Attached files
| file | filename |
|---|---|
| EX-99.3 - EX-99.3 - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksorbviq12021fins.htm |
| EX-99.2 - EX-99.2 - Pacific Oak Strategic Opportunity REIT, Inc. | pacoaksorbviq12021finsex992.htm |
| 8-K - 8-K - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksor-ifrsfinancia.htm |
Exhibit 99.1
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2021
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 | ||||
Consolidated Statements of Cash Flows | 6-8 | ||||
Notes to Interim Consolidated Financial Statements | 9-16 | ||||
- - - - - - - - - - - - - - - - - - -
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| March 31, | December 31, | ||||||||||||||||||||||
| 2021 | 2020 | 2020 | |||||||||||||||||||||
| Unaudited | Audited | ||||||||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||
| CURRENT ASSETS | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 96,481 | $ | 83,765 | $ | 59,387 | |||||||||||||||||
| Financial assets at fair value through profit or loss | 94,217 | — | 97,903 | ||||||||||||||||||||
| Rents and other receivables, net | 5,703 | 3,106 | 6,701 | ||||||||||||||||||||
| Prepaid expenses and other assets | 5,213 | 10,448 | 3,475 | ||||||||||||||||||||
| Restricted cash | 910 | 959 | 1,731 | ||||||||||||||||||||
| 202,524 | 98,278 | 169,197 | |||||||||||||||||||||
| NON-CURRENT ASSETS | |||||||||||||||||||||||
| Investment properties | 1,620,047 | 1,044,033 | 1,601,933 | ||||||||||||||||||||
| Property plant and equipment - hotels, net | 135,530 | — | 136,262 | ||||||||||||||||||||
| Goodwill | 16,342 | — | 16,342 | ||||||||||||||||||||
| Investment in joint ventures | 214,106 | 231,469 | 215,955 | ||||||||||||||||||||
| Financial assets at fair value through profit or loss | — | 78,014 | — | ||||||||||||||||||||
| Restricted cash | 16,461 | 10,018 | 12,253 | ||||||||||||||||||||
| 2,002,486 | 1,363,534 | 1,982,745 | |||||||||||||||||||||
| Total assets | $ | 2,205,010 | $ | 1,461,812 | $ | 2,151,942 | |||||||||||||||||
| LIABILITIES AND EQUITY | |||||||||||||||||||||||
| CURRENT LIABILITIES | |||||||||||||||||||||||
| Notes and bond payable, net | $ | 221,247 | $ | 30,788 | *) | $ | 111,447 | ||||||||||||||||
| Debentures, net | 95,465 | 54,688 | 60,399 | ||||||||||||||||||||
| Accounts payable and accrued liabilities | 17,690 | 12,008 | 23,054 | ||||||||||||||||||||
| Due to affiliates | 5,347 | 2,065 | 3,045 | ||||||||||||||||||||
| Distribution payable to Owner | 10,608 | — | 11,758 | ||||||||||||||||||||
| Other liabilities | 21,566 | 15,487 | 19,144 | ||||||||||||||||||||
| Lease obligation | 360 | — | 360 | ||||||||||||||||||||
| Series A Cumulative Convertible Redeemable Preferred Stock | 15,233 | — | — | ||||||||||||||||||||
| 387,516 | 115,036 | 229,207 | |||||||||||||||||||||
| LONG-TERM LIABILITIES | |||||||||||||||||||||||
| Notes and bond payable, net | 642,094 | 436,799 | *) | 730,665 | |||||||||||||||||||
| Debentures, net | 166,221 | 176,414 | 196,557 | ||||||||||||||||||||
| Lease obligation | 8,938 | — | 8,914 | ||||||||||||||||||||
| Rental security deposits | 5,782 | 4,316 | 5,719 | ||||||||||||||||||||
| Series A Cumulative Convertible Redeemable Preferred Stock | — | 15,233 | 15,233 | ||||||||||||||||||||
| 823,035 | 632,762 | 957,088 | |||||||||||||||||||||
| Total liabilities | 1,210,551 | 747,798 | 1,186,295 | ||||||||||||||||||||
| EQUITY | |||||||||||||||||||||||
| Owner's net equity | 959,482 | 698,203 | 929,770 | ||||||||||||||||||||
| Non-controlling interests | 34,977 | 15,811 | 35,877 | ||||||||||||||||||||
| Total equity | 994,459 | 714,014 | 965,647 | ||||||||||||||||||||
| Total liabilities and equity | $ | 2,205,010 | $ | 1,461,812 | $ | 2,151,942 | |||||||||||||||||
*) Retrospective application, see Note 2b.
The accompanying notes are an integral part of the interim consolidated financial statements.
May 6, 2021 | /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
| Three months ended March 31, | Year ended December 31, | |||||||||||||||||||
| 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||
| Rental income | $ | 30,175 | $ | 20,008 | $ | 93,107 | ||||||||||||||
| Tenant reimbursements | 3,270 | 2,532 | 10,171 | |||||||||||||||||
| Hotel revenues | 2,575 | — | 3,718 | |||||||||||||||||
| Other operating income | 553 | 547 | 1,927 | |||||||||||||||||
| Total revenues and other income | 36,573 | 23,087 | 108,923 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Operating, maintenance, and management fees | (11,182) | (7,767) | (36,091) | |||||||||||||||||
| Real estate taxes and insurance | (5,289) | (3,428) | (15,702) | |||||||||||||||||
| Hotel expenses | (3,390) | — | (3,836) | |||||||||||||||||
| Total expenses | (19,861) | (11,195) | (55,629) | |||||||||||||||||
| Gross profit | 16,712 | 11,892 | 53,294 | |||||||||||||||||
| Fair value adjustment of investment properties, net | 8,634 | (22,715) | (24,214) | |||||||||||||||||
| Depreciation | (738) | — | (832) | |||||||||||||||||
| Equity in (loss) income of unconsolidated joint ventures | (3,059) | 1,302 | (29,593) | |||||||||||||||||
| Asset management fees to affiliate | (3,852) | (2,106) | (9,982) | |||||||||||||||||
| General and administrative expenses | (639) | (573) | (3,590) | |||||||||||||||||
| Operating profit (loss) | 17,058 | (12,200) | (14,917) | |||||||||||||||||
| Transaction and related costs | — | — | (6,018) | |||||||||||||||||
| Finance income | 45 | 242 | 318 | |||||||||||||||||
| Finance income (loss) from financial assets at fair value through profit or loss | 13,506 | (24,923) | (6,435) | |||||||||||||||||
| Finance expenses | (10,163) | (7,161) | (30,126) | |||||||||||||||||
| Gain on extinguishment of debt | — | — | 415 | |||||||||||||||||
| Foreign currency transaction adjustments, net | 8,346 | 14,996 | (2,912) | |||||||||||||||||
| Net income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | ||||||||||||||
| Net income (loss) attributable to owner | $ | 29,712 | $ | (28,651) | $ | (63,293) | ||||||||||||||
| Net (loss) income attributable to non-controlling interests | (920) | (395) | 3,618 | |||||||||||||||||
| Net income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | ||||||||||||||
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
| Three months ended March 31, | Year ended December 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | |||||||||||||||
| Unaudited | Audited | ||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||
| Net income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | |||||||||||
| Total comprehensive income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | |||||||||||
Total comprehensive income (loss) attributable to owner | $ | 29,712 | $ | (28,651) | $ | (63,293) | |||||||||||
Total comprehensive (loss) income attributable to non-controlling interests | (920) | (395) | 3,618 | ||||||||||||||
| Total comprehensive income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | |||||||||||
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, 2021 | $ | 693,554 | $ | 194,585 | $ | 41,631 | $ | 929,770 | $ | 35,877 | $ | 965,647 | ||||||||||||||||||||||||||
| Net income (loss) | — | 29,712 | — | 29,712 | (920) | 28,792 | ||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | 29,712 | — | 29,712 | (920) | 28,792 | ||||||||||||||||||||||||||||||||
Non-controlling interest contributions | — | — | — | — | 20 | 20 | ||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | 693,554 | $ | 224,297 | $ | 41,631 | $ | 959,482 | $ | 34,977 | $ | 994,459 | ||||||||||||||||||||||||||
| Owner contributions (distributions) | Retained earnings | Paid-in Capital resulting from transactions with non-controlling interests | Owner's net equity | Non-controlling interests | Total equity | |||||||||||||||||||||||||||||||||
| 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 | — | (28,651) | — | (28,651) | (395) | (29,046) | ||||||||||||||||||||||||||||||||
Total comprehensive loss | — | (28,651) | — | (28,651) | (395) | (29,046) | ||||||||||||||||||||||||||||||||
Non-controlling interest contributions | — | — | — | — | 112 | 112 | ||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | $ | 413,087 | $ | 243,485 | $ | 41,631 | $ | 698,203 | $ | 15,811 | $ | 714,014 | ||||||||||||||||||||||||||
| 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, 2020 | $ | 413,087 | $ | 272,136 | $ | 41,631 | $ | 726,854 | $ | 16,094 | $ | 742,948 | ||||||||||||||||||||||||||
| Net (loss) income | — | (63,293) | — | (63,293) | 3,618 | (59,675) | ||||||||||||||||||||||||||||||||
| Total comprehensive (loss) income | — | (63,293) | — | (63,293) | 3,618 | (59,675) | ||||||||||||||||||||||||||||||||
| Contributions from Owner | 280,467 | — | — | 280,467 | 12,325 | 292,792 | ||||||||||||||||||||||||||||||||
| Dividends declared to Owner | — | (14,258) | — | (14,258) | — | (14,258) | ||||||||||||||||||||||||||||||||
| Non-controlling interests contributions | — | — | — | — | 3,868 | 3,868 | ||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests | — | — | — | — | (28) | (28) | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 693,554 | $ | 194,585 | $ | 41,631 | $ | 929,770 | $ | 35,877 | $ | 965,647 | ||||||||||||||||||||||||||
The accompanying notes are an integral part of the interim consolidated financial statements.
5
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three months ended March 31, | Year ended December 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | |||||||||||||||
| Unaudited | Audited | ||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||
| Cash Flows from Operating Activities: | |||||||||||||||||
Net income (loss) | $ | 28,792 | $ | (29,046) | $ | (59,675) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
Equity in loss (income) of unconsolidated joint ventures | 3,059 | (1,302) | 29,593 | ||||||||||||||
Fair value adjustment on investment properties, net | (8,634) | 22,715 | 24,214 | ||||||||||||||
| Depreciation | 738 | — | 832 | ||||||||||||||
Transaction and related costs | — | — | 6,018 | ||||||||||||||
Loss on extinguishment of debt | — | — | (415) | ||||||||||||||
Deferred rent | (1,211) | (971) | (3,918) | ||||||||||||||
Bad debt expense | 750 | 198 | 2,306 | ||||||||||||||
Financing expense | 10,187 | 7,161 | 30,142 | ||||||||||||||
Financing income | (45) | (242) | (318) | ||||||||||||||
Finance (income) loss from financial assets at fair value through profit or loss | (13,506) | 24,923 | 6,435 | ||||||||||||||
Foreign currency transaction (gain) loss, net | (8,346) | (14,996) | 2,912 | ||||||||||||||
| 11,784 | 8,440 | 38,126 | |||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||
Restricted cash | 792 | (139) | 690 | ||||||||||||||
Rents and other receivables | 57 | (213) | (3,264) | ||||||||||||||
Prepaid expenses and other assets | (1,733) | (832) | 637 | ||||||||||||||
Accounts payable and accrued liabilities | (3,756) | (2,225) | (3,128) | ||||||||||||||
Rental security deposits | 63 | (29) | (93) | ||||||||||||||
| Due to Owner | 2,252 | 1,966 | 201 | ||||||||||||||
Other liabilities | 55 | 827 | 650 | ||||||||||||||
Lease incentive additions | (484) | (667) | (2,014) | ||||||||||||||
| (2,754) | (1,312) | (6,321) | |||||||||||||||
| Net cash provided by operating activities | 9,030 | 7,128 | 31,805 | ||||||||||||||
| Cash Flows from Investing Activities: | |||||||||||||||||
| Acquisitions of investment properties | (2,037) | — | (19,312) | ||||||||||||||
| Acquisition of BPT *) | — | — | 403 | ||||||||||||||
| POSOR II merger **) | — | — | 3,717 | ||||||||||||||
| Improvements to investment properties | (4,789) | (8,667) | (25,048) | ||||||||||||||
| Proceeds from sales of investment properties, net | 166 | — | 332 | ||||||||||||||
| Additions to property plant and equipment - hotels | (6) | — | (94) | ||||||||||||||
| Investment in unconsolidated joint venture | (1,180) | (231) | (12,620) | ||||||||||||||
| Investments in financial assets at fair value through profit or loss, net | — | (16,789) | (35,971) | ||||||||||||||
| Distribution from financial assets at fair value through profit or loss, net | — | 1,225 | 1,370 | ||||||||||||||
Proceeds from the sale of investments in financial assets at fair value through profit or loss, net | 14,439 | 7,849 | 10,964 | ||||||||||||||
| Purchase of interest rate cap | (18) | (6) | (16) | ||||||||||||||
| Proceeds from disposition of foreign currency collars | — | — | 14,125 | ||||||||||||||
| Interest income received | 46 | 209 | 316 | ||||||||||||||
| Dividend income received from financial assets at fair value through profit or loss | 2,943 | 1,473 | 6,214 | ||||||||||||||
| Restricted cash deposited for capital expenditures | (4,067) | — | — | ||||||||||||||
| Net cash provided by (used in) investing activities | 5,497 | (14,937) | (55,620) | ||||||||||||||
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
| Three months ended March 31, | Year ended December 31, | ||||||||||||||||
| 2021 | 2020 | 2020 | |||||||||||||||
| Unaudited | Audited | ||||||||||||||||
| U.S. dollars in thousands | |||||||||||||||||
| Cash Flows from Financing Activities: | |||||||||||||||||
| Proceeds from debentures, notes and bonds payable | $ | 97,125 | $ | 89,893 | $ | 112,480 | |||||||||||
| Principal payments on notes and bond payable | (61,300) | (56,820) | (70,649) | ||||||||||||||
| Payments of deferred financing costs | (1,054) | (2,302) | (2,570) | ||||||||||||||
| Interest paid | (11,448) | (8,323) | (24,528) | ||||||||||||||
| (Contribution) release of restricted cash for debt service obligations | (358) | 1,011 | 1,011 | ||||||||||||||
| Non-controlling interests contributions | 20 | 112 | 844 | ||||||||||||||
| Distributions to non-controlling interests | — | — | (28) | ||||||||||||||
| Dividends to Owner | (1,150) | — | (2,500) | ||||||||||||||
| Other financing proceeds, net | 2,367 | — | — | ||||||||||||||
| Net cash provided by financing activities | 24,202 | 23,571 | 14,060 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,635) | (375) | 764 | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 37,094 | 15,387 | (8,991) | ||||||||||||||
| Cash and cash equivalents, beginning of period | 59,387 | 68,378 | 68,378 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 96,481 | $ | 83,765 | $ | 59,387 | |||||||||||
Supplemental Disclosure of Noncash Activities: | |||||||||||||||||
Accrual improvements to real estate | $ | 3,906 | $ | 2,699 | $ | 2,733 | |||||||||||
Distribution payable to Owner | $ | 10,608 | $ | — | $ | 11,758 | |||||||||||
*) Assets and liabilities assumed or eliminated in connection with Battery Point Trust acquisition:
| Rents and other receivables | $ | — | $ | — | $ | 17 | |||||||||||
| Prepaid expenses and other assets | — | — | 4 | ||||||||||||||
| Investment property | — | — | 56,148 | ||||||||||||||
| Financial assets at fair value through profit or loss | — | — | (16,000) | ||||||||||||||
| Notes payable | — | — | (36,003) | ||||||||||||||
| Accounts payable and accrued liabilities | — | — | (344) | ||||||||||||||
| Due to Owner | — | — | (721) | ||||||||||||||
| Other liabilities | — | — | (480) | ||||||||||||||
| Non-controlling interests | — | — | (3,024) | ||||||||||||||
| Cash assumed in connection with Battery Point Trust acquisition | $ | — | $ | — | $ | (403) | |||||||||||
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
**) Assets and liabilities assumed in connection with POSOR II merger:
| Rents and other receivables | $ | — | $ | — | $ | 2,567 | |||||||||||
| Prepaid expenses and other assets | — | — | 3,341 | ||||||||||||||
| Investment property | — | — | 465,908 | ||||||||||||||
| Property plant and equipment - hotels, net | — | — | 137,000 | ||||||||||||||
| Investment in joint ventures | — | — | 3,150 | ||||||||||||||
| Financial assets at fair value through profit or loss | — | — | 6,271 | ||||||||||||||
| Restricted cash | — | — | 3,243 | ||||||||||||||
| Goodwill | — | — | 16,342 | ||||||||||||||
| Notes payable | — | — | (328,203) | ||||||||||||||
| Accounts payable and accrued liabilities | — | — | (9,926) | ||||||||||||||
| Due to Owner | — | — | (2,123) | ||||||||||||||
| Lease obligation | — | — | (9,258) | ||||||||||||||
| Other liabilities | — | — | (3,788) | ||||||||||||||
| Rental security deposits | — | — | (1,467) | ||||||||||||||
| Owner's net equity | — | — | (280,467) | ||||||||||||||
| Non-controlling interests | — | — | (12,325) | ||||||||||||||
| Transaction and related costs | — | — | 6,018 | ||||||||||||||
| Cash assumed in connection with POSOR II merger | $ | — | $ | — | $ | (3,717) | |||||||||||
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 March 31, 2021 and for the three months period then ended ("interim condensed financial statements"). These interim condensed financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2020 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 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. The Company started recognizing three reporting segments beginning October 2020 consisting of strategic opportunistic properties, single-family homes and hotels.
c. The recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally will lead to a world-wide economic downturn. Customers and potential customers of the properties we own could be adversely affected by the disruption to business caused by the global outbreak of the Coronavirus. This could lead to similar negative impacts on our business. The Company's March 2021 rents were over 93% collected.
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 $147.8 million as of March 31, 2020 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.
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):
| March 31, | December 31, | |||||||||||||||||||
| 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Current assets | $ | 17,211 | $ | 11,557 | $ | 16,914 | ||||||||||||||
| Non-current assets (investment property) | 504,268 | 548,287 | 503,559 | |||||||||||||||||
| Current liabilities | 3,101 | 8,332 | 4,024 | |||||||||||||||||
| Non-current liabilities | 318,662 | 301,667 | 316,827 | |||||||||||||||||
| Equity | 199,716 | 249,845 | 199,622 | |||||||||||||||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 104,309 | $ | 125,196 | $ | 103,835 | ||||||||||||||
| Three months ended March 31, | Year ended December 31, | |||||||||||||||||||
| 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Revenues | $ | 8,024 | $ | 7,934 | $ | 36,304 | ||||||||||||||
| Gross profit | 3,978 | 3,805 | 20,691 | |||||||||||||||||
| Operating profit (loss) *) | 3,978 | 3,665 | (34,274) | |||||||||||||||||
| Net income (loss) *) | 94 | (240) | (50,464) | |||||||||||||||||
Share of profit (loss) from joint venture (Based on the waterfall mechanism) | 474 | 276 | (21,085) | |||||||||||||||||
| *) Includes revaluation of investment properties | $ | — | $ | (140) | $ | (54,965) | ||||||||||||||
(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):
| March 31, | December 31, | |||||||||||||||||||
| 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Current assets | $ | 9,769 | $ | 5,664 | $ | 7,484 | ||||||||||||||
| Non-current assets (investment property) | 242,800 | 269,665 | 250,600 | |||||||||||||||||
| Current liabilities | 113,058 | 3,655 | *) | 113,228 | ||||||||||||||||
| Non-current liabilities | 1,754 | 117,448 | *) | 1,754 | ||||||||||||||||
| Equity | 137,757 | 154,226 | 143,102 | |||||||||||||||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 79,714 | $ | 85,195 | $ | 82,119 | ||||||||||||||
*) As a result of the early adoption of the IAS 1 amendment, applied retrospectively, resulted in the reclassification of $115.4 million as of March 31, 2020 for the 353 Sacramento Street Mortgage Loan from current liabilities to long term liabilities.
| Three months ended March 31, | Year ended December 31, | |||||||||||||||||||
| 2021 | 2020 | 2020 | ||||||||||||||||||
| Unaudited | Audited | |||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Revenues | $ | 5,228 | $ | 4,752 | $ | 20,282 | ||||||||||||||
| Gross profit | 2,937 | 3,319 | 13,909 | |||||||||||||||||
| Operating (loss) profit *) | (5,376) | 3,122 | (10,539) | |||||||||||||||||
| Net (loss) profit *) | (6,245) | 1,800 | (14,827) | |||||||||||||||||
| Share of (loss) profit from joint venture (Based on the waterfall mechanism) | (3,305) | 1,025 | (7,551) | |||||||||||||||||
| *) Includes revaluation of investment properties | $ | (8,313) | $ | (197) | $ | (24,448) | ||||||||||||||
(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 March 31, 2021 is not materially different from its fair value as presented in the annual consolidated financial statements as of December 31, 2020. The fair value of the debentures payable as of March 31, 2021 was approximately $264.1 million (882.6 million NIS).
As of March 31, 2021, the Company had a working capital shortfall amounting to $185.0 million, primarily attributed to loans maturing in the year following the date of the statement of financial position. The Company intends to refinance loans as they come due and does not anticipate any challenges in refinancing such loans given the relatively low leverage of the Company’s properties, the Company’s relationship with third-party lenders and its past experience placing debt on its properties. Accordingly, the Company does not view the working capital shortfall as a liquidity problem. See note 7, subsequent events - notes payable refinancing, for more information.
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 Company started recognizing three reporting segments beginning October 2020 consisting of strategic opportunistic properties, single-family homes and hotels. The selected financial information for the reporting segments as of and for the three months ended March 31, 2021 and 2020 and as of and the year ended December 31, 2019 is as follows (in thousands):
March 31, 2021 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Investment properties | $ | 1,399,290 | $ | 220,757 | $ | — | $ | 1,620,047 | ||||||||||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 135,530 | $ | 135,530 | ||||||||||||||||||
| Total assets | $ | 1,824,951 | $ | 233,192 | $ | 146,867 | $ | 2,205,010 | ||||||||||||||||||
| Total liabilities | $ | 992,557 | $ | 130,278 | $ | 87,716 | $ | 1,210,551 | ||||||||||||||||||
Three months ended March 31, 2021 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 28,526 | $ | 5,472 | $ | 2,575 | $ | 36,573 | ||||||||||||||||||
| Gross profit (loss) | $ | 14,962 | $ | 2,565 | $ | (815) | $ | 16,712 | ||||||||||||||||||
| Finance expenses | $ | 7,117 | $ | 1,566 | $ | 1,480 | $ | 10,163 | ||||||||||||||||||
13
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
March 31, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Investment properties | $ | 933,556 | $ | 110,477 | $ | — | $ | 1,044,033 | ||||||||||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Total assets | $ | 1,342,108 | $ | 119,704 | $ | — | $ | 1,461,812 | ||||||||||||||||||
| Total liabilities | $ | 667,259 | $ | 80,539 | $ | — | $ | 747,798 | ||||||||||||||||||
Three months ended March 31, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 20,180 | $ | 2,907 | $ | — | $ | 23,087 | ||||||||||||||||||
| Gross profit | $ | 10,651 | $ | 1,241 | $ | — | $ | 11,892 | ||||||||||||||||||
| Finance expenses | $ | 6,055 | $ | 1,106 | $ | — | $ | 7,161 | ||||||||||||||||||
December 31, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Investment properties | $ | 1,383,802 | $ | 218,131 | $ | — | $ | 1,601,933 | ||||||||||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 136,262 | $ | 136,262 | ||||||||||||||||||
| Total assets | $ | 1,772,688 | $ | 228,408 | $ | 150,846 | $ | 2,151,942 | ||||||||||||||||||
| Total liabilities | $ | 962,118 | $ | 130,957 | $ | 93,220 | $ | 1,186,295 | ||||||||||||||||||
Year ended December 31, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 88,188 | $ | 17,017 | $ | 3,718 | $ | 108,923 | ||||||||||||||||||
| Gross profit (loss) | $ | 45,195 | $ | 8,217 | $ | (118) | $ | 53,294 | ||||||||||||||||||
| Finance expenses | $ | 23,450 | $ | 5,171 | $ | 1,505 | $ | 30,126 | ||||||||||||||||||
14
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
Series A Debentures
On March 1, 2021, the Company paid the third principal installment payment of 194.0 million Israeli new Shekels (approximately $58.9 million as of March 1, 2021).
On March 4, 2021 the Company issued debentures (series A) in the amount of 250.0 million NIS par value through a private placement. The debentures were issued at a 1.9% discount resulting in total consideration of 245.3 million NIS ($74.2 million as of March 4, 2021). The additional debentures shall have an equal level of security, pari passu, amongst themselves and between them and the debentures (Series A), which were initially issued, without any right of precedence or preference between any of them.
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 was 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 March 31, 2021, the Company was in compliance with all covenants under the deed of trust of the Series B Debentures; (i) Consolidated Equity Capital of the Company as of March 31, 2021 was $959.5 million; (ii) the Net Adjusted Debt to Net Adjusted Cap was 54%; (iii) the Adjusted NOI was $84.7 million for the trailing twelve months ended March 31, 2021; and (iv) the consolidated scope of projects was $0 as of March 31, 2021.
15
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Notes Payable Refinancing
On April 6, 2021, the Company refinanced the PORT Mortgage Loan 3 and the Battery Point Trust Mortgage Loan with a mortgage loan from unaffiliated lenders (the “Refinancing”) for borrowings up to $60.0 million. At closing, $51.4 million of the loan was funded and the remaining $8.6 million was available for future disbursements , subject to certain terms and conditions contained in the loan documents. The Refinancing is interest only with an annual fixed rate of 3.90% and has a maturity date of April 10, 2026. In connection with the execution of the Refinancing, Pacific Oak SOR Equity Holdings X LLC, a wholly owned subsidiary, is providing an unconditional guarantee and will be held liable, as a primary obligor for the Company’s obligations under the Refinancing.
Subsequent Acquisitions
On April 6, 2021, the Company, through a wholly owned subsidiary of PORT OP, acquired a single-family home portfolio consisting of 23 homes in multiple states for $2.0 million. The portfolio was purchased from DayMark Master Trust, an entity affiliated with the Advisor.
- - - - - - - - - - - - - - - - - - -
16