Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Pacific Oak Strategic Opportunity REIT, Inc. | pacoaksorbviq32020finsex992.htm |
| 8-K - 8-K - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksor-ifrsfina.htm |
Exhibit 99.1
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
Page | |||||
Consolidated Statements of Financial Position | 2 | ||||
Consolidated Statements of Profit or Loss | 3 | ||||
Consolidated Statements of Comprehensive Income | 4 | ||||
Consolidated Statements of Equity | 5-6 | ||||
Consolidated Statements of Cash Flows | 7-8 | ||||
Notes to Interim Consolidated Financial Statements | 9-17 | ||||
- - - - - - - - - - - - - - - - - - -
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| September 30, | December 31, | |||||||||||||||||||||||||
| 2020 | 2019 | 2019 | ||||||||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 75,822 | $ | 94,355 | $ | 68,378 | ||||||||||||||||||||
| Rents and other receivables, net | 2,893 | 2,564 | 3,001 | |||||||||||||||||||||||
| Prepaid expenses and other assets | 858 | 1,073 | 778 | |||||||||||||||||||||||
| Restricted cash | 2,247 | 1,271 | 1,482 | |||||||||||||||||||||||
| 81,820 | 99,263 | 73,639 | ||||||||||||||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||||||||||||
| Investment properties | 1,119,601 | 1,006,617 | 1,059,830 | |||||||||||||||||||||||
| Investment in joint ventures | 206,725 | 184,215 | 229,936 | |||||||||||||||||||||||
| Financial assets at fair value through profit or loss | 84,365 | 83,328 | 96,653 | |||||||||||||||||||||||
| Restricted cash | 9,474 | 9,738 | 10,520 | |||||||||||||||||||||||
| 1,420,165 | 1,283,898 | 1,396,939 | ||||||||||||||||||||||||
| Total assets | $ | 1,501,985 | $ | 1,383,161 | $ | 1,470,578 | ||||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||||||||
| Notes and bond payable, net | $ | 24,514 | $ | 30,554 | *) | $ | 30,601 | *) | ||||||||||||||||||
| Debentures, net | 56,642 | 55,820 | 56,186 | |||||||||||||||||||||||
| Accounts payable and accrued liabilities | 14,992 | 18,728 | 19,794 | |||||||||||||||||||||||
| Due to affiliates | 4,870 | — | — | |||||||||||||||||||||||
| Other liabilities | 14,898 | 14,327 | 14,820 | |||||||||||||||||||||||
| 115,916 | 119,429 | 121,401 | ||||||||||||||||||||||||
| LONG-TERM LIABILITIES | ||||||||||||||||||||||||||
| Notes and bond payable, net | 493,217 | 411,949 | *) | 421,142 | *) | |||||||||||||||||||||
| Debentures, net | 183,702 | 164,217 | 165,734 | |||||||||||||||||||||||
| Rental security deposits | 4,260 | 3,894 | 4,345 | |||||||||||||||||||||||
| Series A Cumulative Convertible Redeemable Preferred Stock | 15,233 | — | 15,008 | |||||||||||||||||||||||
| 696,412 | 580,060 | 606,229 | ||||||||||||||||||||||||
| Total liabilities | 812,328 | 699,489 | 727,630 | |||||||||||||||||||||||
| EQUITY | ||||||||||||||||||||||||||
| Owner's net equity | 674,430 | 667,074 | 726,854 | |||||||||||||||||||||||
| Non-controlling interests | 15,227 | 16,598 | 16,094 | |||||||||||||||||||||||
| Total equity | 689,657 | 683,672 | 742,948 | |||||||||||||||||||||||
| Total liabilities and equity | $ | 1,501,985 | $ | 1,383,161 | $ | 1,470,578 | ||||||||||||||||||||
*) Retrospective application, see Note 2b.
The accompanying notes are an integral part of the interim consolidated financial statements.
November 12, 2020 | /s/ Michael Allen Bender | /s/ Peter McMillan III | /s/ Keith David Hall | |||||||||||||||||
Date of approval of | Bender, Michael Allen | McMillan III, Peter | Hall, Keith David | |||||||||||||||||
financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer | |||||||||||||||||
2
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||||||||
| Rental income | $ | 62,366 | $ | 52,826 | $ | 22,244 | $ | 19,113 | $ | 72,283 | ||||||||||||||||||||||
| Tenant reimbursements | 7,307 | 8,328 | 2,278 | 2,959 | 10,789 | |||||||||||||||||||||||||||
| Interest income from debt investments | — | 369 | — | — | 369 | |||||||||||||||||||||||||||
| Other operating income | 1,386 | 2,445 | 440 | 742 | 3,078 | |||||||||||||||||||||||||||
| Total revenues and other income | 71,059 | 63,968 | 24,962 | 22,814 | 86,519 | |||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (23,369) | (21,611) | (8,251) | (8,304) | (29,845) | |||||||||||||||||||||||||||
| Real estate taxes and insurance | (10,570) | (9,556) | (3,791) | (3,277) | (12,631) | |||||||||||||||||||||||||||
| Total expenses | (33,939) | (31,167) | (12,042) | (11,581) | (42,476) | |||||||||||||||||||||||||||
| Gross profit | 37,120 | 32,801 | 12,920 | 11,233 | 44,043 | |||||||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (33,778) | (9,479) | (9,572) | (18) | 22,142 | |||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | (861) | — | (5) | (1,106) | |||||||||||||||||||||||||||
| Equity in (loss) income of unconsolidated joint ventures | (28,829) | 1,281 | (23,512) | 632 | 31,206 | |||||||||||||||||||||||||||
| Asset management fees to affiliate | (6,867) | (5,954) | (2,426) | (2,093) | (8,158) | |||||||||||||||||||||||||||
| General and administrative expenses | (2,586) | (2,902) | (1,022) | (1,143) | (3,479) | |||||||||||||||||||||||||||
| Operating (loss) profit | (34,940) | 14,886 | (23,612) | 8,606 | 84,648 | |||||||||||||||||||||||||||
| Finance income | 267 | 1,613 | 19 | 481 | 1,842 | |||||||||||||||||||||||||||
Finance (loss) income from financial assets at fair value through profit or loss | (14,220) | 23,718 | (1,532) | 6,140 | 26,478 | |||||||||||||||||||||||||||
| Finance expenses | (19,844) | (21,776) | (6,465) | (7,359) | (28,849) | |||||||||||||||||||||||||||
| Transaction and related costs | — | — | — | — | (4,462) | |||||||||||||||||||||||||||
| Foreign currency transaction adjustments, net | 12,338 | (10,634) | (445) | (5,344) | (12,498) | |||||||||||||||||||||||||||
| Net (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | ||||||||||||||||||||||
| Net (loss) income attributable to owner | $ | (52,424) | $ | 10,025 | $ | (28,692) | $ | 3,155 | $ | 69,805 | ||||||||||||||||||||||
| Net loss attributable to non-controlling interests | (3,975) | (2,218) | (3,343) | (631) | (2,646) | |||||||||||||||||||||||||||
| Net (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | ||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
3
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
| Net (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | ||||||||||||||||||||||
| Total comprehensive (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | ||||||||||||||||||||||
Total comprehensive (loss) income attributable to owner | $ | (52,424) | $ | 10,025 | $ | (28,692) | $ | 3,155 | $ | 69,805 | ||||||||||||||||||||||
Total comprehensive loss attributable to non-controlling interests | (3,975) | (2,218) | (3,343) | (631) | (2,646) | |||||||||||||||||||||||||||
| Total comprehensive (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | ||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
4
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, 2020 | $ | 413,087 | $ | 272,136 | $ | 41,631 | $ | 726,854 | $ | 16,094 | $ | 742,948 | ||||||||||||||||||||||||||
Net loss | — | (52,424) | — | (52,424) | (3,975) | (56,399) | ||||||||||||||||||||||||||||||||
Total comprehensive loss | — | (52,424) | — | (52,424) | (3,975) | (56,399) | ||||||||||||||||||||||||||||||||
Non-controlling interest contributions | — | — | — | — | 3,136 | 3,136 | ||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 413,087 | $ | 219,712 | $ | 41,631 | $ | 674,430 | $ | 15,227 | $ | 689,657 | ||||||||||||||||||||||||||
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 | $ | 413,087 | $ | 202,331 | $ | 41,631 | $ | 657,049 | $ | 22,597 | $ | 679,646 | ||||||||||||||||||||||||||
Net income (loss) | — | 10,025 | — | 10,025 | (2,218) | 7,807 | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | — | 10,025 | — | 10,025 | (2,218) | 7,807 | ||||||||||||||||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 12 | 12 | ||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (3,793) | (3,793) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | 413,087 | $ | 212,356 | $ | 41,631 | $ | 667,074 | $ | 16,598 | $ | 683,672 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
5
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 July 1, 2020 | $ | 413,087 | $ | 248,404 | $ | 41,631 | $ | 703,122 | $ | 15,574 | $ | 718,696 | ||||||||||||||||||||||||||
Net income (loss) | — | (28,692) | — | (28,692) | (3,343) | (32,035) | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | — | (28,692) | — | (28,692) | (3,343) | (32,035) | ||||||||||||||||||||||||||||||||
Non-controlling interest contributions | — | — | — | — | 3,024 | 3,024 | ||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 413,087 | $ | 219,712 | $ | 41,631 | $ | 674,430 | $ | 15,227 | $ | 689,657 | ||||||||||||||||||||||||||
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2019 | $ | 413,087 | $ | 209,201 | $ | 41,631 | $ | 663,919 | $ | 19,198 | $ | 683,117 | ||||||||||||||||||||||||||
Net income (loss) | — | 3,155 | — | 3,155 | (631) | 2,524 | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | — | 3,155 | — | 3,155 | (631) | 2,524 | ||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (1,969) | (1,969) | ||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | 413,087 | $ | 212,356 | $ | 41,631 | $ | 667,074 | $ | 16,598 | $ | 683,672 | ||||||||||||||||||||||||||
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
| Audited | ||||||||||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2019 | $ | 413,087 | $ | 202,331 | $ | 41,631 | $ | 657,049 | $ | 22,597 | $ | 679,646 | ||||||||||||||||||||||||||
Net income (loss) | — | 69,805 | — | 69,805 | (2,646) | 67,159 | ||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | — | 69,805 | — | 69,805 | (2,646) | 67,159 | ||||||||||||||||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 12 | 12 | ||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (3,869) | (3,869) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | $ | 413,087 | $ | 272,136 | $ | 41,631 | $ | 726,854 | $ | 16,094 | $ | 742,948 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
6
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | |||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | |||||||||||||||||||||||||
| Unaudited | Audited | ||||||||||||||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||||||||||||||
| Net (loss) income | $ | (56,399) | $ | 7,807 | $ | (32,035) | $ | 2,524 | $ | 67,159 | |||||||||||||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||||||||||||||||||||
| Equity in loss (income) of unconsolidated joint ventures | 28,829 | (1,281) | 23,512 | (632) | (31,206) | ||||||||||||||||||||||||
| Fair value adjustment on investment properties, net | 33,778 | 9,479 | 9,572 | 18 | (22,142) | ||||||||||||||||||||||||
| Transaction and related costs | — | — | — | — | 4,462 | ||||||||||||||||||||||||
| Loss on extinguishment of debt | — | 861 | — | 5 | 1,106 | ||||||||||||||||||||||||
| Deferred rent | (2,411) | (3,213) | (861) | (983) | (4,127) | ||||||||||||||||||||||||
| Bad debt expense | 1,114 | 160 | 363 | 144 | 363 | ||||||||||||||||||||||||
Financing expense | 19,844 | 21,776 | 6,465 | 7,359 | 28,849 | ||||||||||||||||||||||||
| Financing income | (267) | (1,613) | (19) | (481) | (1,842) | ||||||||||||||||||||||||
| Finance loss (income) from financial assets at fair value through profit or loss | 14,220 | (23,718) | 1,532 | (6,140) | (26,478) | ||||||||||||||||||||||||
| Interest income from debt instruments, net | — | (369) | — | — | (369) | ||||||||||||||||||||||||
| Foreign currency transaction (gain) loss, net | (12,338) | 10,634 | 445 | 5,344 | 12,498 | ||||||||||||||||||||||||
| 26,370 | 20,523 | 8,974 | 7,158 | 28,273 | |||||||||||||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||||||||||||||
| Restricted cash | (678) | (273) | 606 | 42 | 443 | ||||||||||||||||||||||||
Rents and other receivables | (838) | (430) | (435) | (596) | (289) | ||||||||||||||||||||||||
| Prepaid expenses and other assets | (80) | (393) | (71) | 161 | 284 | ||||||||||||||||||||||||
| Accounts payable and accrued liabilities | 1,358 | 772 | 1,660 | 3,303 | (3,705) | ||||||||||||||||||||||||
| Rental security deposits | (85) | 191 | (9) | (70) | (262) | ||||||||||||||||||||||||
Due to Owner | 238 | — | (2,192) | — | — | ||||||||||||||||||||||||
Other liabilities | (135) | (285) | (88) | 382 | 10 | ||||||||||||||||||||||||
| Lease incentive additions | (1,298) | (1,244) | (212) | (560) | (2,130) | ||||||||||||||||||||||||
| (1,518) | (1,662) | (741) | 2,662 | (5,649) | |||||||||||||||||||||||||
| Net cash provided by operating activities | 24,852 | 18,861 | 8,233 | 9,820 | 22,624 | ||||||||||||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||||||||||||||
| Acquisitions of investment properties | (19,312) | (90,266) | (2,063) | — | (90,266) | ||||||||||||||||||||||||
| Acquisition of PORT *) | — | — | — | — | (52,992) | ||||||||||||||||||||||||
| Acquisition of BPT **) | 278 | — | 278 | — | — | ||||||||||||||||||||||||
| Improvements to investment properties | (18,648) | (29,313) | (4,909) | (8,926) | (36,380) | ||||||||||||||||||||||||
| Proceeds from sales of investment properties, net | — | 43,164 | — | 25,270 | 141,548 | ||||||||||||||||||||||||
| Repayment of debt investments | — | 7,750 | — | — | 7,750 | ||||||||||||||||||||||||
| Proceeds from insurance claims | — | 438 | — | — | 438 | ||||||||||||||||||||||||
| Contributions to unconsolidated joint venture | — | (5,050) | — | (5,050) | — | ||||||||||||||||||||||||
| Distributions of capital from investment in joint venture | — | 7,800 | — | — | 7,800 | ||||||||||||||||||||||||
| Investment in unconsolidated joint venture | (1,709) | — | (1,276) | — | (20,846) | ||||||||||||||||||||||||
| Investments in financial assets at fair value through profit or loss, net | (35,510) | (10,015) | (14,227) | (10,000) | (26,223) | ||||||||||||||||||||||||
| Proceeds from sales of financial assets at fair value through profit or loss, net | 1,225 | 251 | — | — | 251 | ||||||||||||||||||||||||
Proceeds from the sale of investments in financial assets at fair value through profit or loss, net | 10,964 | 24,076 | — | — | 28,034 | ||||||||||||||||||||||||
| Purchase of interest rate cap | (6) | (28) | — | — | (28) | ||||||||||||||||||||||||
| Proceeds from disposition of foreign currency collars | 14,125 | — | 14,125 | — | — | ||||||||||||||||||||||||
| Interest income received | 264 | 2,352 | 21 | 495 | 2,725 | ||||||||||||||||||||||||
| Dividend income received from financial assets at fair value through profit or loss | 5,243 | 4,363 | 2,764 | 2,084 | 6,112 | ||||||||||||||||||||||||
| Funding for development obligations | — | (88) | — | — | (88) | ||||||||||||||||||||||||
| Due from Owner | — | 4,500 | — | — | 4,500 | ||||||||||||||||||||||||
| Net cash (used in) provided by investing activities | (43,086) | (40,066) | (5,287) | 3,873 | (27,665) | ||||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
7
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | |||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | |||||||||||||||||||||||||
| Unaudited | Audited | ||||||||||||||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||||||||||||||
| Proceeds from debentures, notes and bonds payable | $ | 104,143 | $ | 84,268 | $ | 2,250 | $ | — | $ | 84,268 | |||||||||||||||||||
| Principal payments on notes and bond payable | (57,611) | (73,250) | (462) | (10,742) | (126,603) | ||||||||||||||||||||||||
| Payments of deferred financing costs | (2,452) | (1,125) | — | (23) | (1,123) | ||||||||||||||||||||||||
| Interest paid | (19,528) | (21,981) | (7,774) | (8,825) | (25,703) | ||||||||||||||||||||||||
| Release of restricted cash for debt service obligations | 1,011 | 276 | — | — | 276 | ||||||||||||||||||||||||
Proceeds from Series A Cumulative Convertible Redeemable Preferred Stock | — | — | — | — | 15,008 | ||||||||||||||||||||||||
| Non-controlling interests contributions | 112 | 12 | — | — | 12 | ||||||||||||||||||||||||
| Distributions to non-controlling interests | (28) | (3,793) | (28) | (1,969) | (3,869) | ||||||||||||||||||||||||
| Other financing proceeds, net | — | 1,822 | — | — | 1,822 | ||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | 25,647 | (13,771) | (6,014) | (21,559) | (55,912) | ||||||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | 31 | 1,651 | 148 | — | 1,651 | ||||||||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 7,444 | (33,325) | (2,920) | (7,866) | (59,302) | ||||||||||||||||||||||||
| Cash and cash equivalents, beginning of period | 68,378 | 127,680 | 78,742 | 102,221 | 127,680 | ||||||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | 75,822 | $ | 94,355 | $ | 75,822 | $ | 94,355 | $ | 68,378 | |||||||||||||||||||
Supplemental Disclosure of Noncash Activities: | |||||||||||||||||||||||||||||
Accrual improvements to real estate | $ | 2,393 | $ | 3,414 | $ | 2,393 | $ | 3,414 | $ | 5,302 | |||||||||||||||||||
Increase in lease commission payable | $ | — | $ | — | $ | — | $ | — | $ | 693 | |||||||||||||||||||
*) Assets and liabilities assumed in connection with Pacific Oak Residential Trust acquisition:
Restricted cash | $ | — | $ | — | $ | — | $ | — | $ | 1,667 | |||||||||||||||||||
Rents and other receivables | — | — | — | — | 989 | ||||||||||||||||||||||||
Prepaid expenses and other assets | — | — | — | — | 634 | ||||||||||||||||||||||||
Investment property | — | — | — | — | 109,922 | ||||||||||||||||||||||||
Notes payable | — | — | — | — | (61,885) | ||||||||||||||||||||||||
Accounts payable and accrued liabilities | — | — | — | — | (1,893) | ||||||||||||||||||||||||
Rental security deposits | — | — | — | — | (904) | ||||||||||||||||||||||||
Transaction and related costs | — | — | — | — | 4,462 | ||||||||||||||||||||||||
| $ | — | $ | — | $ | — | $ | — | $ | 52,992 | ||||||||||||||||||||
**) Assets and liabilities assumed or eliminated in connection with Battery Point Trust acquisition:
| Rents and other receivables | $ | 17 | $ | — | $ | 17 | $ | — | $ | — | |||||||||||||||||||
| Prepaid expenses and other assets | 4 | — | 4 | — | — | ||||||||||||||||||||||||
| Investment property | 56,148 | — | 56,148 | — | — | ||||||||||||||||||||||||
| Financial assets at fair value through profit or loss | (16,000) | — | (16,000) | — | — | ||||||||||||||||||||||||
| Notes payable | (36,003) | — | (36,003) | — | — | ||||||||||||||||||||||||
| Accounts payable and accrued liabilities | (344) | — | (344) | — | — | ||||||||||||||||||||||||
| Due to Owner | (721) | — | (721) | — | — | ||||||||||||||||||||||||
| Other liabilities | (355) | — | (355) | — | — | ||||||||||||||||||||||||
| Non-controlling interests | (3,024) | (3,024) | |||||||||||||||||||||||||||
| $ | (278) | $ | — | $ | (278) | $ | — | $ | — | ||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
8
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL INFORMATION
a. These financial statements have been prepared in a condensed format as of September 30, 2020 and for the nine and three months periods 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, 2019 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. The Company started recognizing two reporting segments beginning November 2019 consisting of strategic opportunistic properties and single-family homes. Prior to November 2019, the Company had only one segment.
c. The current outbreak of the novel coronavirus, or COVID-19, has caused severe disruptions in the U.S. and global economy and will likely have an adverse impact on our financial condition and results of operations. This impact could be materially adverse to the extent the current COVID-19 outbreak, or future pandemics, cause tenants to be unable to pay their rent or reduce the demand for commercial real estate, or cause other impacts described below. As of October 2020, the Company collected 97% of total charged rent for the month of September.
Because our property investments are located in the United States, COVID-19 has begun and will continue to impact our properties and operating results given its continued spread within the United States reduces occupancy, increases the cost of operation, results in limited hours or necessitates the closure of such properties. In addition, quarantines, states of emergencies and other measures taken to curb the spread of COVID-19 may negatively impact the ability of such properties to continue to obtain necessary goods and services or provide adequate staffing, which may also adversely affect our properties and operating results.
9
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
a. Basis of presentation of the consolidated financial statements:
The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting", and in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements, except as described below:
b. IAS 1 Presentation of Financial Statements: Amendments to classification of liabilities as current or non-current
The Company has elected to early adopt IAS 1, "Presentation of Financial Statement: Amendments to classification of liabilities as current or non-current." The adoption of the IAS 1 amendment on January 1, 2020, applied retrospectively, resulted in the reclassification of $51.2 million as of September 30, 2019 and December 31, 2019 for notes and bond payable, net from current liabilities to long term liabilities as a result of the Company's analysis. Due to the amendment, the accounting policy of the company is:
a.Only the existing rights of the company at the end of the reporting period, will be used to determine if the Company has the right to exclude the obligation.
b.The consideration and the discretion in the Company's ability to postpone the payment for period of 12 months from the report period.
c.Disposal of liability can be done through transfer of cash but, also in capital instruments of the entity, assets or services.
c. Initial application of amendment to existing financial reporting and accounting standards:
Amendment to IFRS 3 - Business Combinations
In October 2018, the IASB issued an amendment to the definition of a "business" in IFRS 3, "business combinations" ("the amendment").
The amendment consists clarification that to meet the definition of a business, an integrated set of activities and assets must include, as a minimum, an input and a substantive process that together significantly contribute to the ability to create output.
The amendment consists an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.
The amendment has been applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after January 1, 2020.
The initial implementation of the amendment did not have a material impact on the Company's consolidated financial statements.
10
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES
110 William Joint Venture:
The Company does not attach the financial statements of Pacific Oak SOR SREF III 110 William, LLC, since its reports are insignificant to the Company's financial statements and do not add more information to the contained below.
Summarized information about the statements of financial position and the statements of profit or loss of Pacific Oak SOR SREF III 110 William, LLC (100%) (in thousands) (1):
| September 30, | December 31, | |||||||||||||||||||
| 2020 | 2019 | 2019 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Current assets | $ | 16,865 | $ | 13,639 | $ | 11,668 | ||||||||||||||
| Non-current assets (investment property) | 500,800 | 538,793 | 540,328 | |||||||||||||||||
| Current liabilities | 6,679 | 6,687 | 9,209 | |||||||||||||||||
| Non-current liabilities | 313,070 | 290,928 | 292,702 | |||||||||||||||||
| Equity | 197,916 | 254,817 | 250,085 | |||||||||||||||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 102,639 | $ | 126,676 | $ | 124,920 | ||||||||||||||
The 110 William Street Mortgage Loan and the 110 William Street Mezzanine Loan mature on April 9, 2021, with three one-year period extension options. As a result of the early adoption of the IAS 1 amendment, the 110 William Street Mortgage Loan and the 110 William Street Mezzanine Loan are shown in non-current liabilities as of September 30, 2020.
| Nine months ended September 30, | Three months ended September 30, | December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
| Revenues | $ | 26,387 | $ | 26,209 | $ | 9,936 | $ | 9,066 | $ | 33,376 | ||||||||||||||||||||||
| Gross profit | 14,832 | 14,137 | 5,905 | 4,885 | 17,092 | |||||||||||||||||||||||||||
| Operating (loss) profit *) | (40,126) | 10,927 | (28,913) | 4,756 | 10,090 | |||||||||||||||||||||||||||
| Net (loss) income *) | (52,169) | (1,784) | (33,026) | 706 | (6,515) | |||||||||||||||||||||||||||
| Share of (loss) profit from joint venture (Based on the waterfall mechanism) | (22,281) | 284 | (14,459) | 682 | (1,472) | |||||||||||||||||||||||||||
| *) Includes revaluation of investment properties | $ | (54,958) | $ | (3,210) | $ | (34,818) | $ | (129) | $ | (7,002) | ||||||||||||||||||||||
(1) The company holds 60% of Pacific Oak SOR SREF III 110 William, LLC.
11
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES (Cont.)
353 Sacramento Joint Venture:
The Company does not attach the financial statements of Pacific Oak SOR Acquisition XXIX, LLC (353 Sacramento Street), since its reports are insignificant to the Company's financial statements and do not add more information to the contained below:
Summarized information about the statements of financial position and the statements of profit or loss of 353 Sacramento Street, Pacific Oak SOR Acquisition XXIX, LLC (100%) (in thousands):
| September 30, | December 31, | ||||||||||||||||||||||
| 2020 | 2019 | 2019 | |||||||||||||||||||||
| Unaudited | Audited | ||||||||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||||||||
| Current assets | $ | 6,184 | $ | 6,465 | $ | 11,118 | |||||||||||||||||
| Non-current assets (investment property) | 255,600 | 206,789 | 264,700 | ||||||||||||||||||||
| Current liabilities | 3,127 | 4,596 | 6,017 | *) | |||||||||||||||||||
| Non-current liabilities | 117,295 | 113,766 | 117,375 | *) | |||||||||||||||||||
| Equity | 141,362 | 94,892 | 152,426 | ||||||||||||||||||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 78,190 | $ | 52,489 | $ | 84,170 | |||||||||||||||||
*) As a result of the early adoption of the IAS 1 amendment, applied retrospectively, resulted in the reclassification of $115.3 million as of December 31, 2019 for the 353 Sacramento Street Mortgage Loan from current liabilities to long term liabilities.
Subsequent to the reporting date, the Company extended the maturity of 353 Sacramento Street Mortgage Loan to October 14, 2021.
| Nine months ended September 30, | Three months ended September 30, | December 31, | ||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2019 | ||||||||||||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||||||||
| Revenues | $ | 15,277 | $ | 12,372 | $ | 5,313 | $ | 4,286 | $ | 16,999 | ||||||||||||||||||||||
| Gross profit | 10,594 | 7,121 | 3,627 | 2,199 | 9,928 | |||||||||||||||||||||||||||
| Operating (loss) profit *) | (7,772) | 5,791 | (14,542) | 1,264 | 64,775 | |||||||||||||||||||||||||||
| Net (loss) profit *) | (11,064) | 1,505 | (15,490) | (156) | 59,039 | |||||||||||||||||||||||||||
| Share of (loss) profit from joint venture (Based on the waterfall mechanism) | (5,980) | 997 | (8,484) | (50) | 32,677 | |||||||||||||||||||||||||||
| *) Includes revaluation of investment properties | $ | (18,366) | $ | (1,330) | $ | (18,169) | $ | (935) | $ | 54,847 | ||||||||||||||||||||||
(1) The company holds 55% of Pacific Oak SOR Acquisition XXIX, LLC.
12
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of non-current notes payables as of September 30, 2020 is not materially different from its fair value as presented in the annual consolidated financial statements as of December 31, 2019. The fair value of the debentures payable as of September 30, 2020 was approximately $220.0 million (753.8 million NIS).
The change in fair value of foreign currency collars that are not designated as cash flow hedges are recorded as foreign currency transaction gains or losses in the accompanying consolidated statements of profit or loss. During the nine months ended September 30, 2020, the Company recognized a net gain of $12.3 million derived from a $2.0 million of foreign currency transaction loss related to exchange differences of the debentures, which is shown combined with a $14.3 million gain related to the foreign currency collars. On July 29, 2020, the Company terminated the foreign currency collars and, as a result, received $14.1 million.
As of September 30, 2020, the Company had a working capital shortfall amounting to $34.1 million, primarily attributed to loans maturing in the year following the date of the statement of financial position. In addition, as of September 30, 2020, the Company had $241.9 million of the debt obligations scheduled to mature over the next 12 months that have contractual rights to extend the maturity, subject to compliance with certain financial covenants in the loans. 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.
13
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and asses its performance. All corporate related costs are included in the strategic opportunistic properties segment to align with how financial information is presented to the CODM. The Company started recognizing two reporting segments beginning November 2019 consisting of strategic opportunistic properties and single-family homes. Prior to November 2019, the Company had only one segment. The selected financial information for the two reporting segments as of and for the nine and three months ended September 30, 2020 and as of and the year ended December 31, 2019 is as follows:
September 30, 2020 | ||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Total | ||||||||||||||||||
| Investment properties | $ | 913,180 | $ | 206,421 | $ | 1,119,601 | ||||||||||||||
| Total assets | $ | 1,280,561 | $ | 221,424 | $ | 1,501,985 | ||||||||||||||
| Total liabilities | $ | 676,756 | $ | 135,572 | $ | 812,328 | ||||||||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Total | ||||||||||||||||||
| Total revenues and other income | $ | 59,539 | $ | 11,520 | $ | 71,059 | ||||||||||||||
| Gross profit | $ | 31,596 | $ | 5,524 | $ | 37,120 | ||||||||||||||
| Finance expenses | $ | 16,180 | $ | 3,664 | $ | 19,844 | ||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Total | ||||||||||||||||||
| Total revenues and other income | $ | 19,545 | $ | 5,417 | $ | 24,962 | ||||||||||||||
| Gross profit | $ | 10,264 | $ | 2,656 | $ | 12,920 | ||||||||||||||
| Finance expenses | $ | 4,954 | $ | 1,511 | $ | 6,465 | ||||||||||||||
14
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
December 31, 2019 | ||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Total | ||||||||||||||||||
| Investment properties | $ | 949,696 | $ | 110,134 | $ | 1,059,830 | ||||||||||||||
| Total assets | $ | 1,350,674 | $ | 119,904 | $ | 1,470,578 | ||||||||||||||
| Total liabilities | $ | 648,285 | $ | 79,345 | $ | 727,630 | ||||||||||||||
Year ended December 31, 2019 | ||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Total | ||||||||||||||||||
| Total revenues and other income | $ | 84,635 | $ | 1,884 | $ | 86,519 | ||||||||||||||
| Gross profit | $ | 43,095 | $ | 948 | $ | 44,043 | ||||||||||||||
| Finance expenses | $ | 28,352 | $ | 497 | $ | 28,849 | ||||||||||||||
NOTE 6: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Series B Debentures
On February 16, 2020, the Company issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures bears interest at the rate of 3.93% per year. The first interest payment is on July 31, 2020 and subsequent payments are on January 31st and July 31st of each year from 2021 to 2026. The aggregate offering costs were approximately $2.2 million and the effective interest rate is approximately 4.5%. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026.
The Series B Debentures contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 475 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); (iii) Adjusted NOI shall be no lower than USD 35 million; and (iv) the consolidated scope of the projects for development of the Company shall not exceed 10% of the adjusted balance. As of September 30, 2020, the Company was in compliance with all covenants under the deed of trust of the Series B Debentures; (i) Consolidated Equity Capital of the Company as of September 30, 2020 was $674.4 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 55%; (iii) the Adjusted NOI was $73.0 million for the trailing twelve months ended September 30, 2020; and (iv) the consolidated scope of projects was $0 as of September 30, 2020.
15
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 (cont.)
Chicago Acquisition
On May 28, 2020, the Company acquired a single-family home portfolio consisting of 196 home in Chicago, Illinois. The seller is not affiliated with the Company or the Advisor. The purchase price was $17.2 million. The Company recognized a $0.4 million loss related to acquisition fees and expenses recorded at fair value adjustment of investment properties, net in the accompanying consolidated statements of operations. The Company funded the purchase with cash on hand and from a $12.0 million mortgage loan. The mortgage loan matures on March 31, 2021 and bears interest at a fixed rate of 5.0% through November 30, 2020 and 6.5% from December 1, 2020 through March 31, 2021. The Company intends to refinance the loan prior to maturity and does not anticipate any challenges in refinancing given the Company’s relationship with third-party lenders and its past experience placing debt on its properties.
Battery Point Trust Inc. Acquisition
On July 1, 2020, the Company acquired, through its subsidiaries, Battery Point Trust Inc., a Maryland corporation (“Battery Point”). Battery Point is a real estate investment trust that owns 559 single-family rental homes throughout the Midwestern and Southeastern United States. All of these assets are held by the Company through its subsidiary, PORT OP LP (formerly known as Reven Housing REIT OP, L.P.), a Delaware limited partnership (“PORT OP”).
The Company acquired Battery Point by acquiring all the 1,000,000 outstanding shares of Battery Point common stock from BPT Holdings, LLC (“BPT Holdings”), a wholly owned subsidiary of the Advisor. The Advisor is the company’s external advisor and is owned and controlled by Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter M. McMillan, the Company’s President and Chairman of the Board. In exchange, BPT Holdings received 510,816 common equity units in PORT OP, approximately 4.5% of the outstanding common equity units. The value of the interests exchanged was estimated by the participants at approximately $3.0 million. As a result of the Battery Point acquisition, the Company’s 640,000 shares of Battery Point Series A-3 Preferred Units were eliminated in consolidation. The Company also assumed a $36.6 million mortgage loan and recorded this acquisition as an asset acquisition.
16
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 7: SUBSEQUENT EVENTS
Merger
On February 19, 2020, the Parent Company, Pacific Oak SOR II, LLC, an indirect subsidiary of the Company and the Parent Company (“Merger Sub”), and Pacific Oak Strategic Opportunity REIT II, Inc. (“POSOR II”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, POSOR II will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of the Parent Company. As a result of the Merger, POSOR II would cease to exist. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of POSOR II’s common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.9643 shares of the Parent Company’s common stock, par value $0.01 per share. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.” On October 5, 2020, pursuant to the Merger Agreement, POSOR II merged with and into Merger Sub, with Merger Sub surviving as an indirect subsidiary of the Company.
The Company acquired two hotel properties, three office properties, one apartment building, one consolidated joint venture to develop one office/retail property, two investments in real estate equity securities and two investments in joint ventures. Additionally, the Company assumed $331.8 million of loans related to the acquired properties. The Company is in process of assessing the fair value of the acquired tangible assets, liabilities assumed and any applicable intangible assets and liabilities for this business combination.
Dividend approval
On November 12, 2020, the Company’s board of directors approved a distribution of dividend in the amount of $14.3 million to the Owner.
- - - - - - - - - - - - - - - - - - -
17