City Office REIT's Credit Agreement Amendment and Phoenix Disposition: Strategic Leverage for Merger-Driven Value Realization

City Office REIT, Inc. (NYSE: CIO) has executed a series of calculated moves to position itself for a disciplined, value-maximizing merger with MCME Carell Holdings, LP and MCME Carell Merger Sub, LLC. The $1.1 billion transaction, announced in July 2025, represents a strategic pivot for the REIT, leveraging recent credit facility restructuring and asset sales to align its capital structure with merger readiness. For investors, the interplay of these actions offers a compelling case study in risk mitigation, liquidity optimization, and shareholder value realization.

Credit Facility Restructuring: A Foundation for Financial Discipline

On August 15, 2025, City Office REIT finalized a Third Amendment to its Amended and Restated Credit Agreement, reducing its Revolving Credit Facility from its prior level to $150 million. This adjustment, coupled with the pledge of certain assets as collateral, reflects a deliberate effort to streamline liquidity and reduce unsecured debt exposure. The amendment also removed references to a fully repaid three-year term loan, which had been extinguished using proceeds from the First Phoenix Closing—a $266 million sale of six Phoenix office properties.

The reduction in the credit facility's size signals a shift toward a more conservative leverage profile. By collateralizing assets, the REIT has strengthened its credit profile for lenders while aligning its debt obligations with its updated asset base. This move is critical for the merger, as it ensures the company meets the transaction's closing conditions, including the repayment of indebtedness and the redemption of preferred stock.

Phoenix Disposition: Capitalizing on Sun Belt Realities

The sale of the Phoenix portfolio—six of seven properties—has been a cornerstone of City Office REIT's strategic realignment. The $266 million in gross proceeds not only repaid the term loan but also provided a liquidity buffer for the merger. The remaining Pima Center property, under contract at $30 million, is expected to close pending ground lease approvals, further solidifying the REIT's ability to meet merger-related obligations.

The Phoenix market, while historically a Sun Belt growth hub, has faced challenges in the post-pandemic office sector. By divesting non-core assets, City Office REIT has prioritized flexibility, allowing it to redirect capital toward the merger and future opportunities under MCME Carell's ownership. The 26% premium offered in the merger ($7.00 per share) and the $25.00 per share for preferred stock (plus accrued dividends) underscore the immediate value realization for shareholders.

Merger Readiness: Timing, Structure, and Risk Mitigation

The merger's timing is noteworthy. With the Phoenix disposition largely completed and the credit facility restructured, City Office REIT has minimized execution risk for the transaction. The deal is not contingent on the buyer securing financing, a rare advantage in today's capital markets, and is expected to close in Q4 2025. For investors, this timeline suggests a low-probability, high-impact event with clear milestones.

The capital structure optimization—reducing debt, redeeming preferred stock, and suspending common dividends—further enhances the REIT's financial flexibility. This disciplined approach ensures that the merger's cost base is minimized, allowing MCME Carell to allocate capital toward strategic initiatives, such as acquiring high-quality office assets in growth markets.

Investment Implications and Strategic Outlook

For investors, the key takeaway is the alignment of risk and reward. The credit amendments and Phoenix sales have de-risked the merger by ensuring liquidity and covenant compliance, while the premium pricing offers a clear floor for shareholder returns. The transaction's structure—cash-only with no contingent value—reduces uncertainty compared to stock-based deals.

However, risks remain. The pending Pima Center sale hinges on ground lease approvals, and broader office sector headwinds could impact MCME Carell's post-merger strategy. Investors should monitor the REIT's proxy statement for details on the merger's financing and governance changes.

Conclusion: A Model of Strategic Execution

City Office REIT's actions exemplify how disciplined capital structure management can unlock value in a merger. By reducing leverage, securing debt with assets, and divesting non-core holdings, the REIT has positioned itself as a leaner, more agile entity. For investors, the $1.1 billion merger represents a compelling opportunity to capitalize on a well-structured transaction in a sector poised for recovery. As the REIT moves toward its Q4 2025 closing, the focus should remain on the execution of its strategic playbook and the long-term vision of MCME Carell.

Investment Advice: Given the merger's premium pricing, clear liquidity, and reduced execution risk, City Office REIT presents a high-conviction opportunity for investors seeking capital preservation and immediate value realization. However, due diligence on the Pima Center's closing and broader office sector trends is recommended before finalizing positions.