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 21, 2023
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 B debentures in February 2020 and subsequent periods. Additionally, the BVI completed offerings of Series C bonds in July 2023. Such offerings were made to investors in Israel and 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”).
On November 21, 2023, BVI filed IFRS consolidated and separate interim financial statements. The English translations of the IFRS consolidated and separate interim financial statements, as of and for the nine and three months ended September 30, 2023, are attached as Exhibits 99.1 and 99.2, respectively, to this Form 8-K.
The information in this Item 7.01 of Form 8-K and the attached Exhibits 99.1 and 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
| (d) | Exhibits |
|---|---|
| Ex. | Description |
| 99.1 | Pacific Oak SOR (BVI) Holdings, Ltd. Consolidated Interim Financial Statements as of September 30, 2023 (unaudited) |
| 99.2 | Pacific Oak SOR (BVI) Holdings, Ltd. Separate Interim Financial Statements as of September 30, 2023 (unaudited) |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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 21, 2023 | BY: | /s/ Michael A. Bender |
| Michael A. Bender | ||
| Chief Financial Officer, Treasurer and Secretary |
Document
Exhibit 99.1
| This English translation is for convenience purposes only. This is not an official translation and is not<br>binding. Whilst reasonable care and skill have been exercised in the preparation hereof, no translation can ever perfectly reflect the original Hebrew version. In the event of any discrepancy between the Hebrew version and this translation, the Hebrew version shall prevail. |
|---|
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2023
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
| Page | |
|---|---|
| Consolidated Statements of Financial Position | 2 |
| Consolidated Statements of Profit or Loss | 3 |
| Consolidated Statements of Equity | 4-5 |
| Consolidated Statements of Cash Flows | 6-7 |
| Notes to Interim Consolidated Financial Statements | 8-18 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 69,741 | $ | 83,876 | $ | 94,391 |
| Financial assets at fair value through profit or loss | 26,909 | 63,783 | 60,152 | |||
| Rents and other receivables, net | 2,738 | 3,357 | 3,157 | |||
| Prepaid expenses and other assets | 8,073 | 6,530 | 5,073 | |||
| Due from affiliate | — | 31 | — | |||
| Restricted cash | 28,583 | 5,806 | 20,799 | |||
| 136,044 | 163,383 | 183,572 | ||||
| NON-CURRENT ASSETS | ||||||
| Investment properties | 1,580,508 | 1,783,928 | 1,699,963 | |||
| Property plant and equipment - hotels, net | 40,858 | 42,039 | 41,697 | |||
| Goodwill | 2,165 | 5,436 | 5,436 | |||
| Investment in joint ventures | 160,333 | 177,754 | 161,486 | |||
| Restricted cash | 31,164 | 51,519 | 40,314 | |||
| 1,815,028 | 2,060,676 | 1,948,896 | ||||
| Total assets | $ | 1,951,072 | $ | 2,224,059 | $ | 2,132,468 |
| LIABILITIES AND EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Notes payable, net | $ | 170,391 | $ | 217,025 | $ | 273,397 |
| Debentures and bonds payable, net | 98,184 | — | — | |||
| Accounts payable and accrued liabilities | 21,202 | 25,726 | 23,999 | |||
| Due to affiliates | 6,355 | 3,428 | 2,976 | |||
| Other liabilities | 27,085 | 12,225 | 38,895 | |||
| Lease obligation | 180 | 360 | 360 | |||
| Rental security deposits | 1,216 | — | 1,651 | |||
| Series A Cumulative Convertible Redeemable Preferred Stock | — | 15,233 | — | |||
| 324,613 | 273,997 | 341,278 | ||||
| NON-CURRENT LIABILITIES | ||||||
| Notes payable, net | 482,921 | 515,649 | 455,036 | |||
| Debentures and bonds payable, net | 281,822 | 310,184 | 316,276 | |||
| Lease obligation | 9,334 | 9,065 | 9,086 | |||
| Rental security deposits | 4,667 | 6,029 | 4,840 | |||
| Other liabilities | 16,757 | 17,000 | — | |||
| 795,501 | 857,927 | 785,238 | ||||
| Total liabilities | 1,120,114 | 1,131,924 | 1,126,516 | |||
| EQUITY | ||||||
| Owner's net equity | 820,518 | 1,079,833 | 993,380 | |||
| Non-controlling interests | 10,440 | 12,302 | 12,572 | |||
| Total equity | 830,958 | 1,092,135 | 1,005,952 | |||
| Total liabilities and equity | $ | 1,951,072 | $ | 2,224,059 | $ | 2,132,468 |
The accompanying notes are an integral part of the interim consolidated financial statements.
| November 21, 2023 | /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 September 30, | Three months ended September 30, | Year ended <br>December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2022 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Revenues and other income: | ||||||||||
| Rental income | $ | 90,595 | $ | 83,280 | $ | 30,811 | $ | 29,570 | $ | 112,900 |
| Tenant reimbursements | 8,673 | 8,935 | 2,557 | 2,731 | 12,328 | |||||
| Hotel revenues | 6,673 | 27,952 | 1,195 | 9,181 | 30,749 | |||||
| Other operating income | 1,612 | 1,208 | 573 | 391 | 1,892 | |||||
| Total revenues and other income | 107,553 | 121,375 | 35,136 | 41,873 | 157,869 | |||||
| Expenses: | ||||||||||
| Operating, maintenance, and management fees | (36,504) | (34,503) | (13,278) | (13,059) | (46,901) | |||||
| Real estate taxes and insurance | (18,541) | (15,753) | (6,281) | (5,650) | (21,133) | |||||
| Hotel expenses | (5,275) | (17,480) | (1,330) | (5,371) | (19,252) | |||||
| Total expenses | (60,320) | (67,736) | (20,889) | (24,080) | (87,286) | |||||
| Gross profit | 47,233 | 53,639 | 14,247 | 17,793 | 70,583 | |||||
| Fair value adjustment of investment properties, net | (96,355) | 103,865 | (2,982) | 76,411 | 56,913 | |||||
| Depreciation | (886) | (1,899) | (257) | (312) | (2,212) | |||||
| Equity in (loss) income of unconsolidated joint ventures | (28,397) | (3,388) | 24,624 | (20,535) | (19,656) | |||||
| Asset management fees to affiliate | (11,380) | (9,945) | (3,697) | (3,630) | (13,678) | |||||
| Impairment charges on goodwill | (3,271) | (8,098) | (3,271) | (8,098) | (8,098) | |||||
| Other operating expenses | — | (2,546) | — | (2,546) | (2,546) | |||||
| General and administrative expenses | (3,847) | (4,277) | (175) | (1,364) | (4,100) | |||||
| Operating (loss) profit | (96,903) | 127,351 | 28,489 | 57,719 | 77,206 | |||||
| Transaction and related costs | — | (108) | — | — | — | |||||
| Finance income | 2,295 | 156 | 1,079 | 62 | 233 | |||||
| Finance loss from financial assets at fair value through profit or loss, net | (15,658) | (42,995) | (1,646) | (18,579) | (46,389) | |||||
| Finance expenses | (49,747) | (34,410) | (17,928) | (13,349) | (49,253) | |||||
| Gain on extinguishment of debt | — | 2,367 | — | — | 2,367 | |||||
| Foreign currency transaction adjustments, net | (4,675) | 37,100 | (1,123) | 6,003 | 29,038 | |||||
| Net (loss) income before income taxes | $ | (164,688) | $ | 89,461 | $ | 8,871 | $ | 31,856 | $ | 13,202 |
| Income tax provision | (3,662) | — | — | — | (4,924) | |||||
| Net (loss) income | $ | (168,350) | $ | 89,461 | $ | 8,871 | $ | 31,856 | $ | 8,278 |
| Net (loss) income attributable to owner | $ | (166,862) | $ | 91,757 | $ | 9,418 | $ | 37,108 | $ | 10,304 |
| Net (loss) income attributable to non-controlling interests | (1,488) | (2,296) | (544) | (5,252) | (2,026) | |||||
| Net (loss) income | $ | (168,350) | $ | 89,461 | $ | 8,874 | $ | 31,856 | $ | 8,278 |
| Total comprehensive (loss) income | $ | (168,350) | $ | 89,461 | $ | 8,874 | $ | 31,856 | $ | 8,278 |
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 | 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, 2023 | $ | 693,554 | $ | 256,752 | $ | 43,074 | $ | 993,380 | $ | 12,572 | $ | 1,005,952 |
| Net loss | — | (166,862) | — | (166,862) | (1,488) | (168,350) | ||||||
| Total comprehensive loss | — | (166,862) | — | (166,862) | (1,488) | (168,350) | ||||||
| Distributions to Owner | — | (6,000) | — | (6,000) | — | (6,000) | ||||||
| Non-controlling interest contribution | — | — | — | — | 450 | 450 | ||||||
| Non-controlling interests distributions | — | — | — | — | (1,094) | (1,094) | ||||||
| Balance at September 30, 2023 | $ | 693,554 | $ | 83,890 | $ | 43,074 | $ | 820,518 | $ | 10,440 | $ | 830,958 |
| Owner contributions | 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, 2022 | $ | 693,554 | $ | 271,448 | $ | 43,074 | $ | 1,008,076 | $ | 26,576 | $ | 1,034,652 |
| Net income (loss) | — | 91,757 | — | 91,757 | (2,296) | 89,461 | ||||||
| Total comprehensive income (loss) | — | 91,757 | — | 91,757 | (2,296) | 89,461 | ||||||
| Distribution declared to Owner | — | (20,000) | — | (20,000) | — | (20,000) | ||||||
| Reclassification of redeemable non-controlling interest to liability | — | — | — | — | (6,687) | (6,687) | ||||||
| Non-controlling interest contribution | — | — | — | — | 1,569 | 1,569 | ||||||
| Non-controlling interest distributions | — | — | — | — | (6,860) | (6,860) | ||||||
| Balance at September 30, 2022 | $ | 693,554 | $ | 343,205 | $ | 43,074 | $ | 1,079,833 | $ | 12,302 | $ | 1,092,135 |
| Owner contributions | 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, 2023 | $ | 693,554 | $ | 78,472 | $ | 43,074 | $ | 815,100 | $ | 11,015 | $ | 826,115 |
| Net income (loss) | — | 9,418 | — | 9,418 | (544) | 8,874 | ||||||
| Total comprehensive income (loss) | — | 9,418 | — | 9,418 | (544) | 8,874 | ||||||
| Distribution to Owner | — | (4,000) | — | (4,000) | — | (4,000) | ||||||
| Non-controlling interest contribution | — | — | — | — | 450 | 450 | ||||||
| Non-controlling interest distribution | — | — | — | — | (481) | (481) | ||||||
| Balance at September 30, 2023 | $ | 693,554 | $ | 83,890 | $ | 43,074 | $ | 820,518 | $ | 10,440 | $ | 830,958 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
| Owner contributions | 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, 2022 | $ | 693,554 | $ | 306,097 | $ | 43,074 | $ | 1,042,725 | $ | 22,814 | $ | 1,065,539 |
| Net income (loss) | — | 37,108 | — | 37,108 | (5,252) | 31,856 | ||||||
| Total comprehensive income (loss) | — | 37,108 | — | 37,108 | (5,252) | 31,856 | ||||||
| Non-controlling interest contribution | — | — | — | — | 1,569 | 1,569 | ||||||
| Non-controlling interest distributions | — | — | — | — | (6,829) | (6,829) | ||||||
| Balance at September 30, 2022 | $ | 693,554 | $ | 343,205 | $ | 43,074 | $ | 1,079,833 | $ | 12,302 | $ | 1,092,135 |
| Owner contributions | 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, 2022 | $ | 693,554 | $ | 271,448 | $ | 43,074 | $ | 1,008,076 | $ | 26,576 | $ | 1,034,652 |
| Net income (loss) | — | 10,304 | — | 10,304 | (2,026) | 8,278 | ||||||
| Total comprehensive income (loss) | — | 10,304 | — | 10,304 | (2,026) | 8,278 | ||||||
| Distributions to Owner | — | (25,000) | — | (25,000) | — | (25,000) | ||||||
| Reclassification of redeemable non-controlling interest to liability | — | — | — | — | (6,687) | (6,687) | ||||||
| Non-controlling interests contributions | — | — | — | — | 1,569 | 1,569 | ||||||
| Non-controlling interests distribution | — | — | — | — | (6,860) | (6,860) | ||||||
| Balance at December 31, 2022 | $ | 693,554 | $ | 256,752 | $ | 43,074 | $ | 993,380 | $ | 12,572 | $ | 1,005,952 |
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 September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2022 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||
| Net (loss) income | $ | (168,350) | $ | 89,461 | $ | 8,874 | $ | 31,856 | $ | 8,278 |
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||||
| Equity in loss of unconsolidated joint ventures | 28,397 | 3,388 | (24,624) | 20,535 | 19,656 | |||||
| Fair value adjustment on investment properties, net | 96,355 | (103,866) | 2,982 | (76,411) | (56,913) | |||||
| Depreciation | 886 | 1,899 | 257 | 312 | 2,212 | |||||
| Other operating expenses | — | 2,546 | — | 2,546 | 2,546 | |||||
| Impairment charges on goodwill | 3,271 | 8,098 | 3,271 | 8,098 | 8,098 | |||||
| Income tax provision | 3,662 | — | — | — | 4,924 | |||||
| Transaction and related costs | — | 108 | — | — | — | |||||
| Gain on extinguishment of debt | — | (2,367) | — | — | (2,367) | |||||
| Deferred rent | (1,253) | (2,095) | 349 | (594) | (2,758) | |||||
| Credit loss on financial assets | 2,189 | 1,939 | 1,201 | 712 | 2,580 | |||||
| Finance expenses | 49,747 | 34,410 | 17,928 | 13,349 | 49,253 | |||||
| Finance income | (2,295) | (156) | (1,079) | (62) | (233) | |||||
| Finance loss from financial assets at fair value through profit or loss | 15,658 | 42,995 | 1,646 | 18,579 | 46,389 | |||||
| Foreign currency transaction loss (gain), net | 4,675 | (37,100) | 1,122 | (6,003) | (29,038) | |||||
| 32,942 | 39,260 | 11,927 | 12,917 | 52,627 | ||||||
| Changes in assets and liabilities: | ||||||||||
| Restricted cash | 11,635 | (19,979) | (2,174) | (16,291) | (25,258) | |||||
| Rents and other receivables | (1,858) | (2,109) | (805) | 1,832 | (2,548) | |||||
| Prepaid expenses and other assets | (2,080) | 196 | 490 | (396) | 1,371 | |||||
| Accounts payable and accrued liabilities | (2,676) | 5,864 | 4,836 | 5,169 | (5,211) | |||||
| Rental security deposits | (608) | 134 | 347 | (28) | 596 | |||||
| Due to affiliates | 3,741 | 1,201 | (329) | (2,552) | 749 | |||||
| Other liabilities | 2,116 | (5,616) | (555) | (3,400) | (757) | |||||
| Lease incentives | (414) | 178 | (142) | 51 | 297 | |||||
| 9,856 | (20,131) | 1,668 | (15,615) | (30,761) | ||||||
| Net cash provided by (used in) operating activities | 42,798 | 19,129 | 13,595 | (2,698) | 21,866 | |||||
| Cash Flows from Investing Activities: | ||||||||||
| Acquisitions of investment properties | — | (6,691) | — | (6,691) | (6,691) | |||||
| Improvements to investment properties | (16,348) | (21,737) | (6,000) | (10,384) | (31,942) | |||||
| Proceeds from sales of investment properties, net | 40,867 | 9,747 | 73 | 219 | 62,816 | |||||
| Proceeds from sale of property plant and equipment | — | 88,361 | — | 88,361 | 88,361 | |||||
| Additions to property plant and equipment - hotels | (46) | (704) | — | (615) | (676) | |||||
| Cash received upon consolidation of PORT II | — | 1,473 | — | 1,473 | 1,473 | |||||
| Investment in unconsolidated joint ventures | (28,388) | (23,318) | (28,388) | (1,387) | (23,780) | |||||
| Distribution from unconsolidated joint ventures | 1,144 | — | — | — | 462 | |||||
| Proceeds from the sale of investments in financial assets at fair value through profit or loss | 13,791 | — | 234 | — | — | |||||
| Purchase of interest rate caps | (1,236) | (506) | (889) | — | (556) | |||||
| Purchase of foreign currency derivatives | (100,327) | — | (33,187) | — | — | |||||
| Proceeds from disposition of foreign currency derivatives | 71,027 | — | 21,851 | — | — | |||||
| Release of deposit on foreign currency derivatives | 2,777 | — | 2,777 | — | — | |||||
| Finance income received | 2,248 | 155 | 1,053 | 61 | 230 | |||||
| Dividend income received from financial assets at fair value through profit or loss | 3,930 | 7,525 | 1,684 | 2,451 | 7,762 | |||||
| Proceeds (funding) for development obligations, net | 30 | (6,407) | (404) | (2,382) | (7,934) | |||||
| Proceeds from advances due from affiliates, net | — | 7,008 | — | 1,761 | 7,039 | |||||
| (Funding) proceeds for capital expenditures | (209) | 2,180 | 72 | 872 | 3,949 | |||||
| Net cash (used in) provided by investing activities | (10,740) | 57,086 | (41,124) | 73,739 | 100,513 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
| CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
| 2023 | 2022 | 2023 | 2022 | 2022 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash Flows from Financing Activities: | ||||||||||
| Proceeds from debentures, bonds and notes payable | $ | 93,117 | $ | 191,667 | $ | 92,137 | $ | 46,563 | $ | 188,106 |
| Principal payments on notes payable | (77,673) | (190,517) | (20,751) | (119,832) | (192,268) | |||||
| Payments of deferred financing costs | (5,028) | (4,686) | (3,426) | (1,857) | (4,770) | |||||
| Interest paid | (43,726) | (31,159) | (19,307) | (15,038) | (39,874) | |||||
| (Distribution) contribution for debt service obligations | (16,640) | (2,500) | (16,640) | 20,417 | (2,500) | |||||
| Payment to redeem Series A Cumulative Convertible Redeemable Preferred Stock | — | — | — | — | (16,934) | |||||
| Non-controlling interests distributions, net | (644) | (8,847) | (31) | (8,816) | (8,847) | |||||
| Non-controlling interests buyout | — | (6,687) | — | (6,687) | (6,687) | |||||
| Dividends to Owner | (5,731) | (20,000) | (3,731) | — | (25,000) | |||||
| Net cash (used in) provided by financing activities | (56,325) | (72,729) | 28,251 | (85,250) | (108,774) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (383) | (2,825) | (325) | (354) | (2,429) | |||||
| Net (decrease) increase in cash and cash equivalents | (24,650) | 661 | 397 | (14,563) | 11,176 | |||||
| Cash and cash equivalents, beginning of period | 94,391 | 83,215 | 69,344 | 98,439 | 83,215 | |||||
| Cash and cash equivalents, end of period | $ | 69,741 | $ | 83,876 | $ | 69,741 | $ | 83,876 | $ | 94,391 |
| Supplemental Disclosure of Noncash Activities: | ||||||||||
| Accrued improvements to investment properties | $ | 1,565 | $ | 6,389 | $ | 1,565 | $ | 6,389 | $ | 3,592 |
| Assets and liabilities assumed or eliminated in connection with the PORT II consolidation | ||||||||||
| Investment property | $ | — | $ | 135,030 | $ | — | $ | 135,030 | $ | — |
| Restricted cash | — | 361 | — | 361 | — | |||||
| Prepaid expenses and other assets | — | 639 | — | 639 | — | |||||
| Notes payable | — | (82,646) | — | (82,646) | — | |||||
| Accounts payable and accrued liabilities | — | (1,030) | — | (1,030) | — | |||||
| Other liabilities | — | (1,499) | — | (1,499) | — | |||||
| Due to affiliates | — | (148) | — | (148) | — | |||||
| Non-controlling interest | — | (1,125) | — | (1,125) | — | |||||
| Investment in joint ventures | — | (51,055) | — | (51,055) | — | |||||
| Cash assumed in connection with the PORT II consolidation | $ | — | $ | (1,473) | $ | — | $ | (1,473) | $ | — |
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
These financial statements have been prepared in a condensed format as of September 30, 2023 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, 2022 and for the year then ended and the accompanying notes ("annual financial statements").
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 has three reporting segments: 1) strategic opportunistic properties 2) residential homes and 3) hotel.
As of September 30, 2023, the Company owned ten office properties, encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were 70% occupied. In addition, the Company owned one residential home portfolio consisting of 2,449 residential homes and encompassing approximately 3.5 million rental square feet and two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 95% and 92% occupied, respectively. The Company also owned one hotel property with 196 rooms, four investments in undeveloped land with approximately 696 developable acres and one office/retail development property.
Due to rising interest rates, we may experience restrictions in our liquidity based on certain financial covenant requirements, our inability to refinance maturing debt in part or in full as it comes due and higher debt service costs and reduced yields relative to cost of debt. If we are unable to find alternative credit arrangements or other funding in a high interest environment, our business needs may not be adequately met. Based on interest rates as of September 30, 2023, if interest rates were 100 basis points higher or lower during the 12 months ending September 30, 2023, interest expense on our variable rate debt would increase or decrease by $2.7 million and $4.3 million, respectively.
In addition, tenants and potential tenants of the Company’s properties may be adversely impacted by inflation and rising interest rates, which could negatively impact the Company’s tenants’ ability to pay rent and the demand for the Company’s properties. Such adverse impacts on the Company’s tenants may cause increased vacancies, which may add pressure to lower rents and increase the Company’s expenditures for re-leasing.
As of September 30, 2023, the Company had a working capital shortfall amounting to $188.6 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, 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. There are no limitations on the Company’s ability to withdraw funds from the Company’s subsidiaries. The Company expects to generate cash flow from additional asset sales in 2024. Accordingly, the Company and the board of directors does not view the working capital shortfall as a liquidity problem. Additionally, as part of the issuance of the Series C Bonds, of the proceeds, 61.8 million Israeli new Shekels (approximately $16.2 million as of September 30, 2023) were held on deposit for obligations related to the Series B Debentures.. Subsequent to the balance sheet date, the Company closed on sale of approximately 115 developable acres of Park Highlands lands for gross sale proceeds of approximately $41.0 million, see Note 7 for further details.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation of the interim 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.
Disclosures of new standards in the period prior to their adoption:
Amendments to IAS 1 and IFRS Practice Statement 2 "Disclosure of Accounting Policies":
On February 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) with amendments that are intended to help preparers in deciding which accounting policies to disclose in their financial statements. The amendments are effective for annual periods beginning on or after 1 January 2023.
Amendment to IAS 8, "Accounting Policies, Changes to Accounting Estimates and Errors":
On February 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8) to help entities to distinguish between accounting policies and accounting estimates. The amendments are effective for annual periods beginning on or after 1 January 2023.
Amendments to IAS 1 - Presentation of Financial Statements
The amendments clarify how to classify debt and other liabilities as current or non-current. The amendments to IAS 1 apply to annual reporting periods beginning on or after January 1, 2024. The company is currently assessing the impact of these amendments.
There are currently no other future changes to IFRS with potential impact on the company.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES
As of September 30, 2023, the Company’s investments in unconsolidated entities were composed of the following (dollars in thousands):
| Properties as of September 30, 2023 | Investment Balance as of | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, | December 31, 2022 | |||||||||||||
| 2023 | 2022 | |||||||||||||
| Joint Venture | Location | Ownership % | (Unaudited) | (Audited) | ||||||||||
| 110 William Joint Venture | 1 | New York, New York | (1) | $ | 112,540 | $ | 61,018 | $ | 47,574 | |||||
| 353 Sacramento Joint Venture | 1 | San Francisco, California | 55.0% | 11,754 | 79,154 | 77,147 | ||||||||
| Pacific Oak Opportunity Zone Fund I | 3 | Various | 46.0% | 36,039 | 37,582 | 36,765 | ||||||||
| $ | 160,333 | $ | 177,754 | $ | 161,486 |
(1) On July 5, 2023, the 110 William Joint Venture completed a debt and equity restructuring (the "Restructuring Agreements") and as part of the Restructuring Agreements, the Company committed to funding up to $105.0 million (“Capital Commitments”) to the 110 William Joint Venture in exchange for 77.5% of preferred interest. As of September 30, 2023, the outstanding amount to be paid under this commitment is approximately $79.7 million. See below for further details. The Company holds common and preferred interests in the 110 William Joint Venture and is entitled to profit participation interests based on a tiered waterfall calculation which may not be reflective of the Company's economic interest in the entity.
Equity in (loss) income of unconsolidated joint ventures for the nine and three months ended September 30, 2023 and 2022 and the year ended December 31, 2022 was as follows (in thousands):
| Nine Months Ended September 30, | Three Months Ended September 30, | Year ended December 31, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | (Audited) | ||||||||
| 110 William Joint Venture | $ | 36,587 | $ | (25,907) | $ | 53,196 | $ | (25,720) | $ | (39,351) |
| 353 Sacramento Joint Venture | (64,248) | (6,139) | (29,058) | (5,561) | (8,146) | |||||
| Pacific Oak Opportunity Zone Fund I | (736) | 10,367 | 486 | 10,225 | 9,551 | |||||
| PORT II OP LP (1) | — | 18,291 | — | 521 | 18,290 | |||||
| Equity in (loss) income of unconsolidated joint ventures | $ | (28,397) | $ | (3,388) | $ | 24,624 | $ | (20,535) | $ | (19,656) |
(1) The Company consolidated the investment in PORT II OP LP as of July 1, 2022.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
110 William Joint Venture:
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):
| September 30, | December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | ||||||||
| (Unaudited) | (Audited) | |||||||||
| Current assets | $ | 10,853 | $ | 13,233 | $ | 12,483 | ||||
| Non-current assets (investment property) | 386,400 | 416,300 | 401,900 | |||||||
| Current liabilities | 10,622 | 327,243 | 334,500 | |||||||
| Non-current liabilities | 248,518 | 593 | 593 | |||||||
| Equity | 138,113 | 101,697 | 79,290 | |||||||
| Equity attributable to equity holders of the Company (based on the waterfall mechanism) | $ | 112,540 | $ | 61,018 | $ | 47,574 | ||||
| Nine Months Ended September 30, | Three Months Ended September 30, | Year ended December 31, 2022 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2023 | 2022 | 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | (Audited) | ||||||||
| Revenues | $ | 18,473 | $ | 20,318 | $ | 5,535 | $ | 3,782 | $ | 26,856 |
| Gross profit (loss) | 3,296 | 8,391 | (804) | 2,465 | 10,784 | |||||
| Operating (loss) *) | (32,385) | (36,919) | (22,895) | (42,834) | (49,260) | |||||
| Net income (loss) *) | 9,628 | (54,097) | 37,310 | (53,044) | (76,506) | |||||
| Share of income (loss) from joint venture (based on the waterfall mechanism) | 36,587 | (25,907) | 53,196 | (25,720) | (39,351) | |||||
| *) Includes revaluation of investment properties | $ | (35,402) | $ | (45,310) | $ | (22,088) | $ | (45,299) | $ | (60,044) |
On July 5, 2023, Company completed a number of transactions associated with the 110 William property, as follows:
Refinancing of the current Senior Debt and the Leasehold Improvement Loan in the Property
Finalizing the refinancing of the senior debt, by way of an engagement in a series of financing agreements in the total amount of approximately USD 316 million, with the current lenders in the Property, for a 3-year period, with two extension options of one year each. Said financing is divided into two components: One component of a senior loan in the amount of approximately USD 239.05 million, carrying an annual interest rate of SOFR+2%, and a second component for completing improvements in the leasehold, with a facility amount of up to approximately USD 66.27 million carrying an annual interest rate of SOFR+3%.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
Refinancing of the current Mezz debt using Preferred Equity
Refinancing of the Mezz debt, was closed using preferred equity, which shall be financially subordinate to the funds that the Company has undertaken to invest in the Property. The preferred equity was provided by the Mezz loan lender by assigning Preferred Interests of approximately 22.5% of the preferred interests in the company indirectly holding the property company and carries a surplus yield of 7% per annum (hereinafter: "The Preferred Equity").
The Company has undertaken to invest approximately USD 105 million in the aforementioned property to be gradually invested concurrent with progress in completing the leasehold improvements (as noted in the below Subsection C), in return for the allocation of the balance (77.5%) of the preferred interest in the aforementioned entity, and does not expect to be required to make additional significant investments in the property beyond the aforementioned investment undertaking.
Engagement in an agreement to lease substantially all the vacant spaces in the Property
An engagement in a lease agreement was closed with a municipal entity of New York City (hereinafter: "the Tenant") for the lease of approximately 640.74 thousand square feet in the Property (out of a total of approximately 928.15 thousand square feet in the Property). The Tenant is expected to enter into the Property gradually, in three stages (each including approximately 200 thousand square feet). The three Delivery Stages shall be completed within approximately 26 months after entering into the lease agreement.
The annual rental fees, on a monthly basis, are approximately USD 44 per square foot (approximately USD 28 million per year), which shall be increase by approximately USD 4 per square foot every 5 years during the lease period.
The lease period is for 20 years, and the Tenant also has the option of extending the lease period by two additional periods of 5 years each.
Full dilution of the partner's interests in the Property
In light of engaging in the aforesaid agreements, and given the fact that the Company's partner in the Property (40%) has notified that it is unable to participate in the cost of the Leasehold Improvements, an agreement for the sale of the entire holdings of said partner to the Company was closed in consideration of 10% of the future gains generated by the Company from distributions in the Property and/or the sale thereof. The payment of said consideration is contingent upon the Company completing an IRR of at least 17% compared to its investment in the Property and upon having an equity multiplier of at least 2.0.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
353 Sacramento Joint Venture:
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, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | ||||||||
| (Unaudited) | (Audited) | |||||||||
| Current assets | $ | 13,297 | $ | 19,648 | $ | 19,123 | ||||
| Non-current assets (investment property) | 121,500 | 236,100 | 233,400 | |||||||
| Current liabilities | 2,211 | 1,914 | 2,318 | |||||||
| Non-current liabilities | 112,806 | 112,171 | 112,256 | |||||||
| Equity | 19,780 | 141,663 | 137,949 | |||||||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 11,754 | $ | 79,154 | $ | 77,147 | ||||
| Nine Months Ended September 30, | Three Months Ended September 30, | Year ended December 31, 2022 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2023 | 2022 | 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | (Audited) | ||||||||
| Revenues | $ | 8,724 | $ | 12,238 | $ | 3,104 | $ | 2,920 | $ | 15,156 |
| Gross profit | 2,887 | 3,372 | 784 | 942 | 4,127 | |||||
| Operating (loss) *) | (109,184) | (6,603) | (49,347) | (9,033) | (8,475) | |||||
| Net loss *) | (116,188) | (10,290) | (51,976) | (9,965) | (13,978) | |||||
| Share of loss from joint venture (Based on the waterfall mechanism) | (64,248) | (6,139) | (29,058) | (5,561) | (8,146) | |||||
| *) Includes revaluation of investment properties | $ | (112,021) | $ | (9,975) | $ | (50,342) | $ | (9,975) | $ | (12,614) |
Pacific Oak Opportunity Zone Fund I:
Summarized information about the statements of financial position and the statements of profit or loss of Pacific Oak Opportunity Zone Fund 1, LLC (100%) (in thousands):
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | ||||
| (Unaudited) | (Unaudited) | |||||
| Current assets | $ | 2,898 | $ | 14,618 | $ | 4,345 |
| Non-current assets (investment property) | 125,656 | 130,896 | 135,119 | |||
| Current liabilities | 1,347 | 1,181 | 2,101 | |||
| Non-current liabilities | 50,785 | 53,926 | 48,514 | |||
| Equity | 76,422 | 90,407 | 88,849 | |||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 36,039 | $ | 37,582 | $ | 36,765 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
| Nine Months Ended September 30, | Three Months Ended September 30, | Year ended December 31, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||
| Revenues | $ | 5,576 | $ | 4,005 | $ | 2,108 | $ | 1,418 | $ | 5,352 |
| Gross profit | 4,580 | 2,388 | 1,678 | 766 | 1,662 | |||||
| Operating (loss) profit *) | (6,184) | 29,806 | (8,214) | 30,012 | 23,524 | |||||
| Net (loss) profit *) | (7,762) | 29,806 | (8,939) | 30,012 | 23,524 | |||||
| Share of (loss) profit from joint venture (Based on the waterfall mechanism) | (736) | 10,367 | 486 | 10,225 | 9,551 | |||||
| *) Includes revaluation of investment properties | $ | (8,045) | $ | 32,204 | $ | (9,067) | $ | 32,204 | $ | 28,560 |
The Company does not attach the financial statements related to the investments in unconsolidated joint ventures, as the reports do not add more information to the contained above.
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of the Series B debentures payable as of September 30, 2023 and December 31, 2022 was approximately $276.0 million (1.2 billion NIS) and $304.8 million (1.2 billion NIS), respectively, and the fair value of the Series C bonds payable as of September 30, 2023 was approximately $90.1 million (340.3 million NIS).
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, 2023, 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, 2023 was $820.5 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 58%; (iii) the Adjusted NOI was $73.8 million for the trailing twelve months ended September 30, 2023; and (iv) the consolidated scope of projects was $0 as of September 30, 2023.
The Series C Bonds contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 450 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); and (iii) the Loan to Collateral Ratio shall not exceed 75%. As of September 30, 2023, the Company was in compliance with all covenants under the deed of trust of the Series C Bonds; (i) Consolidated Equity Capital of the Company as of September 30, 2023 was $820.5 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 58%; and (iii) the Loan to Collateral Ratio was 39% for the trailing twelve months ended September 30, 2023.
The Company's investments in real estate equity securities are carried at their estimated fair value based on quoted market prices (Level 1) for the securities. Unrealized gains and losses are reported in finance (loss) income from financial assets at fair value through profit or loss.
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 selected financial information for the reporting segments as of and for the nine and three months ended September 30, 2023 and 2022 and as of and the year ended December 31, 2022 is as follows (in thousands):
| September 30, 2023 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Investment properties | $ | 1,142,250 | $ | 438,258 | $ | — | $ | 1,580,508 | ||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 40,858 | $ | 40,858 | ||||||||||
| Total assets | $ | 1,442,128 | $ | 463,247 | $ | 45,697 | $ | 1,951,072 | ||||||||||
| Total liabilities | $ | 874,239 | $ | 219,893 | $ | 25,982 | $ | 1,120,114 | September 30, 2022 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Investment properties | $ | 1,340,690 | $ | 443,238 | $ | — | $ | 1,783,928 | ||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 42,039 | $ | 42,039 | ||||||||||
| Total assets | $ | 1,712,049 | $ | 460,011 | $ | 51,999 | $ | 2,224,059 | ||||||||||
| Total liabilities | $ | 871,649 | $ | 233,249 | $ | 27,026 | $ | 1,131,924 | December 31, 2022 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Audited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Investment properties | $ | 1,264,526 | $ | 435,437 | $ | — | $ | 1,699,963 | ||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 41,697 | $ | 41,697 | ||||||||||
| Total assets | $ | 1,636,842 | $ | 448,210 | $ | 47,416 | $ | 2,132,468 | ||||||||||
| Total liabilities | $ | 885,342 | $ | 214,884 | $ | 26,290 | $ | 1,126,516 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (CONTINUED)
| Nine months ended September 30, 2023 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Total revenues and other income | $ | 72,611 | $ | 28,269 | $ | 6,673 | $ | 107,553 | ||||||||||
| Gross profit | $ | 31,883 | $ | 13,952 | $ | 1,398 | $ | 47,233 | ||||||||||
| Finance expenses | $ | 40,286 | $ | 7,735 | $ | 1,726 | $ | 49,747 | ||||||||||
| Three months ended September 30, 2023 | ||||||||||||||||||
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Total revenues and other income | $ | 24,453 | $ | 9,487 | $ | 1,196 | $ | 35,136 | ||||||||||
| Gross profit (loss) | $ | 9,824 | $ | 4,557 | $ | (134) | $ | 14,247 | ||||||||||
| Finance expenses | $ | 14,753 | $ | 2,561 | $ | 614 | $ | 17,928 | ||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Total revenues and other income | $ | 72,554 | $ | 20,869 | $ | 27,952 | $ | 121,375 | ||||||||||
| Gross profit | $ | 33,824 | $ | 9,343 | $ | 10,472 | $ | 53,639 | ||||||||||
| Finance expenses | $ | 24,361 | $ | 6,040 | $ | 4,009 | $ | 34,410 | ||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||||
| Unaudited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Total revenues and other income | $ | 23,699 | $ | 8,993 | $ | 9,181 | $ | 41,873 | ||||||||||
| Gross profit | $ | 10,171 | $ | 3,812 | $ | 3,810 | $ | 17,793 | ||||||||||
| Finance expenses | $ | 9,566 | $ | 2,657 | $ | 1,126 | $ | 13,349 | Year ended December 31, 2022 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | ||||||||||
| Audited | ||||||||||||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||||||||||||
| Total revenues and other income | $ | 96,964 | $ | 30,156 | $ | 30,749 | $ | 157,869 | ||||||||||
| Gross profit | $ | 45,543 | $ | 13,543 | $ | 11,497 | $ | 70,583 | ||||||||||
| Finance expenses | $ | 35,847 | $ | 8,955 | $ | 4,451 | $ | 49,253 |
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
Real Estate Sale - Park Highlands Land
In January 2023, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended and extended the closing dates to sell 234 developable acres of undeveloped land located in North Las Vegas, Nevada (“Park Highlands”). The previous anticipated closing dates were December 2022 and 2023 and has been extended to October 2023 and 2024. In return for the extensions, the buyer agreed to release the $17.0 million deposit that had previously been held in escrow, to the Company.
In February 2023, the Company, through a taxable REIT subsidiary, sold approximately 71 developable acres of Park Highlands undeveloped land for an aggregate sales price, of $40.1 million, excluding future development costs, closing costs and credits. The purchaser is not affiliated with the Company or the Advisor. As a result of this sale, the Company recognized an income tax provision of $3.7 million classified as income tax provision in the accompanying consolidated statement of profit or loss and a corresponding deferred tax liability classified as other liabilities in the accompanying statement of financial position.
Real Estate Sale - Madison Square School
In May 2023, the Company, through an indirect wholly owned subsidiary, sold a vacant building within the Madison Square property in Phoenix, Arizona ("Madison Square School") to an unaffiliated third party, for $6.4 million, before closing costs and credits. The fair value of the Madison Square School as of the disposition date was $2.4 million and the sale resulted in a $3.6 million gain recorded as a fair value adjustment of investment properties, net in the accompanying consolidated statements of profit or loss.
Recent Debt Transactions
During the nine months ended September 30, 2023, the Company extended the maturity date of the following loans: Lofts at NoHo Commons Mortgage Loan to September 9, 2024, Q&C Hotel Mortgage Loan to January 31, 2024 and Georgia 400 Mortgage Loan to May 22, 2024. Additionally, the Company repaid the Eight & Nine Corporate Centre Mortgage Loan of approximately $47.9 million.
During the nine months ended September 30, 2023, the Company refinanced and consolidated four of its mortgage loans to one loan with an outstanding principal balance of $188.0 million (the “Four Pack Mortgage Loan”) and is cross-collateralized by the associated properties: Park Centre, 1180 Raymond, The Marq, and Oakland City Center. The Four Pack Mortgage Loan has an initial maturity of September 1, 2026 with two 1-year extension options and monthly amortization payments of $0.7 million. As part of the Four Pack Mortgage Loan, Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company, guarantees the December 1, 2023 $10.0 million paydown.
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 (CONTINUED)
In July 2023, the Company, completed in aggregate, offerings of 340.3 million Israeli new Shekels (approximately $89.2 million as of September 30, 2023) Series C bonds (the "Series C Bonds"). The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange. Additionally, of the proceeds, 61.8 million Israeli new Shekels (approximately $16.2 million as of September 30, 2023) were held on deposit for obligations related to the Series B Debentures. The terms of the Series C Bonds are governed by a deed of trust, among the Company and the trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by specified lands in Park Highlands and Richardson. The Series C bonds have an equal level of security, pari passu, amongst themselves, without any right of precedence or preference between any of them.
Dividend Approval
On August 16, 2023, the Company’s board of directors approved a distribution of dividend in the amount of $4.0 million to the Owner. The unpaid dividend amount as of September 30, 2023 was $0.3 million.
Guarantee Agreements
As of September 30, 2023 and as part of the 110 William Joint Venture Restructuring Agreements, Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company, became the guarantor for certain guarantees related to the 110 William Joint Venture, including guaranteeing: all debt servicing costs and timely debt payments, completion for the construction and development of tenant improvement work, funding related to the Capital Commitments, and recourse obligations. The related debt has an initial maturity of July 5, 2026 and guarantee amounts are due upon occurrence of any one triggering event.
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Real Estate Sale - Park Highlands Land
On October 3, 2023, the Company, through an indirect wholly owned subsidiary, closed on the sale of approximately 115 developable acres of undeveloped land located in North Las Vegas, Nevada (“Park Highlands”) for gross sale proceeds of approximately $57.4 million, before net closing costs and credits and development costs. The land was not encumbered by the Series C Bonds and $7.5 million of a $17.0 million earnest money deposit was applied to this sale. The purchaser is not affiliated with the Company nor the Advisor.
Dividend Approval
On November 21, 2023, the Company’s board of directors approved a distribution of dividend in the amount of $3.0 million to the Owner.
18
Document
Exhibit 99.2
| This English translation is for convenience purposes only. This is not an official translation and is not<br>binding. Whilst reasonable care and skill have been exercised in the preparation hereof, no translation can ever perfectly reflect the original Hebrew version. In the event of any discrepancy between the Hebrew version and this translation, the Hebrew version shall prevail. |
|---|
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTABLE TO THE COMPANY
September 30, 2023 (Unaudited)
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA
FROM THE CONSOLIDATED FINANCIAL STATEMENTS
ATTRIBUTABLE TO THE COMPANY
AS OF SEPTEMBER 30, 2023
(UNAUDITED)
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 Cash Flows Attributable to the Company | 5 |
| Additional Information | 6 |
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, 2023, 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) HOLDINGS, LTD.
Financial Information from the Consolidated Statements of Financial Position Attributable to the Company
| September 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | 2022 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| Non-current assets | ||||||
| Investments in investees | $ | 1,143,793 | $ | 1,351,770 | $ | 1,281,462 |
| Restricted cash | 11,103 | 18,396 | 20,888 | |||
| 1,154,896 | 1,370,166 | 1,302,350 | ||||
| Current assets | ||||||
| Cash and cash equivalents | 33,954 | 25,332 | 18,810 | |||
| Restricted cash | 23,800 | — | — | |||
| 57,754 | 25,332 | 18,810 | ||||
| Total assets | $ | 1,212,650 | $ | 1,395,498 | $ | 1,321,160 |
| EQUITY | $ | 820,518 | $ | 1,079,833 | $ | 993,380 |
| Non-current liabilities | ||||||
| Debentures and bonds payable, net | 281,822 | 310,184 | 316,276 | |||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 4,382 | 2,659 | 5,759 | |||
| Debentures and bonds payable, net | 98,184 | — | — | |||
| Other liabilities | 3,119 | — | 3,115 | |||
| Due to Owner | 4,625 | 2,822 | 2,630 | |||
| 110,310 | 5,481 | 11,504 | ||||
| Total liabilities | 392,132 | 315,665 | 327,780 | |||
| Total equity and liabilities | $ | 1,212,650 | $ | 1,395,498 | $ | 1,321,160 |
The accompanying notes are an integral part of the condensed interim financial data.
| November 21, 2023 | /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.
Financial Information from the Consolidated Statements of Profit or Loss Attributable to the Company
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2022 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Share of (loss) profit from investees, net | $ | (134,873) | $ | 81,253 | $ | 19,589 | $ | 40,633 | $ | 14,984 |
| Asset management fees to affiliate | (7,953) | (9,722) | (2,523) | (3,407) | (12,348) | |||||
| General and administrative expenses | (3,847) | (4,277) | (172) | (1,363) | (4,100) | |||||
| Operating (loss) income | (146,673) | 67,254 | 16,894 | 35,863 | (1,464) | |||||
| Finance expense | (15,906) | (12,603) | (6,723) | (4,760) | (17,281) | |||||
| Finance income | 392 | 6 | 368 | 2 | 11 | |||||
| Foreign currency transaction adjustments, net | (4,675) | 37,100 | (1,122) | 6,003 | 29,038 | |||||
| Net (loss) income | $ | (166,862) | $ | 91,757 | $ | 9,417 | $ | 37,108 | $ | 10,304 |
| Total comprehensive (loss) income | $ | (166,862) | $ | 91,757 | $ | 9,417 | $ | 37,108 | $ | 10,304 |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDINGS, 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, | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | 2022 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash flows from operating activities | ||||||||||
| Net (loss) income for the period | $ | (166,862) | $ | 91,757 | $ | 9,417 | $ | 37,109 | $ | 10,304 |
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||
| Share of loss (profit) from investees | 134,873 | (81,253) | (19,590) | (40,634) | (14,984) | |||||
| Finance expense | 15,906 | 12,603 | 6,723 | 4,760 | 17,281 | |||||
| Distribution from (to) investees, net | (352) | 16,889 | (1,623) | (1,971) | 11,948 | |||||
| Foreign currency transaction adjustments, net | 4,675 | (37,100) | 1,122 | (6,003) | (29,038) | |||||
| Changes in operating assets and liabilities: | ||||||||||
| Accounts payable and accrued liabilities | (211) | 1,202 | (157) | 147 | 1,017 | |||||
| Restricted cash for operational expenditures | (3,925) | (12,190) | (1,602) | (11,794) | (14,404) | |||||
| Due to Owner | 1,995 | 743 | (479) | (2,722) | 551 | |||||
| Net cash (used in) provided by operating activities | (13,901) | (7,349) | (6,189) | (21,108) | (17,325) | |||||
| Cash flows from investing activities | ||||||||||
| Distribution to investees, net | 3,148 | (25,865) | (14,450) | (2,809) | (16,885) | |||||
| Purchase of foreign currency derivatives | (100,327) | — | (33,187) | — | — | |||||
| Proceeds from disposition of foreign currency derivatives | 71,027 | — | 21,851 | — | — | |||||
| Release of deposit on foreign currency derivatives | 2,777 | — | 2,777 | — | — | |||||
| Net cash used in investing activities | (23,375) | (25,865) | (23,009) | (2,809) | (16,885) | |||||
| Cash flows from financing activities | ||||||||||
| Proceeds from (payments on) debentures and bonds payable, net | 92,136 | 90,953 | 92,136 | (35) | 90,954 | |||||
| Payments of deferred financing costs | (4,014) | (1,930) | (4,014) | (11) | (1,930) | |||||
| Interest paid | (12,948) | (11,912) | (6,292) | (6,684) | (12,835) | |||||
| Funding of restricted cash for debt service obligations | (16,640) | (1,877) | (16,978) | — | (1,877) | |||||
| Distribution to Owner | (5,731) | (20,000) | (3,731) | — | (25,000) | |||||
| Net cash provided by (used in) financing activities | 52,803 | 55,234 | 61,121 | (6,730) | 49,312 | |||||
| Effect of exchange rate changes on cash and cash equivalents | (383) | (2,825) | (325) | (354) | (2,429) | |||||
| (Decrease) increase in cash | 15,144 | 19,195 | 31,598 | (31,001) | 12,673 | |||||
| Cash, beginning of the period | 18,810 | 6,137 | 2,356 | 56,333 | 6,137 | |||||
| Cash, end of the period | $ | 33,954 | $ | 25,332 | $ | 33,954 | $ | 25,332 | $ | 18,810 |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
Additional Information
NOTE 1: BASIS OF PREPARATION
Separate financial information is prepared in a condensed format as of September 30, 2023 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, 2022 and for the year then ended and the information accompanying notes (hereinafter - the annual consolidated financial statements).
As of September 30, 2023, the Company had a working capital shortfall of $52.6 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 and there are no limitations on the Company's ability to withdraw funds from the investees. Accordingly, the Company and the board of directors does not view the working capital shortfall as a liquidity problem.
NOTE 2: SIGNIFICANT EVENT DURING THE REPORTING PERIOD
Series B Debentures
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, 2023, 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, 2023 was $820.5 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 58%; (iii) the Adjusted NOI was $73.8 million for the trailing twelve months ended September 30, 2023; and (iv) the consolidated scope of projects was $0 as of September 30, 2023.
Series C Bonds
The Series C Bonds contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 450 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); and (iii) the Loan to Collateral Ratio shall not exceed 75%. As of September 30, 2023, the Company was in compliance with all covenants under the deed of trust of the Series C Bonds; (i) Consolidated Equity Capital of the Company as of September 30, 2023 was $820.5 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 58%; and (iii) the Loan to Collateral Ratio was 39% for the trailing twelve months ended September 30, 2023.
Additionally, of the Series C Bonds proceeds, 61.8 million Israeli new Shekels (approximately $16.2 million as of September 30, 2023) were held on deposit for obligations related to the Series B Debentures.
NOTE 3: SUBSEQUENT EVENT
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
On November 21, 2023, the Company’s board of directors approved a distribution of dividend in the amount of $3.0 million to the Owner.
6