Exhibit 99.1
PACIFIC OAK SOR (BVI) HOLDINGS, LTD.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2022
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
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| Page |
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| Consolidated Statements of Financial Position | 2 |
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| Consolidated Statements of Profit or Loss | 3 |
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| Consolidated Statements of Equity | 4-6 |
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| Consolidated Statements of Cash Flows | 6-7 |
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| Notes to Interim Consolidated Financial Statements | 8-14 |
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PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, | | | December 31, |
| | 2022 | | 2021 | | | 2021 |
| | Unaudited | | | Audited |
| | U.S. dollars in thousands |
| ASSETS | | | | | | | |
| CURRENT ASSETS | | | | | | | |
| Cash and cash equivalents | | $ | 98,439 | | $ | 126,382 | | | $ | 83,215 |
| Financial assets at fair value through profit or loss | | 84,504 | | 99,017 | | | 112,096 |
| Rents and other receivables, net | | 6,209 | | 6,203 | | | 5,493 |
| Prepaid expenses and other assets | | 4,368 | | 3,567 | | | 4,575 |
| Due from affiliate | | 1,792 | | — | | | | 7,039 |
| Restricted cash | | 25,410 | | 2,556 | | | 2,446 |
| | 220,722 | | 237,725 | | | 214,864 |
| Investment property held for sale | | — | | 150,500 | | | — |
| | 220,722 | | 388,225 | | | 214,864 |
| NON-CURRENT ASSETS | | | | | | | |
| Investment properties | | 1,554,783 | | 1,414,888 | | | 1,524,989 |
| Property plant and equipment - hotels, net | | 132,014 | | 134,770 | | | 133,512 |
| Goodwill | | 13,534 | | 16,342 | | | 13,534 |
| Investment in joint ventures | | 247,957 | | 216,995 | | | 208,879 |
| Restricted cash | | 36,996 | | 23,229 | | | 18,812 |
| | 1,985,284 | | 1,806,224 | | | 1,899,726 |
| Total assets | | $ | 2,206,006 | | $ | 2,194,449 | | | $ | 2,114,590 |
| LIABILITIES AND EQUITY | | | | | | | |
| CURRENT LIABILITIES | | | | | | | |
| Notes payable, net | | $ | 225,265 | | $ | 145,565 | | | $ | 223,350 |
| Debentures, net | | — | | 97,864 | | | — |
| Accounts payable and accrued liabilities | | 23,080 | | 25,057 | | | 22,666 |
| Due to affiliates | | 12,519 | | 1,477 | | | 2,079 |
| | | | | | | |
| Other liabilities | | 17,148 | | 30,086 | | | 25,756 |
| Lease obligation | | 360 | | 360 | | | 360 |
| Series A Cumulative Convertible Redeemable Preferred Stock | | 15,233 | | 15,233 | | | 15,233 |
| | 293,605 | | 315,642 | | | 289,444 |
| Note payable related to property held for sale, net | | — | | 98,066 | | | — |
| | 293,605 | | 413,708 | | | 289,444 |
| LONG-TERM LIABILITIES | | | | | | | |
| Notes payable, net | | 499,128 | | 609,464 | | | 516,826 |
| Debentures, net | | 315,634 | | 171,197 | | | 258,773 |
| Lease obligation | | 9,043 | | 8,958 | | | 9,000 |
| Rental security deposits | | 6,057 | | 6,810 | | | 5,895 |
| Other liabilities | | 17,000 | | — | | | — |
| | 846,862 | | 796,429 | | | 790,494 |
| Total liabilities | | 1,140,467 | | 1,210,137 | | | 1,079,938 |
| EQUITY | | | | | | | |
| Owner's net equity | | 1,042,725 | | 949,057 | | | 1,008,076 |
| Non-controlling interests | | 22,814 | | 35,255 | | | 26,576 |
| Total equity | | 1,065,539 | | 984,312 | | | 1,034,652 |
| Total liabilities and equity | | $ | 2,206,006 | | $ | 2,194,449 | | | $ | 2,114,590 |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | Three months ended June 30, | | Year ended
December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2021 |
| | Unaudited | | Audited |
| | U.S. dollars in thousands |
| Revenues and other income: | | | | | | | | | | |
| Rental income | | $ | 53,710 | | | $ | 60,521 | | | $ | 26,751 | | | $ | 30,346 | | | $ | 115,037 | |
| Tenant reimbursements | | 6,204 | | | 6,705 | | | 3,035 | | | 3,435 | | | 12,323 | |
| Hotel revenues | | 18,771 | | | 12,424 | | | 12,854 | | | 9,849 | | | 30,806 | |
| Other operating income | | 817 | | | 1,173 | | | 420 | | | 620 | | | 1,937 | |
| Total revenues and other income | | 79,502 | | | 80,823 | | | 43,060 | | | 44,250 | | | 160,103 | |
| | | | | | | | | | |
| Expenses: | | | | | | | | | | |
| Operating, maintenance, and management fees | | (21,444) | | | (22,471) | | | (10,971) | | | (11,289) | | | (45,833) | |
| Real estate taxes and insurance | | (10,103) | | | (10,688) | | | (5,079) | | | (5,399) | | | (20,768) | |
| Hotel expenses | | (12,109) | | | (9,231) | | | (6,998) | | | (5,841) | | | (20,990) | |
| Total expenses | | (43,656) | | | (42,390) | | | (23,048) | | | (22,529) | | | (87,591) | |
| Gross profit | | 35,846 | | | 38,433 | | | 20,012 | | | 21,721 | | | 72,512 | |
| | | | | | | | | | |
| Fair value adjustment of investment properties, net | | 27,455 | | | (6,822) | | | 17,318 | | | (15,456) | | | 87,999 | |
| Depreciation | | (1,587) | | | (1,525) | | | (797) | | | (787) | | | (3,102) | |
| Equity in income (loss) of unconsolidated joint ventures | | 17,147 | | | (3,002) | | | 18,303 | | | 57 | | | (17,631) | |
| Asset management fees to affiliate | | (6,315) | | | (7,380) | | | (3,188) | | | (3,528) | | | (14,012) | |
| Impairment charges on goodwill | | — | | | — | | | — | | | — | | | (2,808) | |
| General and administrative expenses | | (2,914) | | | (2,134) | | | (1,578) | | | (1,495) | | | (4,777) | |
| Operating profit | | 69,632 | | | 17,570 | | | 50,070 | | | 512 | | | 118,181 | |
| | | | | | | | | | |
| Transaction and related costs | | (108) | | | — | | | — | | | — | | | (397) | |
| Finance income | | 94 | | | 94 | | | 48 | | | 49 | | | 194 | |
| Finance (loss) income from financial assets at fair value through profit or (loss) | | (24,416) | | | 19,058 | | | (19,282) | | | 5,552 | | | 38,289 | |
| Finance expenses | | (21,061) | | | (21,072) | | | (11,307) | | | (10,909) | | | (41,422) | |
| Gain (loss) on extinguishment of debt | | 2,367 | | | 13 | | | — | | | 13 | | | (4,757) | |
| Foreign currency transaction adjustments, net | | 31,097 | | | 2,839 | | | 23,832 | | | (5,507) | | | (7,445) | |
| Net income (loss) | | $ | 57,605 | | | $ | 18,502 | | | $ | 43,361 | | | $ | (10,290) | | | $ | 102,643 | |
| | | | | | | | | | |
| Net income (loss) attributable to owner | | $ | 54,649 | | | $ | 19,287 | | | $ | 41,373 | | | $ | (10,425) | | | $ | 106,863 | |
| Net income (loss) attributable to non-controlling interests | | 2,956 | | | (785) | | | 1,988 | | | 135 | | | (4,220) | |
| Net income (loss) | | $ | 57,605 | | | $ | 18,502 | | | $ | 43,361 | | | $ | (10,290) | | | $ | 102,643 | |
| Total comprehensive income | | $ | 57,605 | | | $ | 18,502 | | | $ | 43,361 | | | $ | (10,290) | | | $ | 102,643 | |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Owner contributions (distributions) | | Retained earnings | | Paid-in Capital resulting from transactions with non-controlling interests | | Owner's net equity | | Non-controlling interests | | Total equity |
| | Unaudited |
| | U.S. dollars in thousands |
| Balance at January 1, 2022 | | $ | 693,554 | | | $ | 271,448 | | | $ | 43,074 | | | $ | 1,008,076 | | | $ | 26,576 | | | $ | 1,034,652 | |
| Net income | | — | | | 54,649 | | | — | | | 54,649 | | | 2,956 | | | 57,605 | |
| Total comprehensive income | | — | | | 54,649 | | | — | | | 54,649 | | | 2,956 | | | 57,605 | |
| | | | | | | | | | | | |
| Distribution declared to Owner | | — | | | (20,000) | | | — | | | (20,000) | | | — | | | (20,000) | |
| Reclassification of redeemable non-controlling interest to liability | | — | | | — | | | — | | | — | | | (6,687) | | | (6,687) | |
| Non-controlling interest distribution | | — | | | — | | | — | | | — | | | (31) | | | (31) | |
| Balance at June 30, 2022 | | $ | 693,554 | | | $ | 306,097 | | | $ | 43,074 | | | $ | 1,042,725 | | | $ | 22,814 | | | $ | 1,065,539 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) | | — | | | 19,287 | | | — | | | 19,287 | | | (785) | | | 18,502 | |
| Total comprehensive income (loss) | | — | | | 19,287 | | | — | | | 19,287 | | | (785) | | | 18,502 | |
| Non-controlling interest contributions | | — | | | — | | | — | | | — | | | 163 | | | 163 | |
| Balance at June 30, 2021 | | $ | 693,554 | | | $ | 213,872 | | | $ | 41,631 | | | $ | 949,057 | | | $ | 35,255 | | | $ | 984,312 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 April 1, 2022 | | $ | 693,554 | | | $ | 264,724 | | | $ | 43,074 | | | $ | 1,001,352 | | | $ | 27,544 | | | $ | 1,028,896 | |
| Net income | | — | | | 41,373 | | | — | | | 41,373 | | | 1,988 | | | 43,361 | |
| Total comprehensive income | | — | | | 41,373 | | | — | | | 41,373 | | | 1,988 | | | 43,361 | |
| | | | | | | | | | | | |
| Reclassification of redeemable non-controlling interest to liability | | — | | | — | | | — | | | — | | | (6,687) | | | (6,687) | |
| Non-controlling interest distribution | | — | | | — | | | — | | | — | | | (31) | | | (31) | |
| Balance at June 30, 2022 | | $ | 693,554 | | | $ | 306,097 | | | $ | 43,074 | | | $ | 1,042,725 | | | $ | 22,814 | | | $ | 1,065,539 | |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Owner contributions (distributions) | | Retained earnings | | Paid-in Capital resulting from transactions with non-controlling interests | | Owner's net equity | | Non-controlling interests | | Total equity |
| | Unaudited |
| | U.S. dollars in thousands |
| Balance at April 1, 2021 | | $ | 693,554 | | | $ | 224,297 | | | $ | 41,631 | | | $ | 959,482 | | | $ | 34,977 | | | $ | 994,459 | |
| Net (loss) income | | — | | | (10,425) | | | — | | | (10,425) | | | 135 | | | (10,290) | |
| Total comprehensive (loss) income | | — | | | (10,425) | | | — | | | (10,425) | | | 135 | | | (10,290) | |
| Non-controlling interest contributions | | — | | | — | | | — | | | — | | | 143 | | | 143 | |
| Balance at June 30, 2021 | | $ | 693,554 | | | $ | 213,872 | | | $ | 41,631 | | | $ | 949,057 | | | $ | 35,255 | | | $ | 984,312 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 December 31, 2020 | | $ | 693,554 | | | $ | 194,585 | | | $ | 41,631 | | | $ | 929,770 | | | $ | 35,877 | | | $ | 965,647 | |
| Net income (loss) | | — | | | 106,863 | | | — | | | 106,863 | | | (4,220) | | | 102,643 | |
| Total comprehensive income (loss) | | — | | | 106,863 | | | — | | | 106,863 | | | (4,220) | | | 102,643 | |
| Distribution to Owner | | — | | | (30,000) | | | — | | | (30,000) | | | — | | | (30,000) | |
| Non-controlling interests contributions | | — | | | — | | | — | | | — | | | 183 | | | 183 | |
| Non-controlling interests buyout | | — | | | — | | | 1,443 | | | 1,443 | | | (5,264) | | | (3,821) | |
| Balance at December 31, 2021 | | $ | 693,554 | | | $ | 271,448 | | | $ | 43,074 | | | $ | 1,008,076 | | | $ | 26,576 | | | $ | 1,034,652 | |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | Three months ended June 30, | | Year ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2021 |
| | Unaudited | | Audited |
| | U.S. dollars in thousands |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net income (loss) | | $ | 57,605 | | | $ | 18,502 | | | $ | 43,361 | | | $ | (10,290) | | | $ | 102,643 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | |
| Equity in (income) loss of unconsolidated joint ventures | | (17,147) | | | 3,002 | | | (18,303) | | | (57) | | | 17,631 | |
| Fair value adjustment on investment properties, net | | (27,455) | | | 6,822 | | | (17,318) | | | 15,456 | | | (87,999) | |
| Depreciation | | 1,587 | | | 1,525 | | | 797 | | | 787 | | | 3,102 | |
| Impairment charges on goodwill | | — | | | — | | | — | | | — | | | 2,808 | |
| Transaction and related costs | | 108 | | | — | | | — | | | — | | | 397 | |
| (Gain) loss on extinguishment of debt | | (2,367) | | | (13) | | | — | | | (13) | | | 4,757 | |
| Deferred rent | | (1,501) | | | (1,378) | | | (450) | | | (167) | | | (2,230) | |
| Credit loss on financial assets | | 1,227 | | | 1,697 | | | 630 | | | 947 | | | 3,317 | |
| Financing expense | | 21,061 | | | 21,072 | | | 11,307 | | | 10,885 | | | 41,422 | |
| Financing income | | (94) | | | (94) | | | (48) | | | (49) | | | (194) | |
| Finance loss (income) from financial assets at fair value through profit or loss | | 24,416 | | | (19,058) | | | 19,282 | | | (5,552) | | | (38,289) | |
| Foreign currency transaction (gain) loss, net | | (31,097) | | | (2,839) | | | (23,832) | | | 5,507 | | | 7,445 | |
| | 26,343 | | 29,238 | | 15,426 | | 17,454 | | 54,810 | |
| Changes in assets and liabilities: | | | | | | | | | | |
| Restricted cash | | (3,688) | | | (1,274) | | | (1,352) | | | (2,066) | | | (885) | |
| Rents and other receivables | | (3,941) | | | (1,383) | | | (3,351) | | | (1,440) | | | (80) | |
| Prepaid expenses and other assets | | 592 | | | (65) | | | 1,965 | | | 1,668 | | | (1,068) | |
| Accounts payable and accrued liabilities | | 695 | | | (1,431) | | | 1,333 | | | 2,325 | | | (646) | |
| Rental security deposits | | 162 | | | 1,091 | | | (727) | | | 1,028 | | | 176 | |
| Due to affiliates | | 3,753 | | | (1,604) | | | 1,774 | | | (3,856) | | | (966) | |
| Other liabilities | | (2,216) | | | (522) | | | 699 | | | (577) | | | 635 | |
| Lease incentive additions | | 127 | | | 900 | | | (55) | | | 1,384 | | | 1,014 | |
| | (4,516) | | | (4,288) | | | 286 | | | (1,534) | | | (1,820) | |
| Net cash provided by operating activities | | 21,827 | | | 24,950 | | | 15,712 | | | 15,920 | | | 52,990 | |
| Cash Flows from Investing Activities: | | | | | | | | | | |
| Acquisitions of investment properties | | — | | | (4,117) | | | — | | | (2,080) | | | (4,818) | |
| Improvements to investment properties | | (11,353) | | | (9,256) | | | (5,100) | | | (4,467) | | | (21,705) | |
| Proceeds from sales of investment properties, net | | 9,528 | | | 49,662 | | | 60 | | | 49,496 | | | 194,711 | |
| Additions to property plant and equipment - hotels | | (89) | | | (33) | | | (32) | | | (27) | | | (352) | |
| Investment in unconsolidated joint venture, net | | (21,931) | | | (4,026) | | | (20,431) | | | (2,846) | | | (10,555) | |
| Proceeds from the sale of investments in financial assets at fair value through profit or loss, net | | — | | | 14,439 | | | (142) | | | — | | | 14,439 | |
| Purchase of interest rate cap | | (506) | | | (18) | | | — | | | — | | | (18) | |
| Proceeds from disposition of foreign currency collars | | — | | | — | | | — | | | — | | | 1,198 | |
| Finance income received | | 94 | | | 95 | | | 49 | | | 49 | | | 193 | |
| Dividend income received from financial assets at fair value through profit or loss | | 5,074 | | | 3,688 | | | 479 | | | 745 | | | 7,629 | |
| Funding for development obligations | | (4,025) | | | — | | | (4,025) | | | — | | | (4,427) | |
| Proceeds from advances due from affiliates, net | | 5,247 | | | — | | | 6,448 | | | — | | | (7,039) | |
| Restricted cash used (deposited) for capital expenditures | | 1,308 | | | (4,052) | | | — | | | 15 | | | — | |
| Net cash (used in) provided by investing activities | | (16,653) | | | 46,382 | | | (22,694) | | | 40,885 | | | 169,256 | |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, | | Three months ended June 30, | | Year ended December 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2021 |
| | Unaudited | | Audited |
| | U.S. dollars in thousands |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Proceeds from debentures, notes and bonds payable | | $ | 145,104 | | | $ | 157,246 | | | 91,346 | | | $ | 60,121 | | | $ | 358,931 | |
| Principal payments on notes and bond payable | | (70,685) | | | (131,672) | | | (6,549) | | | (70,372) | | | (473,133) | |
| Payments of deferred financing costs | | (2,829) | | | (2,133) | | | (1,968) | | | (1,079) | | | (8,463) | |
| Interest paid | | (16,121) | | | (17,968) | | | (4,999) | | | (6,520) | | | (35,066) | |
| (Contribution) release of restricted cash for debt service obligations | | (22,917) | | | (358) | | | (20,417) | | | — | | | 943 | |
| Non-controlling interests (distribution) contributions, net | | (31) | | | 163 | | | (31) | | | 143 | | | 183 | |
| Non-controlling interests buyout | | — | | | — | | | — | | | — | | | (3,819) | |
| | | | | | | | | | |
| Dividends to Owner | | (20,000) | | | (11,758) | | | (8,750) | | | (10,608) | | | (41,758) | |
| Proceeds from notes payable from others, net | | — | | | 2,367 | | | — | | | — | | | 2,367 | |
| Net cash provided by (used in) financing activities | | 12,521 | | | (4,113) | | | 48,632 | | | (28,315) | | | (199,815) | |
| Effect of exchange rate changes on cash and cash equivalents | | (2,471) | | | (224) | | | (2,335) | | | 1,411 | | | 1,397 | |
| Net increase in cash and cash equivalents | | 15,224 | | | 66,995 | | | 39,315 | | | 29,901 | | | 23,828 | |
| Cash and cash equivalents, beginning of period | | 83,215 | | | 59,387 | | | 59,124 | | | 98,481 | | | 59,387 | |
| Cash and cash equivalents, end of period | | $ | 98,439 | | | $ | 126,382 | | | $ | 98,439 | | | $ | 128,382 | | | $ | 83,215 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Supplemental Disclosure of Noncash Activities: | | | | | | | | | | |
| | | | | | | | | | |
| Accrual improvements to real estate | | $ | 3,262 | | | $ | 6,075 | | | $ | 3,262 | | | $ | 6,075 | | | $ | 2,660 | |
| | | | | | | | | | |
The accompanying notes are an integral part of the interim consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL INFORMATION
These financial statements have been prepared in a condensed format as of June 30, 2022 and for the three and six months period then ended ("interim condensed financial statements"). These interim condensed financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2021 and for the year then ended and the accompanying notes ("annual financial statements").
The Company and its subsidiaries (the "Group") operate in the investment real estate segment in the United States, which includes mainly investment in office and residential real estate and undeveloped lands. In addition, the Company invests in real estate equity securities. The Company has three reporting segments: 1) strategic opportunistic properties 2) single-family homes and 3) hotels.
COVID-19 has significantly disrupted economic markets and impacted commercial activity worldwide, including the US, and the prolonged economic impact is uncertain. Because the Company’s property investments are located in the United States, COVID-19 has had an impact to our properties and operating results, including reduced occupancy, as well as increased the cost of operation. Customers and potential customers of the properties could be affected by the disruption caused by COVID-19.
As of June 30, 2022, the Company owned eight office properties, one office portfolio consisting of two office buildings and 14 acres of undeveloped land, encompassing, in the aggregate, approximately 3.2 million rentable square feet. As of June 30, 2022, these properties were 72% occupied. In addition, the Company owned one residential home portfolio consisting of 1,815 single-family homes and encompassing approximately 2.5 million rental square feet and two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 92% and 92% occupied, respectively as of June 30, 2022. As of June 30, 2022, the Company also owned two hotel properties with an aggregate of 649 rooms and three investments in undeveloped land with approximately 800 developable acres and one office/retail development property.
Generally, the composition of the Company’s investments is such that declining interest rates will increase net income, while rising interest rates will decrease net income. Recently, interest rates have remained at relatively low levels on a historical basis and the Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However, in March 2022, the U.S. Federal Reserve approved a 0.25% rate increase and additionally approved 0.75% rate increases in both June and July 2022. The U.S. Federal Reserve has indicated that it foresees further increases in interest rates throughout the year and into 2023 and 2024, considering the current inflationary environment. The Company does not expect the rising interest rates to have a material impact on its financial statements.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation of the interim consolidated financial statements:
The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for the preparation of financial statements for interim periods, as prescribed in IAS 34, "Interim Financial Reporting", and in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: INVESTMENT IN JOINT VENTURES
As of June 30, 2022, the Company’s investments in unconsolidated entities were composed of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Properties as of June 30, 2022 | | | | | | Investment Balance as of |
| Joint Venture | | | Location | | Ownership % | | June 30, 2022 |
| 110 William Joint Venture | | 1 | | New York, New York | | 60.0% | | $ | 85,058 | |
| 353 Sacramento Joint Venture | | 1 | | San Francisco, California | | 55.0% | | 84,714 | |
| Pacific Oak Opportunity Zone Fund I | | 3 | | Various | | 46.0% | | 27,356 | |
PORT II OP LP (1) | | 588 | | Various | | 94.2% | | 50,829 | |
| | | | | | | | $ | 247,957 | |
| | | | | | | | |
(1) In July 2022, the Company made a tender offer to purchase 76,735 of Pacific Oak Residential Trust II, Inc. ("PORT II") common stock held by unrelated parties for a price of $14.66 per share. The purchase triggered a change in power and economics for the Company such that it becomes the sole owner of the common interests of PORT II. See Note 7 for further details.
The Company does not attach the financial statements of its joint ventures since their reports are insignificant to the Company's financial statements.
NOTE 4: FINANCIAL INSTRUMENTS
The fair value of non-current notes payables as of June 30, 2022 and December 31, 2021. The fair value of the debentures payable as of June 30, 2022 and December 31, 2021 was approximately $314.5 million (1.2 billion NIS) and $274.7 million (844.1 million NIS).
The Series B Debentures contains the following covenants: (i) Consolidated Equity Capital of the Company (not including minority rights) shall not be less than USD 475 million; (ii) the Net Adjusted Financial Debt to Net Adjusted Cap (shall not exceed a rate of 75%); (iii) Adjusted NOI shall be no lower than USD 35 million; and (iv) the consolidated scope of the projects for development of the Company shall not exceed 10% of the adjusted balance. As of June 30, 2022, the Company was in compliance with all covenants under the deed of trust of the Series B Debentures; (i) Consolidated Equity Capital of the Company as of June 30, 2022 was $1.1 billion; (ii) the Net Adjusted Debt to Net Adjusted Cap was 51%; (iii) the Adjusted NOI was $86.0 million for the trailing twelve months ended June 30, 2022; and (iv) the consolidated scope of projects was $0 as of June 30, 2022.
As of June 30, 2022, the Company had a working capital shortfall amounting to $72.9 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's board of directors does not view the working capital shortfall as a liquidity problem.
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: FINANCIAL INSTRUMENTS (Cont.)
The Company's investments in real estate equity securities are carried at their estimated fair value based on quoted market prices (Level 1) for the securities. Unrealized gains and losses are reported in finance (loss) income from financial assets at fair value through profit or loss.
NOTE 5: SEGMENT INFORMATION
The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and asses its performance. All corporate related costs are included in the strategic opportunistic properties segment to align with how financial information is presented to the CODM. The selected financial information for the reporting segments as of and for the three and six months ended June 30, 2022 and 2021 and as of and the year ended December 31, 2021 is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2022 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| | | | | | | | |
| Investment properties (Including held for sale) | | $ | 1,255,253 | | | $ | 299,530 | | | $ | — | | | $ | 1,554,783 | |
| Property plant and equipment - hotels, net | | $ | — | | | $ | — | | | $ | 132,014 | | | $ | 132,014 | |
| Total assets | | $ | 1,689,318 | | | $ | 365,175 | | | $ | 151,513 | | | $ | 2,206,006 | |
| Total liabilities | | $ | 910,108 | | | $ | 146,272 | | | $ | 84,087 | | | $ | 1,140,467 | |
| | | | | | | | |
| | Six months ended June 30, 2022 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| Total revenues and other income | | $ | 48,855 | | | $ | 11,876 | | | $ | 18,771 | | | $ | 79,502 | |
| Gross profit | | $ | 23,653 | | | $ | 5,531 | | | $ | 6,662 | | | $ | 35,846 | |
| Finance expenses | | $ | 14,795 | | | $ | 3,383 | | | $ | 2,883 | | | $ | 21,061 | |
| | | | | | | | |
| | Three months ended June 30, 2022 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| Total revenues and other income | | $ | 24,238 | | | $ | 5,968 | | | $ | 12,854 | | | $ | 43,060 | |
| Gross profit | | $ | 11,418 | | | $ | 2,738 | | | $ | 5,856 | | | $ | 20,012 | |
| Finance expenses | | $ | 8,001 | | | $ | 1,873 | | | $ | 1,433 | | | $ | 11,307 | |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| | | | | | | | |
| Investment properties (Including held for sale) | | $ | 1,341,912 | | | $ | 223,476 | | | $ | — | | | $ | 1,565,388 | |
| Property plant and equipment - hotels, net | | $ | — | | | $ | — | | | $ | 134,770 | | | $ | 134,770 | |
| Total assets | | $ | 1,801,316 | | | $ | 243,246 | | | $ | 149,887 | | | $ | 2,194,449 | |
| Total liabilities | | $ | 980,811 | | | $ | 140,100 | | | $ | 89,226 | | | $ | 1,210,137 | |
| | | | | | | | |
| | Six months ended June 30, 2021 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| Total revenues and other income | | $ | 57,278 | | | $ | 11,121 | | | $ | 12,424 | | | $ | 80,823 | |
| Gross profit | | $ | 29,906 | | | $ | 5,334 | | | $ | 3,193 | | | $ | 38,433 | |
| Finance expenses | | $ | 14,644 | | | $ | 3,448 | | | $ | 2,980 | | | $ | 21,072 | |
| | | | | | | | |
| | Three months ended June 30, 2021 |
| | Unaudited |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| Total revenues and other income | | $ | 28,752 | | | $ | 5,649 | | | $ | 9,849 | | | $ | 44,250 | |
| Gross profit | | $ | 14,944 | | | $ | 2,769 | | | $ | 4,008 | | | $ | 21,721 | |
| Finance expenses | | $ | 7,527 | | | $ | 1,882 | | | $ | 1,500 | | | $ | 10,909 | |
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 5: SEGMENT INFORMATION (cont.)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| | | | | | | | |
| Investment properties | | $ | 1,272,138 | | | $ | 252,851 | | | $ | — | | | $ | 1,524,989 | |
| Property plant and equipment - hotels, net | | $ | — | | | $ | — | | | $ | 133,512 | | | $ | 133,512 | |
| Total assets | | $ | 1,666,098 | | | $ | 292,778 | | | $ | 155,714 | | | $ | 2,114,590 | |
| Total liabilities | | $ | 853,028 | | | $ | 140,205 | | | $ | 86,705 | | | $ | 1,079,938 | |
| | | | | | | | |
| | Year ended December 31, 2021 |
| | |
| | |
| | Strategic Opportunistic Properties | | Single-Family Homes | | Hotel | | Total |
| Total revenues and other income | | $ | 106,645 | | | $ | 22,652 | | | $ | 30,806 | | | $ | 160,103 | |
| Gross profit (loss) | | $ | 51,876 | | | $ | 10,820 | | | $ | 9,816 | | | $ | 72,512 | |
| Finance expenses | | $ | 28,934 | | | $ | 6,544 | | | $ | 5,944 | | | $ | 41,422 | |
NOTE 6: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD
Crown Pointe Mortgage Loan Refinancing
On March 24, 2022, the Company refinanced the Crown Pointe Mortgage Loan with an unaffiliated lender for $53.8 million with a contractual rate of 2.30% plus a floating rate and an initial maturity date of April 1, 2025.
Georgia 400 Mortgage Loan Deposit
On April 4, 2022, the Company paid a deposit of $20.4 million to the lender of the Georgia 400 Center Mortgage Loan as a result of being out of compliance with the debt service coverage requirement and required a cash sweep.
Additional Series B Debentures Issuance
On May 2, 2022, the Company raised approximately $95.3 million (approximately 320.4 million Israeli new Shekels at a price of 0.96 for every 1) of additional Series B Debentures to Israeli investors pursuant to a private offering registered with the Israel Securities Authority. The Series B Debentures would be identical in the terms and pari passu to the existing bonds.
110 William Notice of Default
On June 16, 2022, the Company received a notice from the lender stating that the non-repayment of the 110 William Joint Venture loan constitutes a default under the loan agreements. Loan extension negotiations between the Company, its joint venture partner, and lenders are ongoing as of the date of filing of this report.
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.)
Dividend Approval
During the six months ended June 30, 2022, the Company declared and paid a distribution of dividend in the amount of $20.0 million to the Owner.
Real Estate Sale - Greenway Buildings
On January 24, 2022, the Company, through an indirect wholly owned subsidiary, sold two office buildings related to the Richardson Portfolio and containing 141,950 rentable square feet in Richardson, Texas (“Greenway Buildings”) to a purchaser unaffiliated with the Company or to Pacific Oak Capital Advisor, LLC, the Company’s advisor, for $11.0 million, before closing costs and credits. The fair value of the Greenway Buildings as of the disposition date was $14.4 million and the sale resulted in a $3.9 million loss recorded as fair value adjustment of investment properties, net in the accompanying consolidated statements of profit or loss. In connection with the sale of the Greenway Buildings, the Company repaid $9.1 million of the outstanding principal balance due under the mortgage loan secured by the Greenway Buildings.
Real Estate Purchase and Sale Contract - Park Highlands Land
On November 11, 2021, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 238 developable acres of undeveloped land located in North Las Vegas, Nevada (“Park Highlands”) for gross sales proceeds of approximately $123.9 million, before closing costs and credits. The due diligence period expired on February 23, 2022 and the buyer’s deposit of $13.5 million is no longer refundable and is recognized as restricted cash on the consolidated statements of financial position within Restricted cash. This deposit is held in an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.
On March 10, 2022 the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 77 developable acres of undeveloped land located in North Las Vegas, Nevada (“Park Highlands”) for gross sales proceeds of approximately $52.9 million, before closing costs and credits. The due diligence period expired on May 31, 2022 and the buyer’s deposit of $3.5 million is no longer refundable and is recognized as restricted cash on the consolidated statements of financial position within Restricted cash. This deposit is held in an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.
On June 22, 2022, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, to sell 67 developable acres of undeveloped land located in North Las Vegas, Nevada for gross sales proceeds of approximately $55.0 million, before closing costs and credits. The due diligence period expires on October 20, 2022 and the buyer’s deposit of $3.0 million will no longer be refundable and will be recognized as restricted cash on the consolidated statements of financial position within Restricted cash. This deposit is held in an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.
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.)
PORT Non-controlling Interest
On June 24, 2022, the Owner’s board of directors authorized and approved the redemption of the 510,816 Special Common Units of PORT OP LP, a consolidated subsidiary of the Company (“PORT OP”), representing approximately 3.20% interest, held by BPT Holdings, LLC, a subsidiary of the Company's advisor, for a price of $13.09 per unit. The Special Common Units are included as due to affiliates on the consolidated statements of financial position due to this being a cash-settled transaction and the purchase value was recognized as the fair value. In July 2022, the transaction closed for consideration of approximately $6.7 million and immediately following, the Company owned 100% of PORT OP.
NOTE 7: SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
PORT II Reconsideration
On July 1, 2022, the Company, through PORT OP, made a tender offer to purchase 76,735 shares of PORT II common stock held by unrelated parties for a price of $14.66 per share and a total consideration of $1.1 million. As a result, the Company determined that it became the primary beneficiary of PORT II, which resulted in the consolidation of PORT II into the Company’s consolidated financial statements. On July 29, 2022, the Company consummated the transactions with the unrelated parties and owned 100% of PORT II. The Company and the aforementioned unrelated parties did not guarantee any debt in connection with the transaction.
Springmaid Beach Resort Purchase and Sale Contract
On July 14, 2022, the Company’s board of directors committed to a plan to sell the Springmaid Beach Resort to an unrelated party. On July 15, 2022, the Company, through an indirect wholly owned subsidiary, entered into an amended purchase and sale agreement, to sell the Springmaid Beach Resort for $91.0 million, before closing costs and credits. The mortgage loan secured by the property had an outstanding principal balance of $53.1 million as of July 15, 2022. The due diligence period has expired and the buyer’s deposit of $2.0 million is no longer refundable. The Company expects to close the transaction in the third quarter of 2022, but can give no assurances that the sale will be completed.
Refinancing - Lincoln Court
On July 29, 2022, the Company refinanced the Lincoln Court Mortgage Loan with a new lender for an amount up to $39.4 million, of which $35.3 million was funded at the time of closing. The loan is an interest only with an annual variable rate of 3.25% plus the floating rate (SOFR). Additionally, the loan has an initial maturity date of August 7, 2025 with an available three-year extension.
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