SEC Filing Summary: B of I Holding, Inc. (Form 8-K)
Business Context and Reporting Period
Company: B of I Holding, Inc. (Parent of Bank of Internet USA)
Filing Date: April 25, 2005
Event: Entry into a Material Definitive Agreement regarding the lease of new corporate headquarters.
Location: 12777 High Bluff Drive, San Diego, CA 92130.
The Company entered into an Office Space Lease and a Guaranty of Lease to relocate its headquarters from its current facility (12220 El Camino Real) to a new facility. The new lease covers approximately 12,300 square feet, an increase from the current 7,700 square feet. The target commencement date for occupancy is June 15, 2005.
Key Financial Metrics and Obligations
Lease Term: 88 months (approximately 7 years and 4 months), commencing July 1, 2005, through October 31, 2012.
Base Rent Structure:
- Year 1 (7/1/05 - 6/30/06): $197,824 annually ($24,728/month). Note: Months 2 through 5 of base rent are abated.
- Year 2 (7/1/06 - 6/30/07): $305,638 annually ($25,469.84/month).
- Year 3 (7/1/07 - 6/30/08): $314,540 annually ($26,211.68/month).
- Year 4 (7/1/08 - 6/30/09): $323,442 annually ($26,953.52/month).
- Year 5 (7/1/09 - 6/30/10): $333,828 annually ($27,819.00/month).
- Year 6 (7/1/10 - 6/30/11): $344,213 annually ($28,684.48/month).
- Year 7 (7/1/11 - 6/30/12): $354,599 annually ($29,549.96/month).
- Final Partial Year (7/1/12 - 10/31/12): $121,661 ($30,415.44/month).
Additional Costs:
- Security Deposit: $30,415.44.
- Operating Costs: Tenant responsible for utilities and common operating costs (11.98% proportionate share).
- Capital Expenditures: Approximately $100,000 anticipated for facility upgrades through 2005.
- Moving Costs: Approximately $50,000 for moving and duplicate rent, expected to be incurred in June 2005.
Material Changes vs. Prior Period
- Space Expansion: Office space increases by approximately 60% (from 7,700 sq. ft. to 12,300 sq. ft.).
- Rent Escalation: While the first year's rent is comparable to the prior lease (adjusted for abatement), the lease includes fixed annual increases, resulting in significantly higher rent obligations in years 2 through 7 compared to the flat $220,000 annual cost of the prior lease.
- Liability: Creation of a direct financial obligation and off-balance sheet arrangement via the lease and parent company guaranty.
Outlook, Risks, and Contingencies
Management Commentary: The Company expects to incur approximately $50,000 in moving costs and duplicate rent in June 2005, which will be included in operating results when incurred. No non-cash charges related to leasehold improvements are expected.
Risks and Contingencies:
- Abatement Risk: The rent abatement for months 2-5 is conditional; if the Company defaults on the lease, the abated rent becomes immediately due.
- Operating Cost Cap: Controllable common operating costs are capped at a 6% annual increase, but taxes, insurance, and utilities are excluded from this cap.
- Extension Option: The lease includes one option to extend for three years at Fair Market Rent, subject to specific notice periods and conditions.
- Right of First Refusal: The Company has a one-time right of first refusal to lease adjacent ground floor space if the landlord receives a bona fide offer from a third party.
Investor Verification Checklist
- Verify the impact of the $150,000+ in one-time costs (upgrades and moving) on the Q2 2005 operating results.
- Confirm the cash flow impact of the rent abatement period (months 2-5) and the conditions under which it could be reversed.
- Review the long-term fixed cost increase trajectory, noting that annual rent will exceed $350,000 by the final year of the lease.
- Assess the adequacy of the 12,300 sq. ft. space for the Company's growth plans, given the 60% increase in footprint.
- Confirm the status of the "Target Commencement Date" (June 15, 2005) and any potential delays in occupancy.