Company: CIO
Filing Date: 2025-02-20
Form Type: 10-K
Source: 0000950170-25-023714
Chunk: 53

Company: City Office REIT, Inc.
Filing Date: 2025-02-20
Form: 10-K
Item: Item 6
Chunk 53
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 of December 31, 2024, our properties were approximately 85.4% leased. Office Leases Historically, most leases for our properties have been 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 within rental and other revenues on our consolidated 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 as tenant recoveries. We are also a lessor for a fee simple ground lease at the AmberGlen property.Factors That May Influence Our Operating Results and Financial Condition Economic Environment and Inflation The broader economy in the U.S. has experienced increased levels of inflation, higher interest rates and tightened monetary and fiscal policies. The banking and lending sector in particular has been impacted by the interest rate environment. Recently, interest rates, monetary policy and inflation have begun to shift towards an improved economic environment. Office capital markets activity continues to be suppressed, largely driven by limited debt availability for the sector. However, it remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation, and this evolving economic environment impacts our operating activities as: •business leaders may generally become more reticent to make large capital allocation decisions, such as entry into a new lease, given the uncertain economic environment;•our cost of capital has increased due to higher interest rates and credit spreads, and private market debt financing and re-financing is significantly more challenging to arrange; and

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 •retaining and attracting new tenants has become increasingly challenging due to potential business layoffs, downsizing and industry slowdowns.Despite the current economic environment, there is increasing evidence that many businesses have or will tighten up in-person work policies particularly if economic conditions worsen. Many of these companies increased their workforce beginning in