Attached files
Exhibit 99.1
KBS SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2018
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
Page | |
Consolidated Statements of Financial Position | 2 |
Consolidated Statements of Operations | 3 |
Consolidated Statements of Comprehensive Income | 4 |
Consolidated Statements of Changes in Equity | 5-7 |
Consolidated Statements of Cash Flows | 8-9 |
Notes to Interim Consolidated Financial Statements | 10-15 |
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KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
June 30, | December 31, | ||||||||||
2018 | 2017 | 2017 | |||||||||
Unaudited | Audited | ||||||||||
U.S. dollars in thousands | |||||||||||
ASSETS | |||||||||||
CURRENT ASSETS | |||||||||||
Cash and cash equivalents | $ | 44,348 | $ | 91,118 | $ | 319,686 | |||||
Rents and other receivables, net | 3,897 | 2,841 | 2,130 | ||||||||
Prepaid expenses and other assets | 1,850 | 17,025 | 4,639 | ||||||||
Restricted cash | 3,666 | 9,820 | 3,297 | ||||||||
53,761 | 120,804 | 329,752 | |||||||||
Investment properties held for sale | 67,351 | 174,357 | — | ||||||||
121,112 | 295,161 | 329,752 | |||||||||
NON-CURRENT ASSETS | |||||||||||
Investment properties | 1,093,144 | 1,492,446 | 834,489 | ||||||||
Investment in joint ventures | 168,662 | 96,455 | 166,895 | ||||||||
Investment in debt instruments, net | 17,879 | 17,534 | 17,751 | ||||||||
Financial assets at fair value through profit or loss | 101,141 | 44,161 | 93,737 | ||||||||
Restricted cash | 7,342 | 11,677 | 7,373 | ||||||||
1,388,168 | 1,662,273 | 1,120,245 | |||||||||
Total assets | $ | 1,509,280 | $ | 1,957,434 | $ | 1,449,997 | |||||
LIABILITIES | |||||||||||
CURRENT LIABILITIES | |||||||||||
Notes and bonds payable, net | $ | 77,495 | $ | 277,627 | $ | 117,537 | |||||
Debentures, net | 53,057 | — | — | ||||||||
Accounts payable and accrued liabilities | 18,272 | 28,173 | 15,969 | ||||||||
Other liabilities | 9,430 | 12,946 | 10,193 | ||||||||
158,254 | 318,746 | 143,699 | |||||||||
Notes payable related to properties held for sale, net | 27,566 | 87,132 | — | ||||||||
185,820 | 405,878 | 143,699 | |||||||||
NON-CURRENT LIABILITIES | |||||||||||
Notes and bonds payable, net | 402,391 | 397,766 | 213,190 | ||||||||
Debentures, net | 206,717 | 270,705 | 272,316 | ||||||||
Rental security deposits | 5,191 | 7,506 | 4,306 | ||||||||
614,289 | 675,977 | 489,812 | |||||||||
Total liabilities | 800,109 | 1,081,855 | 633,511 | ||||||||
EQUITY | |||||||||||
Owner's net equity | 679,867 | 849,472 | 787,529 | ||||||||
Non-controlling interests | 29,304 | 26,107 | 28,957 | ||||||||
Total equity | 709,171 | 875,579 | 816,486 | ||||||||
Total liabilities and equity | $ | 1,509,280 | $ | 1,957,434 | $ | 1,449,997 | |||||
The accompanying notes are an integral part of the interim consolidated financial statements.
August 9, 2018 | /s/ Jeffrey Waldvogel | /s/ Peter McMillan III | /s/ Keith David Hall | |||
Date of approval of | Waldvogel, Jeffrey | McMillan III, Peter | Hall, Keith David | |||
financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer | |||
2
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended June 30, | Three months ended June 30, | Year ended December 31, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2017 | |||||||||||||||
Unaudited | Audited | ||||||||||||||||||
U.S. dollars in thousands | |||||||||||||||||||
Revenues and other income: | |||||||||||||||||||
Rental income | $ | 33,596 | $ | 60,312 | $ | 18,642 | $ | 30,560 | $ | 108,113 | |||||||||
Tenant reimbursements | 6,385 | 12,094 | 3,703 | 6,457 | 21,710 | ||||||||||||||
Interest income from debt investments | 1,012 | 760 | 511 | 600 | 1,782 | ||||||||||||||
Other operating income | 1,173 | 2,540 | 952 | 987 | 4,001 | ||||||||||||||
Total revenues and other income | 42,166 | 75,706 | 23,808 | 38,604 | 135,606 | ||||||||||||||
Expenses: | |||||||||||||||||||
Operating, maintenance, and management fees | (13,058 | ) | (22,207 | ) | (7,571 | ) | (11,299 | ) | (42,611) | ||||||||||
Real estate taxes and insurance | (5,774 | ) | (10,152 | ) | (3,435 | ) | (5,415 | ) | (17,404) | ||||||||||
Total expenses | (18,832 | ) | (32,359 | ) | (11,006 | ) | (16,714 | ) | (60,015) | ||||||||||
Gross profit | 23,334 | 43,347 | 12,802 | 21,890 | 75,591 | ||||||||||||||
Fair value adjustment of investment properties, net | (1,967 | ) | (14,131 | ) | 2,534 | (11,410 | ) | 4,755 | |||||||||||
Loss on deconsolidation | — | — | — | — | (667) | ||||||||||||||
Loss on extinguishment of debt | — | — | — | — | (478) | ||||||||||||||
Equity in income of unconsolidated joint venture | 447 | 2,092 | 22 | 398 | 24,130 | ||||||||||||||
Asset management fees to affiliate | (4,043 | ) | (5,603 | ) | (2,218 | ) | (2,855 | ) | (10,686) | ||||||||||
General and administrative expenses | (2,495 | ) | (1,341 | ) | (1,182 | ) | (426 | ) | (2,852) | ||||||||||
Operating profit | 15,276 | 24,364 | 11,958 | 7,597 | 89,793 | ||||||||||||||
Finance income | 1,305 | 170 | 403 | 154 | 1,021 | ||||||||||||||
Finance (loss) income from financial assets at fair value through profit or loss | (4,842 | ) | 3,207 | 10,064 | 1,338 | 12,640 | |||||||||||||
Finance expenses | (14,410 | ) | (19,709 | ) | (7,819 | ) | (10,323 | ) | (37,149) | ||||||||||
Foreign currency transaction adjustments | 9,114 | (7,097 | ) | 10,111 | (2,426 | ) | (15,298) | ||||||||||||
Net income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
Net income (loss) attributable to owner | $ | 6,838 | $ | 960 | $ | 24,958 | $ | (3,441 | ) | $ | 48,317 | ||||||||
Net income (loss) attributable to non-controlling interests | (395 | ) | (25 | ) | (241 | ) | (219 | ) | 2,690 | ||||||||||
Net income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
3
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Six months ended June 30, | Three months ended June 30, | Year ended December 31, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2017 | |||||||||||||||
Unaudited | Audited | ||||||||||||||||||
U.S. dollars in thousands | |||||||||||||||||||
Net income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
Total comprehensive income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
Total comprehensive income (loss) attributable to owner | $ | 6,838 | $ | 960 | $ | 24,958 | $ | (3,441 | ) | $ | 48,317 | ||||||||
Total comprehensive income (loss) attributable to non-controlling interests | (395 | ) | (25 | ) | (241 | ) | (219 | ) | 2,690 | ||||||||||
Total comprehensive income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
4
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN 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 | |||||||||||||||||||||||
Balance at January 1, 2018 | $ | 413,087 | $ | 332,811 | $ | 41,631 | $ | 787,529 | $ | 28,957 | $ | 816,486 | |||||||||||
Net income (loss) | — | 6,838 | — | 6,838 | (395 | ) | 6,443 | ||||||||||||||||
Total comprehensive income (loss) | — | 6,838 | — | 6,838 | (395 | ) | 6,443 | ||||||||||||||||
Dividends to Owner | — | (114,500 | ) | — | (114,500 | ) | — | (114,500 | ) | ||||||||||||||
Non-controlling interests contributions | — | — | — | — | 742 | 742 | |||||||||||||||||
Balance at June 30, 2018 | $ | 413,087 | $ | 225,149 | $ | 41,631 | $ | 679,867 | $ | 29,304 | $ | 709,171 | |||||||||||
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 | |||||||||||||||||||||||
Balance at January 1, 2017 (audited) | $ | 413,087 | $ | 407,994 | $ | 41,631 | $ | 862,712 | $ | 26,131 | $ | 888,843 | |||||||||||
Net income (loss) | — | 960 | — | 960 | (25 | ) | 935 | ||||||||||||||||
Total comprehensive income (loss) | — | 960 | — | 960 | (25 | ) | 935 | ||||||||||||||||
Dividends to Owner | — | (14,200 | ) | — | (14,200 | ) | — | (14,200 | ) | ||||||||||||||
Non-controlling interests contributions | — | — | — | — | 11 | 11 | |||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | (10 | ) | (10 | ) | |||||||||||||||
Balance at June 30, 2017 | $ | 413,087 | $ | 394,754 | $ | 41,631 | $ | 849,472 | $ | 26,107 | $ | 875,579 | |||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
5
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN 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 | |||||||||||||||||||||||
Balance at April 1, 2018 | $ | 413,087 | $ | 311,191 | $ | 41,631 | $ | 765,909 | $ | 28,811 | $ | 794,720 | |||||||||||
Net income (loss) | — | 24,958 | — | 24,958 | (241 | ) | 24,717 | ||||||||||||||||
Total comprehensive income (loss) | — | 24,958 | — | 24,958 | (241 | ) | 24,717 | ||||||||||||||||
Dividends to Owner | — | (111,000 | ) | — | (111,000 | ) | — | (111,000 | ) | ||||||||||||||
Non-controlling interests contributions | — | — | — | — | 734 | 734 | |||||||||||||||||
Balance at June 30, 2018 | $ | 413,087 | $ | 225,149 | $ | 41,631 | $ | 679,867 | $ | 29,304 | $ | 709,171 | |||||||||||
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 | |||||||||||||||||||||||
Balance at April 1, 2017 | $ | 413,087 | $ | 405,695 | $ | 41,631 | $ | 860,413 | $ | 26,319 | $ | 886,732 | |||||||||||
Net loss | — | (3,441 | ) | — | (3,441 | ) | (219 | ) | (3,660 | ) | |||||||||||||
Total comprehensive loss | — | (3,441 | ) | — | (3,441 | ) | (219 | ) | (3,660 | ) | |||||||||||||
Dividends to Owner | — | (7,500 | ) | — | (7,500 | ) | — | (7,500 | ) | ||||||||||||||
Non-controlling interests contributions | — | — | — | — | 10 | 10 | |||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | (3 | ) | (3 | ) | |||||||||||||||
Balance at June 30, 2017 | $ | 413,087 | $ | 394,754 | $ | 41,631 | $ | 849,472 | $ | 26,107 | $ | 875,579 | |||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
6
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | ||||||||||||||||||
Audited | |||||||||||||||||||||||
Balance at January 1, 2017 | $ | 413,087 | $ | 407,994 | $ | 41,631 | $ | 862,712 | $ | 26,131 | $ | 888,843 | |||||||||||
Net income | — | 48,317 | — | 48,317 | 2,690 | 51,007 | |||||||||||||||||
Total comprehensive income | — | 48,317 | — | 48,317 | 2,690 | 51,007 | |||||||||||||||||
Dividends to Owner | — | (123,500) | — | (123,500) | — | (123,500 | ) | ||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 158 | 158 | |||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (22) | (22) | |||||||||||||||||
Balance at December 31, 2017 | $ | 413,087 | $ | 332,811 | $ | 41,631 | $ | 787,529 | $ | 28,957 | $ | 816,486 | |||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
7
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, | Three months ended June 30, | Year ended December 31, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2017 | |||||||||||||||
Unaudited | Audited | ||||||||||||||||||
U.S. dollars in thousands | |||||||||||||||||||
Cash flows from operating activities: | |||||||||||||||||||
Net income (loss) | $ | 6,443 | $ | 935 | $ | 24,717 | $ | (3,660 | ) | $ | 51,007 | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||||
Equity in income of unconsolidated joint venture | (447 | ) | (2,092 | ) | (22 | ) | (398 | ) | (24,130) | ||||||||||
Fair value adjustment on investment properties, net | 1,967 | 14,131 | (2,534 | ) | 11,410 | (4,755) | |||||||||||||
Loss on deconsolidation | — | — | — | — | 667 | ||||||||||||||
Loss on extinguishment of debt | — | — | — | — | 478 | ||||||||||||||
Deferred rent | (1,670 | ) | (1,370 | ) | (925 | ) | (445 | ) | (2,416) | ||||||||||
Bad debt (recovery) expense | (218 | ) | (58 | ) | 148 | (22 | ) | 724 | |||||||||||
Financing expense, net | 14,410 | 19,709 | 7,819 | 10,323 | 37,149 | ||||||||||||||
Finance income | (1,305 | ) | (3,377 | ) | (403 | ) | (1,492 | ) | (1,021) | ||||||||||
Finance loss (income) from financial assets at fair value through profit or loss | 4,842 | — | (10,064 | ) | — | (12,640) | |||||||||||||
Interest income from debt instruments, net | (1,012 | ) | (760 | ) | (511 | ) | (600 | ) | (1,782) | ||||||||||
Foreign currency transaction adjustments | (9,114 | ) | 7,097 | (10,111 | ) | 2,426 | 15,298 | ||||||||||||
13,896 | 34,215 | 8,114 | 17,542 | 58,579 | |||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||||
Restricted cash | (372 | ) | (91 | ) | 165 | (474 | ) | (275) | |||||||||||
Rents and other receivables | (1,445 | ) | (780 | ) | (471 | ) | (537 | ) | (755) | ||||||||||
Prepaid expenses and other assets | (1,299 | ) | (1,149 | ) | (312 | ) | 1,182 | 204 | |||||||||||
Accounts payable and accrued liabilities | (204 | ) | (1,785 | ) | 1,041 | (222 | ) | (3,301) | |||||||||||
Rental security deposits | 885 | 279 | 334 | (356 | ) | (2,288) | |||||||||||||
Other liabilities | (537 | ) | 23 | 20 | (728 | ) | (2,455) | ||||||||||||
Lease incentive additions | (221 | ) | (371 | ) | (204 | ) | (342 | ) | (482) | ||||||||||
(3,193 | ) | (3,874 | ) | 573 | (1,477 | ) | (9,352) | ||||||||||||
Net cash provided by operating activities | 10,703 | 30,341 | 8,687 | 16,065 | 49,227 | ||||||||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||
Acquisitions of investment properties | (312,348 | ) | (82,235 | ) | (74,178 | ) | — | (165,465) | |||||||||||
Improvements to investment properties | (15,024 | ) | (21,180 | ) | (9,355 | ) | (14,378 | ) | (47,679) | ||||||||||
Proceeds from sales of investment properties, net | 1,943 | 93,186 | 25 | 93,186 | 834,480 | ||||||||||||||
Deferred proceeds related to sale of real estate | 281 | 1,728 | — | 1,728 | 1,728 | ||||||||||||||
Reimbursement of construction costs | 1,636 | — | 1,636 | — | — | ||||||||||||||
Deconsolidation of 353 Sacramento *) | — | — | — | — | 37,900 | ||||||||||||||
Investments in debt investments, net | — | (12,514 | ) | — | (7,514 | ) | (12,514) | ||||||||||||
Proceeds from insurance claims | — | — | — | — | 3,540 | ||||||||||||||
Investment in joint venture | (1,320 | ) | — | (1,320 | ) | — | — | ||||||||||||
Distributions of capital from investment in joint venture | — | 58,170 | — | — | 58,170 | ||||||||||||||
Investments in financial assets at fair value through profit or loss, net | (15,851 | ) | (38,995 | ) | (888 | ) | (38,995 | ) | (43,308) | ||||||||||
Distribution from financial assets at fair value through profit or loss | 1,345 | 988 | 906 | — | 3,704 | ||||||||||||||
Purchase of interest rate cap | (163 | ) | (107 | ) | (163 | ) | — | (107) | |||||||||||
Purchase of derivative financial instrument | — | — | — | — | (3,434) | ||||||||||||||
Proceeds from termination of derivative financial instrument | — | — | — | — | 6,557 | ||||||||||||||
Interest income received | 2,101 | 2,193 | 795 | 244 | 1,900 | ||||||||||||||
Dividend income received | 2,244 | 180 | 1,209 | 180 | 2,189 | ||||||||||||||
Funding of development obligations | (818 | ) | — | (271 | ) | — | — | ||||||||||||
Restricted cash for capital expenditures | — | 4,562 | — | 3,331 | 9,599 | ||||||||||||||
Net cash (used in) provided by investing activities | (335,974 | ) | 5,976 | (81,604 | ) | 37,782 | 687,260 | ||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
8
KBS SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, | Three months ended March 31, | Year ended December 31, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2017 | |||||||||||||||
Unaudited | Audited | ||||||||||||||||||
U.S. dollars in thousands | |||||||||||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||
Proceeds from debentures, notes and bonds payable | 184,351 | 124,556 | 95,351 | 37,151 | 187,204 | ||||||||||||||
Principal payments on notes and bond payable | (5,711 | ) | (69,019 | ) | (4,854 | ) | (33,211 | ) | (477,089) | ||||||||||
Payments of deferred financing costs | (2,702 | ) | (1,793 | ) | (1,450 | ) | (464 | ) | (2,376) | ||||||||||
Interest paid | (12,247 | ) | (16,256 | ) | (3,787 | ) | (5,866 | ) | (32,688) | ||||||||||
Non-controlling interests contributions | 742 | 11 | 734 | 10 | 158 | ||||||||||||||
Distributions to non-controlling interests | — | (10 | ) | — | (3 | ) | (22) | ||||||||||||
Dividends to Owner | (114,500 | ) | (14,200 | ) | (111,000 | ) | (7,500 | ) | (123,500) | ||||||||||
Net cash provided by (used in) financing activities | 49,933 | 23,289 | (25,006 | ) | (9,883 | ) | (448,313) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | — | 5 | (1 | ) | 2 | 5 | |||||||||||||
Net (decrease) increase in cash and cash equivalents | (275,338 | ) | 59,611 | (97,924 | ) | 43,966 | 288,179 | ||||||||||||
Cash and cash equivalents, beginning of period | 319,686 | 31,507 | 142,272 | 47,152 | 31,507 | ||||||||||||||
Cash and cash equivalents, end of period | $ | 44,348 | $ | 91,118 | $ | 44,348 | $ | 91,118 | $ | 319,686 | |||||||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||||||||||||||
Increase in accrual improvements to real estate | $ | 1,265 | $ | 3,551 | $ | — | $ | — | $ | — | |||||||||
Increase in restricted cash related to property insurance proceeds | $ | — | $ | 744 | $ | — | $ | — | $ | — | |||||||||
Decrease in restricted cash in connection with development obligations | $ | — | $ | 753 | $ | — | $ | 594 | $ | 183 | |||||||||
Application of escrow deposits to acquisition of investment properties | $ | — | $ | 2,000 | $ | — | $ | — | $ | 2,000 | |||||||||
Increase in restricted cash related to development obligations | $ | 343 | $ | 1,368 | $ | — | $ | 1,368 | $ | — | |||||||||
Increase to development obligations related to sales of real estate | $ | 74 | $ | 3,692 | $ | — | $ | 3,692 | $ | 3,816 | |||||||||
SREIT units received in connection with the Singapore Transaction | $ | — | $ | — | $ | — | $ | — | $ | 38,720 | |||||||||
*) Proceeds from sale of investment in previously consolidated subsidiary (353 Sacramento): | |||||||||||||||||||
Working capital (excluding cash and cash equivalents) | $ | — | $ | — | $ | — | $ | — | $ | (256 | ) | ||||||||
Investment property | $ | — | $ | — | $ | — | $ | — | $ | 174,357 | |||||||||
Note payable, net | $ | — | $ | — | $ | — | $ | — | $ | (87,132 | ) | ||||||||
Loss on deconsolidation | $ | — | $ | — | $ | — | $ | — | $ | (667 | ) | ||||||||
Investment in joint venture | $ | — | $ | — | $ | — | $ | — | $ | (48,402 | ) | ||||||||
$ | — | $ | — | $ | — | $ | — | $ | 37,900 | ||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
9
KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL INFORMATION
a. | The accompanying unaudited interim financial statements have been prepared in a condensed format as of June 30, 2018 and for the six 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, 2017 and for the year then ended and the accompanying notes ("annual financial statements"). |
b. | The Company and its subsidiaries (the "Group") operate in the investment real estate segment in the United States, which includes mainly investment in office and residential real estate and undeveloped lands. In addition, the Company invests in real estate-related loans and real estate equity securities. |
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
a. | Basis of preparation 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, except the following:
b. | Revenues from contracts with customers: |
As described in note 4a to the annual financial statements as to the initial application of IFRS 15 - "Revenues from contracts with customers" (hereinafter - the standard), the Company elected the modified retrospective adoption method without restatement of comparative periods.
Regarding the accounting policy implemented until December 31, 2017 in respect of revenue recognition - see paragraph k of Note 2 to the annual consolidated financial statements.
The accounting policy that will be applied beginning January 1, 2018 with regards to revenue recognition is as follows:
1. | Revenue recognition |
In accordance with the Standard, revenue from contracts with customers is recognized in the statement of operations when the control of the asset or service is transferred to the customer. Revenue is measured and recognized at fair value of the consideration expected to be received in accordance with the terms of the contract, net of the amounts collected in favor of third parties (such as taxes).
10
KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenue is recognized in profit or loss to the extent that the economic benefits, and the income and costs, if relevant, that are expected to flow to the Company can be measured reliably.
In determining the amount of revenue from contracts with customers, the Company examines whether it acts as a principal supplier or as a contract agent. The Company is a major supplier when it controls the goods or service promised prior to its transfer to the customer. In such cases, the Company recognizes revenue in the gross amount of the consideration. In cases where the Company acts as an agent, the Company recognizes income in a net amount, net of the amounts due to the principal supplier.
2. | Rental income |
Rental income are recognized according to the straight line method over the term of the rental period, A constant increase in rental income over the term of the contract is recognized as income according to the straight line method over the rental period.
NOTE 3: INVESTMENT IN SIGNIFICANT JOINT VENTURE
The Company does not attach the financial statements of KBS SOR SREF III 110 William, LLC, since its reports are insignificant to the Company's financial statements and do not add more information than what is contained below.
Summarized information about the statement of financial position and the statement of profit or loss of KBS SOR SREF III 110 William, LLC (100%) (in thousands) (1):
June 30, | December 31, | ||||||||||
2018 | 2017 | 2017 | |||||||||
Unaudited | Audited | ||||||||||
U.S. dollars in thousands | |||||||||||
Current assets | $ | 22,768 | $ | 17,517 | $ | 19,467 | |||||
Non-current assets (investment property) | 479,922 | 439,119 | 480,161 | ||||||||
Current liabilities | 268,146 | 7,429 | 6,455 | ||||||||
Non-current liabilities | 514 | 258,695 | 260,670 | ||||||||
Equity | $ | 234,030 | $ | 190,512 | $ | 232,503 | |||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 117,419 | $ | 96,455 | $ | 116,026 | |||||
(1) | The company holds 60% of KBS SOR SREF III 110 William, LLC. |
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KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: INVESTMENT IN SIGNIFICANT JOINT VENTURE (Cont.)
Six months ended June 30, | Three months ended June 30, | Year ended December 31, | |||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2017 | |||||||||||||||
Unaudited | Audited | ||||||||||||||||||
U.S. dollars in thousands | |||||||||||||||||||
Revenues | $ | 18,223 | $ | 16,318 | $ | 9,206 | $ | 8,452 | $ | 34,223 | |||||||||
Gross profit | 10,171 | 8,464 | 5,256 | 4,610 | 17,886 | ||||||||||||||
Operating profit (*) | 10,025 | 7,816 | 5,205 | 3,962 | 57,714 | ||||||||||||||
Net income (*) | 1,529 | 2,646 | 812 | 178 | 44,636 | ||||||||||||||
Share of profit from joint venture (Based on the waterfall mechanism) | 1,393 | 2,092 | 725 | 398 | 21,663 | ||||||||||||||
(*)Includes revaluation of investment property | $ | (146 | ) | $ | (648 | ) | $ | (51 | ) | $ | (648 | ) | $ | 39,828 | |||||
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of non-current notes payables as of June 30, 2018 is not materially different from its fair value as presented in the annual consolidated financial statements as of December 31, 2017. The fair value of the debentures payable as of June 30, 2018 was approximately $274.1 million (1,002.4 million NIS).
The change in fair value of foreign currency option that are not designated as cash flow hedges are recorded as foreign currency transaction gains or losses in the accompanying consolidated statements of operations. During the six months ended June 30, 2018, the Company recognized a net gain of $9.1 million derived from a $13.4 million of foreign currency transaction gain related to exchange differences of the debentures, which is shown net against a $4.3 million loss related to the foreign currency option. During the three months ended June 30, 2018, the Company recognized a net gain of $10.1 million derived from a $12.3 million of foreign currency transaction gain related to exchange differences of the debentures, which is shown net against a $2.2 million loss related to the foreign currency option. The gain is shown in the accompanying consolidated statements of operations as foreign currency transaction adjustments.
As of June 30, 2018, the Company used Level 2 inputs to measure the foreign currency option fair value at approximately $0, which is shown in prepaid expenses and other assets on the accompanying consolidated statements of financial position.
As of June 30, 2018, the Company had a working capital shortfall amounting to $64.7 million, primarily attributed to loans maturing in the year following the date of the statement of financial position and an amortizing payment related to the debentures. The Company intends to either exercise extension options available under the loans or refinance loans as they come due and does not anticipate any challenges in refinancing such loans given the relatively low leverage of Company 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.
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KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Acquisition and Financing of Marquette Plaza:
On March 1, 2018, the Company, through an indirect wholly owned subsidiary, acquired an office property containing 522,656 rentable square feet located on 2.5 acres of land in Minneapolis, Minnesota (“Marquette Plaza”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of Marquette Plaza was $88.3 million plus $1.1 million of acquisition costs. Marquette Plaza was built in 1972 and renovated in 2002 and was 70% leased to 21 tenants as of the acquisition date.
On June 6, 2018, the Company, through an indirect wholly owned subsidiary, entered into a term loan facility with an unaffiliated lender, for borrowings up to $70.8 million, secured by Marquette Plaza (the “Marquette Plaza Mortgage Loan”). At closing, $50.8 million of the loan was funded and the remaining $20.0 million was available for future disbursements to be used for leasing commissions, tenant improvements and capital expenditures, subject to certain terms and conditions contained in the loan documents.
The Marquette Plaza Mortgage Loan matures on June 6, 2021, with two one-year extension options, subject to certain terms and conditions contained in the loan documents, and bears interest at a floating rate of 155 basis points over one-month LIBOR. Monthly payments are interest only with the principal balance, all accrued and unpaid interest and all other sums due under the loan documents due at maturity. The Company has the right to prepay all or a portion of the Marquette Plaza Mortgage Loan, subject to certain fees and conditions contained in the loan documents.
Acquisition and Financing of City Tower:
On March 6, 2018, the Company, through an indirect wholly owned subsidiary, acquired an office building containing 431,007 rentable square feet located on approximately 4.92 acres of land in Orange, California (“City Tower”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of City Tower was $147.1 million plus $1.6 million of acquisition costs. City Tower was built in 1988 and partially renovated in 2016 and was 76% leased to 24 tenants as of the acquisition date.
On March 6, 2018, in connection with the Company’s acquisition of City Tower, the Company, through an indirect wholly owned subsidiary, entered into a term loan facility with Compass Bank, an unaffiliated lender, for borrowings up to $103.4 million, secured by City Tower (the “City Tower Mortgage Loan”). At closing, $89.0 million of the loan was funded and the remaining $14.4 million was available for future disbursements to be used for leasing commissions and capital expenditures, subject to certain terms and conditions contained in the loan documents.
The City Tower Mortgage Loan matures on March 5, 2021, with two one-year extension options, subject to certain terms and conditions contained in the loan documents, and bears interest at a floating rate of 155 basis points over one-month LIBOR. Monthly payments are interest only with the principal balance, all accrued and unpaid interest and all other sums due under the loan documents due at maturity. The Company has the right to prepay all or a portion of the City Tower Mortgage Loan, subject to certain fees and conditions contained in the loan documents.
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KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)
Acquisition and Financing of Eight & Nine Corporate Centre:
On June 8, 2018, the Company, through an indirect wholly owned subsidiary, acquired an office property consisting of two buildings containing an aggregate of 311,864 rentable square feet located on approximately 27.6 acres of land in Franklin, Tennessee (“Eight & Nine Corporate Centre”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of Eight & Nine Corporate Centre was $73.0 million plus $1.2 million of acquisition costs. Eight & Nine Corporate Centre was built in 2007 and was 82% leased to 12 tenants as of the acquisition date.
On June 8, 2018, in connection with the Company’s acquisition of Eight & Nine Corporate Centre, the Company, through an indirect wholly owned subsidiary, entered into a term loan facility with an unaffiliated lender, for borrowings up to $48.8 million, secured by Eight & Nine Corporate Centre (the “Eight & Nine Corporate Centre Mortgage Loan”). At closing, $43.9 million of the loan was funded and the remaining $4.9 million was available for future disbursements to be used for leasing commissions, tenant improvements and capital expenditures, subject to certain terms and conditions contained in the loan documents.
The Eight & Nine Corporate Centre Mortgage Loan matures on June 8, 2021, with two one-year extension options, subject to certain terms and conditions contained in the loan documents, and bears interest at a floating rate of 160 basis points over one-month LIBOR. Monthly payments are interest only with the principal balance, all accrued and unpaid interest and all other sums due under the loan documents due at maturity. The Company has the right to prepay all or a portion of the Eight & Nine Corporate Centre Mortgage Loan, subject to certain fees and conditions contained in the loan documents.
Real Estate Equity Securities
During the six months ended June 30, 2018, the Company purchased 165,000 shares of common stock of Whitestone REIT (NYSE Ticker: WSR) for an aggregate purchase price of $1.9 million and 1,576,809 shares of common stock of Franklin Street Properties Corp. (NYSE Ticker: FSP) for an aggregate purchase price of $14.0 million.
As of June 30, 2018, the Company owned three investments in real estate equity securities. The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of June 30, 2018 and December 31, 2017 (dollars in thousands):
June 30, 2018 | December 31, 2017 | ||||||||||||
Real Estate Equity Security | Number of Shares Owned | Total Carrying Value | Number of Shares Owned | Total Carrying Value | |||||||||
Whitestone REIT | 3,768,189 | $ | 47,027 | 3,603,189 | $ | 51,922 | |||||||
Keppel-KBS US REIT | 43,999,500 | 38,102 | 43,999,500 | 38,141 | |||||||||
Franklin Street Properties Corp. | 1,576,809 | 13,498 | — | — | |||||||||
49,344,498 | $ | 98,627 | 47,602,689 | $ | 90,063 | ||||||||
During the six and three months ended June 30, 2018, the Company recorded a (loss)/gain related to real estate equity securities of $(7.3) million and $8.7 million, respectively, to finance (loss) income from financial assets at fair value through profit or loss on the accompanying consolidated statements of operations.
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KBS SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)
On November 8, 2017, the Company received 43,999,500 shares of common units of Keppel-KBS US REIT (SGX Ticker: CMOU) in connection with the Singapore Transaction. The Company agreed not to sell, transfer or assign 21,999,750 units of the Keppel-KBS US REIT issued to the Company at closing of the transaction until May 8, 2018 and the remaining 21,999,750 units until November 8, 2018 (the “Unit Lockout Periods”). As of June 30, 2018 and December 31, 2017, a lack of marketability discount of $0.6 million and $1.7 million was recorded as a result of the Unit Lockout Periods, respectively.
Park Highlands Sale
On February 28, 2018, the Company sold approximately 26 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits and costs, of $2.2 million (which is close to the book value). The purchasers are not affiliated with the Company or the Advisor.
Dividend approval:
In March, May and June 2018, the Company declared distributions of dividend in the aggregated amount of $114.5 million to the Owner.
NOTE 6: SUBSEQUENT EVENTS
Sale of Central Building
On July 17, 2018, the Company sold the Central Building (an office building containing 191,784 rentable square feet located on approximately 0.6 acres of land in Seattle, Washington) for $67.5 million (which is close to the book value), before closing credits and costs, to purchasers unaffiliated with the Company or the Advisor.
As of June 30, 2018, the Company was in the final stages of negotiation with the buyer and it was highly probable that the sale would occur, as such the Central Building property and related note payable were reclassified to held for sale.
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