Contracts . Two (2) counterparts of the Assignment of Contracts duly executed by Buyer;

5.2.4 Bill of Sale . Two (2) counterparts of the Bill of Sale duly executed by Buyer;

5.2.5 General Assignment . Two (2) counterparts of the General Assignment duly executed by Buyer;

5.2.6 Proof of Authority . Such proof of Buyer’s authority and authorization to enter into this Agreement and the transactions contemplated hereby, and such proof of the power and authority of the individual(s) executing and/or delivering any instruments, documents or certificates on behalf of Buyer to act for and bind Buyer, as may be reasonably required by Title Company; and

5.2.7 Other Documents . Such other duly executed instruments and documents as may be reasonably necessary or customary to consummate the transaction contemplated hereby, including, without limitation, the Closing Statement.

6. Deliveries Upon Close of Escrow . Upon the Close of Escrow, Escrow Holder shall promptly undertake all of the following:

6.1 Tax Filings . The Title Company shall file the information return for the sale of the Property required by Section 6045 of the Internal Revenue Code of 1986, as amended, and the Income Tax Regulations thereunder.

6.2 Prorations . Prorate all matters referenced in Section 8 based upon the statement delivered into Escrow signed by the parties;

6.3 Recording . Cause the Deed and any other documents which the parties hereto may direct, to be recorded in the Official Records in the order directed by the parties;

6.4 Seller Funds . Deduct all items chargeable to the account of Seller pursuant to Section 7 , below. If, as the result of the net prorations and credits pursuant to Section 8 , amounts are to be charged to the account of Seller, deduct the total amount of such charges (unless Seller elects to deposit additional funds for such items in Escrow); and if amounts are to be credited to the account of Seller, disburse such amounts to Seller, or in accordance with Seller’s instructions, at Close of Escrow. Disburse the Purchase Price to Seller, or as otherwise directed by Seller, promptly upon the Close of Escrow in accordance with Seller’s wire transfer instructions.

6.5 Buyer Funds . Disburse from funds deposited by Buyer with Escrow Holder towards payment of all items and costs (including, without limitation, the Purchase Price, which shall be disbursed in accordance with Section 6.4 above and this Section 6.5 ) chargeable to the account of Buyer pursuant hereto in payment of such items and costs and disburse the balance of such funds, if any, to Buyer;

6.6 Documents to Seller . Deliver to Seller counterpart originals of the Lease Assignment, the Assignment of Contracts, the Bill of Sale and the General Assignment executed by Buyer and a conformed recorded copy of the recorded Deed;

6.7 Documents to Buyer . Deliver to Buyer an original of the Tax Certificates, and counterpart originals of the Lease Assignment, Assignment of Contracts, Bill of Sale and General Assignment appropriately executed by Seller, originals of the LC Documentation, a conformed recorded copy of the Deed, and, when issued, the Title Policy; and

6.8 Title Policy . Direct the Title Company to issue the Title Policy to Buyer.

7. Costs and Expenses . Seller shall pay through Escrow (i) that portion of the Title Policy premium for standard CLTA owner’s coverage, (ii) all state, county, and municipal documentary and/or transfer taxes, (iii) one-half ( ¹ ⁄ ₂ ) of the Escrow Holder’s fee, and (iv) for the cost of the draft Updated Surveys submitted to Buyer pursuant to Section 4.2 , above, inclusive of the initial certification of such Updated Surveys to Buyer. In addition, Seller shall pay outside of Escrow all legal and professional fees and costs of attorneys and other consultants and agents retained by Seller. Buyer shall pay through Escrow (w) all document recording charges for the Deed, (x) the additional Title Policy premium for ALTA extended coverage and any title endorsements requested by Buyer, (y) one-half ( ¹ ⁄ ₂ ) of the Escrow Holder’s fee, and (z) all charges for any modifications, endorsements, re-certifications (e.g., to Buyer’s lenders) or further Buyer-requested changes to the Updated Surveys. Buyer shall pay outside of Escrow all costs and expenses related to the Due Diligence Investigations, and all legal and professional fees and costs of attorneys and other consultants and agents retained by Buyer.

8. Prorations . The following prorations between Seller and Buyer shall be made by Escrow Holder computed as of the Close of Escrow:

8.1 Ad Valorem Taxes . All real estate and personal property taxes attributable to the Property for years prior to Closing shall be paid in full by Seller at or prior to Closing. Seller shall be charged with all such taxes up to, but not including, the Closing Date. If the applicable tax rate and assessments for the Property have not been established for the fiscal tax year in which Closing occurs, the estimated proration of real estate and/or personal property taxes, as the case may be, will be calculated at 102% of the rate and assessments for the preceding fiscal tax year. All taxes imposed because of a change of use of the Property after Closing will be paid by Buyer. Real property tax refunds and credits received after the Closing which are attributable to a fiscal tax year prior to the Closing shall belong to Seller, and those which are attributable to the fiscal tax year in which the Closing occurs shall be prorated based upon the date of Closing.

8.2 Excise, Transfer and Sales Taxes . Seller will be responsible for the payment of all excise, transfer, sales and use taxes imposed with respect to the conveyance of the Personal Property contemplated by this Agreement and will indemnify, defend and hold Buyer harmless from the payment of such taxes; provided, however, Seller shall have the right to reasonably designate the value of such Personal Property.

8.3 Lease Rentals . All non-delinquent rents (including all accrued tax and operating expense pass-throughs), charges and revenue of any kind receivable from the Leases and other income of the Property will be prorated at Closing. Seller will receive all rents (including all accrued tax and operating expense pass-throughs), charges and other revenue of any kind receivable from the Leases up to, but not including, the Closing Date. No proration will be made with respect to any delinquent rents of any kind receivable from the Leases for any period before Closing. All amounts collected by Seller or Buyer subsequent to Closing relating to delinquent rents or other income from the Property will be promptly remitted to Buyer (if collected by Seller) and applied first to the rental or other income period in which the Closing occurred, second to any then-current rental or other income period following the Closing and any delinquent rental accruing following the Closing, and third to satisfy delinquent rental or other income obligations for any period before Closing not prorated at Closing, with any such applicable amounts remitted (as needed) to the party entitled to such amounts as set forth hereinabove. Seller will retain all ownership rights relating to any such delinquent rents or income attributable to the period prior to the Closing; if Buyer has not collected the same within sixty (60) days from the Closing Date, then Seller may take such action as it deems necessary to collect such delinquent rents or other income, including the commencement of an action against the tenants under the Leases or any other person liable for such delinquent rents, but not including any action for unlawful detainer or other action seeking to

terminate such tenant’s occupancy of its premises or such tenant’s Lease. Notwithstanding the foregoing, if any of such operating expenses and other charges and expenses are payable by tenants under the Leases (collectively, the “ Tenant Charges ”) on an estimated basis, then the Tenant Charges shall be reconciled against actual charges and expenses as of and at the Closing, to the extent then possible, and Seller shall provide a proposed reconciliation for Buyer’s approval. Seller shall have a period of one hundred eighty (180) days following the actual Closing Date to provide Buyer with a final reconciliation of Tenant Charges (“ Final Reconciliation ”), which shall be subject to Buyer’s review and approval, not to be unreasonably withheld. Buyer agrees to provide Seller with reasonable accounting records or a copy of the general ledger for Buyer’s 2017 ownership period to be used by Seller when preparing the Final Reconciliation. If the Final Reconciliation shows that Seller owes Buyer additional sums, Seller shall deliver such amount to Buyer, together with the delivery of the Final Reconciliation of the Tenant Charges. If the Final Reconciliation shows that Buyer owes Seller additional sums, Buyer shall pay such amount to Seller within thirty (30) days after Buyer’s receipt of such Final Reconciliation. Other than as set forth above, there shall not be any further reconciliation of such Tenant Charges after the Final Reconciliation thereof, the proration of such Tenant Charges pursuant to the Final Reconciliation being conclusively presumed to be accurate. After the Final Reconciliation of Tenant Charges is made by and between the parties, Buyer shall be solely liable and responsible to the tenants under the Leases for such reconciliation of Tenant Charges under the Leases. The foregoing covenants made by the parties with respect to the Final Reconciliation of the Tenant Charges shall survive the Closing.

8.4 Security Deposit . Buyer shall be credited and Seller shall be charged with the balance of any unapplied security deposits held by Seller under the Leases as of the Effective Date and any security deposits paid to Seller after the Effective Date. With respect to any security deposits that are held in the form of Letters of Credit or any form other than cash, then at least one (1) business day prior to the Closing Seller shall (i) execute and deliver to Escrow Holder such original assignment and/or transfer documentation as may be necessary to effect the transfer of each Letter of Credit or other non-cash security deposit to Buyer, and (ii) deliver into Escrow the originals of such Letters of Credit or other applicable documents. Seller shall be responsible for the amount of the transfer fee required under such Letters of Credit to the extent not the responsibility of the corresponding tenant. Until each such Letter of Credit is effectively assigned and/or reissued in the name of Buyer in accordance with its respective terms, Seller agrees to cooperate with Buyer, at no material expense or liability to Seller, in connection with the assignment and reissuance of such Letters of Credit and otherwise in order to afford Buyer the practical benefits of such Letters of Credit, including, without limitation, drawing thereupon at the direction of Buyer and remitting the proceeds thereof to Buyer, all of which obligations shall survive the Closing.

8.5 Operating Expenses . All utility service charges for electricity, heat and air conditioning service, other utilities, elevator maintenance, common area maintenance, taxes other than real estate taxes such as rental taxes, other expenses incurred in operating the Property that Seller customarily pays and that are not paid by tenants on an estimated or other basis, and any other costs incurred in the ordinary course of business or the management and operation of the Property not so paid by tenants, shall be prorated on an accrual basis. Seller shall pay all such expenses that accrue prior to the Close of Escrow and Buyer shall pay all such expenses accruing on the Close of Escrow and thereafter. Seller and Buyer shall use commercially reasonable efforts to obtain billings and meter readings as of the Close of Escrow to aid in such prorations. It is the intent of the parties that all costs and expenses addressed above in this Section 8.5 be finally ascertained and paid by Seller as of the date immediately preceding the Close of Escrow, such that no proration shall be necessary under this Section 8.5 .

8.6 Leasing Costs . If the Closing occurs, (i) Seller shall be responsible and shall pay for the costs of tenant improvement work or allowances, third-party leasing commissions and other

leasing costs (collectively, the “ Leasing Costs ”) relating to the initial term of those Leases executed as of the Effective Date, the outstanding amounts of which are set forth on Exhibit K hereto, as such exhibit may be modified and agreed upon between the parties prior to the Contingency Date, and are designated as being the obligation of Seller, and (ii) Buyer shall be responsible and shall pay for the Leasing Costs relating to or arising from (a) the exercise by any tenant, after the Effective Date, of a renewal, expansion or extension option contained in any of the Leases executed as of the Effective Date; (b) any New Leases (including modifications to Leases in effect as of the Effective Date) entered into after the Effective Date in accordance with the terms of Section 9.2 , below, and (c) any Leasing Costs which are specifically designated as being the responsibility of Buyer as set forth in Exhibit K hereto. Any Leasing Costs which are the responsibility of Buyer which are paid by Seller prior to the Closing shall be reimbursed by Buyer to Seller at the Closing through the Escrow, provided that Seller shall have delivered to Buyer and Escrow Holder evidence of such payments and such other documents as may be reasonably requested by Buyer, including, without limitation, commercially reasonable construction lien releases and/or waivers from contractors with respect to such payments, if applicable. If, on the Closing, there are any outstanding or unpaid Leasing Costs which are the responsibility of Seller as set forth herein, then on the Closing Buyer shall be entitled to a credit toward the payment of the Purchase Price at Closing in the amount of such unpaid Leasing Costs, and following the Closing (A) Buyer shall assume and be responsible for the payment of such Leasing Costs to the extent of such credit, (B) Seller shall assign to Buyer all construction contracts relating to such outstanding Leasing Costs, and (C) Buyer shall indemnify, defend and hold harmless Seller for the failure to complete such work related to such outstanding Leasing Costs for which Buyer received a credit.

8.7 Contracts . Amounts payable under the Approved Contracts shall be prorated on an accrual basis. Seller shall pay all amounts due thereunder which accrue prior to the Close of Escrow and Buyer shall pay all amounts accruing on the Close of Escrow and thereafter.

8.8 Rent Concessions . Buyer shall receive a credit against the Purchase Price at Closing equal to the amount of “rent concessions” and other tenant inducements (excluding any Leasing Costs) available to tenants under Leases which are entered into prior to the Effective Date, which are shown (or to be shown) on Exhibit L and Seller shall be responsible for the payment of all rent concessions and other tenant inducements which become due and payable (whether before or after Closing) as a result of any Lease renewals or modifications entered into by Seller prior to the Effective Date, and accordingly, Buyer shall receive a credit at Closing for all such amounts. From and after Closing, Buyer shall be solely responsible for all rent concessions and other tenant inducements that are the express responsibilities of the landlord under the Leases.

8.9 Proration Statement . At least two (2) business days prior to the Close of Escrow, the parties shall agree upon all of the prorations and adjustments to be made pursuant to this Agreement and submit a Closing Statement to Escrow Holder setting forth the same. In the event that any prorations, apportionments or computations made under this Section 8 shall require final adjustment (i.e. due to changed circumstances during Escrow or otherwise pursuant to this Agreement), then the parties shall make the appropriate adjustments promptly when accurate information becomes available and either party hereto shall be entitled to an adjustment to correct the same, but in no event shall such final adjustment occur later than the expiration of the Survival Period (other than with respect to the Final Reconciliation). Any corrected adjustment or proration shall be paid in cash to the party entitled thereto. The provisions of this Section 8 shall survive the Close of Escrow.

9. Covenants of Seller . Seller hereby covenants with Buyer, as follows:

9.1 Contracts . Between the Effective Date and the expiration of the Property Approval Period, Seller shall not enter into any new Contracts or any amendments or modifications to the existing Contracts (collectively, “ New Contracts ”) which provide for more than a thirty (30) day termination provision without obtaining Buyer’s written consent, which shall not be unreasonably withheld, conditioned or delayed, and which consent will be deemed to have been given by Buyer if Buyer does not notify Seller in writing to the contrary within three (3) business days after Seller provides written notice to Buyer of such New Contract. Subsequent to the expiration of the Property Approval Period, and continuing until the Closing (provided the Agreement has not been terminated), Seller will not enter into any New Contracts without Buyer’s prior written consent, which consent may be withheld in Buyer’s sole discretion, and if Buyer does not give its consent to Seller in writing within three (3) business days after Seller provides written notice to Buyer of such New Contract, Buyer shall be deemed to have withheld its consent to such New Contract. Without limiting the generality of the foregoing, Seller will provide Buyer with copies of all New Contracts. All New Contracts shall be deemed Disapproved Contracts, unless and to the extent (i) any New Contract provides for more than a thirty day termination provision and is affirmatively approved by Buyer pursuant to this Section 9.1 , or (ii) Buyer otherwise affirmatively elects to assume any such New Contract.

9.2 Leases . Between the Effective Date and the expiration of the Property Approval Period, Seller shall not enter into any new Leases or any amendments, extensions or terminations (other than those unilateral rights of tenants to amend, renew, extend or terminate pursuant to the terms of any existing Leases, which rights are specifically set forth in the Leases and do not require the consent of approval of the landlord thereunder) of existing Leases which provide for other than a thirty (30) day termination provision (collectively, “ New Leases ”) without obtaining Buyer’s written consent, which shall not be unreasonably withheld, conditioned or delayed, and which consent will be deemed to have been given by Buyer if Buyer does not notify Seller in writing to the contrary within three (3) business days after Seller provides written notice to Buyer of such New Lease. Subsequent to the expiration of the Property Approval Period, and continuing until the Closing (provided the Agreement has not been terminated), Seller will not enter into, or amend, renew, extend or terminate any New Leases without Buyer’s prior written consent, which consent may be withheld in Buyer’s sole discretion, and if Buyer does not give its consent to Seller in writing within three (3) business days after Seller provides written notice to Buyer of such New Lease, Buyer shall be deemed to have withheld its consent to such New Lease. Without limiting the generality of the foregoing, Seller will provide Buyer with copies of any and all proposals and/or letters of intent for such a New Lease upon the delivery or receipt thereof.

9.3 Operation in the Ordinary Course . Subject to Sections 9.1 and 9.2 , above, and except to the extent that such maintenance is the obligation of any tenant under the Leases, from the date of this Agreement until the Close of Escrow, Seller shall (i) operate and manage the Property in the ordinary course and consistent with Seller’s past practices (including the continued maintenance of its insurance in effect on the Effective Date), (ii) maintain all present services and amenities, (iii) maintain the Property in good condition, repair and working order (but Seller shall not be required to make capital improvements, except (x) as required to keep the Property in such good condition, repair and working order or as otherwise required under any Lease, and (y) with respect to any capital improvements that are in progress as of the Effective Date, which Seller shall diligently pursue to completion as soon as reasonably practicable and which Seller shall otherwise use commercially reasonable efforts to complete the same prior to Closing), (iv) keep on hand sufficient materials, supplies, equipment and other personal property for the efficient operation and management of the Property, and (v) perform when due, and otherwise comply with, all of Seller’s obligations and duties under the Leases and Contracts. None of the Personal Property shall be removed from the Real Property, unless replaced by unencumbered personal

property of equal or greater utility and value. All Personal Property and Intangible Personal Property shall be conveyed to Buyer by Seller at the Close of Escrow free from any liens, encumbrances or security interests of any kind or nature other than the Permitted Exceptions.

9.4 Encumbrances . From and after the Effective Date, Seller shall not encumber the Property with any mortgages, deeds of trust or other encumbrances that will affect the Property beyond the Closing Date, except as expressly permitted in this Agreement, without Buyer’s consent (which shall not be unreasonably withheld, conditioned or delayed as to easements, licenses and similar documents required in the ordinary course of business).

9.5 Notices . Seller shall provide to Buyer promptly upon the receipt thereof, any and all material written notices relating to the Property received by Seller or its property manager from any governmental or quasi-governmental instrumentality, insurance company, vendor or other party under any of the Contracts, tenant under any of the Leases, party to any lawsuit affecting the Property, or from any other entity or party, which notices are of a type not normally received in the ordinary course of Seller’s business, and which may have a material effect upon the Property.

9.6 SNDAs . Upon the written request of Buyer, and provided Buyer delivers completed drafts to Seller no later than August 10, 2017 (provided that if Buyer exercises the Extension Option in accordance with Section 3.2.1 , such August 10, 2017 date shall be extended for the same period of time as the extension of the Closing Date) for Seller’s review and approval, Seller agrees to forward, concurrently with the corresponding Estoppel Certificate and at no material cost to Seller, a form of Subordination, Non-Disturbance and Attornment Agreement prescribed by Buyer’s lender (“ SNDA ”) to each tenant with instructions that each tenant sign and return the same to Seller (and Seller shall promptly upon receipt forward the same to Buyer) and thereafter Seller shall reasonably cooperate with Buyer in connection with obtaining an executed SNDA from each tenant under the Leases. However, it is expressly understood and agreed that the receipt of one or more SNDA in any form executed by tenants shall not be a condition to Buyer’s obligation to proceed with the Closing under this Agreement.

9.7 Condition of Title . Without Buyer’s prior written consent, which consent may be withheld in Buyer’s sole discretion, Seller shall not take any voluntary action with respect to the condition of title to the Property that would reasonably be expected to cause the Title Company to decline to issue any endorsements to the Title Policy that it previously agreed to issue, as evidenced by the pro forma Title Policy delivered to Buyer (with a copy to Seller) prior to the expiration of the Property Approval Period.

10. AS-IS Sale and Purchase . Buyer acknowledges, by its initials as set forth below, that the provisions of this Section 10 have been required by Seller as a material inducement to enter into the contemplated transactions, and the intent and effect of such provisions have been explained to Buyer by Buyer’s counsel and have been understood and agreed to by Buyer.

10.1 Buyer’s Acknowledgment . As a material inducement to Seller to enter into this Agreement and to convey the Property to Buyer, Buyer hereby acknowledges and agrees that:

10.1.1 AS-IS . Except as otherwise expressly set forth in this Agreement, and subject to Seller’s representation and warranties set forth in Section 11 of this Agreement, Buyer is purchasing the Property in its existing condition, “AS-IS, WHERE-IS, WITH ALL FAULTS,” and upon the Closing Date has made or has waived all inspections and investigations of the Property and its vicinity which Buyer believes are necessary to protect its own interest in, and its contemplated use of, the Property.

Buyer’s Initials

10.1.2 No Representations . Other than the express representations and warranties of Seller contained in Section 11 of this Agreement and the “Other Documents,” as that term is defined in Section 16.5 below, neither Seller nor any of their respective affiliates, predecessors, successors, partners, members and assigns, and their respective past, present and future partners, members, officers, directors, trustees, employees, agents, lenders, representatives, attorneys and all persons acting by, through, under or in concert with the foregoing, or any of them (Seller and all of said entities and individuals are collectively referred to herein as the “ Seller Group ”) has made any representation, warranty, inducement, promise, agreement, assurance or statement, directly or indirectly, oral or written, of any kind to Buyer upon which Buyer has or is relying, or in connection with which Buyer has made or will make any decisions concerning the Property or its vicinity including, without limitation, its use, condition, value, compliance with “Governmental Regulations,” as that term is defined below, the existence or absence of Hazardous Substances on or under the Property, or the permissibility, feasibility, or convertibility of all or any portion of the Property for any particular use or purpose, including, without limitation, its present or future prospects for sale, lease, development, occupancy or suitability as security for financing. As used in this Agreement, the following definitions shall apply: (i) the term “ Governmental Regulations ” means any laws (including “Environmental Laws,” as that term is defined below), ordinances, rules, requirements, resolutions, policy statements and regulations (including, without limitation, those relating to land use, subdivision, zoning, Hazardous Substances, occupational health and safety, handicapped access, water, earthquake hazard reduction, and building and fire codes) of any governmental or quasi-governmental body or agency claiming jurisdiction over the Property, (ii) the term “ Environmental Laws ” shall mean all federal, state and local laws, ordinances, rules and regulations now or hereafter in force, as amended from time to time, and all federal and state court decisions, consent decrees and orders interpreting or enforcing any of the foregoing, in any way relating to or regulating human health or safety, or industrial hygiene or environmental conditions, or protection of the environment, or pollution or contamination of the air, soil, surface water or groundwater, and includes, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 United States Code section 9601, et seq., the Resource Conservation and Recovery Act, 42 United States Code section 6901, et seq., and the Clean Water Act, 33 United States Code section 1251, et seq., (iii) “ Hazardous Substances ” shall mean any substance or material that is or becomes described as a toxic or hazardous substance, waste or material or a pollutant or contaminant, or words of similar import, in any of the Environmental Laws, and includes asbestos or asbestos containing material, petroleum (including, without limitation, flammable explosives, crude, oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), petroleum, petroleum-based products and petroleum additives and derived substances, lead-based paint, viruses, mold, fungi or bacterial matter, the group of compounds known as polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter, medical waste, and chemicals which may cause cancer or reproductive toxicity.

Buyer’s Initials

10.1.3 No Implied Warranties . Excluding any representation or warranty set forth in Section 11 of this Agreement or in the Other Documents, Seller hereby specifically disclaims: (a) all warranties implied by law arising out of or with respect to the execution of this Agreement, any aspect or element of the Property, or the performance of Seller’s obligations hereunder including, without limitation, all implied warranties of merchantability, habitability and/or fitness for a particular purpose; and (b) any warranty, guaranty or representation, oral or written, past, present or future, of, as to, or

concerning (i) the nature and condition of the Property or other items conveyed hereunder, including, without limitation, the water, soil, and geology, the suitability thereof and of the Property or other items conveyed hereunder for any and all activities and uses which Buyer may elect to conduct thereon, the existence of any environmental hazards or conditions thereon (including but not limited to the presence of asbestos or other Hazardous Substances) or compliance with applicable Environmental Laws; (ii) the nature and extent of any right-of-way, lease, possession, lien, encumbrance, license, reservation, condition or otherwise; and (iii) the compliance of the property or other items conveyed hereunder or its operation with any Governmental Regulations.

Buyer’s Initials

10.1.4 Information Supplied by Seller . Buyer specifically acknowledges and agrees that, except as expressly contained in Section 11 of this Agreement and the Other Documents, the Seller Group has made no representation or warranty of any nature concerning the accuracy or completeness of any documents delivered or made available for inspection by Seller to Buyer, including, without limitation, the Due Diligence Items and the offering packages and memoranda distributed with respect to the Property, and that Buyer has undertaken such inspections of the Property as Buyer deems necessary and appropriate and that Buyer is relying solely upon such investigations and not on any of the Due Diligence Items or any other information provided to Buyer by or on behalf of Seller. As to the Due Diligence Items, Buyer specifically acknowledges that they have been prepared by third parties with whom Buyer has no privity and Buyer acknowledges and agrees that no warranty or representation, express or implied, has been made, nor shall any be deemed to have been made, to Buyer with respect thereto, either by the Seller Group or by any third parties that prepared the same. Buyer specifically acknowledges that Seller has disclosed to Buyer the matters (collectively, “ Special Disclosure Matters ”) described on Schedule 1 attached hereto.

Buyer’s Initials

10.1.5 Release . AS OF THE CLOSE OF ESCROW, BUYER AND THE BUYER PARTIES HEREBY FULLY AND IRREVOCABLY RELEASE AND FOREVER DISCHARGE THE SELLER GROUP OF AND FROM ANY AND ALL MANNER OF ACTION OR ACTIONS, CAUSE OR CAUSES OF ACTION, AT LAW OR IN EQUITY (INCLUDING, WITHOUT LIMITATION, IN TORT), SUITS, DEBTS, LIENS, CONTRACTS, AGREEMENTS, PROMISES, LIABILITIES, CLAIMS, DEMANDS, DAMAGES, LOSSES, COSTS OR EXPENSES, OF ANY NATURE WHATSOEVER, KNOWN OR UNKNOWN, FIXED OR CONTINGENT (COLLECTIVELY, “ CLAIMS ”) THAT THE BUYER PARTIES MAY HAVE OR HEREAFTER ACQUIRE AGAINST EACH AND ANY OF THE SELLER GROUP ARISING FROM OR RELATED TO IN ANY WAY THE PROPERTY, THE CONDITION OF THE PROPERTY, THIS AGREEMENT, THE OTHER DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY LATENT OR PATENT CONSTRUCTION DEFECTS, ERRORS OR OMISSIONS, COMPLIANCE WITH LAW MATTERS, THE PRESENCE, DISCOVERY OR REMOVAL OF HAZARDOUS SUBSTANCES AND OTHER ENVIRONMENTAL MATTERS WITHIN, UNDER OR UPON, OR IN THE VICINITY OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS AND THE SPECIAL DISCLOSURE MATTERS. THE FOREGOING RELEASE BY BUYER AND THE BUYER PARTIES SHALL INCLUDE, WITHOUT LIMITATION, ANY CLAIMS BUYER AND/OR THE BUYER PARTIES MAY HAVE PURSUANT TO ANY STATUTORY OR COMMON LAW RIGHT BUYER MAY HAVE TO RECEIVE DISCLOSURES FROM SELLER, INCLUDING, WITHOUT LIMITATION,

ANY DISCLOSURES AS TO THE PROPERTY’S LOCATION WITHIN AREAS DESIGNATED AS SUBJECT TO FLOODING, FIRE, SEISMIC OR EARTHQUAKE RISKS BY ANY FEDERAL, STATE OR LOCAL ENTITY, THE PRESENCE OF HAZARDOUS SUBSTANCES ON OR BENEATH THE PROPERTY, THE NEED TO OBTAIN FLOOD INSURANCE, THE CERTIFICATION OF WATER HEATER BRACING AND/OR THE ADVISABILITY OF OBTAINING TITLE INSURANCE, OR ANY OTHER CONDITION OR CIRCUMSTANCE AFFECTING THE PROPERTY, ITS FINANCIAL VIABILITY, USE OR OPERATION, OR ANY PORTION THEREOF. THIS RELEASE INCLUDES CLAIMS OF WHICH BUYER IS PRESENTLY UNAWARE OR WHICH BUYER DOES NOT PRESENTLY SUSPECT TO EXIST IN ITS FAVOR WHICH, IF KNOWN BY BUYER, WOULD MATERIALLY AFFECT BUYER’S RELEASE OF THE SELLER GROUP. IN CONNECTION WITH THE GENERAL RELEASE SET FORTH IN THIS SECTION 10.1.5 , BUYER SPECIFICALLY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”

Buyer’s Initials

Notwithstanding anything to the contrary set forth in this Section 10.1.5 , the foregoing release is not intended to and does not cover (i) any claims arising from a breach of Seller’s representations or warranties set forth in Section 11 of this Agreement or in the Deed, the Lease Assignment, Assignment of Contracts, Bill of Sale, or Tax Certificates or (ii) any other breach by Seller of an express obligation of Seller under this Agreement which by its terms survives the Close of Escrow.

10.1.6 California Natural Hazard Disclosure . Buyer acknowledges that any Seller owning Property located in the State of California is required to disclose if such Property lies within the following natural hazardous areas or zones: (a) a special flood hazard area (any type Zone “A” or “V”) designated by the Federal Emergency Management Agency (Cal. Gov. Code section 8589.3); (b) an area of potential flooding shown on a dam failure inundation map designated pursuant to Cal. Gov. Code section 8589.5 (Cal. Gov. Code section 8589.4); (c) a very high fire hazard severity zone designated pursuant to Cal. Gov. Code section 51178 or 51179 (in which event the owner maintenance obligations of Cal. Gov. Code section 51182 would apply) ( Cal. Gov. Code section 51183.5); (d) a wildland area that may contain substantial forest fire risks and hazards designated pursuant to Cal. Pub. Resources Code section 4125 (in which event (i) such Seller would be subject to maintenance requirements of Cal. Pub. Resources Code section 4291 and (ii) it would not be the State of California’s responsibility to provide fire protection services to any building or structure located within the wildland area except, if applicable, pursuant to Cal. Pub. Resources Code section 4129 or pursuant to a cooperative agreement with a local agency for those purposes pursuant to Cal. Pub. Resources Code section 4142) (Cal. Pub. Resources Code section 4136); (e) an earthquake fault zone (Cal. Pub. Resources Code section 2621.9); or (f) a seismic hazard zone (and, if applicable, whether a landslide zone or liquefaction zone) (Cal. Pub. Resources Code section 2694). Seller shall execute and deliver to Buyer a natural hazards disclosure statement with respect to the foregoing matters (the “ Natural Hazards Disclosure Statement ”). Buyer acknowledges that the Natural Hazards Disclosure Statement fully and completely discharges such Seller from its disclosure obligations under California Civil Code Section 1103, and, for the purpose of this Agreement, the provisions of Civil Code Section 1103.4 regarding the non-liability of Seller for errors or omission not within its personal knowledge shall be deemed to apply. Buyer acknowledges and agrees that Buyer will

independently evaluate and investigate whether any or all of such natural hazards affect the applicable Property, and Seller shall have no liabilities or obligations with respect thereto. Prior to the Contingency Date, Buyer shall execute and deliver to Seller an acknowledgement of receipt of the Natural Hazards Disclosure Statement. Buyer acknowledges and agrees that the matters set forth in the Natural Hazard Disclosure Statement may change on or following the Closing Date for such Property and that Seller has no obligation to update, modify, or supplement the Natural Hazard Disclosure Statement following such Closing Date. Buyer shall be solely responsible for preparing and delivering its own Natural Hazard Disclosure Statement to subsequent prospective buyers of the Property, to the extent required. BUYER ACKNOWLEDGES AND REPRESENTS THAT IT HAS EXTENSIVE EXPERIENCE ACQUIRING AND CONDUCTING DUE DILIGENCE REGARDING COMMERCIAL PROPERTIES. THIS PROVISION IS AN ESSENTIAL ASPECT OF THE BARGAIN BETWEEN THE PARTIES. Notwithstanding anything to the contrary contained in this Agreement, nothing in this Section 10.1.6 shall be deemed a waiver of, or otherwise limit, impair, or affect, any of Seller’s Representations. The provisions of this Section shall survive the Closing.

10.1.7 Section 25359.7 . Buyer acknowledges and agrees that the sole inquiry and investigation Seller conducted in connection with the environmental condition of the Property is to obtain the environmental report(s) which are part of the Due Diligence Items and that, for purposes of California Health and Safety Code Section 25359.7, Seller has acted reasonably in relying upon said inquiry and investigation, and the delivery of this Agreement constitutes written notice to Buyer under such code section.

10.2 Survival . This Section 10 shall survive any termination of this Agreement and the Closing.

11. Seller’s Representations and Warranties . Subject to the Special Disclosure Matters and the matters contained in the Due Diligence Items, if any, Seller hereby makes the following representations and warranties with respect to the Property. Notwithstanding anything to the contrary contained herein or in any document delivered in connection herewith, Seller shall have no liability with respect to the Special Disclosure Matters.

11.1 Formation; Authority . Seller is duly formed, validly existing, and in good standing under laws of the state of its formation. Seller has full power and authority to enter into this Agreement and to perform this Agreement. The execution, delivery and performance of this Agreement by Seller have been duly and validly authorized by all necessary action on the part of Seller and all required consents and approvals have been duly obtained. All requisite action has been taken by Seller in connection with the entering into of this Agreement and the instruments referenced herein and the consummation of the transactions contemplated hereby. The individual(s) executing this Agreement and the instruments referenced herein on behalf of Seller have the legal power, right and actual authority to bind Seller to the terms and conditions hereof and thereof.

11.2 No Conflict . Neither the execution and delivery of this Agreement and the documents and instruments referenced herein, nor the occurrence of the obligations set forth herein, nor the consummation of the transaction contemplated herein, nor compliance with the terms of this Agreement and the documents and instruments referenced herein conflict with or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note, or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, partnership agreement, lease or other agreement or instrument to which Seller is a party.

11.3 Bankruptcy . Seller has not (a) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (b) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator, or similar official in any federal, state, or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, or (c) made an assignment for the benefit of creditors.

11.4 Prohibited Persons and Transactions .

11.4.1 Prohibited Persons; Foreign Corrupt Practices Act and Anti-Money Laundering . Neither Seller nor any of its affiliates, nor any of their respective members, partners or other equity holders, and none of their respective officers, directors or managers is, nor prior to Closing or the earlier termination of this Agreement, will they become a person or entity with whom U.S. persons or entities are restricted from doing business under (a) the Patriot Act (as defined below), (b) any other requirements contained in the rules and regulations of the Office of Foreign Assets Control, Department of the Treasury (“ OFAC ”) (including any “blocked” person or entity listed in the Annex to Executive Order Nos. 12947, 13099 and 13224 and any modifications thereto or thereof or any other person or entity named on OFAC’s Specially Designated Blocked Persons List) or (c) any other U.S. statute, Executive Order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support Terrorism) or other governmental action (collectively, “ Prohibited Persons ”). During Seller’s period of ownership of the Property, Seller, and to Seller’s Knowledge, its employees and any person or entity (“ Person ”) acting on its behalf have at all times fully complied with, and are currently in full compliance with, the Foreign Corrupt Practices Act of 1977 and any other applicable anti-bribery or anti-corruption laws. Seller is not entering into this Agreement, directly or indirectly, in violation of any laws relating to drug trafficking, money laundering or predicate crimes to money laundering. As used herein, “Patriot Act” shall mean the USA Patriot Act of 2001, 107 Public Law 56 (October 26, 2001) and in other statutes and all orders, rules and regulations of the U.S. government and its various executive departments, agencies and offices interpreting and implementing the Patriot Act.

11.4.2 Prohibited Transactions . Seller shall not, directly or indirectly, use, lend or otherwise make available the proceeds paid to it under this Agreement to any subsidiary, joint venture partner or other person or entity to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is a Prohibited Person.

11.5 Leases . Other than the Leases listed on Exhibit I hereto and any New Leases executed in accordance with Section 9.2 , above, Seller is not a party to any other leases, licenses or other occupancy agreements with respect to the leasing or occupancy of the Property. Buyer acknowledges and agrees that the expiration of any Lease or New Lease on or prior to Closing shall not constitute a change of representation or warranty under this Article 11 . With respect to the Leases, (i) all of the Leases are in full force and effect except as otherwise set forth on Exhibit I ; (ii) to Seller’s knowledge, neither Seller nor any tenant is in monetary default beyond any applicable notice and cure period or has given written notice of any existing material non-monetary default under any of the Leases; (iii) except as set forth on Exhibit K and Exhibit L attached hereto, there are no Leasing Costs, rent concessions, or other tenant inducements that remain unpaid, unapplied, or otherwise outstanding with respect to any Lease, including in connection with any amendment or supplement to, or modification of, any Lease; (iv) to Seller’s knowledge, Seller has not received any written notice that any tenant under any Lease is a party to any bankruptcy or insolvency proceeding (other than as a creditor) or is otherwise insolvent; (v) unless noted on Exhibit M , no Tenant is more than thirty (30) days in arrears on the payment of rent; and (vi) Exhibit N includes a true, correct, and complete list of all security deposits (including Letters of Credit) actually held by Seller with respect to the Leases as of the Effective Date (to be updated as of the Closing Date).

11.6 Legal Compliance . Except as otherwise disclosed in the Due Diligence Items or any other information delivered to Buyer, Seller has not received any written notice from any governmental agency that the Property or any condition existing thereon or any present use thereof currently violates any Governmental Regulations applicable to the Property.

11.7 Litigation . Except as otherwise disclosed in the Due Diligence Items or any other information delivered to Buyer, Seller has not received written notice of any litigation, arbitration or other legal or administrative suit, action, proceeding or investigation of any kind pending or, to Seller’s knowledge, threatened in writing against or involving Seller relating to the Property or any part thereof, including, but not limited to, any condemnation action relating to the Property or any part thereof.

11.8 Foreign Person . Seller is not a “foreign person” as defined in Section 1445 of the Internal Revenue Code of 1986, as amended, and the Income Tax Regulations thereunder.

11.9 Contracts . Seller has not entered into any Contracts or other service or equipment leasing contracts relating to the Property that will be binding on Buyer or the Property after the Closing, except for the Contracts or Approved Contracts disclosed in Exhibit J hereto. To Seller’s knowledge, Seller is not in monetary default and neither party has given written notice of any existing material non-monetary default under the Approved Contracts.

11.10 ERISA . Seller is not and is not acting on behalf of (i) an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, (ii) a “plan” within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended, or (iii) an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. §2510.3-101 of any such employee benefit plan or plans.

11.11 No Options . Except as otherwise set forth in the Leases, Seller has not granted any party (other than Buyer) any option, right of first refusal, right of offer, or other right to purchase or negotiate to purchase all or any part of the Property.

11.12 Subsequent Changes . If after the Effective Date Seller obtains knowledge of any fact or circumstance which would materially and adversely change one of its foregoing representations or warranties, then Seller will promptly give notice of such changed fact or circumstance to Buyer. Upon Buyer becoming aware of any fact which would materially and adversely change any of the representations or warranties contained in this Section 11 , except for the representations and warranties in Section 11.5 (other than with regard to any Lease with a Major Tenant, any monetary default (beyond applicable notice and cure periods), or an event of bankruptcy or insolvency proceeding), or elsewhere in this Agreement or in any Other Document (“ Seller’s Representations ”) or would otherwise constitute a breach thereof by Seller, Buyer, as its sole and exclusive remedy at law or in equity, shall have the option of (i) waiving the breach of warranty or change, and proceeding with the Close of Escrow, or (ii) terminating this Agreement, in which event the Deposit and any other funds deposited by Buyer into the Escrow and all interest earned thereon shall be returned to Buyer; provided, however, if such material adverse change arose out of the willful act, or intentional failure to act, by Seller or another member of the Seller Group, the terms of Section 16.1 shall apply. Any such election shall be made by Buyer not later than the Closing Date; provided, however, if Buyer becomes aware of such fact from other than Seller, Buyer shall promptly notify Seller thereof. Notwithstanding the foregoing, if Buyer elects to proceed under clause (ii) above, Seller shall have the right, in its sole discretion, within the earlier of three

(3) business days following receipt of such election from Buyer or the Closing Date, to elect by written notice to Buyer to cure such matter prior to Closing. If Seller makes such foregoing election, then Buyer’s original notice under clause (ii) above shall be deemed Buyer’s election to not terminate this Agreement and proceed pursuant to clause (i) above. If Buyer does not timely elect to terminate this Agreement pursuant to this Section 11.12 , then Buyer shall be deemed to have (i) irrevocably elected to waive its rights to terminate this Agreement pursuant to this Section 11.12 , (ii) elected to acquire the Property on the terms set forth in this Agreement, and (iii) waived all remedies at law or in equity with respect to any representations or warranties resulting from the facts or circumstances disclosed by Seller in its notice to Buyer or of which Buyer becomes aware prior to Closing and Seller’s representations and warranties set forth in this Agreement shall be deemed to have been modified by all such disclosures. Anything contained herein to the contrary notwithstanding, if (x) Buyer has knowledge of any inaccuracy in any of Seller’s representations and warranties contained herein or in any Other Document, whether as a result of notice from Seller, Buyer’s own investigations or inquiries or otherwise, or (y) any information contained in any material provided or made available to Buyer by Seller at least three (3) business days prior to the Closing Date, or received by Buyer from any third party (including without limitation any report provided to Buyer by any contractor or consultant engaged by Buyer in connection with Buyer’s investigation of the Property) is in any way materially inconsistent with any of Seller’s Representations, whether or not actually known to Buyer, and notwithstanding clause (x) and clause (y) Buyer nonetheless proceeds with the Closing of the transactions contemplated hereby, then Seller’s representations and warranties shall be deemed qualified and amended or modified to the full extent of Buyer’s knowledge and such inconsistent information, Buyer shall be deemed to have accepted and approved Seller’s representations and warranties as so qualified and amended or modified, and Buyer shall have no right or remedy, and Seller shall have no obligation or liability, on account thereof. In no event shall Seller be liable to Buyer for (except to the extent expressly elected by Seller pursuant to this Section 11.12 , above), or be deemed to be in default under this Agreement by reason of, any breach of a representation or warranty if Buyer had knowledge thereof prior to Closing and Buyer nonetheless proceeded to Closing hereunder. For the purposes of this Section, Buyer’s knowledge shall mean Buyer’s knowledge, as described in clause (x) in this Section above or Buyer’s obtaining the materially inconsistent information described in clause (y) in this Section above. Without limitation of the foregoing, consistent with Section 4.3.4 , and subject to the terms and conditions of Sections 11.13 , 11.14 , and 16.5 , the representations and warranties contained in this Section 11 shall be deemed remade by Seller as of the Closing, except that with respect to Section 11.5 , only subsections (i), (iii), (v), and (vi) shall be remade as of Closing, and further provided that Exhibits I , K , L , M and N may be updated by Seller to account for changes in facts and circumstances occurring in the ordinary course of the operation of the Property in accordance with the terms of this Agreement.

11.13 Seller’s Knowledge . Whenever phrases such as “ to Seller’s knowledge ” or “ Seller has no knowledge ” or similar phrases are used in the foregoing representations and warranties or otherwise used herein with regard to the “knowledge” of Seller, they will be deemed to refer exclusively to matters within the current actual (as opposed to constructive) knowledge of the Seller’s Representative, who Seller represents and warrants is the individual that is responsible for the asset management of the Property and who possesses the most first-hand knowledge regarding the Property and the operation thereof. No duty of inquiry or investigation on the part of Seller or Seller’s Representative will be required or implied by the making of any representation or warranty which is so limited to matters within Seller’s current actual knowledge, and in no event shall Seller’s Representative have any personal liability therefor.

11.14 Survival . All of the foregoing representations and warranties of Seller, as updated as of the Closing in accordance with the terms of this Agreement, will survive Closing for a period of nine (9) months after the Closing Date and thereafter during the pendency of any claim with

respect to a breach thereof made during such nine-month period (the “ Survival Period ”). No claim for a breach of any representation or warranty of Seller will be actionable or payable if (i) Buyer does not notify Seller in writing of such breach and commence a “legal action” thereon within said nine (9) months, or (ii) the breach in question results from or is based on a condition, state of facts or other matter which was actually known to Buyer prior to Closing.

12. Buyer’s Representations and Warranties . In addition to any express agreements of Buyer contained herein, the following constitute representations and warranties of Buyer, which shall be true and correct as of the date of this Agreement and as of the Closing and shall survive Closing:

12.1 Formation; Authority . Buyer is duly formed, validly existing and in good standing under the laws of the state of its formation. Buyer has full power and authority to enter into this Agreement and the instruments referenced herein, and to consummate the transactions contemplated hereby. All requisite action has been taken by Buyer in connection with the entering into this Agreement and has or will be taken with respect to the instruments referenced herein, and the consummation of the transactions contemplated hereby. The individuals executing this Agreement and the instruments referenced herein on behalf of Buyer have the legal power, right and actual authority to bind Buyer to the terms and conditions hereof and thereof.

12.2 No Conflict . Neither the execution and delivery of this Agreement and the documents and instruments referenced herein, nor the occurrence of the obligations set forth herein, nor the consummation of the transaction contemplated herein, nor compliance with the terms of this Agreement and the documents and instruments referenced herein conflict with or result in the material breach of any terms, conditions or provisions of, or constitute a default under, any bond, note, or other evidence of indebtedness or any contract, indenture, mortgage, deed of trust, loan, partnership agreement, lease or other agreement or instrument to which Buyer is a party.

12.3 Bankruptcy . Buyer has not (a) commenced a voluntary case, or had entered against it a petition, for relief under any federal bankruptcy act or any similar petition, order or decree under any federal or state law or statute relative to bankruptcy, insolvency or other relief for debtors, (b) caused, suffered or consented to the appointment of a receiver, trustee, administrator, conservator, liquidator, or similar official in any federal, state, or foreign judicial or non-judicial proceeding, to hold, administer and/or liquidate all or substantially all of its assets, or (c) made an assignment for the benefit of creditors.

12.4 Prohibited Persons; Foreign Corrupt Practices Act and Anti-Money Laundering . Neither Buyer nor any of its affiliates, nor any of their respective members, partners or other equity holders, and none of their respective officers, directors or managers is, nor prior to Closing or the earlier termination of this Agreement, will they become a “ Prohibited Person ”). Buyer, and to Buyer’s knowledge, its employees and any Person acting on its behalf have at all times fully complied with, and are currently in full compliance with, the Foreign Corrupt Practices Act of 1977 and any other applicable anti-bribery or anti-corruption laws. Buyer is not entering into this Agreement, directly or indirectly, in violation of any laws relating to drug trafficking, money laundering or predicate crimes to money laundering.

13. Casualty and Condemnation .

13.1 Material Casualty . In the event that prior to the Close of Escrow the Real Property, or any material portion thereof, is destroyed or materially damaged, Buyer shall have the right, exercisable by giving written notice to Seller within ten (10) days after receipt of written notice of such

damage or destruction, either (i) to terminate this Agreement in which event the Deposit and all interest accrued thereon shall be promptly returned to Buyer, any other money or documents in Escrow shall be returned to the party depositing the same, and the provisions of Section 4.4 shall apply, or (ii) to accept the Real Property in its then condition and to proceed with the consummation of the transaction contemplated by this Agreement, with an abatement or reduction in the Purchase Price in the amount of the deductible for the applicable insurance coverage, and to receive an assignment of all of Seller’s rights to any insurance proceeds payable by reason of such damage or destruction, other than rental abatement/rent loss insurance attributable to the period of time prior to the Closing which shall be retained by or paid to Seller and Seller shall endeavor to cause the applicable insurer or insurers to consent to such assignment prior to the Closing. If Buyer fails to deliver written notice to Seller of Buyer’s election within the time period specified in this paragraph, Buyer shall be deemed to have elected the alternative under clause (ii) above. If Buyer elects (or is deemed to have elected) to proceed under clause (ii) above, Seller shall not compromise, settle or adjust any claims to such proceeds without Buyer’s prior written consent.

13.2 Non-Material Casualty . In the event that prior to the Close of Escrow there is any non-material damage to the Real Property, or any part thereof, and no Tenant of all or a portion of the Property is obligated by the terms of its Lease to repair such damage or destruction, Seller shall, subject to the following sentence, repair or replace such damage prior to the Close of Escrow. Notwithstanding the preceding sentence, in the event Seller elects not to or is unable to repair or replace such damage, Seller shall notify Buyer in writing of such fact, or in the event Buyer otherwise elects that Seller shall not repair or replace such damage or destruction prior to the Closing, Buyer shall thereafter accept the Real Property in its then condition, and proceed with the transaction contemplated by this Agreement and Buyer shall receive an abatement or reduction in the Purchase Price in the amount of the deductible for the applicable insurance coverage, and Buyer shall be entitled to an assignment of all of Seller’s rights to any insurance proceeds payable by reason of such damage or destruction, other than rental abatement/rent loss insurance attributable to the period of time prior to the Closing which shall be retained by or paid to Seller, and only if and to the extent such deductible is not any Tenant’s responsibility under any Lease. and Seller shall endeavor to cause the applicable insurer or insurers to consent to such assignment prior to the Closing. In the event Seller does not repair or replace such damages, Seller shall not compromise, settle or adjust any claims to such proceeds without Buyer’s prior written consent.

13.3 Material Condemnation . In the event that prior to the Close of Escrow, all or any material portion of the Real Property is subject to a taking by a public or governmental authority, Buyer shall have the right, exercisable by giving written notice to Seller within ten (10) days after receiving written notice of such taking, either (i) to terminate this Agreement, in which event the Deposit and all interest accrued thereon shall be promptly returned to Buyer, any other money or documents in Escrow shall be returned to the party depositing the same, and (ii) to accept the Real Property in its then condition, without a reduction in the Purchase Price, and to receive an assignment of all of Seller’s rights to any condemnation award or proceeds payable by reason of such taking (other than any award or proceeds applicable to pre-Closing periods, for example in the case of a temporary taking) and Seller shall endeavor to cause the applicable condemning authority or authorities to consent to such assignment to Buyer as prior to the Closing. If Buyer fails to deliver written notice to Seller of Buyer’s election within the time period specified in this paragraph, Buyer shall be deemed to have elected alternative (ii) above. If Buyer elects (or is deemed to have elected) to proceed under clause (ii) above, Seller shall not compromise, settle or adjust any claims to such award without Buyer’s prior written consent.

13.4 Non-Material Condemnation . In the event that prior to the Close of Escrow, any non-material portion of the Real Property is subject to a taking by any public or governmental authority, Buyer shall accept the Real Property in its then condition and proceed with the consummation of the

transaction contemplated by this Agreement, in which event Buyer shall be entitled to an assignment of all of Seller’s rights to any award or proceeds payable in connection with such taking (other than any award or proceeds applicable to pre-Closing periods, for example in the case of a temporary taking) and Seller shall endeavor to cause the applicable condemning authority or authorities to consent to such assignment to Buyer as prior to the Closing. In the event of any such non-material taking, Seller shall not compromise, settle or adjust any claims to such award without Buyer’s prior written consent.

13.5 Materiality Standard . For purposes of this Section 13 , damage to the Real Property or a taking of a portion thereof shall be deemed to involve a material portion thereof if (i) the estimated cost of restoration or repair, as estimated by Buyer and Seller in their reasonable discretion, of such damage shall exceed either Two Million Five Hundred Thousand and No/100 ($2,500,000.00) or Two Million Five Hundred Thousand and No/100 ($2,500,000.00), (ii) the amount of the condemnation award with respect to such taking shall exceed either Two Million Five Hundred Thousand and No/100 ($2,500,000.00) with respect to or Two Million Five Hundred Thousand and No/100 ($2,500,000.00), or (iii) such damage or taking would permit any Major Tenant with more than twelve (12) months remaining in its lease term to terminate its Lease.

13.6 Notice of Casualty and Condemnation; Consent to Assignment . Seller agrees to give Buyer prompt written notice of any taking of, proposed taking of, damage to or destruction of the Real Property. In the event that Seller shall fail to obtain prior to Closing any insurer’s consent to the assignment of Seller’s rights to insurance proceeds in accordance with the provisions of this Section 13 , then from and after the Closing and until such consent is obtained (if at all), Seller shall diligently pursue such consent and diligently prosecute the applicable insurance claims, shall not adjust or settle any claims without the prior consent of Buyer, and shall promptly upon receipt of any insurance proceeds deliver the same to Buyer. Seller’s obligations under this Section 13.6 shall survive the Closing.

14. Notices . All notices, consents, requests, reports, demands or other communications hereunder (collectively, “ Notices ”) shall be in writing and may be given personally or by Federal Express (or other reputable overnight delivery service) as follows:


To Buyer:		At Buyer’s Notice Address set forth in the Summary and Definition of Basic Terms.

To Escrow Holder:		At Escrow Holder’s Address set forth in the Summary and Definition of Basic Terms.

or to such other address or such other person as the addressee party shall have last designated by Notice to the other party. Any Notice will be deemed given on the date of receipted delivery, the date of refusal to accept delivery, or when delivery is first attempted but cannot be made due to a change of address for which no Notice was given. Notwithstanding the foregoing, to the extent a Notice is (i) delivered via electronic mail, and (ii) the original of which is delivered within one (1) business day thereafter personally or via overnight delivery service as identified hereinabove, then such Notice shall be deemed given upon the date of transmission of such e-mail. In any event, the party delivering Notice shall use commercially reasonable efforts to provide a courtesy copy of each such Notice to the receiving party via electronic mail (provided that such email notice shall not constitute a formal notice under the terms of this Section 14 ).

15. Broker Commissions . With respect to the transaction contemplated by this Agreement, Seller and Buyer each represents to the other that no brokerage commission, finder’s fee or other compensation of any kind is due or owing to any person or entity other than to Broker pursuant to a

separate written agreement between Seller and Broker. Each party hereby agrees that if any person or entity makes a claim for brokerage commissions or finder’s fees related to the sale of the Property by Seller or the acquisition of the Property by Buyer, and such claim is made by, through or on account of any acts or alleged acts of said party or its representatives, then said party will protect, indemnify, defend and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense (including reasonable attorneys’ fees) in connection therewith. The provisions of this paragraph shall survive Closing or any termination of this Agreement.

16. Default .

16.1 Default by Seller . In the event that Seller fails to perform any of the material covenants or agreements contained herein which are to be performed by Seller and Seller does not cure such failure by the earlier of (a) September 29, 2017 or (b) within five (5) business days of receipt of written notice thereof from Buyer, Buyer may, at its option and as its exclusive remedy, either (i) terminate this Agreement by giving written notice of termination to Seller whereupon Escrow Holder will return to Buyer the Deposit, in which event (y) Seller shall reimburse Buyer for its actual out-of-pocket third-party costs incurred in connection with this Agreement and the transactions contemplated hereby within thirty (30) days after Seller’s receipt from Buyer of invoices or receipts (provided that in no event shall Seller’s reimbursement obligation pursuant to this Section 16.1 exceed Three Hundred Thousand and No/100 Dollars ($300,000.00)), and (z) both Buyer and Seller will otherwise be relieved of any further obligations or liabilities hereunder, except for those obligations which expressly survive any termination hereof, or (ii) Buyer may seek specific performance of this Agreement. Buyer shall be deemed to have elected to terminate this Agreement pursuant to clause (i) above if Buyer fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before sixty (60) days following the date upon which the Closing was to have occurred. Notwithstanding the foregoing to the contrary, in the event the remedy set forth in subpart (ii) above is unavailable (or so impractical as to be deemed unavailable) as a result of the willful act or acts of Seller taken with the intent to frustrate such remedy, then Buyer shall be entitled to pursue all its rights and remedies at law and in equity with respect to such Seller default. Except as specifically set forth in this Section 16.1 , Buyer does hereby specifically waive any right to pursue any other remedy at law or equity for such default of Seller, including, without limitation, any right to seek, claim or obtain damages, punitive damages or consequential damages.

16.2 Default by Buyer . IN THE EVENT THE CLOSE OF ESCROW DOES NOT OCCUR AS HEREIN PROVIDED BY REASON OF ANY DEFAULT OF BUYER, BUYER AND SELLER AGREE THAT IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE BUYER AND SELLER DO HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT SELLER WOULD SUFFER IN THE EVENT THAT BUYER DEFAULTS AND FAILS TO COMPLETE THE PURCHASE OF THE PROPERTY IS AND SHALL BE AN AMOUNT EQUAL TO THE DEPOSIT, TOGETHER WITH THE ACCRUED INTEREST THEREON; AND, AS SELLER’S SOLE AND EXCLUSIVE REMEDY (WHETHER AT LAW OR IN EQUITY), SAID AMOUNT SHALL BE DISBURSED TO SELLER AS THE FULL, AGREED AND LIQUIDATED DAMAGES FOR A BREACH OF THIS AGREEMENT BY BUYER WHICH RESULTS IN THE CLOSE OF ESCROW NOT OCCURRING, ALL OTHER CLAIMS TO DAMAGES OR OTHER REMEDIES IN RESPECT OF BUYER’S BREACH OF THIS AGREEMENT BEING HEREIN EXPRESSLY WAIVED BY SELLER. SUCH PAYMENT OF THE DEPOSIT IS NOT INTENDED AS A PENALTY, BUT AS FULL LIQUIDATED DAMAGES. NOTHING CONTAINED IN THIS SECTION SHALL LIMIT SELLER’S RIGHT TO RECEIVE REIMBURSEMENT FOR COSTS AND EXPENSES PURSUANT TO SECTION 18.5 BELOW, NOR WAIVE OR AFFECT BUYER’S INDEMNITY AND CONFIDENTIALITY OBLIGATIONS.



SELLER’S INITIALS				BUYER’S INITIALS

16.3 Waivers . AS A MATERIAL CONSIDERATION FOR SELLER ENTERING INTO THIS AGREEMENT, BUYER EXPRESSLY WAIVES FOR ANY DEFAULT BY SELLER (A) ANY RIGHT UNDER CALIFORNIA CODE OF CIVIL PROCEDURE, PART 2, TITLE 4.5, SECTION 4.05 THROUGH 4.05.61 OR ANY OTHER SIMILAR STATE OR FEDERAL STATUTE, OR AT COMMON LAW OR OTHERWISE TO RECORD OR FILE A LIS PENDENS OR A NOTICE OF PENDENCY OF ACTION OR SIMILAR NOTICE AGAINST ALL OR ANY PORTION OF THE PROPERTY UNLESS AND UNTIL BUYER HAS ELECTED TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT AND HAS FILED AN ACTION SEEKING SUCH REMEDY, (B) ANY RIGHT TO SEEK DAMAGES IN THE EVENT OF SELLER’S DEFAULT HEREUNDER, EXCEPT TO THE EXTENT EXPRESSLY PERMITTED IN SECTION 16.1 ABOVE, AND (C) ITS RIGHT TO BRING ANY ACTION THAT WOULD IN ANY WAY AFFECT TITLE TO OR RIGHT OF POSSESSION OF ALL OR ANY PORTION OF THE PROPERTY, EXCEPT FOR AN ACTION FOR SPECIFIC PERFORMANCE UNDER SECTION 16.1 ABOVE. BUYER HEREBY WAIVES THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 3389 AND ANY SIMILAR STATE OR FEDERAL STATUTE. BUYER ACKNOWLEDGES AND AGREES THAT PRIOR TO THE CLOSING, BUYER SHALL NOT HAVE ANY RIGHT, TITLE OR INTEREST IN AND TO THE PROPERTY OR ANY PORTION THEREOF UNLESS AND UNTIL BUYER HAS ELECTED TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT AND HAS FILED AN ACTION SEEKING SUCH REMEDY. BUYER HEREBY EVIDENCES ITS SPECIFIC AGREEMENT TO THE TERMS OF THIS WAIVER BY PLACING ITS SIGNATURE OR INITIALS IN THE SPACE PROVIDED HEREINAFTER.



BUYER’S INITIALS				SELLER’S INITIALS

16.4 Indemnities; Defaults After Closing or Termination . The limitations on the parties’ remedies set forth in Sections 16.1 and 16.2 , above, will not be deemed to prohibit either party from (i) specifically seeking indemnification from the other for any matter with respect to which such other party has agreed hereunder to provide indemnification or from seeking damages from such other party in the event such other party fails or refuses to provide such indemnification; (ii) subject to the terms, conditions and limitations of this Agreement, seeking damages incurred during the period of time after Closing that a representation or warranty given as of the Closing Date by the other party hereunder survives Closing, for the other party’s breach of such representation or warranty discovered after such Closing or with respect to any breach or default of any covenant that survives Closing; or (iii) subject to the terms, conditions and limitations of this Agreement seeking damages or such equitable relief as may be available for the other party’s failure to perform after any termination of this Agreement any obligation hereunder which expressly survives such termination; provided, however, that in no event whatsoever will either party be entitled to recover from the other any punitive, consequential or speculative damages under or in connection with this Agreement. This Section 16.4 shall survive any termination of this Agreement and the Closing.



SELLER’S INITIALS				BUYER’S INITIALS

16.5 Limited Liability . Notwithstanding anything to the contrary herein, Buyer on its own behalf and on behalf of its agents, members, partners, employees, representatives, officers, directors, agents, related and affiliated entities, successors and assigns (collectively, the “ Buyer Parties ”) hereby agrees that in no event or circumstance shall any of the members, partners, employees, representatives, officers, directors, agents, property management company, affiliated or related entities of Seller or Seller’s property management company, have any personal liability under this Agreement. Seller on its own behalf and on behalf of its agents, members, partners, employees, representatives, related and affiliated entities, successors and assigns hereby agrees that in no event or circumstance shall any of the Buyer Parties have any personal liability under this Agreement. Except only with regard to the reconciliation of prorations and remittance of rents in accordance with Section 8 of this Agreement, and the commission payment obligations in accordance with Section 15 of this Agreement, and notwithstanding anything else to the contrary contained herein: (i) the maximum aggregate liability of Seller, and the maximum aggregate amount which may be awarded to and collected by Buyer (including, without limitation, for any breach of any representation, warranty, indemnity and/or covenant of Seller) under this Agreement or any documents executed pursuant hereto or in connection herewith, including, without limitation, the Exhibits attached hereto (collectively, the “ Other Documents ”) shall, under no circumstances whatsoever, exceed Three Million and No/100 Dollars ($3,000,000.00) (the “ CAP Amount ”); and (ii) no claim by Buyer alleging a breach by Seller of any representation, warranty and/or covenant of Seller contained herein or any of the Other Documents may be made, and Seller shall not be liable for any judgment in any action based upon any such claim, unless and until such claim, either alone or together with any other claims by Buyer alleging a breach by Seller of any such representation, warranty and/or covenant, is for an aggregate amount in excess of One Hundred Thousand and No/100 Dollars ($100,000.00) (the “ Floor Amount ”), in which event Seller’s liability respecting any final judgment concerning such claim or claims shall be for the entire amount thereof, subject to the CAP Amount set forth in clause (i) above; provided, however, that if any such final judgment is for an amount that is less than or equal to the Floor Amount, then Seller shall have no liability with respect thereto. Buyer agrees to first seek recovery under any insurance policies, title policies and other applicable agreements prior to seeking recovery from Seller, and Seller shall not be liable to Buyer to the extent Buyer’s claim is actually satisfied from such insurance policies, title policies or other applicable agreements. Notwithstanding any provision of this Agreement to the contrary, in no event shall Seller be liable for any consequential damages of Buyer or any punitive or special damages with respect to Seller’s obligations under this Agreement, the Other Documents or otherwise with respect to the Property. This Section 16.5 shall survive any termination of this Agreement and the Closing.

17. Assignment . Buyer may not assign, transfer or convey its rights and obligations under this Agreement or in the Property without the prior written consent of Seller, which consent may be given or withheld in Seller’s sole discretion, and no such approved assignment shall relieve Buyer from its liability under this Agreement. Seller consents in advance to one or more assignments, from time to time, of all or part of Buyer’s interest in this Agreement by Buyer (or its permitted assignees hereunder) to any entity directly or indirectly controlling, directly or indirectly controlled by, or directly or indirectly under common control with Buyer or the management team of City Office REIT, Inc., provided that (a) Buyer shall send Seller written notice of such assignment or assignments at least ten (10) business days prior to Closing, which notice shall reasonably include the legal name and control of the proposed assignee(s), (b) Buyer and the proposed assignee(s) shall execute an assignment and assumption of this Agreement in form and substance reasonably satisfactory to Seller, (c) in no event shall any assignment of this Agreement release or discharge Buyer from any liability or obligation hereunder unless expressly agreed otherwise by Seller in writing, and (d) in no event shall any assignment of this Agreement materially interfere with or restrict Seller’s ability to qualify the sale of the Property as an exchange of like-kind property in accordance with the terms of Section 19 below. Additionally, Buyer shall be permitted to freely assign, from time to time, all or a part of its interest in this Agreement to a “qualified intermediary” in connection with a “like-kind exchange” under Section 1031 of the Internal Revenue Code of 1986, subject to subparts (a)-(d) of this Section.

18. Miscellaneous .

18.1 Governing Law . The parties hereto expressly agree that this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California.

18.2 Partial Invalidity . If any term or provision or portion thereof of this Agreement or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision or portion thereof to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each such term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.

18.3 Waivers . No waiver of any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act.

18.4 Successors and Assigns . Subject to the provisions of Section 17 , this Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of the parties hereto.

18.5 Professional Fees . In the event of the bringing of any action or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreements or provisions on the part of the other party arising out of this Agreement, then in that event the prevailing party shall be entitled to have and recover of and from the other party all costs and expenses of the action or suit and any appeals therefrom, and enforcement of any judgment in connection therewith, including actual attorneys’ fees, accounting and engineering fees, and any other professional fees resulting therefrom. This Section 18.5 shall survive any termination of this Agreement and the Closing.

18.6 Entire Agreement . This Agreement (including all Exhibits attached hereto) is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which together shall constitute a single instrument. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto.

18.7 Time of Essence/Business Days . Seller and Buyer hereby acknowledge and agree that time is strictly of the essence in this Agreement as to each and every term, condition, obligation and provision hereof in which time is an element of performance and that failure to timely perform any of the terms, conditions, obligations or provisions hereof by either party shall constitute a material breach of and a non-curable (but waivable) default under this Agreement by the party so failing to perform. Unless the context otherwise requires, all periods terminating on a given day, period of days, or date shall terminate at 5:00 p.m. (Pacific time) on such date or dates, and references to “days” shall refer to calendar days except if such references are to “business days” which shall refer to days which are not Saturday, Sunday or a legal holiday. Notwithstanding the foregoing, if any period terminates on a Saturday, Sunday or a legal holiday, under the laws of the State of California, the termination of such period shall be on the next succeeding business day.

18.8 Construction . Headings at the beginning of each paragraph and subparagraph are solely for the convenience of the parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to sections are to this Agreement. All exhibits referred to in this Agreement are attached and incorporated by this reference. In the event the date on which Buyer or Seller is required to take any action under the terms of this Agreement is not a business day, the action shall be taken on the next succeeding business day.

18.9 No Third-Party Beneficiary . The provisions of this Agreement and of the documents to be executed and delivered at Closing are and will be for the benefit of Seller Group and Buyer only and are not for the benefit of any third party; and, accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing.

19. 1031 Exchange . Upon the request of a party hereto (the “ Requesting Party ”), the other party (the “ Cooperating Party ”) shall cooperate with the Requesting Party in Closing the sale of the Property in accordance with this Agreement so as to qualify such transaction as an exchange of like-kind property; provided, however, the Cooperating Party shall not be required to take title to any exchange property and the Cooperating Party will not be required to agree to or assume any covenant, obligation or liability in connection therewith, the Closing hereunder shall not be delayed as a result of, or conditioned upon, such exchange, the Requesting Party shall pay all costs associated with such exchange, and the Requesting Party shall remain primarily liable under this Agreement and indemnify the Cooperating Party from any liability in connection with such exchange.

20. Confidentiality . Buyer agrees that, (a) except as otherwise provided or required by valid law and rules and regulations enacted in accordance therewith, including without limitation, the rules and regulations promulgated from time to time by the United State Securities and Exchange Commission and similar authorities, (b) except to the extent Buyer considers such documents or information reasonably necessary to prosecute and/or defend any claim made with respect to the Property or this Agreement, and (c) except to the extent reasonably necessary to deliver such documents or information to Buyer’s employees, paralegals, attorneys and/or consultants, lender and investors, and prospective lenders and investors, in connection with Buyer’s evaluation of this transaction, prior to Closing (and thereafter if the Closing does not occur hereunder) (i) Buyer, Buyer’s Parties and Buyer’s agents and consultants (collectively, the “ Buyer’s Representatives ”), shall keep the contents of any materials, reports, documents, data, test results, and other information related to the transaction contemplated hereby, together with all other materials prepared by or for Buyer, with or that contain any such information, including, without limitation, the Due Diligence Items and all information regarding Buyer’s acquisition or ownership of the Property, strictly confidential, (ii) Buyer and Buyer’s Representatives shall keep and maintain the contents of this Agreement, including, without limitation, the amount of consideration being paid by Buyer for the Property strictly confidential, and (iii) Seller, members of the Seller Group, Buyer and Buyer’s Representatives shall refrain from generating or participating in any publicity or press release regarding this transaction without the prior written consent of the other except to the extent otherwise permitted under Section 21 below. Buyer acknowledges that significant portions of the Due Diligence Items are proprietary in nature and that Seller would suffer significant and irreparable harm in the event

of the misuse or disclosure of the Due Diligence Items. Without affecting any other rights or remedies that either party may have, each party acknowledges and agrees that the other shall be entitled to seek the remedies of injunction, specific performance and other equitable relief for any breach, threatened breach or anticipatory breach of the provisions of this Section 20 , the actual breach of which shall constitute a default hereunder by such breaching party. In addition, Buyer agrees that the provisions of this Section 20 shall supersede any prior confidentiality or access agreements made by Buyer (or its affiliate) in favor of Seller as of the date of this Agreement. The provisions of this Section 20 shall survive any termination of this Agreement but shall not survive the Closing. For the avoidance of doubt, any breach of this Section 20 by Buyer shall give rise to the remedies set forth herein (i.e., a claim for actual damages), but shall not entitle Seller to liquidated damages pursuant to Section 16.2 .

21. Press Release; Disclosure of Information . Notwithstanding any provision to the contrary set forth in this Agreement, Seller and Buyer shall be entitled at any time to (i) make any required disclosures in filings with the Securities Exchange Commission or in connection with audits or the offering of securities; provided, however, that prior to Closing, such disclosures or filings shall in no event disclose the allocation of the Purchase Price among the Buildings or any capitalization rate other than on a cumulative and pro-forma, portfolio-wide basis, and/or (ii) following the expiration of the Property Approval Period (i.e., the timely delivery of Buyer’s Notice to Proceed and the Additional Deposit), make disclosures on investor/earnings calls or meetings and/or issue press releases in the ordinary course of business announcing (1) that such party is under contract to sell or buy (as the case may be and without identifying the other party specifically or, with regard to Seller, any additional information beyond what is expressly allowed hereunder that would identify Seller, the Property (which may be identified solely by the cumulative square footage and the number of buildings comprising the Property, and the City in which the Property is located), (2) the Purchase Price for the Property (excluding any allocation information of the Purchase Price among the Buildings (3) with respect to Buyer, the amount of the non-refundable Deposit, (4) the anticipated Closing Date, and (5) the capitalization rate on a cumulative and pro-forma, portfolio-wide basis; provided, however, that a party shall not specifically identify the other in any such disclosures without obtaining the prior written consent of the party to be identified. Following the Closing, each party may freely make disclosures and press releases regarding the transaction contemplated by this Agreement and the Property and no such disclosure or press release shall include an allocation of the Purchase Price among the Buildings and any disclosure of an actual capitalization rate shall be consistent with a determination as reconciled between Seller and Buyer for public disclosure (with regard to which the parties hereby agree to use commercially reasonable efforts to establish the same prior to the Contingency Date). The provisions of this Section shall survive Closing for a period of one (1) year.

22. Survival . Except as expressly set forth to the contrary herein, no representations, warranties, covenants or agreements of Seller contained herein shall survive the Closing.

23. Drafts Not an Offer to Enter Into a Legally Binding Contract . The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property. The parties shall be legally bound with respect to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable to each of the parties in its respective sole discretion, and both Seller and Buyer have fully executed, delivered and received each other’s counterpart of this Agreement.

24. Joint and Several Liability . All entities constituting “Buyer” hereunder shall be jointly and severally liable for the faithful performance of the terms and conditions hereof, and of any other document executed in connection herewith, to be performed by Buyer.

25. Marketing . From and after the Effective Date, Seller agrees that it shall not either, directly or indirectly via instructions to its brokers, offer to sell or solicit any offers to purchase or negotiate for the sale or the disposal of the Property with any party other than Buyer; provided, however, that from and after the Contingency Date, Seller may entertain, discuss, and negotiate unsolicited offers for the purchase of the Property solely on a “back-up” basis, provided that all such offerors and other interested parties are made aware of the existence of a binding and enforceable purchase agreement for the purchase and sale of the Property. Further, from and after the Effective Date, Seller shall suspend all active marketing initiatives during the term of this Agreement.

26. Information and Audit Cooperation . At Buyer’s request, at any time within seventy-two (72) days following the Closing, Seller shall, upon reasonable prior written notice and without being required to incur any material out-of-pocket expense or liability, provide Buyer’s designated independent auditor access to the books and records of the Property in Seller’s possession that are necessary for the compliance with Buyer’s and/or City Office REIT, Inc.’s obligations under Rule 3-14 of Regulation S-X of the Securities and Exchange Commission. In providing any information and responding to any requests pursuant to this Section 26 , (i) Seller makes no representation or warranty, express, written, oral, statutory or implied, and all such representations and warranties are hereby expressly excluded and disclaimed, and (ii) Buyer acknowledges that Buyer shall not be entitled to bring any claim against Seller based on the items delivered pursuant to this Section 26 . Buyer shall reimburse Seller for Seller’s actual, documented, out-of-pocket costs and expenses incurred in connection with providing information and responding to requests pursuant to this Section 26 , which reimbursement obligation shall not exceed $10,000.00.

[ remainder of page intentionally left blank ]

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year hereinabove written.


“SELLER”	a Delaware limited partnership

	By:	a Maryland corporation, its General Partner

		By:
		Name:
		Title:

		By:
		Name:
		Title:


“BUYER”	CITY OFFICE DEVELOPMENT, LLC,
	a Delaware limited liability company

	By:
		Name:
		Title:

JOINDER BY ESCROW HOLDER

Escrow Holder (as defined in Section 8 of Article I above) hereby acknowledges that it has received this Agreement executed by the Seller and Buyer and accepts the obligations of and instructions for the Escrow Holder set forth herein. Escrow Holder agrees to disburse and/or handle the Deposit, the Purchase Price and all closing documents in accordance with this Agreement.

Exhibit 12.1

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(In thousands, except share and per share data)


	City Office REIT Inc.										City Office REIT, Inc. Predecessor
	Six months ended June 30, 2017		Year ended December 31, 2016		Year ended December 31, 2015			Period from April 21, 2014 to December 31, 2014			Period from January 1, 2014 to April 20, 2014			Year ended December 31, 2013			Year ended December 31, 2012
Earnings
Add:
(Loss) Income from continuing operations before adjustment for income or loss from equity investees	$	11,867	$	376	$	(7,667	)	$	(6,855	)	$	(2,530	)	$	(4,580	)	$	(2,388	)
Fixed charges		9,084		14,761		11,353			7,180			3,772			5,368			3,686
Distributed income of equity investees				—		—			—			—			403			506
Subtract:
Capitalized interest				—		—			—			—			—			—

Total Earnings	$	20,951	$	15,137	$	3,686		$	325		$	1,242		$	1,191		$	1,804
Fixed Charges
Interest expense		9,084		14,761		11,353			7,180			3,772			5,368			3,686
Capitalized interest				—		—			—			—			—			—
Rental expense at computed interest factor ⁽¹⁾				—		—			—			—			—			—

Total Fixed Charges		9,084		14,761		11,353			7,180			3,772			5,368			3,686
Preferred Stock Dividends		3,701		1,781		—			—			—			—			—
Combined Fixed Charges and Preferred Stock Dividends	$	12,785	$	16,542	$	11,353		$	7,180		$	3,772		$	5,368		$	3,686
Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends		1.64		0.92		0.32			0.05			0.33			0.22			0.49
Inadequate amount		—	$	1,405	$	7,667		$	6,855		$	2,530		$	4,177		$	1,882

(1)	Amounts represent those portions of rent expense that are reasonable approximations of interest costs.

Exhibit 31.1

CERTIFICATION

I, James Farrar, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q 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;

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:

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;

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;

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

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):

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

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.

Date: August 4, 2017

/s/ James Farrar

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 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;

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):

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.

Date: August 4, 2017

/s/Anthony Maretic

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 the Quarterly Report of City Office REIT, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission (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:

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.

/s/ James Farrar

James Farrar

Chief Executive Officer and Director

(Principal Executive Officer)

August 4, 2017

This written statement 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 the Quarterly Report of City Office REIT, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission (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:

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.

/s/ Anthony Maretic

Anthony Maretic

Chief Financial Officer, Secretary and Treasurer

(Principal Financial Officer and Principal Accounting Officer)

August 4, 2017