Attached files
Exhibit 99.3
KBS SOR BVI HOLDINGS LTD
Interim Pro Forma Consolidated Financial Statements
September 30, 2015 (Unaudited)
1
KBS SOR BVI HOLDINGS LTD
Interim Pro Forma Consolidated Financial Statements
As of September 30, 2015
U.S. Dollars in Thousands
Interim Pro Forma Consolidated Financial Statements | |||
Interim Pro Forma Consolidated Statements of Financial Position | 2 | ||
Interim Pro Forma Consolidated Statements of Operations | 3 | ||
Interim Pro Forma Consolidated Statements of Comprehensive Income (Loss) | 4 | ||
Interim Pro Forma Consolidated Statements of Equity | 5 | ||
Interim Pro Forma Consolidated Statements of Cash Flows | 7 | ||
Condensed Notes to Interim Pro Forma Consolidated Financial Statements | 8 | ||
1
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(US $ thousands)
September 30, 2015 | September 30, 2014 | December 31, 2014 | ||||||||||
Unaudited | Audited | |||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 18,256 | $ | 15,344 | $ | 17,276 | ||||||
Rents and other receivables, net | 1,649 | 1,669 | 1,519 | |||||||||
Prepaid expenses and other assets | 5,815 | 1,608 | 1,011 | |||||||||
Restricted cash | 5,987 | 2,372 | 2,242 | |||||||||
31,707 | 20,993 | 22,048 | ||||||||||
Non-current assets | ||||||||||||
Investment properties | 1,295,017 | 1,244,260 | 1,251,670 | |||||||||
Investment in joint venture | 135,370 | 94,444 | 96,068 | |||||||||
Real estate loan receivable, net | 27,850 | 27,216 | 27,422 | |||||||||
Available for sale financial asset | 5,305 | 7,484 | 5,305 | |||||||||
1,463,542 | 1,373,404 | 1,380,465 | ||||||||||
Total assets | $ | 1,495,249 | $ | 1,394,397 | $ | 1,402,513 | ||||||
Current Liabilities | ||||||||||||
Notes and bond payable, net | $ | 12,437 | $ | 1,834 | $ | 2,005 | ||||||
Accounts payable and accrued liabilities | 21,406 | 16,757 | 18,196 | |||||||||
Other liabilities | 8,684 | 4,231 | 4,205 | |||||||||
42,527 | 22,822 | 24,406 | ||||||||||
Long-Term Liabilities | ||||||||||||
Notes and bond payable, net | 534,301 | 512,649 | 522,057 | |||||||||
Rental security deposits | 5,352 | 4,642 | 4,987 | |||||||||
539,653 | 517,291 | 527,044 | ||||||||||
Total liabilities | 582,180 | 540,113 | 551,450 | |||||||||
Equity | ||||||||||||
Owner's net equity | 805,626 | 740,034 | 740,885 | |||||||||
Non-controlling interests | 107,443 | 114,250 | 110,178 | |||||||||
Total equity | 913,069 | 854,284 | 851,063 | |||||||||
Total liabilities and equity | $ | 1,495,249 | $ | 1,394,397 | $ | 1,402,513 | ||||||
See accompanying notes to interim pro forma consolidated financial statements.
January 31, 2016 | /s/ Jeffrey Waldvogel | /s/ Peter McMillan III | /s/ Keith Hall | |||
Date of approval of | Waldvogel, Jeffrey | McMillan, Peter the third | Hall, Keith David | |||
financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer | |||
2
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(US $ thousands)
Nine Months Ended September 30, | Three Months Ended September 30, | Year Ended December 31, | ||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2014 | ||||||||||||||||
Unaudited | Audited | |||||||||||||||||||
Revenues and other income: | ||||||||||||||||||||
Rental income | $ | 65,713 | $ | 60,919 | $ | 22,143 | $ | 21,165 | $ | 82,345 | ||||||||||
Tenant reimbursements | 13,991 | 12,029 | 4,940 | 4,404 | 16,273 | |||||||||||||||
Interest income from real estate loans receivable | 1,968 | 2,377 | — | 948 | 3,366 | |||||||||||||||
Other operating income | 2,495 | 2,131 | 881 | 741 | 2,833 | |||||||||||||||
Total revenues and other income | 84,167 | 77,456 | 27,964 | 27,258 | 104,817 | |||||||||||||||
Expenses: | ||||||||||||||||||||
Operating, maintenance, and management fees | (27,855 | ) | (26,291 | ) | (9,930 | ) | (8,992 | ) | (35,964 | ) | ||||||||||
Real estate taxes and insurance | (11,439 | ) | (10,334 | ) | (3,940 | ) | (3,393 | ) | (14,194 | ) | ||||||||||
Total expenses | (39,294 | ) | (36,625 | ) | (13,870 | ) | (12,385 | ) | (50,158 | ) | ||||||||||
Gross profit | 44,873 | 40,831 | 14,094 | 14,873 | 54,659 | |||||||||||||||
Asset management fees to affiliate | (6,242 | ) | (5,567 | ) | (2,112 | ) | (2,049 | ) | (7,648 | ) | ||||||||||
Leasing cost | (4,838 | ) | (5,025 | ) | (2,516 | ) | (2,199 | ) | (6,736 | ) | ||||||||||
Fair value adjustment of investment properties,net | 46,423 | 22,542 | 45,851 | 24,853 | 14,312 | |||||||||||||||
Equity in income of unconsolidated joint venture | 36,541 | 27,204 | 34,564 | 28,480 | 28,228 | |||||||||||||||
General and administrative expenses | (437 | ) | (349 | ) | (107 | ) | (107 | ) | (450 | ) | ||||||||||
Operating profit | 116,320 | 79,636 | 89,774 | 63,851 | 82,365 | |||||||||||||||
Finance income | 21 | 11 | 7 | 10 | 18 | |||||||||||||||
Finance expenses | (11,292 | ) | (11,805 | ) | (3,524 | ) | (3,777 | ) | (15,598 | ) | ||||||||||
Net income | $ | 105,049 | $ | 67,842 | $ | 86,257 | $ | 60,084 | $ | 66,785 | ||||||||||
Net income attributable to owner | $ | 102,564 | $ | 63,953 | $ | 82,622 | $ | 59,008 | $ | 67,117 | ||||||||||
Net income (loss) attributable to non-controlling interests | 2,485 | 3,889 | 3,635 | 1,076 | (332 | ) | ||||||||||||||
Net income | $ | 105,049 | $ | 67,842 | $ | 86,257 | $ | 60,084 | $ | 66,785 | ||||||||||
See accompanying notes to interim pro forma consolidated financial statements.
3
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(US $ thousands)
Nine Months Ended September 30, | Three Months Ended September 30, | Year Ended December 31, | ||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2014 | ||||||||||||||||
Unaudited | Audited | |||||||||||||||||||
Net income | $ | 105,049 | $ | 67,842 | $ | 86,257 | $ | 60,084 | $ | 66,785 | ||||||||||
Other comprehensive income: | ||||||||||||||||||||
Unrealized gain on real estate securities | — | 9 | — | — | 9 | |||||||||||||||
Total other comprehensive income | — | 9 | — | — | 9 | |||||||||||||||
Total comprehensive income | $ | 105,049 | $ | 67,851 | $ | 86,257 | $ | 60,084 | $ | 66,794 | ||||||||||
Total comprehensive income attributable to owner | $ | 102,564 | $ | 63,962 | $ | 82,622 | $ | 59,008 | $ | 67,126 | ||||||||||
Total comprehensive (loss) income attributable to non-controlling interests | 2,485 | 3,889 | 3,635 | 1,076 | (332 | ) | ||||||||||||||
Total comprehensive income | $ | 105,049 | $ | 67,851 | $ | 86,257 | $ | 60,084 | $ | 66,794 | ||||||||||
See accompanying notes to interim pro forma consolidated financial statements.
4
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF EQUITY
(US $ thousands)
Owner Contributions (Distributions) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Owner’s Net Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Balance at December 31, 2014 (audited) | $ | 461,522 | $ | 279,363 | $ | — | $ | 740,885 | $ | 110,178 | $ | 851,063 | ||||||||||||
Net income | — | 102,564 | — | 102,564 | 2,485 | 105,049 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||
Total comprehensive income | — | 102,564 | — | 102,564 | 2,485 | 105,049 | ||||||||||||||||||
Distributions to Owner | (76,719 | ) | — | — | (76,719 | ) | — | (76,719 | ) | |||||||||||||||
Contributions from Owner | 38,896 | — | — | 38,896 | — | 38,896 | ||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 751 | 751 | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (5,971 | ) | (5,971 | ) | ||||||||||||||||
Balance at September 30, 2015 | $ | 423,699 | $ | 381,927 | $ | — | $ | 805,626 | $ | 107,443 | $ | 913,069 | ||||||||||||
Owner Contributions (Distributions) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Owner’s Net Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Balance at December 31, 2013 (audited) | $ | 454,718 | $ | 212,246 | $ | (9 | ) | $ | 666,955 | $ | 108,081 | $ | 775,036 | |||||||||||
Net income | — | 63,953 | — | 63,953 | 3,889 | 67,842 | ||||||||||||||||||
Other comprehensive income | — | — | 9 | 9 | — | 9 | ||||||||||||||||||
Total comprehensive income | — | 63,953 | 9 | 63,962 | 3,889 | 67,851 | ||||||||||||||||||
Distributions to Owner | (147,562 | ) | — | — | (147,562 | ) | — | (147,562 | ) | |||||||||||||||
Contributions from Owner | 156,679 | — | — | 156,679 | — | 156,679 | ||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 2,437 | 2,437 | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (157 | ) | (157 | ) | ||||||||||||||||
Balance at September 30, 2014 | $ | 463,835 | $ | 276,199 | $ | — | $ | 740,034 | $ | 114,250 | $ | 854,284 | ||||||||||||
Owner Contributions (Distributions) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Owner’s Net Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Balance at June 30, 2015 | $ | 449,716 | $ | 299,305 | $ | — | $ | 749,021 | $ | 105,347 | $ | 854,368 | ||||||||||||
Net income | — | 82,622 | — | 82,622 | 3,635 | 86,257 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||
Total comprehensive income | — | 82,622 | — | 82,622 | 3,635 | 86,257 | ||||||||||||||||||
Distributions to Owner | (36,188 | ) | — | — | (36,188 | ) | — | (36,188 | ) | |||||||||||||||
Contributions from Owner | 10,171 | — | — | 10,171 | — | 10,171 | ||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 391 | 391 | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (1,930 | ) | (1,930 | ) | ||||||||||||||||
Balance at September 30, 2015 | $ | 423,699 | $ | 381,927 | $ | — | $ | 805,626 | $ | 107,443 | $ | 913,069 | ||||||||||||
5
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF EQUITY
(US $ thousands)
Owner Contributions (Distributions) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Owner’s Net Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||
Unaudited | ||||||||||||||||||||||||
Balance at June 30, 2014 | $ | 462,875 | $ | 217,191 | $ | — | $ | 680,066 | $ | 112,244 | $ | 792,310 | ||||||||||||
Net income | — | 59,008 | — | 59,008 | 1,076 | 60,084 | ||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||
Total comprehensive income | — | 59,008 | — | 59,008 | 1,076 | 60,084 | ||||||||||||||||||
Distributions to Owner | (21,738 | ) | — | — | (21,738 | ) | — | (21,738 | ) | |||||||||||||||
Contributions from Owner | 22,698 | — | — | 22,698 | — | 22,698 | ||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 930 | 930 | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | — | — | ||||||||||||||||||
Balance at September 30, 2014 | $ | 463,835 | $ | 276,199 | $ | — | $ | 740,034 | $ | 114,250 | $ | 854,284 | ||||||||||||
Owner Contributions (Distributions) | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Owner’s Net Equity | Non-controlling Interests | Total Equity | |||||||||||||||||||
Audited | ||||||||||||||||||||||||
Balance at December 31, 2013 | $ | 454,718 | $ | 212,246 | $ | (9 | ) | $ | 666,955 | $ | 108,081 | $ | 775,036 | |||||||||||
Net income (loss) | — | 67,117 | — | 67,117 | (332 | ) | 66,785 | |||||||||||||||||
Other comprehensive income | — | — | 9 | 9 | — | 9 | ||||||||||||||||||
Total comprehensive income (loss) | — | 67,117 | 9 | 67,126 | (332 | ) | 66,794 | |||||||||||||||||
Distributions to Owner | (165,520 | ) | — | — | (165,520 | ) | — | (165,520 | ) | |||||||||||||||
Contributions from Owner | 172,324 | — | — | 172,324 | — | 172,324 | ||||||||||||||||||
Non-controlling interests contributions | — | — | — | — | 2,586 | 2,586 | ||||||||||||||||||
Distributions to non-controlling interests | — | — | — | — | (157 | ) | (157 | ) | ||||||||||||||||
Balance at December 31, 2014 | $ | 461,522 | $ | 279,363 | $ | — | $ | 740,885 | $ | 110,178 | $ | 851,063 | ||||||||||||
See accompanying notes to interim pro forma consolidated financial statements.
6
KBS SOR BVI HOLDINGS LTD
INTERIM PRO FORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
(US $ thousands)
Nine Months Ended September 30, | Three Months Ended September 30, | For the Year Ended December 31, | ||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2014 | ||||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||||||
Net income | $ | 105,049 | $ | 67,842 | $ | 86,257 | $ | 60,084 | $ | 66,785 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||
Equity in income of unconsolidated joint venture | (36,541 | ) | (27,204 | ) | (34,564 | ) | (26,853 | ) | (28,228 | ) | ||||||||||
Fair value adjustment on investment properties, net | (46,423 | ) | (22,542 | ) | (45,851 | ) | (24,853 | ) | (14,312 | ) | ||||||||||
Deferred rent | (3,708 | ) | (6,884 | ) | (974 | ) | (2,085 | ) | (8,392 | ) | ||||||||||
Bad debt expense | 323 | 136 | 216 | 28 | 176 | |||||||||||||||
Financing expense, net | 11,292 | 11,805 | 3,524 | 3,777 | 15,598 | |||||||||||||||
Financing income, net | (21 | ) | (11 | ) | (7 | ) | (10 | ) | (18 | ) | ||||||||||
Interest income from note receivable, net | (1,968 | ) | (2,377 | ) | — | (948 | ) | (3,366 | ) | |||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||
Restricted cash | 1,508 | (955 | ) | 314 | 157 | (835 | ) | |||||||||||||
Rents and other receivables | (717 | ) | (987 | ) | 286 | 55 | (869 | ) | ||||||||||||
Prepaid expenses and other assets | (2,484 | ) | (849 | ) | 523 | 283 | (252 | ) | ||||||||||||
Accounts payable and accrued liabilities | 3,009 | 844 | 4,559 | 3,295 | (294 | ) | ||||||||||||||
Rental security deposits | 365 | 1,156 | 308 | (52 | ) | 1,501 | ||||||||||||||
Other liabilities | (164 | ) | 1,401 | (360 | ) | 462 | 1,375 | |||||||||||||
Lease incentive additions | (621 | ) | (572 | ) | (349 | ) | 113 | (930 | ) | |||||||||||
Net cash provided by operating activities | 28,899 | 20,803 | 13,882 | 13,453 | 27,939 | |||||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||
Acquisitions of investment properties | — | (191,689 | ) | — | (8,953 | ) | (191,924 | ) | ||||||||||||
Improvements to investment properties | (21,894 | ) | (26,534 | ) | (6,949 | ) | (6,919 | ) | (37,561 | ) | ||||||||||
Proceeds from sales of investment properties, net | 30,959 | 1,393 | 9,502 | 1,393 | 1,393 | |||||||||||||||
Investments in real estate loans receivable | — | (5,850 | ) | — | (5,850 | ) | (5,850 | ) | ||||||||||||
Insurance proceeds for property damages | 294 | — | 36 | — | — | |||||||||||||||
Principal repayments on real estate securities | — | 333 | — | — | 333 | |||||||||||||||
Investment in unconsolidated joint venture | (2,761 | ) | (58,386 | ) | (1,081 | ) | (1,627 | ) | (58,986 | ) | ||||||||||
Distribution of capital from available for sale asset | — | — | — | — | 2,179 | |||||||||||||||
Finance income received | 1,825 | 1,943 | 7 | 708 | 2,725 | |||||||||||||||
Extension fee on real estate loans receivable | — | 935 | — | 830 | 935 | |||||||||||||||
Funding of restricted cash for development obligations | (4,643 | ) | — | (4,643 | ) | — | — | |||||||||||||
Net cash provided by (used in) investing activities | 3,780 | (277,855 | ) | (3,128 | ) | (20,418 | ) | (286,756 | ) | |||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||
Proceeds from notes payable | 51,182 | 272,637 | 11,476 | 10,670 | 307,254 | |||||||||||||||
Principal payments on notes payable | (30,314 | ) | (34,043 | ) | (298 | ) | (155 | ) | (59,203 | ) | ||||||||||
Payments of deferred financing costs | (297 | ) | (3,621 | ) | (248 | ) | 2 | (4,117 | ) | |||||||||||
Interest paid | (9,227 | ) | (9,158 | ) | (2,914 | ) | (3,230 | ) | (12,258 | ) | ||||||||||
Non-controlling interests contributions | 751 | 2,437 | 391 | 930 | 2,586 | |||||||||||||||
Distributions to non-controlling interests | (5,971 | ) | (157 | ) | (1,930 | ) | — | (157 | ) | |||||||||||
Distributions to Owner | (76,719 | ) | (147,562 | ) | (36,188 | ) | (21,738 | ) | (165,520 | ) | ||||||||||
Contributions from Owner | 38,896 | 156,679 | 10,171 | 22,698 | 172,324 | |||||||||||||||
Net cash (used in) provided by financing activities | (31,699 | ) | 237,212 | (19,540 | ) | 9,177 | 240,909 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | 980 | (19,840 | ) | (8,786 | ) | 2,212 | (17,908 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 17,276 | 35,184 | 27,042 | 13,132 | 35,184 | |||||||||||||||
Cash and cash equivalents, end of period | $ | 18,256 | $ | 15,344 | $ | 18,256 | $ | 15,344 | $ | 17,276 | ||||||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||||||||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | ||||||||||||||||||||
Increase in accrued improvements to real estate | $ | — | $ | 47 | $ | — | $ | — | $ | 3,095 | ||||||||||
Increase in development obligations | $ | 4,643 | $ | — | $ | 4,643 | $ | — | $ | — | ||||||||||
Mortgage debt assumed in connection with real estate acquisition (at fair value) | $ | — | $ | 24,793 | $ | — | $ | — | $ | 24,793 | ||||||||||
Application of escrow deposits to acquisition of real estate | $ | — | $ | 13,000 | $ | — | $ | — | $ | 13,000 | ||||||||||
Liabilities assumed in connection with acquisition | $ | — | $ | 207 | $ | — | $ | — | $ | — | ||||||||||
See accompanying notes to interim pro forma consolidated financial statements.
7
KBS SOR BVI HOLDINGS LTD
NOTES TO INTERIM PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2015
(unaudited)
1. | ORGANIZATION |
KBS SOR BVI Holdings LTD (the “Company”) was incorporated on December 18, 2015 as a private company limited by shares according to the BVI Business Companies Act, 2004. The Company is authorized to issue a maximum of 50,000 common shares with no par value. Upon incorporation the Company issued one certificate containing 10,000 common shares with no par value.
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.
The Company is a wholly-owned subsidiary of KBS Strategic Opportunity Limited Partnership (the "Operating Partnership", the "Owner" or "Controlling Shareholder"), a Delaware limited partnership formed on December 10, 2008. KBS Strategic Opportunity REIT, Inc. ("KBS REIT" or "Parent Company"), a Maryland corporation formed on October 8, 2008, is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Strategic Opportunity Holdings LLC ("REIT Holdings"), a Delaware limited liability company incorporated on December 9, 2008, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. KBS REIT is the sole member and manager of REIT Holdings. The Company is a wholly-owned subsidiary of KBS REIT.
Acquisition of investments from the Operating Partnership (controlling shareholder) and presentation of pro forma consolidated financial statements
Concurrent with the placement of bonds of the Company and the admission of the Company's bonds to trading on the Tel-Aviv Stock Exchange, the Company (through a subsidiary) is to acquire real estate projects (assets and liabilities) from the transferring entities (the transferring entities) that are controlled by the Controlling Shareholder before and after the above transfer (the Acquisition). In consideration for the Acquisition, the Company is to issue 10,000 common shares with no par value to the Operating Partnership.
As of September 30, 2015, the Operating Partnership owned 10 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 37 acres of undeveloped land, one office portfolio consisting of three office properties, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres, one first mortgage loan and two investments in unconsolidated joint ventures.
As of the consolidated financial statements approval date, the acquisition agreements between the Company and the transferring entities remain unsigned.
The Acquisition is conditional on and will be preceded by a series of various approvals and consents. The related consents will be executed at the time of the Acquisition.
Since the Company is acquiring these operations from the transferring entities, which are controlled by the same controlling shareholder of the Company before and after the Acquisition, the Acquisition is not a business combination within the scope of IFRS 3. The Company is accounting for the Acquisition in a manner similar to a pooling of interests. Accordingly, the Company has prepared pro forma consolidated financial statements specifically for the purpose of an Initial Public Offering (IPO) of the Company's bonds on the Tel-Aviv Stock Exchange to reflect the Acquisition as if it had occurred at the beginning of the earliest period presented (January 1, 2012). Thus, the pro forma consolidated financial statements comprise the pro forma consolidated financial position and results of operations of the Company and of the operations acquired from the transferring entities. For certain projects that were acquired by the transferring entities subsequent to January 1, 2012, the pro forma consolidated financial statements reflect the net assets (liabilities) of these projects and the activities from the dates those projects were acquired by the transferring entities.
8
KBS SOR BVI HOLDINGS LTD
NOTES TO INTERIM PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2015
(unaudited)
2. | PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION |
The interim pro forma consolidated financial statements have been prepared in accordance with 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 significant accounting policies and methods of computation adopted in the preparation of the interim pro forma consolidated financial statements are consistent with those followed in the preparation of the annual pro forma consolidated financial statements.
3. | INVESTMENT IN JOINT VENTURE |
On December 23, 2013, the Company, through an indirect wholly owned subsidiary, entered into an agreement with SREF III 110 William JV, LLC (the “110 William JV Partner”) to form a joint venture, KBS SOR SREF III 110 William, LLC (the “110 William Joint Venture”). On May 2, 2014, the 110 William Joint Venture acquired an office property containing 928,157 rentable square feet located on approximately 0.8 acres of land in New York, New York. Each of the Company and the 110 William JV Partner holds a 60% and 40% ownership interest in the 110 William Joint Venture, respectively. Since decisions regarding some relevant operations and financial policies with respect to the 110 William Joint Venture require approval from both members, the Company has joint control with its partner and accordingly, has accounted for its investment in the 110 William Joint Venture under the equity method of accounting. Contributions are generally allocated based on the members’ respective equity interests. Income, losses, and distributions are allocated according to the terms as described in the joint venture agreement (the “waterfall mechanism”).
The Company does not attach the financial statements of KBS SOR SREF III 110 William, LLC, since its reports are insignificant to the Company's financial statements and do not add more information to the contained below:
Summarized information about the statement of financial position and the statement of profit of KBS SOR SREF III 110 William, LLC (100%) (in thousands) (1):
September 30, | December 31, | |||||||||||
2015 | 2014 | 2014 | ||||||||||
Unaudited | Audited | |||||||||||
Current assets | $ | 12,933 | $ | 10,991 | $ | 11,067 | ||||||
Non-current assets (investment property) | 405,700 | 322,200 | 325,800 | |||||||||
Current liabilities | 5,740 | 4,134 | 5,809 | |||||||||
Non-current liabilities (*) | 161,991 | 166,674 | 165,500 | |||||||||
Equity | $ | 250,902 | $ | 162,383 | $ | 165,558 | ||||||
Equity attributable to equity holders of the Company (Based on the waterfall mechanism) | $ | 135,370 | $ | 94,444 | $ | 96,068 | ||||||
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(*) As of September 30, 2015, non-current liabilities includes a first mortgage loan of $139,092 thousand bearing interest at a fixed rate of 4.8% per annum maturing on July 6, 2017 and a mezzanine loan of $20,000 thousand bearing interest at a fixed rate of 9.5% per annum and maturing on July 6, 2017.
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KBS SOR BVI HOLDINGS LTD
NOTES TO INTERIM PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2015
(unaudited)
Nine months ended September 30, | Three months ended September 30, | Year ended December 31, | ||||||||||||||||||
2015 | 2014 | 2015 | 2014 | 2014 | ||||||||||||||||
Unaudited | Audited | |||||||||||||||||||
US$ thousands | ||||||||||||||||||||
Revenues | $ | 24,160 | $ | 12,628 | $ | 8,634 | $ | 7,616 | $ | 20,544 | ||||||||||
Gross profit | $ | 11,775 | $ | 6,614 | $ | 4,424 | $ | 3,840 | $ | 10,209 | ||||||||||
Operating profit (*) | $ | 85,052 | $ | 55,609 | $ | 78,171 | $ | 54,026 | $ | 59,361 | ||||||||||
Net profit (*) | $ | 80,744 | $ | 53,028 | $ | 76,630 | $ | 52,443 | $ | 55,203 | ||||||||||
Share of profit from joint venture (Based on the waterfall mechanism) | $ | 36,541 | $ | 28,831 | $ | 34,564 | $ | 28,480 | $ | 29,855 | ||||||||||
(*)Includes revaluation of investment property | $ | 74,230 | $ | 49,305 | $ | 74,230 | $ | 50,295 | $ | 49,478 | ||||||||||
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(1) The Company holds 60% of KBS SOR SREF III 110 William, LLC.
4. | SIGNIFICANT EVENTS DURING THE REPORTING PERIOD |
Condemnation Agreements
During the nine months ended September 30, 2015, the Company received $5.9 million in proceeds from condemnation agreements.
Disposition of 1635 N. Cahuenga
On March 11, 2015, the Company sold the 1635 N. Cahuenga Building for $16.4 million less credits and closing costs.
Disposition of Richardson Portfolio Undeveloped Land
During the nine months ended September 30, 2015, the Company sold an aggregate of 14.3 acres of undeveloped land in the Richardson Portfolio for $6.2 million less credits and closing costs. In connection with the sale, the Company conveyed 11.7 acres of the non-developable land in the Richardson Portfolio and Richardson Land II and contributed $4.6 million for the funding of certain infrastructure development costs to a non-profit owners association.
University House First Mortgage
On June 30, 2015, the University House First Mortgage matured without repayment. As a result, on July 1, 2015, the Company provided noticed to the borrower of default and may commence foreclosure proceedings on, or otherwise take title to, the property securing the University House First Mortgage.
Fair value of Notes and Bonds Payable
During the nine months ended September 30, 2015, there were no significant changes to the fair value of notes and bonds payable beyond any changes related to additional borrowings or principal repayments.
5. | SUBSEQUENT EVENTS |
Sale of Richardson Land
On November 2, 2015, the Company sold an aggregate of 11.6 acres of undeveloped land in the Richardson Portfolio and Richardson Land II for $14.3 million less credits and closing costs. The purchaser is not affiliated with the Company or the KBS Capital Advisors LLC, KBS REIT’s external advisor.
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