City Office REIT Inc

Item 1A. Risk Factors

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, except for the one below. Any of those risk factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

We may engage in development or expansion projects or invest in new asset classes, which would subject us to additional risks that could negatively impact our operations.
 

We may engage in development or other expansion projects, which could subject us to additional or unforeseen costs and capital requirements or require us to obtain additional state and local permits. A decision by any governmental agency not to issue a required permit or substantial delays in the permitting process could cause us to incur penalties, delay us from receiving rental payments or result in us receiving reduced rental payments, or prevent us from pursuing the development or expansion project altogether. Additionally, any such new development or expansion project may not operate at designed capacity or may cost more to operate than we expect. The inability to successfully complete development expansion or other value-added projects or to complete them on a timely basis could adversely affect our business and results of operations.

We have and may continue to make investments and utilize transaction structures that are outside of our traditional business, including entering into new asset classes, such as our previously-announced plan to develop a condominium and mixed use tower in St. Petersburg, Florida, and entering into (or expanding our use of) new transaction structures, such as strategic co-investment ventures or joint ventures. We plan to invest and may continue to invest in new or different assets or enter into new transaction structures that may or may not be closely related to our current business and which could require new or additional processes, controls, systems and personnel. These new assets and transaction structures may have new, different or increased risks than what we are currently exposed to in our business and we may not be able to manage these risks successfully. Such risks include:

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When investing in new assets or transaction structures, we will be exposed to the risk that those assets or structures, or the income generated thereby, will affect our ability to meet the requirements to maintain our REIT status, or will subject us to additional regulatory requirements or limitations;

Our partners or investors may share certain approval rights over major decisions or have the ability to appoint persons to governing bodies;

Our partners or investors may seek to exit or redeem their investment, and may do so simultaneously, causing the venture to seek capital to satisfy these requests on less than optimal terms;

If our partners or investors fail to fund their share of any required capital contributions, then we may choose to contribute such capital or the venture may have to raise additional capital or incur indebtedness on less than optimal terms;

Our partners or investors may have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the venture and adversely impact our consolidated financial position or results of operations;

The governing agreements may restrict the transfer of an interest in the co-investment venture or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;

Our relationships with our partners or investors are likely to be contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, the venture may terminate or we may not continue to invest in or manage the assets underlying such relationships resulting in a decrease in our assets under management and a reduction in fee revenues; and

Disputes between us and our partners or investors may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable co-investment venture to additional risk.

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If we are not able to successfully manage the risks associated with such new assets, it could have an adverse effect on our business, results of operations and financial condition.

The announcement and pendency of the Merger Agreement could have an adverse effect on our business, financial condition and results of operations

The announcement and pendency of the Merger could cause disruption in our business, including the potential loss or disruption of commercial relationships prior to the completion of the Merger. For example, some of our tenants, prospective tenants or vendors may delay or defer decisions, which could negatively affect our revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. Similarly, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Merger, which may adversely affect our ability to attract and retain key personnel during the pendency of the Merger.

If The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in the ordinary course of business pending consummation of the Merger, but includes certain contractual restrictions on the conduct of our business prior to completion of the Merger. Due to these operating restrictions, during the pendency of the Merger Agreement we are not able to successfully manage tmay be unable to pursue strategic transactions, undertake significant capital projects, undertake certain financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.

The Merger Agreement also contains provisions that limit our ability to pursue alternatives to the Merger and that could discourage a potential competing acquirer of us from making a favorable alternative transaction proposal. In addition, matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which could divert their time and attention. We have also incurred, and will continue to incur, significant non-recurring costs in connection with the Merger that we may be unable to recover.

Completion of the Merger is subject to the satisfaction or waiver of certain conditions.

Completion of the Merger is subject to the risks associated satisfaction or waiver of certain conditions, including, among other things, (a) the affirmative vote of at least a majority of the outstanding shares of Common Stock entitled to vote at the shareholders meeting in favor of adopting the Merger Agreement and approving the Merger; (b) the absence of any law, injunction, judgment, order, decree or ruling restraining or prohibiting consummation of the Merger; (c) the receipt of certain third party consents; (d) the receipt of consents from the applicable third parties relating to certain ground leases required under the Phoenix Sale Agreement and the sale of the Phoenix 

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Portfolio shall have been consummated pursuant to and in accordance with such new assets, it could havethe Phoenix Sale Agreement; (e) the delivery of a written tax opinion to the effect that, as of December 31, 2014 until the Merger effective time, the Company has been organized and operated in accordance with the requirements for qualification and taxation as a REIT; and (f) no event of default that is incapable of being cured or capable of being cured but still continuing shall have occurred and be continuing under certain of the Companys loan documents. Each partys obligation to consummate the Merger is also subject to certain additional conditions, which include the accuracy of the other partys representations and warranties (subject to materiality qualifiers) and the other partys compliance with its covenants an adverd obligations in all material respects (in each case, as contained and more fully described in the Merger Agreement).

We cannot provide assurance that these effconditions to completing the Merger will be satisfied or waived, and accordingly, that our pending Merger will be completed on the timeline that we anticipate or at all. Failure to complete the Merger could negatively affect onur stock price and our future business, results of operations and finan and financial results.

An adverse outcome in any litigation or other legal proceedings relating to the Merger Agreement could have a material adverse impact on our business and our ability to consummate the transactions contemplated by the Merger Agreement.

Transactions like the Merger are frequently the subject of litigation or other legal proceedings, including actions alleging that either our board of directors breached their respective duties to their shareholders by entering into the Merger Agreement, by failing to obtain a greater value in the transaction for their shareholders or otherwise. We believe that any such litigation or proceedings would be without merit, but there can be no assurance that they will not be brought. If litigation or other legal proceedings are brought against us or against our board in connection with the Merger Agreement, we will defend against it, but we might not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on our business, results of operation or financial conditposition, including through the possible diversion of either companys resources or distraction of key personnel.