Pacific Oak Strategic Opportunity REIT Inc.
12/02/2024 | Press release | Distributed by Public on 12/02/2024 16:23
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2024 UNAUDITED U.S. DOLLARS IN THOUSANDS INDEX Form 8 K
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2024
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
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Page
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Condensed Consolidated Statements of Financial Position
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2 |
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Condensed Consolidated Statements of Profit or Loss
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3 |
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Condensed Consolidated Statements of Equity
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4-5
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Condensed Consolidated Statements of Cash Flows
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6-7
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Notes to Interim Condensed Consolidated Financial Statements
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8-18
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PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| September 30, | December 31, | |||||
| 2024 | 2023 | 2023 | ||||
| Unaudited | Audited | |||||
| U.S. dollars in thousands | ||||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and cash equivalents | $ | 18,786 | $ | 69,741 | $ | 95,092 |
| Financial assets at fair value through profit or loss | 17,325 | 26,909 | 41,609 | |||
| Rents and other receivables, net | 2,892 | 2,738 | 3,366 | |||
| Prepaid expenses and other assets | 5,524 | 8,073 | 9,669 | |||
| Restricted cash | 16,164 | 28,583 | 36,452 | |||
| 60,691 | 136,044 | 186,188 | ||||
| NON-CURRENT ASSETS | ||||||
| Investment properties | 1,322,496 | 1,580,508 | 1,493,587 | |||
| Property plant and equipment - hotel, net | 33,016 | 40,858 | 40,634 | |||
| Goodwill | 949 | 2,165 | 949 | |||
| Investment in joint ventures | 164,822 | 160,333 | 148,582 | |||
| Restricted cash | 9,261 | 31,164 | 23,171 | |||
| 1,530,544 | 1,815,028 | 1,706,923 | ||||
| Total assets | $ | 1,591,235 | $ | 1,951,072 | $ | 1,893,111 |
| LIABILITIES AND EQUITY | ||||||
| CURRENT LIABILITIES | ||||||
| Notes payable | $ | 125,300 | $ | 170,391 | $ | 163,823 |
| Bonds payable | 20,205 | 98,184 | 107,241 | |||
| Accounts payable and accrued liabilities | 25,018 | 21,202 | 28,660 | |||
| Due to affiliates | 12,524 | 6,355 | 9,538 | |||
| Other liabilities | 20,876 | 28,481 | 19,107 | |||
| 203,923 | 324,613 | 328,369 | ||||
| NON-CURRENT LIABILITIES | ||||||
| Notes payable, net | 435,840 | 482,921 | 456,439 | |||
| Bonds payable, net | 345,568 | 281,822 | 301,180 | |||
| Lease obligation | 9,248 | 9,334 | 9,177 | |||
| Rental security deposits | 4,509 | 4,667 | 4,623 | |||
| Other liabilities | 9,528 | 16,757 | 10,433 | |||
| 804,693 | 795,501 | 781,852 | ||||
| Total liabilities | 1,008,616 | 1,120,114 | 1,110,221 | |||
| EQUITY | ||||||
| Owner's net equity | 579,124 | 820,518 | 772,166 | |||
| Non-controlling interests | 3,495 | 10,440 | 10,724 | |||
| Total equity | 582,619 | 830,958 | 782,890 | |||
| Total liabilities and equity | $ | 1,591,235 | $ | 1,951,072 | $ | 1,893,111 |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
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November 27 2024
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/s/ Michael Allen Bender | /s/ Jodi Kremerman | /s/ Keith David Hall |
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Date of approval of
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Bender, Michael Allen
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Kremerman, Jodi
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Hall, Keith David
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financial statements
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Chief Financial Officer
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Chairwoman of Board of Directors
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Chief Executive Officer
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2
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
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Nine months ended September 30,
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Three months ended September 30,
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Year ended December 31, |
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| 2024 | 2023 | 2024 | 2023 | 2023 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Revenues and other income: | ||||||||||
| Rental income | $ | 86,077 | $ | 90,595 | $ | 28,462 | $ | 30,811 | $ | 121,974 |
| Tenant reimbursements | 8,623 | 8,673 | 3,001 | 2,557 | 12,309 | |||||
| Hotel revenues | 6,225 | 6,673 | 1,186 | 1,195 | 9,153 | |||||
| Other operating income | 1,422 | 1,612 | 461 | 573 | 2,097 | |||||
| Total revenues and other income | 102,347 | 107,553 | 33,110 | 35,136 | 145,533 | |||||
| Expenses: | ||||||||||
| Operating, maintenance, and management fees | (35,639) | (36,504) | (12,694) | (13,278) | (50,446) | |||||
| Real estate taxes and insurance | (18,648) | (18,541) | (5,617) | (6,281) | (28,213) | |||||
| Hotel expenses | (5,018) | (5,275) | (1,361) | (1,330) | (6,945) | |||||
| Total expenses | (59,305) | (60,320) | (19,672) | (20,889) | (85,604) | |||||
| Gross profit | 43,042 | 47,233 | 13,438 | 14,247 | 59,929 | |||||
| Fair value adjustment of investment properties, net | (109,641) | (96,355) | (29,881) | (2,982) | (113,281) | |||||
| Depreciation | (864) | (886) | (292) | (257) | (1,263) | |||||
| Equity in (loss) income of joint ventures, net | (45,639) | (28,397) | (36,358) | 24,624 | (43,187) | |||||
| Asset management fees to affiliates | (11,946) | (11,380) | (3,972) | (3,697) | (15,415) | |||||
| Impairment charges on goodwill | - | (3,271) | - | (3,271) | (4,487) | |||||
| Impairment charges on property plant and equipment, hotel | (6,400) | - | (2,946) | - | - | |||||
| General and administrative expenses | (6,364) | (3,847) | (1,774) | (175) | (4,932) | |||||
| Operating (loss) profit | (137,812) | (96,903) | (61,785) | 28,489 | (122,636) | |||||
| Finance income | 1,117 | 2,295 | 379 | 1,079 | 3,347 | |||||
| Finance (loss) income from financial assets at fair value through profit or loss | (7,824) | (15,658) | 8,727 | (1,646) | (718) | |||||
| Finance expenses, net | (55,361) | (49,747) | (20,579) | (17,928) | (68,216) | |||||
| Foreign currency transaction gain (loss), net | 6,724 | (4,675) | (4,556) | (1,123) | (18,712) | |||||
| Net (loss) income before income taxes | $ | (193,156) | $ | (164,688) | $ | (77,814) | $ | 8,871 | $ | (206,935) |
| Income tax provision | - | (3,662) | - | - | (6,576) | |||||
| Net (loss) income | $ | (193,156) | $ | (168,350) | $ | (77,814) | $ | 8,871 | $ | (213,511) |
| Net (loss) income attributable to owner | $ | (188,042) | $ | (166,862) | $ | (75,734) | $ | 9,418 | $ | (212,214) |
| Net loss attributable to non-controlling interests | (5,114) | (1,488) | (2,080) | (544) | (1,297) | |||||
| Net (loss) income | $ | (193,156) | $ | (168,350) | $ | (77,814) | $ | 8,874 | $ | (213,511) |
| Total comprehensive (loss) income | $ | (193,156) | $ | (168,350) | $ | (77,814) | $ | 8,874 | $ | (213,511) |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
3
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
| Owner contributions | Retained earnings (deficit) | 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 as of January 1, 2024 | $ | 693,554 | $ | 35,538 | $ | 43,074 | $ | 772,166 | $ | 10,724 | $ | 782,890 |
| Net loss | - | (188,042) | - | (188,042) | (5,114) | (193,156) | ||||||
| Total comprehensive loss | - | (188,042) | - | (188,042) | (5,114) | (193,156) | ||||||
| Distributions to owner | - | (5,000) | - | (5,000) | - | (5,000) | ||||||
| Non-controlling interest contributions | - | - | - | - | 493 | 493 | ||||||
| Non-controlling interests distributions | - | - | - | - | (2,608) | (2,608) | ||||||
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Balance as of September 30, 2024
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$ | 693,554 | $ | (157,504) | $ | 43,074 | $ | 579,124 | $ | 3,495 | $ | 582,619 |
| 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 | ||||||||||||
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Balance as of January 1, 2023
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$ | 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) | ||||||
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Balance as of September 30, 2023
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$ | 693,554 | $ | 83,890 | $ | 43,074 | $ | 820,518 | $ | 10,440 | $ | 830,958 |
| Owner contributions | Retained deficit | 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 as of July 1, 2024 | $ | 693,554 | $ | (81,770) | $ | 43,074 | $ | 654,858 | $ | 7,816 | $ | 662,674 |
| Net loss | - | (75,734) | - | (75,734) | (2,080) | (77,814) | ||||||
| Total comprehensive loss | - | (75,734) | - | (75,734) | (2,080) | (77,814) | ||||||
| Distributions to owner | - | - | - | - | - | - | ||||||
| Non-controlling interest contributions | - | - | - | - | 96 | 96 | ||||||
| Non-controlling interest distribution | - | - | - | - | (2,337) | (2,337) | ||||||
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Balance as of September 30, 2024
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$ | 693,554 | $ | (157,504) | $ | 43,074 | $ | 579,124 | $ | 3,495 | $ | 582,619 |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
4
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED 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 as of 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) | ||||||
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Balance as of September 30, 2023
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$ | 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 | |||||||
| Audited | ||||||||||||
| U.S. dollars in thousands | ||||||||||||
| Balance as of January 1, 2023 | $ | 693,554 | $ | 256,752 | $ | 43,074 | $ | 993,380 | $ | 12,572 | $ | 1,005,952 |
| Net loss | - | (212,214) | - | (212,214) | (1,297) | (213,511) | ||||||
| Total comprehensive loss | - | (212,214) | - | (212,214) | (1,297) | (213,511) | ||||||
| Distributions to owner | - | (9,000) | - | (9,000) | - | (9,000) | ||||||
| Non-controlling interests contributions | - | - | - | - | 543 | 543 | ||||||
| Non-controlling interests distributions | - | - | - | - | (1,094) | (1,094) | ||||||
| Balance as of December 31, 2023 | $ | 693,554 | $ | 35,538 | $ | 43,074 | $ | 772,166 | $ | 10,724 | $ | 782,890 |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
5
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine months ended September 30,
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Three months ended September 30,
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Year ended December 31, | ||||||||
| 2024 | 2023 | 2024 | 2023 | 2023 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||
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Net (loss) income
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$ | (193,156) | $ | (168,350) | $ | (77,814) | $ | 8,874 | $ | (213,511) |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities:
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Equity in loss (income) of joint ventures, net
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45,639 | 28,397 | 36,358 | (24,624) | 43,187 | |||||
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Fair value adjustment on investment properties, net
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109,641 | 96,355 | 29,881 | 2,982 | 113,281 | |||||
| Depreciation | 864 | 886 | 292 | 257 | 1,263 | |||||
| Impairment charges on goodwill | - | 3,271 | - | 3,271 | 4,487 | |||||
| Impairment charges on property plant and equipment - hotel | 6,400 | - | 2,946 | - | - | |||||
| Income tax provision | - | 3,662 | - | - | 6,576 | |||||
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Deferred rent
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(815) | (1,253) | (490) | 349 | (176) | |||||
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Credit loss on financial assets
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1,819 | 2,189 | 921 | 1,201 | 4,923 | |||||
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Finance expenses, net
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55,361 | 49,747 | 20,579 | 17,928 | 68,216 | |||||
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Finance income
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(1,117) | (2,295) | (379) | (1,079) | (3,347) | |||||
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Finance loss (gain) from financial assets at fair value through profit or loss
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7,824 | 15,658 | (8,727) | 1,646 | 718 | |||||
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Foreign currency transaction (gain) loss, net
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(6,724) | 4,675 | 4,556 | 1,122 | 18,712 | |||||
| 25,736 | 32,942 | 8,123 | 11,927 | 44,329 | ||||||
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Changes in assets and liabilities:
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Restricted cash
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14,114 | 11,635 | 3,709 | (2,174) | 5,107 | |||||
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Rents and other receivables, net
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(1,345) | (1,858) | (772) | (805) | (5,096) | |||||
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Prepaid expenses and other assets
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(486) | (2,080) | 643 | 490 | (115) | |||||
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Accounts payable and accrued liabilities
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(2,894) | (2,676) | 115 | 4,836 | (2,175) | |||||
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Rental security deposits
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(114) | (608) | (19) | 347 | (1,868) | |||||
| Due to affiliates | 3,836 | 3,741 | 950 | (329) | 6,924 | |||||
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Other liabilities
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(1,450) | 2,116 | 2,288 | (555) | 3,336 | |||||
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Lease incentive additions
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- | (414) | - | (142) | - | |||||
| 11,661 | 9,856 | 6,914 | 1,668 | 6,113 | ||||||
| Net cash provided by operating activities | 37,397 | 42,798 | 15,037 | 13,595 | 50,442 | |||||
| Cash Flows from Investing Activities: | ||||||||||
| Improvements to investment properties | (22,039) | (16,348) | (4,527) | (6,000) | (23,177) | |||||
| Proceeds from sales of investment properties, net | 87,411 | 40,867 | 84,285 | 73 | 123,846 | |||||
| Additions to property plant and equipment - hotels | - | (46) | - | - | - | |||||
| Taxes paid related to sales of investment properties | - | - | - | - | (11,500) | |||||
| Contributions to joint ventures | (63,376) | (28,388) | (24,687) | (28,388) | (30,284) | |||||
| Distribution of capital from joint venture | 1,497 | 1,144 | - | - | - | |||||
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Proceeds from the sale of investments in financial assets at fair value through profit or loss, net
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16,379 | 13,791 | - | 234 | 13,946 | |||||
| Purchase of interest rate caps | (1,447) | (1,236) | - | (889) | (1,236) | |||||
| Proceeds from interest rate caps | 2,439 | - | 752 | - | - | |||||
| Payments on foreign currency derivatives, net | (478) | (26,523) | - | (8,559) | (30,209) | |||||
| Finance income received | 1,117 | 2,248 | 379 | 1,053 | 3,176 | |||||
| Dividend income received from financial assets at fair value through profit or loss | 81 | 3,930 | - | 1,684 | 4,014 | |||||
| Proceeds for development obligations | 5 | 1,855 | - | - | 12,005 | |||||
| Payments for development obligations | (7,338) | (1,825) | (3,433) | (404) | (8,689) | |||||
| (Funding) proceeds for capital expenditures | - | (209) | - | 72 | 209 | |||||
| Net cash provided by (used in) investing activities | 14,251 | (10,740) | 52,769 | (41,124) | 52,101 |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
6
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
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Nine months ended September 30,
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Three months ended September 30,
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Year ended December 31, | ||||||||
| 2024 | 2023 | 2024 | 2023 | 2023 | ||||||
| Unaudited | Audited | |||||||||
| U.S. dollars in thousands | ||||||||||
| Cash Flows from Financing Activities: | ||||||||||
| Proceeds from notes and bonds payable | $ | 179,787 | $ | 93,117 | $ | 80,937 | $ | 92,137 | $ | 98,502 |
| Principal payments on notes and bonds payable | (273,173) | (77,673) | (158,004) | (20,751) | (111,243) | |||||
| Payments of deferred financing costs | (6,454) | (5,028) | (2,564) | (3,426) | (5,416) | |||||
| Interest paid | (49,136) | (43,726) | (18,646) | (19,307) | (58,884) | |||||
| Non-controlling interests contributions | 493 | 450 | 96 | 450 | 543 | |||||
| Non-controlling interests distributions | (2,608) | (1,094) | (2,337) | (481) | (1,094) | |||||
| Release (distribution) of restricted cash for debt service obligations | 28,692 | (16,640) | 13,480 | (16,640) | (16,640) | |||||
| Distributions to owner | (5,850) | (5,731) | (2,000) | (3,731) | (7,453) | |||||
| Net cash (used in) provided by financing activities | (128,249) | (56,325) | (89,038) | 28,251 | (101,685) | |||||
| Effect of exchange rate changes on cash and cash equivalents | 295 | (383) | (406) | (325) | (157) | |||||
| Net (decrease) increase in cash and cash equivalents | (76,306) | (24,650) | (21,638) | 397 | 701 | |||||
| Cash and cash equivalents, beginning of period | 95,092 | 94,391 | 40,424 | 69,344 | 94,391 | |||||
| Cash and cash equivalents, end of period | $ | 18,786 | $ | 69,741 | $ | 18,786 | $ | 69,741 | $ | 95,092 |
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Supplemental Disclosure of Noncash Activities:
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Accrued development obligations
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$ | 3,880 | $ | 8,578 | $ | 3,880 | $ | 8,578 | $ | 11,213 |
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Distribution payable to owner
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$ | 704 | $ | - | $ | 704 | $ | - | $ | 1,750 |
| Asset management fee reimbursement payable to owner | $ | 10,609 | $ | 4,625 | $ | 10,609 | $ | 4,625 | $ | 7,047 |
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
7
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED 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, 2024 and for the nine and three months period then ended ("interim condensed consolidated financial statements"). These interim condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2023 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 industry in the United States, which includes mainly investment in office, residential real estate, and undeveloped lands. In addition, the Company invests in joint ventures and a real estate equity security. The Company has three reporting segments: 1) strategic opportunistic properties 2) residential homes and 3) hotel.
As of September 30, 2024, the Company consolidated nine office complexes, encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were 66% occupied. In addition, the Company owned one residential home portfolio consisting of 2,145 residential homes, and one apartment property containing 317 units, which were 94% and 95% occupied, respectively. The Company also owned one hotel property with 196 rooms, four investments in undeveloped land with approximately 581 developable acres, and one office/retail development property, three investments in unconsolidated joint ventures and one financial assets at fair value through profit or loss.
Due to elevated interest rates, we may experience restrictions in our liquidity with respect to 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, 2024, if interest rates were 100 basis points higher or lower during the nine months ending September 30, 2024, the annualized interest expense on our variable rate debt would increase or decrease by $2.7 million and $2.8 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, 2024, the Company had a working capital shortfall amounting to $143.2 million, primarily attributed to loan and bond payments due in the year following the date of the statement of financial position. The Company intends to refinance or restructure loans as they come due or utilize funding facilities when available based on the Company's relationship with third-party lenders and its past experience placing debt on its properties. There are no significant limitations on the Company's ability to withdraw funds from the Company's subsidiaries, except for restricted cash. The Company expects to generate cash flow from additional asset sales in the year following the date of the statement of financial position. Accordingly, the Company and the board of directors does not view the working capital shortfall as a liquidity problem.
8
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2: SIGNIFICANT ACCOUNTING POLICY
Basis of presentation of the interim condensed consolidated financial statements:
The interim condensed 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 condensed 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:
IFRS 18 "Presentation and Disclosures in Financial Statements":
On April 9, 2024, the IASB issued IFRS 18 "Presentation and Disclosures in Financial Statements" to set out requirements for the presentation and disclosure of information in general purpose financial statements. The standard is effective for annual periods beginning on or after January 2027. The Company is assessing the impact of the new standard, including the impact of amendments to other accounting standards, as a result of the new standard on the consolidated financial statements. Early adoption is permitted and would need to be disclosed.
NOTE 3: INVESTMENT IN JOINT VENTURES
As of September 30, 2024, the Company's investment in joint ventures was composed of the following (dollars in thousands):
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Properties as of September 30, 2024
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Investment Balance as of | ||||||||
| September 30, |
December 31, 2023
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||||||||
| 2024 | 2023 | ||||||||
| Joint Venture | Location | Ownership % | Unaudited | Audited | |||||
| 110 William Joint Venture | 1 | New York, New York |
(1)
|
$ | 129,629 | $ | 112,540 | $ | 112,514 |
| Pacific Oak Opportunity Zone Fund I | 4 | Various | 47.0% | 35,193 | 36,039 | 36,068 | |||
| 353 Sacramento Joint Venture | 1 | San Francisco, California | 55.0% | - | (2) | 11,754 | - | ||
| $ | 164,822 | $ | 160,333 | $ | 148,582 |
_____________________
(1)As of September 30, 2024, the Company owned 77.5% of preferred interest and 100% of common interest in the joint venture. As of September 30, 2024, the Company had funded $91.7 million and subsequent to September 30, 2024, the Company funded $13.3 million to the joint venture. Additionally, the 110 William Joint Venture met funding conditions with an aggregate available borrowing capacity of $56.7 million, subject to the Company's guarantee. As of September 30, 2024, there was no outstanding balance under the $56.7 million funding facility.
(2)The Company's investment in the 353 Sacramento Joint Venture is limited to the investment balance, as such, the Company does not guarantee any debt or other obligations associated with the joint venture.
9
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
The equity in (loss) profit of joint ventures for the nine and three months ended September 30, 2024 and 2023 and the year ended December 31, 2023 was as follows (in thousands):
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
Year ended December 31, 2023
|
||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||
| Unaudited | Unaudited | Audited | ||||||||
| 110 William Joint Venture | $ | (46,261) | $ | 36,587 | $ | (36,256) | $ | 53,196 | 33,448 | |
| Pacific Oak Opportunity Zone Fund I | 622 | (736) | (102) | 486 | (706) | |||||
| 353 Sacramento Joint Venture | - | (64,248) | - | (29,058) | (75,929) | |||||
| Equity in (loss) income of joint ventures, net | $ | (45,639) | $ | (28,397) | $ | (36,358) | $ | 24,624 | $ | (43,187) |
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, | |||||
| 2024 | 2023 | 2023 | ||||
| Unaudited | Audited | |||||
| Current assets | $ | 17,381 | $ | 10,853 | $ | 8,911 |
| Non-current assets (investment property) | 403,600 | 386,400 | 386,670 | |||
| Current liabilities | 11,489 | 10,622 | 10,514 | |||
| Non-current liabilities | 248,555 | 248,518 | 248,555 | |||
| Equity | 160,937 | 138,113 | 136,512 | |||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 129,629 | $ | 112,540 | $ | 112,514 |
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
Year ended December 31, 2023
|
||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||
| Unaudited | Unaudited | Audited | ||||||||
| Revenues | $ | 12,010 | $ | 18,473 | $ | 3,945 | $ | 5,535 | $ | 24,474 |
| Gross profit | 212 | 3,296 | (215) | (804) | 4,908 | |||||
| Operating loss *) | (24,463) | (32,385) | (24,901) | (22,895) | (30,776) | |||||
| Net (loss) income *) | (38,951) | 9,628 | (29,968) | 37,310 | 4,988 | |||||
| Share of equity in (loss) income from joint venture (Based on the waterfall mechanism) | (46,261) | 36,587 | (36,256) | 53,196 | 33,448 | |||||
| *) Includes revaluation of investment properties | $ | (24,665) | $ | (35,402) | $ | (24,695) | $ | (22,088) | $ | (35,402) |
10
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (CONTINUED)
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, | |||||
| 2024 | 2023 | 2023 | ||||
| Unaudited | Audited | |||||
| Current assets | $ | 2,786 | $ | 2,898 | $ | 3,123 |
| Non-current assets (investment properties) | 130,852 | 125,656 | 125,691 | |||
| Current liabilities | 1,307 | 1,347 | 1,626 | |||
| Non-current liabilities | 58,386 | 50,785 | 50,771 | |||
| Equity | 74,143 | 76,422 | 76,417 | |||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 35,193 | $ | 36,039 | $ | 36,068 |
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
Year ended December 31, 2023
|
||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||
| Unaudited | Unaudited | Audited | ||||||||
| Revenues | $ | 6,880 | $ | 5,576 | $ | 2,265 | $ | 2,108 | $ | 7,744 |
| Gross profit | 5,738 | 4,580 | 1,759 | 1,678 | 6,776 | |||||
| Operating profit (loss) *) | 2,837 | (6,184) | 632 | (8,214) | (5,050) | |||||
| Net income (loss) *) | 1,041 | (7,762) | (201) | (8,939) | (7,162) | |||||
| Share of equity in income (loss) from joint venture (Based on the waterfall mechanism) | 622 | (736) | (102) | 486 | (706) | |||||
| *) Includes revaluation of investment properties | $ | 361 | $ | (8,045) | $ | - | $ | (9,067) | $ | (7,587) |
11
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED 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, | |||||
| 2024 | 2023 | 2023 | ||||
| Unaudited | Audited | |||||
| Current assets | $ | 1,764 | $ | 13,297 | $ | 12,552 |
| Non-current assets (investment property) | 110,059 | 121,500 | 98,800 | |||
| Current liabilities | 121,999 | 2,211 | 113,157 | |||
| Non-current liabilities | 1,662 | 112,806 | 1,662 | |||
| (Deficit) equity | (11,840) | 19,780 | (3,467) | |||
| Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | - | $ | 11,754 | $ | - |
|
Nine Months Ended September 30,
|
Three Months Ended September 30,
|
Year ended December 31, 2023
|
||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||
| Unaudited | Unaudited | Audited | ||||||||
| Revenues | $ | 8,784 | $ | 8,724 | $ | 2,976 | $ | 3,104 | $ | 12,102 |
| Gross profit | 3,274 | 2,887 | 1,081 | 784 | 4,896 | |||||
| Operating profit (loss) *) | 2,831 | (109,184) | 744 | (49,347) | (130,218) | |||||
| Net loss *) | (8,373) | (116,188) | (3,506) | (51,976) | (140,272) | |||||
| Share of loss from joint venture (Based on the waterfall mechanism) | - | (64,248) | - | (29,058) | (75,929) | |||||
| *) Includes revaluation of investment properties | $ | - | $ | (112,021) | $ | - | $ | (50,342) | $ | (134,537) |
The Company does not attach the financial statements related to the investment in joint ventures, as the reports do not add more information to the contained above.
NOTE 4: FINANCIAL INSTRUMENTS
The following were the fair values of the Company's financial instruments as of September 30, 2024 and 2023, and December 31, 2023 (in thousands):
|
September 30,
|
December 31, | |||||
|
2024
|
2023
|
2023
|
||||
| Unaudited | Audited | |||||
| Notes payable | $ | 557,592 | $ | 686,606 | $ | 611,725 |
| Series B bonds | $ | 119,179 | $ | 275,995 | $ | 296,380 |
| Series C bonds | $ | 99,457 | $ | 90,070 | $ | 102,664 |
| Series D bonds | $ | 157,458 | $ | - | $ | - |
12
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: FINANCIAL INSTRUMENTS (CONTINUED)
The Series B bonds 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, 2024, the Company was in compliance with all covenants under the deed of trust of the Series B bonds; (i) Consolidated Equity Capital of the Company as of September 30, 2024 was $579.1 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 66%; (iii) the Adjusted NOI was $63.9 million for the trailing twelve months ended September 30, 2024; and (iv) the consolidated scope of projects was $0 as of September 30, 2024.
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%); (iii) and the Loan to Collateral Ratio shall not exceed a rate of 75%. As of September 30, 2024, 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, 2024 was $579.1 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 66%; (iii) and the Loan to Collateral Ratio as of September 30, 2024 was 49%.
The Series D 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%); (iii) Adjusted NOI shall be no lower than USD 35 million. As of September 30, 2024, the Company was in compliance with all covenants under the deed of trust of the Series D bonds; (i) Consolidated Equity Capital of the Company as of September 30, 2024 was $579.1 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 66%; (iii) and the Adjusted NOI was $63.9 million for the trailing twelve months ended September 30, 2024.
The Company's investments in a real estate equity security and is carried at their estimated fair value based on quoted market prices (Level 1) for the security. Unrealized gains and losses are reported in finance loss from financial assets at fair value through profit or loss.
13
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED 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, 2024 and 2023 and as of and the year ended December 31, 2023 is as follows (in thousands):
|
September 30, 2024
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| Investment properties | $ | 913,518 | $ | 408,978 | $ | - | $ | 1,322,496 |
| Property plant and equipment - hotel, net | $ | - | $ | - | $ | 33,016 | $ | 33,016 |
| Total assets | $ | 1,136,347 | $ | 419,319 | $ | 35,569 | $ | 1,591,235 |
| Total liabilities | $ | 783,353 | $ | 201,538 | $ | 23,725 | $ | 1,008,616 |
|
Nine months ended September 30, 2024
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| Total revenues and other income | $ | 69,459 | $ | 26,663 | $ | 6,225 | $ | 102,347 |
| Gross profit | $ | 29,390 | $ | 12,445 | $ | 1,207 | $ | 43,042 |
| Finance expenses, net | $ | 46,582 | $ | 7,052 | $ | 1,727 | $ | 55,361 |
|
Three months ended September 30, 2024
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| Total revenues and other income | $ | 23,283 | $ | 8,641 | $ | 1,186 | $ | 33,110 |
| Gross profit (loss) | $ | 9,150 | $ | 4,463 | $ | (175) | $ | 13,438 |
| Finance expenses, net | $ | 17,683 | $ | 2,343 | $ | 553 | $ | 20,579 |
14
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (CONTINUED)
|
September 30, 2023
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| Investment properties | $ | 1,142,250 | $ | 438,258 | $ | - | $ | 1,580,508 |
| Property plant and equipment - hotel, 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 |
|
Nine months ended September 30, 2023
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| 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, net | $ | 40,286 | $ | 7,735 | $ | 1,726 | $ | 49,747 |
|
Three months ended September 30, 2023
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Unaudited | ||||||||
| 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, net | $ | 14,753 | $ | 2,561 | $ | 614 | $ | 17,928 |
|
December 31, 2023
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Audited | ||||||||
| Investment properties | $ | 1,087,376 | $ | 406,211 | $ | - | $ | 1,493,587 |
| Property plant and equipment - hotel, net | $ | - | $ | - | $ | 40,634 | $ | 40,634 |
| Total assets | $ | 1,407,870 | $ | 436,394 | $ | 48,847 | $ | 1,893,111 |
| Total liabilities | $ | 879,854 | $ | 203,410 | $ | 26,957 | $ | 1,110,221 |
|
Year ended December 31, 2023
|
||||||||
| Strategic Opportunistic Properties | Residential Homes | Hotel | Total | |||||
| Audited | ||||||||
| Total revenues and other income | $ | 97,743 | $ | 38,637 | $ | 9,153 | $ | 145,533 |
| Gross profit | $ | 41,438 | $ | 16,283 | $ | 2,208 | $ | 59,929 |
| Finance expenses, net | $ | 55,590 | $ | 10,279 | $ | 2,347 | $ | 68,216 |
15
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 6: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Sale of Financial Assets
During the nine months ended September 30, 2024, the Company sold the remaining interest in one of the Company's financial assets (real estate equity securities) for gross sale proceeds of approximately $16.4 million, and has one interest in a financial asset remaining.
Park Highland Sales
In March 2024, the Company, through indirect wholly owned subsidiaries, entered into a purchase and sale agreement for the sale of approximately 454 developable acres of Park Highlands undeveloped land, from the Company's strategic opportunistic properties segment for gross sale proceeds of approximately $195.0 million, before closing costs, credits and taxes. The sale is expected to be completed in three phases. The phases are anticipated to be sold to the buyer for approximately $91.0 million, $52.3 million and $51.7 million in December 2024, December 2026 and December 2027, respectively. Note that the anticipated closing dates may be changed in certain circumstances. There can be no assurance that the Company will complete the sales and the purchaser is not affiliated with the Company or the Company's advisor.
Recent Debt Transactions
In January 2024, the Company obtained an interest-only mortgage loan with a maximum principal amount of $23.5 million, of which $20.0 million was funded at the time of closing. The loan is secured by the Eight & Nine Corporate Centre office complex, has a contractual interest rate of the greater of 8.90% or a floating rate of 490 basis points over the one-month SOFR rate, has an initial maturity date of February 9, 2026, and three one-year extension options.
In January 2024, the Company made the first principal installment payment of 388.1 million Israeli new Shekels (approximately $106.6 million as of January 31, 2024) in connection with the Company's Series B bonds. Subsequent to the first installment payment, two additional Series B bond installments remain, each, due on January 31, 2025 and 2026, respectively.
In April 2024, the Company issued 288.1 million Israeli new shekels (approximately $76.2 million as of April 24, 2024) of Series D bonds to Israeli investors pursuant to offerings registered with the Israeli Securities Authority. The Series D bonds bears interest at 9.5% and have principal installment payments equal to 33.33% of the face amount due on February 28th from 2027 to 2029.
In June 2024, the Company refinanced and consolidated two of its mortgage loans into one loan with an outstanding principal balance of $34.2 million, a contractual interest rate of 350 basis points over the one-month SOFR rate and a maturity date of April 30, 2025. The loan is cross-collateralized by the Richardson Office and Q&C Hotel properties and also has a cross-default clause.
16
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 6: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (CONTINUED)
In August 2024, the Company issued an additional 299.0 million Israeli new shekels (approximately $80.8 million as of August 20, 2024) par value of Series D bonds to Israeli investors pursuant to offerings registered with the Israeli Securities Authority. The additional Series D bonds would be identical in the terms and pari passu to the existing Series D bonds, and all proceeds were used for the Series B bond payment. In September 2024, the Company prepaid 312.8 million Israeli new shekels (approximately $83.2 million as of September 19, 2024) of the 388.1 million Israeli new shekels (approximately $103.2 million as of September 19, 2024) January 31, 2025 Series B bond payment and 6.1 million Israeli new shekels (approximately $1.6 million as of September 19, 2024) of accrued interest.
Dividend Approval
On May 16, 2024, the Company's board of directors approved a distribution of dividend in the amount of $5.0 million to the owner. As of September 30, 2024, $0.7 million remains to be distributed.
The Lofts at NoHo Commons Sale
In September 2024, the Company, through an indirect partially owned (90%) subsidiary, sold the Lofts at NoHo Commons for $92.5 million, before net closing costs and credits of approximately $7.1 million. The sales price is according to the fair value as of June 30, 2024. As a result of the sale, the Company repaid $68.5 million of the outstanding principal due under the secured mortgage loan and distributed $2.0 million to the non-controlling interest. The purchaser was not affiliated with the Company or the Company's advisor.
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the interim condensed consolidated financial statements are issued.
Park Highlands Land
In October 2024, the Company, through an indirect wholly owned subsidiary, sold approximately 122 developable acres of Park Highlands undeveloped land for gross sale proceeds of approximately $75.5 million, before net closing costs and credits and future development costs of approximately $15.0 million. Part of the Park Highlands undeveloped land was used as collateral for the Series C bonds and due to the sale, approximately $10.6 million of the sales proceeds was held in an escrow account for the Series C bonds to maintain the loan-to-collateral ratio. The purchaser was not affiliated with the Company or the Company's advisor.
Residential Home Sales
In October 2024, the Company, through an indirect wholly owned subsidiary, sold 45 residential homes for gross sale proceeds of approximately $8.3 million, before closing costs and credits. In connection with the sale, the Company repaid $3.2 million of the outstanding principal due under the secured mortgage loan. The purchaser was not affiliated with the Company or the Company's advisor.
17
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 7: SUBSEQUENT EVENTS (CONTINUED)
Georgia 400 Mortgage Loan
In October 2024, the Company received a notice from the lender stating that the non-repayment of the Georgia 400 mortgage loan constitutes a default event under the loan agreements. As of the report issuance date, the Company continues to pay interest on the loan. Loan extension negotiations between the Company and lenders are ongoing as of the date of filing of this report.
- - - - - - - - - - - - - - - - - - -
18