8-K
Pacific Oak Strategic Opportunity REIT, Inc. (PCOK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
__________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 15, 2021
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
(Exact name of registrant specified in its charter)
______________________________________________________
| Maryland | 000-54382 | 26-3842535 |
|---|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (Commission File Number) | (IRS Employer<br>Identification No.) |
11766 Wilshire Blvd., Suite 1670
Los Angeles, California 90025
(Address of principal executive offices)
Registrant’s telephone number, including area code: (424) 208-8100
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| None | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
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. o
ITEM 7.01 REGULATION FD DISCLOSURE
Pacific Oak SOR (BVI) Holdings, Ltd. (the “BVI”), a wholly-owned subsidiary of Pacific Oak Strategic Opportunity REIT, Inc. (the “Company”), completed offerings of Series A debentures and Series B debentures to investors in Israel in March 2016 and February 2020, respectively. Such offerings were registered with the Israel Securities Authority. Consequently, the BVI is required to prepare and file with the Israel Securities Authority certain financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). The English translation of the IFRS interim consolidated financial statements as of September 30, 2021 are attached as Exhibit 99.1 to this Form 8-K. The English translation of the IFRS separate financial data annexed to the consolidated financial statements as of September 30, 2021 are attached as Exhibit 99.2 to this Form 8-K.
The information in this Item 7.01 of Form 8-K and the attached Exhibit 99.1 and Exhibit 99.2 are furnished to the Securities and Exchange Commission (“SEC”), and shall not be deemed to be “filed” with the SEC for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
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 hereunto duly authorized.
| PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. | ||
|---|---|---|
| Dated: November 15, 2021 | BY: | /s/ Michael A. Bender |
| Michael A. Bender | ||
| Chief Financial Officer, Treasurer and Secretary |
Document
Exhibit 99.1
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2021
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
| Page | |
|---|---|
| Consolidated Statements of Financial Position | 2 |
| Consolidated Statements of Profit or Loss | 3 |
| Consolidated Statements of Comprehensive Income | 4 |
| Consolidated Statements of Equity | 5-6 |
| Consolidated Statements of Cash Flows | 7-9 |
| Notes to Interim Consolidated Financial Statements | 10-19 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | 2020 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 137,726 | $ | 75,822 | $ | 59,387 |
| Financial assets at fair value through profit or loss | 96,403 | — | 97,903 | |||
| Rents and other receivables, net | 5,676 | 2,893 | 6,701 | |||
| Prepaid expenses and other assets | 4,922 | 858 | 3,475 | |||
| Restricted cash | 4,213 | 2,247 | 1,731 | |||
| 248,940 | 81,820 | 169,197 | ||||
| NON-CURRENT ASSETS | ||||||
| Investment properties | 1,506,851 | 1,119,601 | 1,601,933 | |||
| Property plant and equipment - hotels, net | 133,993 | — | 136,262 | |||
| Goodwill | 13,534 | — | 16,342 | |||
| Investment in joint ventures | 204,092 | 206,725 | 215,955 | |||
| Financial assets at fair value through profit or loss | — | 84,365 | — | |||
| Restricted cash | 23,988 | 9,474 | 12,253 | |||
| 1,882,458 | 1,420,165 | 1,982,745 | ||||
| Total assets | $ | 2,131,398 | $ | 1,501,985 | $ | 2,151,942 |
| LIABILITIES AND EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Notes and bond payable, net | $ | 317,706 | $ | 24,514 | $ | 111,447 |
| Debentures, net | 98,950 | 56,642 | 60,399 | |||
| Accounts payable and accrued liabilities | 21,234 | 14,992 | 23,054 | |||
| Due to affiliates | 2,327 | 4,870 | 3,045 | |||
| Distribution payable to Owner | — | — | 11,758 | |||
| Other liabilities | 27,998 | 14,898 | 19,144 | |||
| Lease obligation | 360 | — | 360 | |||
| Series A Cumulative Convertible Redeemable Preferred Stock | 15,233 | — | — | |||
| 483,808 | 115,916 | 229,207 | ||||
| LONG-TERM LIABILITIES | ||||||
| Notes and bond payable, net | 433,357 | 493,217 | 730,665 | |||
| Debentures, net | 173,765 | 183,702 | 196,557 | |||
| Lease obligation | 8,979 | — | 8,914 | |||
| Rental security deposits | 6,037 | 4,260 | 5,719 | |||
| Series A Cumulative Convertible Redeemable Preferred Stock | — | 15,233 | 15,233 | |||
| 622,138 | 696,412 | 957,088 | ||||
| Total liabilities | 1,105,946 | 812,328 | 1,186,295 | |||
| EQUITY | ||||||
| Owner's net equity | 993,870 | 674,430 | 929,770 | |||
| Non-controlling interests | 31,582 | 15,227 | 35,877 | |||
| Total equity | 1,025,452 | 689,657 | 965,647 | |||
| Total liabilities and equity | $ | 2,131,398 | $ | 1,501,985 | $ | 2,151,942 |
The accompanying notes are an integral part of the interim consolidated financial statements.
| November 14, 2021 | /s/ Michael Allen Bender | /s/ Peter McMillan III | /s/ Keith David Hall |
|---|---|---|---|
| Date of approval of | Bender, Michael Allen | McMillan III, Peter | Hall, Keith David |
| financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended <br>December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Revenues and other income: | ||||||||||
| Rental income | $ | 88,114 | $ | 62,366 | $ | 27,593 | $ | 22,244 | $ | 93,107 |
| Tenant reimbursements | 9,603 | 7,307 | 2,898 | 2,278 | 10,171 | |||||
| Hotel revenues | 24,578 | — | 12,154 | — | 3,718 | |||||
| Other operating income | 1,547 | 1,386 | 374 | 440 | 1,927 | |||||
| Total revenues and other income | 123,842 | 71,059 | 43,019 | 24,962 | 108,923 | |||||
| Expenses: | ||||||||||
| Operating, maintenance, and management fees | (33,963) | (23,369) | (11,492) | (8,251) | (36,091) | |||||
| Real estate taxes and insurance | (15,950) | (10,570) | (5,262) | (3,791) | (15,702) | |||||
| Hotel expenses | (15,715) | — | (6,484) | — | (3,836) | |||||
| Total expenses | (65,628) | (33,939) | (23,238) | (12,042) | (55,629) | |||||
| Gross profit | 58,214 | 37,120 | 19,781 | 12,920 | 53,294 | |||||
| Fair value adjustment of investment properties, net | 77,496 | (33,778) | 84,318 | (9,572) | (24,214) | |||||
| Depreciation | (2,313) | — | (788) | — | (832) | |||||
| Equity in loss of unconsolidated joint ventures | (16,648) | (28,829) | (13,646) | (23,512) | (29,593) | |||||
| Asset management fees to affiliate | (10,802) | (6,867) | (3,422) | (2,426) | (9,982) | |||||
| Impairment charges on goodwill | (2,808) | — | (2,808) | — | — | |||||
| General and administrative expenses | (3,668) | (2,586) | (1,534) | (1,022) | (3,590) | |||||
| Operating profit (loss) | 99,471 | (34,940) | 81,901 | (23,612) | (14,917) | |||||
| Transaction and related costs | (208) | — | (208) | — | (6,018) | |||||
| Finance income | 149 | 267 | 55 | 19 | 318 | |||||
| Finance income from financial assets at fair value through profit or (loss) | 19,632 | (14,220) | 574 | (1,532) | (6,435) | |||||
| Finance expenses | (31,355) | (19,844) | (10,283) | (6,465) | (30,126) | |||||
| Gain on extinguishment of debt | 1,365 | — | 1,352 | — | 415 | |||||
| Foreign currency transaction adjustments, net | 568 | 12,338 | (2,271) | (445) | (2,912) | |||||
| Net income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
| Net income (loss) attributable to owner | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
| Net (loss) income attributable to non-controlling interests | (4,478) | (3,975) | (3,693) | (3,343) | 3,618 | |||||
| Net income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Net income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
| Total comprehensive income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
| Total comprehensive income (loss) attributable to owner | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
| Total comprehensive (loss) income attributable to non-controlling interests | (4,478) | (3,975) | (3,693) | (3,343) | 3,618 | |||||
| Total comprehensive income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | 693,554 | $ | 194,585 | $ | 41,631 | $ | 929,770 | $ | 35,877 | $ | 965,647 | ||||||||||||||
| Net income (loss) | — | 94,100 | — | 94,100 | (4,478) | 89,622 | ||||||||||||||||||||
| Total comprehensive income (loss) | — | 94,100 | — | 94,100 | (4,478) | 89,622 | ||||||||||||||||||||
| Distributions to Owner | (30,000) | — | — | (30,000) | — | (30,000) | ||||||||||||||||||||
| Non-controlling interest contributions | — | — | — | — | 183 | 183 | ||||||||||||||||||||
| Balance at September 30, 2021 | $ | 663,554 | $ | 288,685 | $ | 41,631 | $ | 993,870 | $ | 31,582 | $ | 1,025,452 | Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | 413,087 | $ | 272,136 | $ | 41,631 | $ | 726,854 | $ | 16,094 | $ | 742,948 | ||||||||||||||
| Net loss | — | (52,424) | — | (52,424) | (3,975) | (56,399) | ||||||||||||||||||||
| Total comprehensive loss | — | (52,424) | — | (52,424) | (3,975) | (56,399) | ||||||||||||||||||||
| Non-controlling interest contributions | — | — | — | — | 3,136 | 3,136 | ||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||||||||||||||||
| Balance at September 30, 2020 | $ | 413,087 | $ | 219,712 | $ | 41,631 | $ | 674,430 | $ | 15,227 | $ | 689,657 | Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Balance at July 1, 2021 | $ | 693,554 | $ | 213,872 | $ | 41,631 | $ | 949,057 | $ | 35,255 | $ | 984,312 | ||||||||||||||
| Net (loss) income | — | 74,813 | — | 74,813 | (3,693) | 71,120 | ||||||||||||||||||||
| Total comprehensive (loss) income | — | 74,813 | — | 74,813 | (3,693) | 71,120 | ||||||||||||||||||||
| Distributions to Owner | (30,000) | — | — | (30,000) | — | (30,000) | ||||||||||||||||||||
| Non-controlling interest contributions | — | — | — | — | 20 | 20 | ||||||||||||||||||||
| Balance at September 30, 2021 | $ | 663,554 | $ | 288,685 | $ | 41,631 | $ | 993,870 | $ | 31,582 | $ | 1,025,452 | Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Balance at July 1, 2020 | $ | 413,087 | $ | 248,404 | $ | 41,631 | $ | 703,122 | $ | 15,574 | $ | 718,696 | ||||||||||||||
| Net loss | — | (28,692) | — | (28,692) | (3,343) | (32,035) | ||||||||||||||||||||
| Total comprehensive loss | — | (28,692) | — | (28,692) | (3,343) | (32,035) | ||||||||||||||||||||
| Non-controlling interest contributions | — | — | — | — | 3,024 | 3,024 | ||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||||||||||||||||
| Balance at September 30, 2020 | $ | 413,087 | $ | 219,712 | $ | 41,631 | $ | 674,430 | $ | 15,227 | $ | 689,657 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Audited | ||||||||||||
| U.S. dollars in thousands | ||||||||||||
| Balance at January 1, 2020 | $ | 413,087 | $ | 272,136 | $ | 41,631 | $ | 726,854 | $ | 16,094 | $ | 742,948 |
| Net (loss) income | — | (63,293) | — | (63,293) | 3,618 | (59,675) | ||||||
| Total comprehensive (loss) income | — | (63,293) | — | (63,293) | 3,618 | (59,675) | ||||||
| Contributions from Owner | 280,467 | — | — | 280,467 | 12,325 | 292,792 | ||||||
| Dividends declared to Owner | — | (14,258) | — | (14,258) | — | (14,258) | ||||||
| Non-controlling interests contributions | — | — | — | — | 3,868 | 3,868 | ||||||
| Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||
| Balance at December 31, 2020 | $ | 693,554 | $ | 194,585 | $ | 41,631 | $ | 929,770 | $ | 35,877 | $ | 965,647 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||
| Net income (loss) | $ | 89,622 | $ | (56,399) | $ | 71,120 | $ | (32,035) | $ | (59,675) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
| Equity in loss of unconsolidated joint ventures | 16,648 | 28,829 | 13,646 | 23,512 | 29,593 | |||||
| Fair value adjustment on investment properties, net | (77,496) | 33,778 | (84,318) | 9,572 | 24,214 | |||||
| Depreciation | 2,313 | — | 788 | — | 832 | |||||
| Impairment charges on goodwill | 2,808 | — | 2,808 | — | — | |||||
| Transaction and related costs | — | — | — | — | 6,018 | |||||
| Gain on extinguishment of debt | (1,365) | — | (1,352) | — | (415) | |||||
| Deferred rent | (1,770) | (2,411) | (392) | (861) | (3,918) | |||||
| Bad debt expense | 2,521 | 1,114 | 824 | 363 | 2,306 | |||||
| Financing expense | 31,355 | 19,844 | 10,283 | 6,465 | 30,142 | |||||
| Financing income | (149) | (267) | (55) | (19) | (318) | |||||
| Finance (income) loss from financial assets at fair value through profit or loss | (19,632) | 14,220 | (574) | 1,532 | 6,435 | |||||
| Foreign currency transaction (gain) loss, net | (568) | (12,338) | 2,271 | 445 | 2,912 | |||||
| 44,287 | 26,370 | 15,049 | 8,974 | 38,126 | ||||||
| Changes in assets and liabilities: | ||||||||||
| Restricted cash | (3,603) | (678) | (2,329) | 606 | 690 | |||||
| Rents and other receivables | (1,680) | (838) | (297) | (435) | (3,264) | |||||
| Prepaid expenses and other assets | (1,421) | (80) | (1,356) | (71) | 637 | |||||
| Accounts payable and accrued liabilities | 932 | 1,358 | 2,363 | 1,660 | (3,128) | |||||
| Rental security deposits | 318 | (85) | (773) | (9) | (93) | |||||
| Due to affiliates | (754) | 238 | 850 | (2,192) | 201 | |||||
| Other liabilities | (802) | (135) | (280) | (88) | 650 | |||||
| Lease incentive additions | 983 | (1,298) | 83 | (212) | (2,014) | |||||
| (6,027) | (1,518) | (1,739) | (741) | (6,321) | ||||||
| Net cash provided by operating activities | 38,260 | 24,852 | 13,310 | 8,233 | 31,805 | |||||
| Cash Flows from Investing Activities: | ||||||||||
| Acquisitions of investment properties | (4,117) | (19,312) | — | (2,063) | (19,312) | |||||
| Acquisition of BPT *) | — | 278 | — | 278 | 403 | |||||
| POSOR II merger **) | — | — | — | — | 3,717 | |||||
| Improvements to investment properties | (14,832) | (18,648) | (5,576) | (4,909) | (25,048) | |||||
| Proceeds from sales of investment properties, net | 195,091 | — | 145,429 | — | 332 | |||||
| Additions to property plant and equipment - hotels | (44) | — | (11) | — | (94) | |||||
| Investment in unconsolidated joint venture | (4,769) | (1,709) | (743) | (1,276) | (12,620) | |||||
| Investments in financial assets at fair value through profit or loss, net | — | (35,510) | — | (14,227) | (35,971) | |||||
| Distribution from financial assets at fair value through profit or loss, net | — | 1,225 | — | — | 1,370 | |||||
| Proceeds from the sale of investments in financial assets at fair value through profit or loss, net | 14,439 | 10,964 | — | — | 10,964 | |||||
| Purchase of interest rate cap | (18) | (6) | — | — | (16) | |||||
| Proceeds from disposition of foreign currency collars | — | 14,125 | — | 14,125 | 14,125 | |||||
| Interest income received | 150 | 264 | 55 | 21 | 316 | |||||
| Dividend income received from financial assets at fair value through profit or loss | 6,876 | 5,243 | 3,188 | 2,764 | 6,214 | |||||
| Restricted cash deposited for capital expenditures | (4,067) | — | (15) | — | — | |||||
| Net cash provided by (used in) investing activities | 188,709 | (43,086) | 142,327 | (5,287) | (55,620) |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||||||||||
| Proceeds from debentures, notes and bonds payable | $ | 157,246 | $ | 104,143 | $ | — | $ | 2,250 | $ | 112,480 | ||||||||||||
| Principal payments on notes and bond payable | (233,964) | (57,611) | (102,292) | (462) | (70,649) | |||||||||||||||||
| Payments of deferred financing costs | (2,745) | (2,452) | (612) | — | (2,570) | |||||||||||||||||
| Interest paid | (29,797) | (19,528) | (11,829) | (7,774) | (24,528) | |||||||||||||||||
| Distributions to Owner | (41,758) | — | (30,000) | — | (2,500) | |||||||||||||||||
| (Contribution) release of restricted cash for debt service obligations | (358) | 1,011 | — | — | 1,011 | |||||||||||||||||
| Non-controlling interests contributions | 183 | 112 | 20 | — | 844 | |||||||||||||||||
| Distributions to non-controlling interests | — | (28) | — | (28) | (28) | |||||||||||||||||
| Other financing proceeds, net | 2,367 | — | — | — | — | |||||||||||||||||
| Net cash (used in) provided by financing activities | (148,826) | 25,647 | (144,713) | (6,014) | 14,060 | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 196 | 31 | 420 | 148 | 764 | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 78,339 | 7,444 | 11,344 | (2,920) | (8,991) | |||||||||||||||||
| Cash and cash equivalents, beginning of period | 59,387 | 68,378 | 126,382 | 78,742 | 68,378 | |||||||||||||||||
| Cash and cash equivalents, end of period | $ | 137,726 | $ | 75,822 | $ | 137,726 | $ | 75,822 | $ | 59,387 | Supplemental Disclosure of Noncash Activities: | |||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||||
| Accrual improvements to real estate | $ | 1,721 | $ | 2,393 | $ | 1,721 | $ | 2,393 | $ | 2,733 | ||||||||||||
| Distribution payable to Owner | $ | — | $ | — | $ | — | $ | — | $ | 11,758 |
*) Assets and liabilities assumed or eliminated in connection with Battery Point Trust acquisition:
| Rents and other receivables | $ | — | $ | 17 | $ | — | $ | 17 | $ | 17 |
|---|---|---|---|---|---|---|---|---|---|---|
| Prepaid expenses and other assets | — | 4 | — | 4 | 4 | |||||
| Investment property | — | 56,148 | — | 56,148 | 56,148 | |||||
| Financial assets at fair value through profit or loss | — | (16,000) | — | (16,000) | (16,000) | |||||
| Notes payable | — | (36,003) | — | (36,003) | (36,003) | |||||
| Accounts payable and accrued liabilities | — | (344) | — | (344) | (344) | |||||
| Due to Owner | — | (721) | — | (721) | (721) | |||||
| Other liabilities | — | (355) | — | (355) | (480) | |||||
| Non-controlling interests | — | (3,024) | — | (3,024) | (3,024) | |||||
| Cash assumed in connection with Battery Point Trust acquisition | $ | — | $ | (278) | $ | — | $ | (278) | $ | (403) |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
**) Assets and liabilities assumed in connection with POSOR II merger:
| Rents and other receivables | $ | — | $ | — | $ | — | $ | — | $ | 2,567 |
|---|---|---|---|---|---|---|---|---|---|---|
| Prepaid expenses and other assets | — | — | — | — | 3,341 | |||||
| Investment property | — | — | — | — | 465,908 | |||||
| Property plant and equipment - hotels, net | — | — | — | — | 137,000 | |||||
| Investment in joint ventures | — | — | — | — | 3,150 | |||||
| Financial assets at fair value through profit or loss | — | — | — | — | 6,271 | |||||
| Restricted cash | — | — | — | — | 3,243 | |||||
| Goodwill | — | — | — | — | 16,342 | |||||
| Notes payable | — | — | — | — | (328,203) | |||||
| Accounts payable and accrued liabilities | — | — | — | — | (9,926) | |||||
| Due to Owner | — | — | — | — | (2,123) | |||||
| Lease obligation | — | — | — | — | (9,258) | |||||
| Other liabilities | — | — | — | — | (3,788) | |||||
| Rental security deposits | — | — | — | — | (1,467) | |||||
| Owner's net equity | — | — | — | — | (280,467) | |||||
| Non-controlling interests | — | — | — | — | (12,325) | |||||
| Transaction and related costs | — | — | — | — | 6,018 | |||||
| Cash assumed in connection with POSOR II merger | $ | — | $ | — | $ | — | $ | — | $ | (3,717) |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL INFORMATION
a. These financial statements have been prepared in a condensed format as of September 30, 2021 and for the nine and three months period then ended ("interim condensed financial statements"). These interim condensed financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2020 and for the year then ended and the accompanying notes ("annual financial statements").
b. The Company and its subsidiaries (the "Group") operate in the investment real estate segment in the United States, which includes mainly investment in office and residential real estate and undeveloped lands. In addition, the Company invests in real estate equity securities. The Company started recognizing two reporting segments beginning November 2019 consisting of strategic opportunistic properties and single-family homes. Prior to November 2019, the Company had only one segment. The Company started recognizing three reporting segments beginning October 2020 consisting of strategic opportunistic properties, single-family homes and hotels.
c. In determining the fair value of investment property, the Group relies on valuations performed by external (independent) valuation specialists who are experts in real estate valuations and who have the necessary knowledge and experience and by the Group management which has extensive professional experience and by internal valuation specialists.
d. The recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally will lead to a world-wide economic downturn. Customers and potential customers of the properties we own could be adversely affected by the disruption to business caused by the global outbreak of the Coronavirus. This could lead to similar negative impacts on our business. The Company's September 2021 rents were over 95% collected.
Because our property investments are located in the United States, COVID-19 has begun and will continue to impact our properties and operating results given its continued spread within the United States reduces occupancy, increases the cost of operation, results in limited hours or necessitates the closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation of the consolidated financial statements:
The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting", and in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements.
b. IAS 1 Presentation of Financial Statements: Amendments to classification of liabilities as current or non-current
The Company has elected to early adopt IAS 1, "Presentation of Financial Statement: Amendments to classification of liabilities as current or non-current." Due to the amendment, the accounting policy of the company is:
a.Only the existing rights of the company at the end of the reporting period, will be used to determine if the Company has the right to exclude the obligation.
b. The consideration and the discretion in the Company's ability to postpone the payment for period of 12 months from the report period.
c. Disposal of liability can be done through transfer of cash but, also in capital instruments of the entity, assets or services.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES
110 William Joint Venture:
The Company does not attach the financial statements of Pacific Oak SOR SREF III 110 William, LLC, since its reports are insignificant to the Company's financial statements and do not add more information to the contained below.
Summarized information about the statements of financial position and the statements of profit or loss of Pacific Oak SOR SREF III 110 William, LLC (100%) (in thousands) (1):
| September 30, | December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2020 | ||||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Current assets | $ | 14,072 | $ | 16,865 | $ | 16,914 | ||||
| Non-current assets (investment property) | 460,700 | 500,800 | 503,559 | |||||||
| Current liabilities | 44,375 | 6,679 | 4,024 | |||||||
| Non-current liabilities | 276,644 | 313,070 | 316,827 | |||||||
| Equity | 153,753 | 197,916 | 199,622 | |||||||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 84,538 | $ | 102,639 | $ | 103,835 | ||||
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Revenues | $ | 23,233 | $ | 26,387 | $ | 6,982 | $ | 9,936 | $ | 36,304 |
| Gross profit | 6,087 | 14,832 | 1,626 | 5,905 | 20,691 | |||||
| Operating profit (loss) *) | (34,916) | (40,126) | (39,377) | (28,913) | (34,274) | |||||
| Net loss *) | (45,867) | (52,169) | (42,912) | (33,026) | (50,464) | |||||
| Share of loss from joint venture (Based on the waterfall mechanism) | (19,298) | (22,281) | (18,850) | (14,459) | (21,085) | |||||
| *) Includes revaluation of investment properties | $ | (41,003) | $ | (54,958) | $ | (41,003) | $ | (34,818) | $ | (54,965) |
(1) The company holds 60% of Pacific Oak SOR SREF III 110 William, LLC.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (Cont.)
353 Sacramento Joint Venture:
The Company does not attach the financial statements of Pacific Oak SOR Acquisition XXIX, LLC (353 Sacramento Street), since its reports are insignificant to the Company's financial statements and do not add more information to the contained below
Summarized information about the statements of financial position and the statements of profit or loss of 353 Sacramento Street, Pacific Oak SOR Acquisition XXIX, LLC (100%) (in thousands):
| September 30, | December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2020 | ||||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Current assets | $ | 15,232 | $ | 6,184 | $ | 7,484 | ||||
| Non-current assets (investment property) | 252,500 | 255,600 | 250,600 | |||||||
| Current liabilities | 112,500 | 3,127 | 113,228 | |||||||
| Non-current liabilities | 1,754 | 117,295 | 1,754 | |||||||
| Equity | 153,478 | 141,362 | 143,102 | |||||||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 86,469 | $ | 78,190 | $ | 82,119 | ||||
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Revenues | $ | 15,873 | $ | 15,277 | $ | 5,279 | $ | 5,313 | $ | 20,282 |
| Gross profit | 7,509 | 10,594 | 1,508 | 3,627 | 13,909 | |||||
| Operating profit (loss)*) | 7,431 | (7,772) | 9,743 | (14,542) | (10,539) | |||||
| Net profit (loss)*) | 4,731 | (11,064) | 8,783 | (15,490) | (14,827) | |||||
| Share of profit (loss) from joint venture (Based on the waterfall mechanism) | 3,207 | (5,980) | 5,326 | (8,484) | (7,551) | |||||
| *) Includes revaluation of investment properties | $ | (78) | $ | (18,366) | $ | 8,235 | $ | (18,169) | $ | (24,448) |
(1) The company holds 55% of Pacific Oak SOR Acquisition XXIX, LLC.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of non-current notes payables as of September 30, 2021 is not materially different from its fair value as presented in the annual consolidated financial statements as of December 31, 2020. The fair value of the debentures payable as of September 30, 2021 was approximately $275.2 million (887.3 million NIS).
As of September 30, 2021, the Company had a working capital shortfall amounting to $234.9 million, primarily attributed to loans maturing in the year following the date of the statement of financial position. The Company intends to refinance loans as they come due and does not anticipate any challenges in refinancing such loans given the relatively low leverage of the Company’s properties, the Company’s relationship with third-party lenders and its past experience placing debt on its properties. Accordingly, the Company does not view the working capital shortfall as a liquidity problem.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and asses its performance. All corporate related costs are included in the strategic opportunistic properties segment to align with how financial information is presented to the CODM. The Company started recognizing two reporting segments beginning November 2019 consisting of strategic opportunistic properties and single-family homes. Prior to November 2019, the Company had only one segment. The Company started recognizing three reporting segments beginning October 2020 consisting of strategic opportunistic properties, single-family homes and hotels. The selected financial information for the reporting segments as of and for the nine and three months ended September 30, 2021 and 2020 and as of and the year ended December 31, 2020 is as follows (in thousands):
| September 30, 2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties (Including held for sale) | $ | 1,254,000 | $ | 252,851 | $ | — | $ | 1,506,851 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 133,993 | $ | 133,993 |
| Total assets | $ | 1,706,184 | $ | 272,528 | $ | 152,686 | $ | 2,131,398 |
| Total liabilities | $ | 878,133 | $ | 140,269 | $ | 87,544 | $ | 1,105,946 |
| Nine months ended September 30, 2021 | ||||||||
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 82,386 | $ | 16,878 | $ | 24,578 | $ | 123,842 |
| Gross profit | $ | 41,070 | $ | 8,281 | $ | 8,863 | $ | 58,214 |
| Finance expenses | $ | 21,930 | $ | 4,960 | $ | 4,465 | $ | 31,355 |
| Three months ended September 30, 2021 | ||||||||
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 25,108 | $ | 5,757 | $ | 12,154 | $ | 43,019 |
| Gross profit | $ | 11,164 | $ | 2,947 | $ | 5,670 | $ | 19,781 |
| Finance expenses | $ | 7,286 | $ | 1,512 | $ | 1,485 | $ | 10,283 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
| September 30, 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties | $ | 913,180 | $ | 206,421 | $ | — | $ | 1,119,601 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | — | $ | — |
| Total assets | $ | 1,280,561 | $ | 221,424 | $ | — | $ | 1,501,985 |
| Total liabilities | $ | 676,756 | $ | 135,572 | $ | — | $ | 812,328 |
| Nine months ended September 30, 2020 | ||||||||
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 59,539 | $ | 11,520 | $ | — | $ | 71,059 |
| Gross profit | $ | 31,596 | $ | 5,524 | $ | — | $ | 37,120 |
| Finance expenses | $ | 16,180 | $ | 3,664 | $ | — | $ | 19,844 |
| Three months ended September 30, 2020 | ||||||||
| Unaudited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 19,545 | $ | 5,417 | $ | — | $ | 24,962 |
| Gross profit | $ | 10,264 | $ | 2,656 | $ | — | $ | 12,920 |
| Finance expenses | $ | 4,954 | $ | 1,511 | $ | — | $ | 6,465 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
| December 31, 2020 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Audited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties | $ | 1,383,802 | $ | 218,131 | $ | — | $ | 1,601,933 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 136,262 | $ | 136,262 |
| Total assets | $ | 1,772,688 | $ | 228,408 | $ | 150,846 | $ | 2,151,942 |
| Total liabilities | $ | 962,118 | $ | 130,957 | $ | 93,220 | $ | 1,186,295 |
| Year ended December 31, 2020 | ||||||||
| Audited | ||||||||
| U.S. dollars in thousands | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 88,188 | $ | 17,017 | $ | 3,718 | $ | 108,923 |
| Gross profit (loss) | $ | 45,195 | $ | 8,217 | $ | (118) | $ | 53,294 |
| Finance expenses | $ | 23,450 | $ | 5,171 | $ | 1,505 | $ | 30,126 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 6: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Series A Debentures
On March 1, 2021, the Company paid the third principal installment payment of 194.0 million Israeli new Shekels (approximately $58.9 million as of March 1, 2021).
On March 4, 2021 the Company issued debentures (series A) in the amount of 250.0 million NIS par value through a private placement. The debentures were issued at a 1.9% discount resulting in total consideration of 245.3 million NIS ($74.2 million as of March 4, 2021). The additional debentures shall have an equal level of security, pari passu, amongst themselves and between them and the debentures (Series A), which were initially issued, without any right of precedence or preference between any of them.
Series B Debentures
On February 16, 2020, the Company issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures bears interest at the rate of 3.93% per year. The first interest payment was on July 31, 2020 and subsequent payments are on January 31st and July 31st of each year from 2021 to 2026. The aggregate offering costs were approximately $2.2 million and the effective interest rate is approximately 4.5%. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026.
The Series B Debentures contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 475 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); (iii) Adjusted NOI shall be no lower than USD 35 million; and (iv) the consolidated scope of the projects for development of the Company shall not exceed 10% of the adjusted balance. As of September 30, 2021, the Company was in compliance with all covenants under the deed of trust of the Series B Debentures; (i) Consolidated Equity Capital of the Company as of September 30, 2021 was $994.0 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 50%; (iii) the Adjusted NOI was $93.0 million for the trailing twelve months ended September 30, 2021; and (iv) the consolidated scope of projects was $0 as of September 30, 2021.
Park Highlands Sale
On June 3, 2021, the Company sold approximately 193 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits, costs and deferred profit, of $46.6 million. The purchasers are not affiliated with the Company or the Advisor.
City Tower Disposition
On July 27, 2021, the Company, through an indirect wholly owned subsidiary, sold City Tower, which was classified as held for sale as of September 30, 2021, to a purchaser unaffiliated with the Company or the Advisor, for $150.5 million, before closing costs and credits. The Company repaid $98.1 million of the outstanding principal balance due under the mortgage loan secured by the property.
Dividend Approval
On August 5, 2021, the Company’s board of directors approved a distribution of dividend in the amount of $30.0 million to the Owner.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Richardson Acquisition
On November 22, 2011, the Company, through an indirect wholly owned subsidiary, and JP-Richardson, LLC, an affiliate of JP Realty Partners, LTD., entered into an agreement to form a joint venture (the “Richardson Joint Venture”), and on November 23, 2011, the Richardson Joint Venture acquired a portfolio of office buildings and undeveloped land in Richardson, Texas (the “Richardson Portfolio”).
On October 18, 2021, the Company purchased the 10% minority interest in the Richardson Joint Venture, for $4.0 million from JP-Richardson, LLC. As of the date of purchase, the Richardson Portfolio consisted of four office buildings and 14 acres of undeveloped land. Subsequent to the purchase, the Company owned 100% of the Richardson Joint Venture.
Bond Offerings
Subsequent to September 30, 2021, the Company issued additional Series B Debentures in the amount of 536.4 million Israeli new Shekels par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8 million as of November 1, 2021). Additionally, the Company also issued 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.6 million as of November 1, 2021). The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, which were initially issued, without any right of precedence or preference between any of them. On November 15, 2021, the Company completed the full early repayment of the Series A Debentures with proceeds from the additional Series B Debentures and available cash on hand.
Notes Payable Refinancing
On October 7, 2021, the Company refinanced the Madison Square Mortgage Loan with a mortgage loan from an unaffiliated lender (the “Refinancing”) for borrowings up to $27.0 million. At closing, $17.5 million of the loan was funded and the remaining $9.5 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents. The Refinancing is interest only with a fixed interest rate of 4.625% and has a maturity date of October 7, 2024. In connection with the execution of the Refinancing, Pacific Oak SOR Properties, LLC, a wholly owned subsidiary, is providing an unconditional guarantee and will be held liable, as a primary obligor for our obligations under the Refinancing.
19
Document
Exhibit 99.2
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTABLE TO THE COMPANY
September 30, 2021 (Unaudited)
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA
FROM THE CONSOLIDATED FINANCIAL STATEMENTS
ATTRIBUTABLE TO THE COMPANY
AS OF SEPTEMBER 30, 2021
(UNAUDITED)
U.S. DOLLARS IN THOUSANDS
INDEX
| Page | |
|---|---|
| Special Report Presented Pursuant to Regulation 38d | 2 |
| Financial Information from the Consolidated Statements of Financial Position Attributable to the Company | 3 |
| Financial Information from the Consolidated Statements of Profit or Loss Attributable to the Company | 4 |
| Financial Information from the Consolidated Statements of Comprehensive Income Attributable to the Company | 5 |
| Financial Information from the Consolidated Statements of Cash Flows Attributable to the Company | 6 |
| Additional Information | 7-9 |
Special Report in accordance with Regulation 38d
Financial Information and Financial Data from the
Consolidated Financial Statements Attributable to the Company
Below is separate financial information and financial data attributable to the Company from the Group's consolidated financial statements as of September 30, 2021, published as part of the periodic reports ("consolidated financial statements"), presented in accordance with Regulation 38d to the Israeli Securities Regulations (Periodic and Immediate Reports), 1970.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Financial Information from the Consolidated Statements of Financial Position Attributable to the Company
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | 2020 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| Non-current assets | ||||||
| Investments in investees | $ | 1,228,118 | $ | 901,987 | $ | 1,187,342 |
| Restricted cash | 6,596 | 5,856 | 6,246 | |||
| 1,234,714 | 907,843 | 1,193,588 | ||||
| Current assets | ||||||
| Cash and cash equivalents | 35,784 | 13,108 | 11,956 | |||
| 35,784 | 13,108 | 11,956 | ||||
| Total assets | $ | 1,270,498 | $ | 920,951 | $ | 1,205,544 |
| EQUITY | $ | 993,870 | $ | 674,430 | $ | 929,770 |
| NON-CURRENT LIABILITIES | ||||||
| Debentures, net | 173,765 | 183,702 | 196,557 | |||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 1,542 | 1,307 | 4,015 | |||
| Debentures, net | 98,950 | 56,642 | 60,399 | |||
| Derivative liability | 44 | — | — | |||
| Due to Owner | 2,327 | 4,870 | 3,045 | |||
| Distribution payable to Owner | — | — | 11,758 | |||
| 102,863 | 62,819 | 79,217 | ||||
| Total liabilities | 276,628 | 246,521 | 275,774 | |||
| Total equity and liabilities | $ | 1,270,498 | $ | 920,951 | $ | 1,205,544 |
The accompanying notes are an integral part of the condensed interim financial data.
| November 14, 2021 | /s/ Michael Allen Bender | /s/ Peter McMillan III | /s/ Keith David Hall |
|---|---|---|---|
| Date of approval of | Bender, Michael Allen | McMillan III, Peter | Hall, Keith David |
| financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer |
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Financial Information from the Consolidated Statements of Profit or Loss Attributable to the Company
| Nine months ended <br>September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Share of profit (loss) from investees, net | $ | 118,129 | $ | (46,565) | $ | 85,552 | $ | (21,867) | $ | (35,051) |
| Asset management fees to affiliate | (10,802) | (6,867) | (3,422) | (2,426) | (9,982) | |||||
| General and administrative expenses | (3,668) | (2,586) | (1,534) | (1,022) | (3,590) | |||||
| Operating income (loss) | 103,659 | (56,018) | 80,596 | (25,315) | (48,623) | |||||
| Finance expense | (10,135) | (8,758) | (3,515) | (2,934) | (11,785) | |||||
| Finance income | 8 | 14 | 3 | 2 | 15 | |||||
| Foreign currency transaction adjustments, net | 568 | 12,338 | (2,271) | (445) | (2,900) | |||||
| Net income (loss) | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Financial Information from the Consolidated Statements of Comprehensive Income Attributable to the Company
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Net income (loss) | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
| Total comprehensive income (loss) | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Financial Information from the Consolidated Statements of Cash Flows Attributable to the Company
| Nine months ended September 30, | Three months ended September 30, | Year ended <br>December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | 2020 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash flows from operating activities | ||||||||||
| Net income (loss) for the period | $ | 94,100 | $ | (52,424) | $ | 74,813 | $ | (28,692) | $ | (63,293) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||
| Share of (profit) loss from investees | (118,129) | 46,565 | (85,552) | 21,867 | 35,051 | |||||
| Finance expense | 10,135 | 8,758 | 3,515 | 2,934 | 11,785 | |||||
| Distribution from investees, net | 44,486 | 43,359 | 15,989 | 20,299 | 47,048 | |||||
| Foreign currency transaction adjustments, net | (568) | (12,338) | 2,271 | 445 | 2,900 | |||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts payable and accrued liabilities | 174 | (130) | 95 | (204) | (196) | |||||
| Restricted cash for operational expenditures | (364) | (509) | (3) | (3) | (511) | |||||
| Due to Owner | (718) | 959 | 850 | (1,471) | 3,045 | |||||
| Net cash provided by operating activities | 29,116 | 34,240 | 11,978 | 15,175 | 35,829 | |||||
| Cash flows from investing activities | ||||||||||
| Distributions from (investments in) investees | 32,867 | (41,888) | 16,596 | (22,275) | (42,862) | |||||
| Proceeds from termination of derivative financial instrument | — | 14,125 | — | 14,125 | 14,125 | |||||
| Net cash provided by (used in) investing activities | 32,867 | (27,763) | 16,596 | (8,150) | (28,737) | |||||
| Cash flows from financing activities | ||||||||||
| Proceeds from debentures | 74,232 | 74,118 | — | — | 74,118 | |||||
| Payments of deferred financing costs | (923) | (2,168) | — | — | (2,168) | |||||
| Principal payments on debentures | (58,889) | (56,611) | — | — | (56,611) | |||||
| Interest paid | (11,013) | (9,818) | (5,728) | (5,004) | (9,818) | |||||
| Release of restricted cash for debt service obligations | — | 1,011 | — | — | 1,011 | |||||
| Distributions to Owner | (41,758) | — | (30,000) | — | (2,500) | |||||
| Net cash (used in) provided by financing activities | (38,351) | 6,532 | (35,728) | (5,004) | 4,032 | |||||
| Effect of exchange rate changes on cash and cash equivalents | 196 | 31 | 420 | 148 | 764 | |||||
| Increase (decrease) in cash | 23,828 | 13,040 | (6,734) | 2,169 | 11,888 | |||||
| Cash, beginning of the period | 11,956 | 68 | 42,518 | 10,939 | 68 | |||||
| Cash, end of the period | $ | 35,784 | $ | 13,108 | $ | 35,784 | $ | 13,108 | $ | 11,956 |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Additional Information
U.S. dollars in thousands
NOTE 1: BASIS OF PREPARATION
Separate financial information is prepared in a condensed format as of September 30, 2021 and for the nine and three months then ended, in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970.
Please refer to the separate financial information in this regard to the financial information on the annual financial statements of the Company as of December 31, 2020 and for the year then ended, and the information accompanying notes (hereinafter - the annual consolidated financial statements).
As of September 30, 2021, the Company had a working capital shortfall amounting to $67.1 million, primarily attributed to the debentures principal payment maturing in the year following the date of the statement of financial position. The Company intends to make the debentures principal payment from distribution from investees. Accordingly, the Company does not view the working capital shortfall as a liquidity problem.
The recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally will lead to a world-wide economic downturn. Customers and potential customers of the properties we own could be adversely affected by the disruption to business caused by the global outbreak of the Coronavirus. This could lead to similar negative impacts on our business. The Company's September 2021 rents were over 95% collected.
Because our property investments are located in the United States, COVID-19 has begun and will continue to impact our properties and operating results given its continued spread within the United States reduces occupancy, increases the cost of operation, results in limited hours or necessitates the closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Additional Information
U.S. dollars in thousands
NOTE 2: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Series A Debentures
On March 1, 2021, the Company paid the third principal installment payment of 194.0 million Israeli new Shekels (approximately $58.9 million as of March 1, 2021).
On March 4, 2021 the Company issued debentures (series A) in the amount of 250.0 million NIS par value through a private placement. The debentures were issued at a 1.9% discount resulting in total consideration of 245.3 million NIS ($74.2 million as of March 4, 2021). The additional debentures shall have an equal level of security, pari passu, amongst themselves and between them and the debentures (Series A), which were initially issued, without any right of precedence or preference between any of them.
Series B Debentures
On February 16, 2020, the Company issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures bears interest at the rate of 3.93% per year. The first interest payment was on July 31, 2020 and subsequent payments are on January 31st and July 31st of each year from 2021 to 2026. The aggregate offering costs were approximately $2.2 million and the effective interest rate is approximately 4.5%. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026.
The Series B Debentures contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 475 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); (iii) Adjusted NOI shall be no lower than USD 35 million; and (iv) the consolidated scope of the projects for development of the Company shall not exceed 10% of the adjusted balance. As of September 30, 2021, the Company was in compliance with all covenants under the deed of trust of the Series B Debentures; (i) Consolidated Equity Capital of the Company as of September 30, 2021 was $994.0 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 50%; (iii) the Adjusted NOI was $93.0 million for the trailing twelve months ended September 30, 2021; and (iv) the consolidated scope of projects was $0 as of September 30, 2021.
Subsequent to September 30, 2021, the Company issued additional Series B Debentures in the amount of 536.4 million Israeli new Shekels par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8 million as of November 1, 2021). Additionally, the Company also issued 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.6 million as of November 1, 2021). The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, which were initially issued, without any right of precedence or preference between any of them. On November 15, 2021, the Company completed the full early repayment of the Series A Debentures with proceeds from the additional Series B Debentures and available cash on hand.
PACIFIC OAK SOR (BVI) HOLDNGS, LTD.
Additional Information
U.S. dollars in thousands
NOTE 2: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (cont.)
Dividend Approval
On August 5, 2021, the Company’s board of directors approved a distribution of dividend in the amount of $30.0 million to the Owner.
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