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): May 11, 2022
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 to investors in Israel in February 2020 and additional offerings in subsequent periods. 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 March 31, 2022 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 March 31, 2022 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: May 11, 2022 | 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 MARCH 31, 2022
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 |
| Consolidated Statements of Cash Flows | 5-6 |
| Notes to Interim Consolidated Financial Statements | 7-11 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| March 31, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 59,124 | $ | 96,481 | $ | 83,215 |
| Financial assets at fair value through profit or loss | 104,574 | 94,217 | 112,096 | |||
| Rents and other receivables, net | 3,180 | 5,703 | 5,493 | |||
| Prepaid expenses and other assets | 6,118 | 5,213 | 4,575 | |||
| Due from affiliate | 8,240 | — | 7,039 | |||
| Restricted cash | 3,684 | 910 | 2,446 | |||
| 184,920 | 202,524 | 214,864 | ||||
| NON-CURRENT ASSETS | ||||||
| Investment properties | 1,531,633 | 1,620,047 | 1,524,989 | |||
| Property plant and equipment - hotels, net | 132,779 | 135,530 | 133,512 | |||
| Goodwill | 13,534 | 16,342 | 13,534 | |||
| Investment in joint ventures | 209,081 | 214,106 | 208,879 | |||
| Restricted cash | 34,439 | 16,461 | 18,812 | |||
| 1,921,466 | 2,002,486 | 1,899,726 | ||||
| Total assets | $ | 2,106,386 | $ | 2,205,010 | $ | 2,114,590 |
| LIABILITIES AND EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Notes payable, net | $ | 161,549 | $ | 221,247 | $ | 223,350 |
| Debentures, net | — | 95,465 | — | |||
| Accounts payable and accrued liabilities | 17,381 | 17,690 | 22,666 | |||
| Due to affiliates | 4,058 | 5,347 | 2,079 | |||
| Distribution payable to Owner | 8,750 | 10,608 | — | |||
| Other liabilities | 33,974 | 21,566 | 25,756 | |||
| Lease obligation | 360 | 360 | 360 | |||
| Series A Cumulative Convertible Redeemable Preferred Stock | 15,233 | 15,233 | 15,233 | |||
| 241,305 | 387,516 | 289,444 | ||||
| LONG-TERM LIABILITIES | ||||||
| Notes payable, net | 568,162 | 642,094 | 516,826 | |||
| Debentures, net | 252,218 | 166,221 | 258,773 | |||
| Lease obligation | 9,021 | 8,938 | 9,000 | |||
| Rental security deposits | 6,784 | 5,782 | 5,895 | |||
| 836,185 | 823,035 | 790,494 | ||||
| Total liabilities | 1,077,490 | 1,210,551 | 1,079,938 | |||
| EQUITY | ||||||
| Owner's net equity | 1,001,352 | 959,482 | 1,008,076 | |||
| Non-controlling interests | 27,544 | 34,977 | 26,576 | |||
| Total equity | 1,028,896 | 994,459 | 1,034,652 | |||
| Total liabilities and equity | $ | 2,106,386 | $ | 2,205,010 | $ | 2,114,590 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Three months ended March 31, | Year ended December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| Revenues and other income: | ||||||
| Rental income | $ | 26,959 | $ | 30,175 | $ | 115,037 |
| Tenant reimbursements | 3,169 | 3,270 | 12,323 | |||
| Hotel revenues | 5,917 | 2,575 | 30,806 | |||
| Other operating income | 397 | 553 | 1,937 | |||
| Total revenues and other income | 36,442 | 36,573 | 160,103 | |||
| Expenses: | ||||||
| Operating, maintenance, and management fees | (10,473) | (11,182) | (45,833) | |||
| Real estate taxes and insurance | (5,024) | (5,289) | (20,768) | |||
| Hotel expenses | (5,111) | (3,390) | (20,990) | |||
| Total expenses | (20,608) | (19,861) | (87,591) | |||
| Gross profit | 15,834 | 16,712 | 72,512 | |||
| Fair value adjustment of investment properties, net | 10,137 | 8,634 | 87,999 | |||
| Depreciation | (790) | (738) | (3,102) | |||
| Equity in loss of unconsolidated joint ventures | (1,156) | (3,059) | (17,631) | |||
| Asset management fees to affiliate | (3,127) | (3,852) | (14,012) | |||
| Impairment charges on goodwill | — | — | (2,808) | |||
| General and administrative expenses | (1,336) | (639) | (4,777) | |||
| Operating profit | 19,562 | 17,058 | 118,181 | |||
| Transaction and related costs | (108) | — | (397) | |||
| Finance income | 46 | 45 | 194 | |||
| Finance (loss) income from financial assets at fair value through profit or loss | (5,134) | 13,506 | 38,289 | |||
| Finance expenses | (9,754) | (10,163) | (41,422) | |||
| Gain (loss) on extinguishment of debt | 2,367 | — | (4,757) | |||
| Foreign currency transaction adjustments, net | 7,265 | 8,346 | (7,445) | |||
| Net income | $ | 14,244 | $ | 28,792 | $ | 102,643 |
| Net income attributable to owner | $ | 13,276 | $ | 29,712 | $ | 106,863 |
| Net income (loss) attributable to non-controlling interests | 968 | (920) | (4,220) | |||
| Net income | $ | 14,244 | $ | 28,792 | $ | 102,643 |
| Total comprehensive income | $ | 14,244 | $ | 28,792 | $ | 102,643 |
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, 2022 | $ | 693,554 | $ | 271,448 | $ | 43,074 | $ | 1,008,076 | $ | 26,576 | $ | 1,034,652 |
| Net income | — | 13,276 | — | 13,276 | 968 | 14,244 | ||||||
| Total comprehensive income | — | 13,276 | — | 13,276 | 968 | 14,244 | ||||||
| Distribution declared to Owner | — | (20,000) | — | (20,000) | — | (20,000) | ||||||
| Balance at March 31, 2022 | $ | 693,554 | $ | 264,724 | $ | 43,074 | $ | 1,001,352 | $ | 27,544 | $ | 1,028,896 |
| 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) | — | 29,712 | — | 29,712 | (920) | 28,792 | ||||||
| Total comprehensive income (loss) | — | 29,712 | — | 29,712 | (920) | 28,792 | ||||||
| Non-controlling interest contributions | — | — | — | — | 20 | 20 | ||||||
| Balance at March 31, 2021 | $ | 693,554 | $ | 224,297 | $ | 41,631 | $ | 959,482 | $ | 34,977 | $ | 994,459 |
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| U.S. dollars in thousands | ||||||||||||
| Balance at December 31, 2020 | $ | 693,554 | $ | 194,585 | $ | 41,631 | $ | 929,770 | $ | 35,877 | $ | 965,647 |
| Net income (loss) | — | 106,863 | — | 106,863 | (4,220) | 102,643 | ||||||
| Total comprehensive income (loss) | — | 106,863 | — | 106,863 | (4,220) | 102,643 | ||||||
| Distribution to Owner | — | (30,000) | — | (30,000) | — | (30,000) | ||||||
| Non-controlling interests contributions | — | — | — | — | 183 | 183 | ||||||
| Non-controlling interests buyout | — | — | 1,443 | 1,443 | (5,264) | (3,821) | ||||||
| Balance at December 31, 2021 | $ | 693,554 | $ | 271,448 | $ | 43,074 | $ | 1,008,076 | $ | 26,576 | $ | 1,034,652 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended <br>March 31, | Year ended December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| Cash Flows from Operating Activities: | ||||||
| Net income | $ | 14,244 | $ | 28,792 | $ | 102,643 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Equity in loss of unconsolidated joint ventures | 1,156 | 3,059 | 17,631 | |||
| Fair value adjustment on investment properties, net | (10,137) | (8,634) | (87,999) | |||
| Depreciation | 790 | 738 | 3,102 | |||
| Impairment charges on goodwill | — | — | 2,808 | |||
| Transaction and related costs | 108 | — | 397 | |||
| (Gain) loss on extinguishment of debt | (2,367) | — | 4,757 | |||
| Deferred rent | (1,051) | (1,211) | (2,230) | |||
| Credit loss on financial assets | 597 | 750 | 3,317 | |||
| Finance expenses | 9,754 | 10,187 | 41,422 | |||
| Finance income | (46) | (45) | (194) | |||
| Finance loss (income) from financial assets at fair value through profit or loss | 5,134 | (13,506) | (38,289) | |||
| Foreign currency transaction (gain) loss, net | (7,265) | (8,346) | 7,445 | |||
| 10,917 | 11,784 | 54,810 | ||||
| Changes in assets and liabilities: | ||||||
| Restricted cash | (2,336) | 792 | (885) | |||
| Rents and other receivables | (590) | 57 | (80) | |||
| Prepaid expenses and other assets | (1,373) | (1,733) | (1,068) | |||
| Accounts payable and accrued liabilities | (638) | (3,756) | (646) | |||
| Rental security deposits | 889 | 63 | 176 | |||
| Due to affiliates | 1,979 | 2,252 | (966) | |||
| Other liabilities | (2,915) | 55 | 635 | |||
| Lease incentive additions | 182 | (484) | 1,014 | |||
| (4,802) | (2,754) | (1,820) | ||||
| Net cash provided by operating activities | 6,115 | 9,030 | 52,990 | |||
| Cash Flows from Investing Activities: | ||||||
| Acquisitions of investment properties | — | (2,037) | (4,818) | |||
| Improvements to investment properties | (6,253) | (4,789) | (21,705) | |||
| Proceeds from sales of investment properties, net | 9,468 | 166 | 194,711 | |||
| Additions to property plant and equipment - hotels | (57) | (6) | (352) | |||
| Investment in unconsolidated joint venture | (1,500) | (1,180) | (10,555) | |||
| Distribution of capital from investment in unconsolidated joint venture | 142 | — | — | |||
| Proceeds from the sale of investments in financial assets at fair value through profit or loss, net | — | 14,439 | 14,439 | |||
| Purchase of interest rate cap | (506) | (18) | (18) | |||
| Proceeds from disposition of foreign currency collars | — | — | 1,198 | |||
| Finance income received | 45 | 46 | 193 | |||
| Dividend income received from financial assets at fair value through profit or loss | 4,595 | 2,943 | 7,629 | |||
| Funding for development obligations | — | — | (4,427) | |||
| Advances to affiliate | (1,201) | — | (7,039) | |||
| Restricted cash released (deposited) for capital expenditures | 1,308 | (4,067) | — | |||
| Net cash provided by investing activities | 6,041 | 5,497 | 169,256 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended <br>March 31, | Year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||||||||||
| Unaudited | Audited | |||||||||||||
| U.S. dollars in thousands | ||||||||||||||
| Cash Flows from Financing Activities: | ||||||||||||||
| Proceeds from debentures, notes and bonds payable | $ | 53,758 | $ | 97,125 | 358,931 | |||||||||
| Principal payments on notes and bond payable | (64,136) | (61,300) | (473,133) | |||||||||||
| Payments of deferred financing costs | (861) | (1,054) | (8,463) | |||||||||||
| Interest paid | (11,122) | (11,448) | (35,066) | |||||||||||
| (Contribution) release of restricted cash for debt service obligations | (2,500) | (358) | 943 | |||||||||||
| Non-controlling interests contributions | — | 20 | 183 | |||||||||||
| Non-controlling interests buyout | — | — | (3,819) | |||||||||||
| Dividends to Owner | (11,250) | (1,150) | (41,758) | |||||||||||
| Other financing proceeds, net | — | 2,367 | 2,367 | |||||||||||
| Net cash (used in) provided by financing activities | (36,111) | 24,202 | (199,815) | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (136) | (1,635) | 1,397 | |||||||||||
| Net (decrease) increase in cash and cash equivalents | (24,091) | 37,094 | 23,828 | |||||||||||
| Cash and cash equivalents, beginning of period | 83,215 | 59,387 | 59,387 | |||||||||||
| Cash and cash equivalents, end of period | $ | 59,124 | $ | 96,481 | $ | 83,215 | Supplemental Disclosure of Noncash Activities: | |||||||
| --- | --- | --- | --- | --- | --- | --- | ||||||||
| Accrual improvements to real estate | $ | 2,685 | $ | 3,906 | $ | 2,660 | ||||||||
| Distribution payable to Owner | $ | 8,750 | $ | 10,608 | $ | — |
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 March 31, 2022 and for the 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, 2021 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) single-family homes and 3) hotels.
COVID-19 has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. Because the Company’s property investments are located in the United States, COVID-19 has had an impact to our properties and operating results, including reduced occupancy, as well as increased the cost of operation. Customers and potential customers of the properties could be affected by the disruption caused by COVID-19.
As of March 31, 2022, the Company owned eight office properties, one office portfolio consisting of two office buildings and 14 acres of undeveloped land, encompassing, in the aggregate, approximately 3.2 million rentable square feet. As of March 31, 2022, these properties were 73% occupied. In addition, the Company owned one residential home portfolio consisting of 1,814 single-family homes and encompassing approximately 2.5 million rental square feet and two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 92% and 96% occupied, respectively as of March 31, 2022. As of March 31, 2022, the Company also owned two hotel properties with an aggregate of 649 rooms and three investments in undeveloped land with approximately 800 developable acres and one office/retail development property.
NOTE 2: SIGNIFICANT ACCOUNTING POLICY
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.
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 March 31, 2022, the Company’s investments in unconsolidated entities were composed of the following (dollars in thousands):
| Number of Properties as of March 31, 2022 | Investment Balance as of | |||||||
|---|---|---|---|---|---|---|---|---|
| Joint Venture | Location | Ownership % | March 31, 2022 | |||||
| 110 William Joint Venture(1) | 1 | New York, New York | 60.0% | $ | 85,113 | |||
| 353 Sacramento Joint Venture | 1 | San Francisco, California | 55.0% | 84,313 | ||||
| Pacific Oak Opportunity Zone Fund I | 3 | Various | 46.0% | 27,215 | ||||
| PORT II OP LP | 251 | Various | 91.9% | 12,440 | ||||
| $ | 209,081 |
(1) Subsequent to March 31, 2022, the 110 William Joint Venture extended the maturity date of the mortgage loan to June 8, 2022.
The Company does not attach the financial statements of its joint ventures since their reports are insignificant to the Company's financial statements.
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of non-current notes payables as of March 31, 2022 is not materially different from its fair value as presented in the annual consolidated financial statements as of December 31, 2021. The fair value of the debentures payable as of March 31, 2022 was approximately $262.5 million (844.1 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 March 31, 2022, 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 March 31, 2022 was $1.0 billion; (ii) the Net Adjusted Debt to Net Adjusted Cap was 51%; (iii) the Adjusted NOI was $87.5 million for the trailing twelve months ended March 31, 2022; and (iv) the consolidated scope of projects was $0 as of March 31, 2022.
As of March 31, 2022, the Company had a working capital shortfall amounting to $56.4 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. See note 7, subsequent events - notes payable refinancing, for more information.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: FINANCIAL INSTRUMENTS (CONTINUED)
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.
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 three months ended March 31, 2022 and 2021 and as of and the year ended December 31, 2021 is as follows (in thousands):
| March 31, 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties | $ | 1,249,604 | $ | 282,029 | $ | — | $ | 1,531,633 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 132,779 | $ | 132,779 |
| Total assets | $ | 1,646,826 | $ | 309,751 | $ | 149,809 | $ | 2,106,386 |
| Total liabilities | $ | 853,502 | $ | 138,794 | $ | 85,194 | $ | 1,077,490 |
| Three months ended March 31, 2022 | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 24,617 | $ | 5,908 | $ | 5,917 | $ | 36,442 |
| Gross profit | $ | 12,235 | $ | 2,793 | $ | 806 | $ | 15,834 |
| Finance expenses | $ | 6,794 | $ | 1,510 | $ | 1,450 | $ | 9,754 |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (CONTINUED)
| March 31, 2021 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties | $ | 1,399,290 | $ | 220,757 | $ | — | $ | 1,620,047 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 135,530 | $ | 135,530 |
| Total assets | $ | 1,824,951 | $ | 233,192 | $ | 146,867 | $ | 2,205,010 |
| Total liabilities | $ | 992,557 | $ | 130,278 | $ | 87,716 | $ | 1,210,551 |
| Three months ended March 31, 2021 | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 28,526 | $ | 5,472 | $ | 2,575 | $ | 36,573 |
| Gross profit (loss) | $ | 14,962 | $ | 2,565 | $ | (815) | $ | 16,712 |
| Finance expenses | $ | 7,117 | $ | 1,566 | $ | 1,480 | $ | 10,163 |
| December 31, 2021 | ||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Investment properties | $ | 1,272,138 | $ | 252,851 | $ | — | $ | 1,524,989 |
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 133,512 | $ | 133,512 |
| Total assets | $ | 1,666,098 | $ | 292,778 | $ | 155,714 | $ | 2,114,590 |
| Total liabilities | $ | 853,028 | $ | 140,205 | $ | 86,705 | $ | 1,079,938 |
| Year ended December 31, 2021 | ||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||
| Total revenues and other income | $ | 106,645 | $ | 22,652 | $ | 30,806 | $ | 160,103 |
| Gross profit (loss) | $ | 51,876 | $ | 10,820 | $ | 9,816 | $ | 72,512 |
| Finance expenses | $ | 28,934 | $ | 6,544 | $ | 5,944 | $ | 41,422 |
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
Recent Real Estate Sale - Greenway Buildings
On January 24, 2022, the Company, through an indirect wholly owned subsidiary, sold two office buildings related to the Richardson Portfolio and containing 141,950 rentable square feet in Richardson, Texas (“Greenway Buildings”) to a purchaser unaffiliated with the Company or to Pacific Oak Capital Advisor, LLC, the Company’s advisor, for $11.0 million, before closing costs and credits. The fair value of the Greenway Buildings as of the disposition date was $14.4 million and the sale resulted in a $3.9 million loss recorded as fair value adjustment of investment properties, net in the accompanying consolidated statements of profit or loss. In connection with the sale of the Greenway Buildings, the Company repaid $9.1 million of the outstanding principal balance due under the mortgage loan secured by the Greenway Buildings.
Recent Refinancing - Lincoln Court and Crown Pointe
During the three months ended March 31, 2022, the Company refinanced two of its notes payable. Lincoln Court extended the maturity date to August 1, 2022. Crown Pointe extended the maturity date to April 1, 2025.
Real Estate Purchase and Sale Contract - Park Highlands Land
On November 11, 2021, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 238 developable acres of undeveloped land located in North Las Vegas, Nevada (“Park Highlands”) for gross sales proceeds of approximately $123.9 million, before closing costs and credits. The due diligence period expired on February 23, 2022 and the buyer’s deposit of $13.5 million is no longer refundable and is recognized as restricted cash on the consolidated statements of financial position within Restricted cash. This deposit is held in an escrow account and will become available once the sale is completed in 2023. Following the sale, the Company is expected to own approximately 522 developable acres of Park Highlands.
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Georgia 400 Mortgage Loan Deposit
On April 4, 2022, the Company paid a deposit of $20.4 million to the lender of the Georgia 400 Center Mortgage Loan as a result of being out of compliance with the debt service coverage requirement and required a cash sweep.
Additional Series B Debentures Issuance
On May 2, 2022, the Company raised approximately $95.3 million (approximately 320.4 million Israeli new Shekels at a price of 0.96 for every 1) of additional Series B Debentures to Israeli investors pursuant to a private offering registered with the Israel Securities Authority. The Series B Debentures would be identical in the terms and pari passu to the existing bonds.
11
Document
Exhibit 99.2
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTABLE TO THE COMPANY
March 31, 2022 (Unaudited)
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
PRESENTATION OF SEPARATE FINANCIAL DATA
FROM THE CONSOLIDATED FINANCIAL STATEMENTS
ATTRIBUTABLE TO THE COMPANY
AS OF MARCH 31, 2022
(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 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 March 31, 2022, 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
| March 31, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| Non-current assets | ||||||
| Investments in investees | $ | 1,261,726 | $ | 1,160,461 | $ | 1,261,541 |
| Restricted cash | 5,739 | 6,358 | 5,900 | |||
| 1,267,465 | 1,166,819 | 1,267,441 | ||||
| Current assets | ||||||
| Cash and cash equivalents | 907 | 71,667 | 6,137 | |||
| Derivative asset | — | — | 22 | |||
| 907 | 71,667 | 6,159 | ||||
| Total assets | $ | 1,268,372 | $ | 1,238,486 | $ | 1,273,600 |
| EQUITY | $ | 1,001,352 | $ | 959,482 | $ | 1,008,076 |
| NON-CURRENT LIABILITIES | ||||||
| Debentures, net | 252,218 | 166,221 | 258,773 | |||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 1,994 | 1,363 | 4,672 | |||
| Debentures, net | — | 95,465 | — | |||
| Due to Owner | 4,058 | 5,347 | 2,079 | |||
| Distribution payable to Owner | 8,750 | 10,608 | — | |||
| 14,802 | 112,783 | 6,751 | ||||
| Total liabilities | 267,020 | 279,004 | 265,524 | |||
| Total equity and liabilities | $ | 1,268,372 | $ | 1,238,486 | $ | 1,273,600 |
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 Profit or Loss Attributable to the Company
| Three months ended March 31, | Year ended December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| Share of profit from investees, net | $ | 13,986 | $ | 28,989 | $ | 146,798 |
| Asset management fees to affiliate | (3,127) | (3,852) | (14,012) | |||
| General and administrative expenses | (1,334) | (639) | (4,776) | |||
| Operating income | 9,525 | 24,498 | 128,010 | |||
| Finance expense | (3,516) | (3,134) | (13,709) | |||
| Finance income | 2 | 2 | 8 | |||
| Foreign currency transaction adjustments, net | 7,265 | 8,346 | (7,446) | |||
| Net income | $ | 13,276 | $ | 29,712 | $ | 106,863 |
| Total comprehensive income | $ | 13,276 | $ | 29,712 | $ | 106,863 |
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
| Three months ended March 31, | Year ended <br>December 31, | |||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | 2021 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| Cash flows from operating activities | ||||||
| Net income for the period | $ | 13,276 | $ | 29,712 | $ | 106,863 |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Share of profit from investees | (13,986) | (28,989) | (146,798) | |||
| Finance expense | 3,516 | 3,134 | 13,709 | |||
| Distribution from investees, net | 11,083 | 14,363 | 53,904 | |||
| Foreign currency transaction adjustments, net | (7,265) | (8,346) | 7,446 | |||
| Changes in operating assets and liabilities: | ||||||
| Accounts payable and accrued liabilities | 45 | 36 | 67 | |||
| Restricted cash for operational expenditures | 19 | (358) | (283) | |||
| Due to Owner | 1,979 | 2,302 | (966) | |||
| Net cash provided by operating activities | 8,667 | 11,854 | 33,942 | |||
| Cash flows from investing activities | ||||||
| Distributions from investees, net | 2,718 | 41,507 | 20,138 | |||
| Proceeds from termination of derivative financial instrument | — | — | 1,198 | |||
| Net cash provided by investing activities | 2,718 | 41,507 | 21,336 | |||
| Cash flows from financing activities | ||||||
| Proceeds from debentures | — | 74,232 | 256,894 | |||
| Payments of deferred financing costs | — | (923) | (6,121) | |||
| Principal payments on debentures | — | (58,889) | (264,089) | |||
| Interest paid | (5,229) | (5,285) | (8,363) | |||
| Release of restricted cash for debt service obligations | — | — | 943 | |||
| Distribution to Owner | (11,250) | (1,150) | (41,758) | |||
| Net cash (used in) provided by financing activities | (16,479) | 7,985 | (62,494) | |||
| Effect of exchange rate changes on cash and cash equivalents | (136) | (1,635) | 1,397 | |||
| Increase in cash | (5,230) | 59,711 | (5,819) | |||
| Cash, beginning of the period | 6,137 | 11,956 | 11,956 | |||
| Cash, end of the period | $ | 907 | $ | 71,667 | $ | 6,137 |
The accompanying notes are an integral part of the condensed interim financial data.
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
Additional Information
U.S. dollars in thousands
NOTE 1: BASIS OF PREPARATION
Separate financial information is prepared in a condensed format as of March 31, 2022 and for the 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, 2021 and for the year then ended, and the information accompanying notes (hereinafter - the annual consolidated financial statements).
As of March 31, 2022, the Company had a working capital shortfall amounting to $13.9 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.
NOTE 2: SIGNIFICANT EVENTS 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 March 31, 2022, 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 March 31, 2022 was $1.0 billion; (ii) the Net Adjusted Debt to Net Adjusted Cap was 51%; (iii) the Adjusted NOI was $87.5 million for the trailing twelve months ended March 31, 2022; and (iv) the consolidated scope of projects was $0 as of March 31, 2022.
NOTE 3: SUBSEQUENT EVENT
Additional Series B Debentures Issuance
On May 2, 2022, the Company raised approximately $95.3 million (approximately 320.4 million Israeli new Shekels at a price of 0.96 for every 1) of additional Series B Debentures to Israeli investors pursuant to a private offering registered with the Israel Securities Authority. The Series B Debentures would be identical in the terms and pari passu to the existing bonds.
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