Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksorbviproforma8-k.htm |
Exhibit 99.1
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
Page | |||||
| Pro Forma Consolidated Statement of Financial Position | 2 | ||||
| Pro Forma Consolidated Statements of Profit or Loss | 3-7 | ||||
| Pro Forma Consolidated Statements of Comprehensive Income | 8-9 | ||||
| Notes to Pro Forma Interim Consolidated Financial Statements | 10-15 | ||||
- - - - - - - - - - - - - - - - - - -
1
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| September 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 75,822 | $ | 9,735 | $ | — | $ | 85,557 | ||||||||||||||||||
| Rents and other receivables, net | 2,893 | 2,567 | — | 5,460 | ||||||||||||||||||||||
| Prepaid expenses and other assets | 858 | 3,402 | (61) | 4,199 | ||||||||||||||||||||||
| Restricted cash | 2,247 | 3,243 | — | 5,490 | ||||||||||||||||||||||
| 81,820 | 18,947 | (61) | 100,706 | |||||||||||||||||||||||
| NON-CURRENT ASSETS | ||||||||||||||||||||||||||
| Investment properties | 1,119,601 | 463,746 | — | 1,583,347 | ||||||||||||||||||||||
| Property plant and equipment - hotels, net | — | 99,234 | 37,766 | 137,000 | ||||||||||||||||||||||
| Goodwill | — | — | 25,715 | 25,715 | ||||||||||||||||||||||
| Investment in joint ventures | 206,725 | 3,150 | — | 209,875 | ||||||||||||||||||||||
| Financial assets at fair value through profit or loss | 84,365 | 6,271 | — | 90,636 | ||||||||||||||||||||||
| Restricted cash | 9,474 | — | — | 9,474 | ||||||||||||||||||||||
| 1,420,165 | 572,401 | 63,481 | 2,056,047 | |||||||||||||||||||||||
| Total assets | $ | 1,501,985 | $ | 591,348 | $ | 63,420 | $ | 2,156,753 | ||||||||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||||||||
| Notes and bond payable, net | $ | 24,514 | $ | 61,527 | $ | — | $ | 86,041 | ||||||||||||||||||
| Debentures, net | 56,642 | — | — | 56,642 | ||||||||||||||||||||||
| Accounts payable and accrued liabilities | 14,992 | 9,926 | 5,350 | 30,268 | ||||||||||||||||||||||
| Due to affiliates | 4,870 | 2,123 | — | 6,993 | ||||||||||||||||||||||
| Other liabilities | 14,898 | 5,031 | (1,243) | 18,686 | ||||||||||||||||||||||
| 115,916 | 78,607 | 4,107 | 198,630 | |||||||||||||||||||||||
| LONG-TERM LIABILITIES | ||||||||||||||||||||||||||
| Notes and bond payable, net | 493,217 | 268,139 | (1,462) | 759,894 | ||||||||||||||||||||||
| Debentures, net | 183,702 | — | — | 183,702 | ||||||||||||||||||||||
| Rental security deposits | 4,260 | 1,467 | — | 5,727 | ||||||||||||||||||||||
| Lease obligation | — | 8,002 | 249 | 8,251 | ||||||||||||||||||||||
| Series A Cumulative Convertible Redeemable Preferred Stock | 15,233 | — | — | 15,233 | ||||||||||||||||||||||
| 696,412 | 277,608 | (1,213) | 972,807 | |||||||||||||||||||||||
| Total liabilities | 812,328 | 356,215 | 2,894 | 1,171,437 | ||||||||||||||||||||||
| EQUITY | ||||||||||||||||||||||||||
| Owner's net equity | 674,430 | 225,484 | 49,633 | 949,547 | ||||||||||||||||||||||
| Non-controlling interests | 15,227 | 9,649 | 10,893 | 35,769 | ||||||||||||||||||||||
| Total equity | 689,657 | 235,133 | 60,526 | 985,316 | ||||||||||||||||||||||
| Total liabilities and equity | $ | 1,501,985 | $ | 591,348 | $ | 63,420 | $ | 2,156,753 | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
December 22, 2020 | /s/ Michael Allen Bender | /s/ Peter McMillan III | /s/ Keith David Hall | |||||||||||||||||
Date of approval of | Bender, Michael Allen | McMillan III, Peter | Hall, Keith David | |||||||||||||||||
pro forma financial statements | Chief Financial Officer | Chairman of Board of Directors | Chief Executive Officer | |||||||||||||||||
2
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Nine months ended September 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 62,366 | $ | 22,509 | $ | — | $ | 84,875 | ||||||||||||||||||
| Tenant reimbursements | 7,307 | 2,375 | — | 9,682 | ||||||||||||||||||||||
| Hotel revenues | — | 12,920 | — | 12,920 | ||||||||||||||||||||||
| Other operating income | 1,386 | 456 | — | 1,842 | ||||||||||||||||||||||
| Total revenues and other income | 71,059 | 38,260 | — | 109,319 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (23,369) | (8,599) | — | (31,968) | ||||||||||||||||||||||
| Real estate taxes and insurance | (10,570) | (4,357) | — | (14,927) | ||||||||||||||||||||||
| Hotel expenses | — | (11,853) | — | (11,853) | ||||||||||||||||||||||
| Total expenses | (33,939) | (24,809) | — | (58,748) | ||||||||||||||||||||||
| Gross profit | 37,120 | 13,451 | — | 50,571 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (33,778) | (28,551) | — | (62,329) | ||||||||||||||||||||||
| Depreciation and amortization | — | (1,906) | (586) | (2,492) | ||||||||||||||||||||||
| Impairment on property plant and equipment - hotels | — | (503) | 503 | — | ||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (28,829) | (34) | — | (28,863) | ||||||||||||||||||||||
| Asset management fees to affiliate | (6,867) | (3,148) | (278) | (10,293) | ||||||||||||||||||||||
| General and administrative expenses | (2,586) | (4,184) | — | (6,770) | ||||||||||||||||||||||
| Operating loss | (34,940) | (24,875) | (361) | (60,176) | ||||||||||||||||||||||
| Finance income | 267 | 58 | — | 325 | ||||||||||||||||||||||
| Finance loss from financial assets at fair value through profit or loss | (14,220) | (6,448) | — | (20,668) | ||||||||||||||||||||||
| Finance expenses | (19,844) | (11,511) | — | (31,355) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | 12,338 | 27 | — | 12,365 | ||||||||||||||||||||||
| Net loss | $ | (56,399) | $ | (42,749) | $ | (361) | $ | (99,509) | ||||||||||||||||||
| Net loss attributable to owner | $ | (52,424) | $ | (40,011) | $ | (353) | $ | (92,788) | ||||||||||||||||||
| Net loss attributable to non-controlling interests | (3,975) | (2,738) | (8) | (6,721) | ||||||||||||||||||||||
| Net loss | $ | (56,399) | $ | (42,749) | $ | (361) | $ | (99,509) | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
3
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Three months ended September 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 22,244 | $ | 7,395 | $ | — | $ | 29,639 | ||||||||||||||||||
| Tenant reimbursements | 2,278 | 739 | — | 3,017 | ||||||||||||||||||||||
| Hotel revenues | — | 6,233 | — | 6,233 | ||||||||||||||||||||||
| Other operating income | 440 | 123 | — | 563 | ||||||||||||||||||||||
| Total revenues and other income | 24,962 | 14,490 | — | 39,452 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (8,251) | (3,258) | — | (11,509) | ||||||||||||||||||||||
| Real estate taxes and insurance | (3,791) | (1,455) | — | (5,246) | ||||||||||||||||||||||
| Hotel expenses | — | (4,467) | — | (4,467) | ||||||||||||||||||||||
| Total expenses | (12,042) | (9,180) | — | (21,222) | ||||||||||||||||||||||
| Gross profit | 12,920 | 5,310 | — | 18,230 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (9,572) | (24,187) | — | (33,759) | ||||||||||||||||||||||
| Depreciation and amortization | — | (636) | (195) | (831) | ||||||||||||||||||||||
| Impairment on property plant and equipment - hotels | — | (503) | 503 | — | ||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (23,512) | (34) | — | (23,546) | ||||||||||||||||||||||
| Asset management fees to affiliate | (2,426) | (1,052) | (90) | (3,568) | ||||||||||||||||||||||
| General and administrative expenses | (1,022) | (1,083) | — | (2,105) | ||||||||||||||||||||||
| Operating (loss) profit | (23,612) | (22,185) | 218 | (45,579) | ||||||||||||||||||||||
| Finance income | 19 | (2) | — | 17 | ||||||||||||||||||||||
| Finance loss from financial assets at fair value through profit or loss | (1,532) | (2,121) | — | (3,653) | ||||||||||||||||||||||
| Finance expenses | (6,465) | (3,644) | — | (10,109) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (445) | — | — | (445) | ||||||||||||||||||||||
| Net (loss) income | $ | (32,035) | $ | (27,952) | $ | 218 | $ | (59,769) | ||||||||||||||||||
| Net (loss) income attributable to owner | $ | (28,692) | $ | (26,463) | $ | 187 | $ | (54,968) | ||||||||||||||||||
| Net (loss) income attributable to non-controlling interests | (3,343) | (1,489) | 31 | (4,801) | ||||||||||||||||||||||
| Net (loss) income | $ | (32,035) | $ | (27,952) | $ | 218 | $ | (59,769) | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
4
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Nine months ended September 30, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 52,826 | $ | 22,711 | $ | — | $ | 75,537 | ||||||||||||||||||
| Tenant reimbursements | 8,328 | 2,318 | — | 10,646 | ||||||||||||||||||||||
| Hotel revenues | — | 25,318 | — | 25,318 | ||||||||||||||||||||||
| Interest income from debt investments | 369 | — | — | 369 | ||||||||||||||||||||||
| Other operating income | 2,445 | 598 | — | 3,043 | ||||||||||||||||||||||
| Total revenues and other income | 63,968 | 50,945 | — | 114,913 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (21,611) | (8,714) | — | (30,325) | ||||||||||||||||||||||
| Real estate taxes and insurance | (9,556) | (4,313) | — | (13,869) | ||||||||||||||||||||||
| Hotel expenses | — | (17,560) | — | (17,560) | ||||||||||||||||||||||
| Total expenses | (31,167) | (30,587) | — | (61,754) | ||||||||||||||||||||||
| Gross profit | 32,801 | 20,358 | — | 53,159 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (9,479) | 24,145 | — | 14,666 | ||||||||||||||||||||||
| Depreciation and amortization | — | (1,904) | (588) | (2,492) | ||||||||||||||||||||||
| Loss on extinguishment of debt | (861) | (90) | — | (951) | ||||||||||||||||||||||
| Equity in income of unconsolidated joint ventures | 1,281 | 2,800 | — | 4,081 | ||||||||||||||||||||||
| Asset management fees to affiliate | (5,954) | (3,137) | (289) | (9,380) | ||||||||||||||||||||||
| General and administrative expenses | (2,902) | (2,511) | — | (5,413) | ||||||||||||||||||||||
| Operating profit (loss) | 14,886 | 39,661 | (877) | 53,670 | ||||||||||||||||||||||
| Finance income | 1,613 | 237 | — | 1,850 | ||||||||||||||||||||||
| Finance (loss) income from financial assets at fair value through profit or loss | 23,718 | 2,901 | — | 26,619 | ||||||||||||||||||||||
| Finance expenses | (21,776) | (15,197) | — | (36,973) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (10,634) | 141 | — | (10,493) | ||||||||||||||||||||||
| Net income (loss) | $ | 7,807 | $ | 27,743 | $ | (877) | $ | 34,673 | ||||||||||||||||||
| Net income (loss) attributable to owner | $ | 10,025 | $ | 25,879 | $ | (818) | $ | 35,086 | ||||||||||||||||||
| Net (loss) income attributable to non-controlling interests | (2,218) | 1,864 | (59) | (413) | ||||||||||||||||||||||
| Net income (loss) | $ | 7,807 | $ | 27,743 | $ | (877) | $ | 34,673 | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
5
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Three months ended September 30, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 19,113 | $ | 7,745 | $ | — | $ | 26,858 | ||||||||||||||||||
| Tenant reimbursements | 2,959 | 773 | — | 3,732 | ||||||||||||||||||||||
| Hotel revenues | — | 9,271 | — | 9,271 | ||||||||||||||||||||||
| Interest income from debt investments | — | — | — | — | ||||||||||||||||||||||
| Other operating income | 742 | 201 | — | 943 | ||||||||||||||||||||||
| Total revenues and other income | 22,814 | 17,990 | — | 40,804 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (8,304) | (2,967) | — | (11,271) | ||||||||||||||||||||||
| Real estate taxes and insurance | (3,277) | (1,452) | — | (4,729) | ||||||||||||||||||||||
| Hotel expenses | — | (6,249) | — | (6,249) | ||||||||||||||||||||||
| Total expenses | (11,581) | (10,668) | — | (22,249) | ||||||||||||||||||||||
| Gross profit | 11,233 | 7,322 | — | 18,555 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (18) | 24,415 | — | 24,397 | ||||||||||||||||||||||
| Depreciation and amortization | — | (635) | (196) | (831) | ||||||||||||||||||||||
| Loss on extinguishment of debt | (5) | (90) | — | (95) | ||||||||||||||||||||||
| Equity in income of unconsolidated joint ventures | 632 | 2,800 | — | 3,432 | ||||||||||||||||||||||
| Asset management fees to affiliate | (2,093) | (1,026) | (116) | (3,235) | ||||||||||||||||||||||
| General and administrative expenses | (1,143) | (894) | — | (2,037) | ||||||||||||||||||||||
| Operating profit (loss) | 8,606 | 31,892 | (312) | 40,186 | ||||||||||||||||||||||
| Finance income | 481 | 125 | — | 606 | ||||||||||||||||||||||
| Finance income (loss) from financial assets at fair value through profit or loss | 6,140 | (1,443) | — | 4,697 | ||||||||||||||||||||||
| Finance expenses | (7,359) | (5,209) | — | (12,568) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (5,344) | — | — | (5,344) | ||||||||||||||||||||||
| Net income (loss) | $ | 2,524 | $ | 25,365 | $ | (312) | $ | 27,577 | ||||||||||||||||||
| Net income (loss) attributable to owner | $ | 3,155 | $ | 26,640 | $ | (292) | $ | 29,503 | ||||||||||||||||||
| Net loss attributable to non-controlling interests | (631) | (1,275) | (20) | (1,926) | ||||||||||||||||||||||
| Net income (loss) | $ | 2,524 | $ | 25,365 | $ | (312) | $ | 27,577 | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
6
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Year ended December 31, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Audited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 72,283 | $ | 30,393 | $ | — | $ | 102,676 | ||||||||||||||||||
| Tenant reimbursements | 10,789 | 3,097 | — | 13,886 | ||||||||||||||||||||||
| Hotel revenues | — | 31,382 | — | 31,382 | ||||||||||||||||||||||
| Interest income from debt investments | 369 | — | — | 369 | ||||||||||||||||||||||
| Other operating income | 3,078 | 807 | — | 3,885 | ||||||||||||||||||||||
| Total revenues and other income | 86,519 | 65,679 | — | 152,198 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (29,845) | (11,622) | — | (41,467) | ||||||||||||||||||||||
| Real estate taxes and insurance | (12,631) | (5,733) | — | (18,364) | ||||||||||||||||||||||
| Hotel expenses | — | (22,770) | — | (22,770) | ||||||||||||||||||||||
| Total expenses | (42,476) | (40,125) | — | (82,601) | ||||||||||||||||||||||
| Gross profit | 44,043 | 25,554 | — | 69,597 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | 22,142 | 22,916 | — | 45,058 | ||||||||||||||||||||||
| Depreciation and amortization | — | (2,539) | (784) | (3,323) | ||||||||||||||||||||||
| Loss on extinguishment of debt | (1,106) | (105) | — | (1,211) | ||||||||||||||||||||||
| Equity in (loss) income of unconsolidated joint ventures | 31,206 | — | — | 31,206 | ||||||||||||||||||||||
| Asset management fees to affiliate | (8,158) | (4,093) | (475) | (12,726) | ||||||||||||||||||||||
| General and administrative expenses | (3,479) | (3,528) | — | (7,007) | ||||||||||||||||||||||
| Operating profit (loss) | 84,648 | 38,205 | (1,259) | 121,594 | ||||||||||||||||||||||
| Finance income | 1,842 | 303 | — | 2,145 | ||||||||||||||||||||||
| Finance income from financial assets at fair value through profit or loss | 26,478 | 5,922 | — | 32,400 | ||||||||||||||||||||||
| Finance expenses | (28,849) | (19,876) | — | (48,725) | ||||||||||||||||||||||
| Transaction and related costs | (4,462) | — | — | (4,462) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (12,498) | 141 | — | (12,357) | ||||||||||||||||||||||
| Net income (loss) | $ | 67,159 | $ | 24,695 | $ | (1,259) | $ | 90,595 | ||||||||||||||||||
| Net income (loss) attributable to owner | $ | 69,805 | $ | 22,431 | $ | (1,181) | 91,055 | |||||||||||||||||||
| Net (loss) income attributable to non-controlling interests | (2,646) | 2,264 | (78) | (460) | ||||||||||||||||||||||
| Net income (loss) | $ | 67,159 | $ | 24,695 | $ | (1,259) | $ | 90,595 | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma interim consolidated financial statements.
7
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Nine months ended September 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net loss | $ | (56,399) | $ | (42,749) | $ | (361) | $ | (99,509) | ||||||||||||||||||
| Total comprehensive loss | $ | (56,399) | $ | (42,749) | $ | (361) | $ | (99,509) | ||||||||||||||||||
| Total comprehensive loss attributable to owner | $ | (52,424) | $ | (40,011) | $ | (353) | $ | (92,788) | ||||||||||||||||||
| Total comprehensive loss attributable to non-controlling interests | (3,975) | (2,738) | (8) | (6,721) | ||||||||||||||||||||||
| Total comprehensive loss | $ | (56,399) | $ | (42,749) | $ | (361) | $ | (99,509) | ||||||||||||||||||
| Three months ended September 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net (loss) income | $ | (32,035) | $ | (27,952) | $ | 218 | $ | (59,769) | ||||||||||||||||||
| Total comprehensive (loss) income | $ | (32,035) | $ | (27,952) | $ | 218 | $ | (59,769) | ||||||||||||||||||
| Total comprehensive (loss) income attributable to owner | $ | (28,692) | $ | (26,463) | $ | 187 | $ | (54,968) | ||||||||||||||||||
| Total comprehensive (loss) income attributable to non-controlling interests | (3,343) | (1,489) | 31 | (4,801) | ||||||||||||||||||||||
| Total comprehensive (loss) income | $ | (32,035) | $ | (27,952) | $ | 218 | $ | (59,769) | ||||||||||||||||||
| Nine months ended September 30, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net income (loss) | $ | 7,807 | $ | 27,743 | $ | (877) | $ | 34,673 | ||||||||||||||||||
| Total comprehensive income (loss) | $ | 7,807 | $ | 27,743 | $ | (877) | $ | 34,673 | ||||||||||||||||||
| Total comprehensive income (loss) attributable to owner | $ | 10,025 | $ | 25,879 | $ | (818) | $ | 35,086 | ||||||||||||||||||
| Total comprehensive (loss) income attributable to non-controlling interests | (2,218) | 1,864 | (59) | (413) | ||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 7,807 | $ | 27,743 | $ | (877) | $ | 34,673 | ||||||||||||||||||
8
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three months ended September 30, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net income (loss) | $ | 2,524 | $ | 25,365 | $ | (312) | $ | 27,577 | ||||||||||||||||||
| Total comprehensive income (loss) | $ | 2,524 | $ | 25,365 | $ | (312) | $ | 27,577 | ||||||||||||||||||
| Total comprehensive income (loss) attributable to owner | $ | 3,155 | $ | 26,640 | $ | (292) | $ | 29,503 | ||||||||||||||||||
| Total comprehensive loss attributable to non-controlling interests | (631) | (1,275) | (20) | (1,926) | ||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 2,524 | $ | 25,365 | $ | (312) | $ | 27,577 | ||||||||||||||||||
| Year ended December 31, 2019 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Audited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net income (loss) | $ | 67,159 | $ | 24,695 | $ | (1,259) | $ | 90,595 | ||||||||||||||||||
| Total comprehensive income (loss) | $ | 67,159 | $ | 24,695 | $ | (1,259) | $ | 90,595 | ||||||||||||||||||
| Total comprehensive income (loss) attributable to owner | $ | 69,805 | $ | 22,431 | $ | (1,181) | $ | 91,055 | ||||||||||||||||||
| Total comprehensive (loss) income attributable to non-controlling interests | (2,646) | 2,264 | (78) | (460) | ||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 67,159 | $ | 24,695 | $ | (1,259) | $ | 90,595 | ||||||||||||||||||
9
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL
A.Presented below are pro forma interim consolidated financial statements as of September 30, 2020 and for the nine and three months ended September 30, 2020 and 2019 and the year ended December 31, 2019 (together the "Pro Forma Periods"), in accordance with Regulation 38B of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 (the "Pro Forma Statements").
The Pro Forma Consolidated Statement of Financial Position has been prepared to give effect of the acquisition of the POSOR II (defined below) on October 5, 2020, as if such acquisition occurred on September 30, 2020. The Pro Forma Consolidated Statements of Operations and Pro Forma Consolidated Statements of Comprehensive Income have been prepared to give effect to the acquisition of the POSOR II on October 5, 2020, as if such acquisition occurred on January 1, 2018. The Pro Forma Statements have been prepared under certain assumptions, which are set forth in Note 2 to the Pro Forma Statements. It is clarified that the Pro Forma Statements do not reflect the actual results of the Company; rather, they have been prepared in order to provide additional information, based on different assumptions.
On February 19, 2020, the Parent Company, Pacific Oak SOR II, LLC, an indirect subsidiary of the Company and the Parent Company (“Merger Sub”), and Pacific Oak Strategic Opportunity REIT II, Inc. (“POSOR II”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, POSOR II will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of the Parent Company. As a result of the Merger, POSOR II would cease to exist. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of POSOR II’s common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.9643 shares of the Parent Company’s common stock, par value $0.01 per share. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.” On October 5, 2020, pursuant to the Merger Agreement, POSOR II merged with and into Merger Sub, with Merger Sub surviving as an indirect subsidiary of the Company.
The Company acquired two hotel properties, three office properties, one apartment building, one consolidated joint venture to develop one office/retail property, two investments in real estate equity securities and two investments in joint ventures, working capital and loans. The Company is in process of assessing the fair value of the acquired tangible assets, liabilities assumed and any applicable intangible assets and liabilities for this business combination.
Consideration of $280.5 million is based on POSOR’s most recent estimated value per share of $9.68 approved by POSOR’s board of directors on December 4, 2020, based on the estimated value of POSOR’s assets less the estimated value of POSOR’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2020, with the exception of the following adjustments: (i) an adjustment for the Merger and related expenses incurred and (ii) the issuance of 28,973,906 shares of POSOR’s common stock in connection with the Merger.
The following table summarizes the components of the estimated consideration (in thousands except per share information):
| POSOR II shares outstanding | 30,046,568 | |||||||
| Exchange ratio | 0.9643 | |||||||
| Total POSOR shares issued | 28,973,906 | |||||||
| POSOR price per share | $ | 9.68 | ||||||
| Estimated consideration paid | $ | 280,467 | ||||||
10
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL (CONT.)
The Company determined the cost of tangible assets and assumed liabilities acquired in the business combination based on their estimated fair values. The purchase accounting for this acquisition is preliminary and subject to change. The company measured the non-controlling interest right's in the acquiring company according to the relative part of the non-controlling interest in the equity of acquiring company. The Company allocated the preliminary and temporary purchase price as follows:
| Total purchase price | $ | 280,467 | ||||||
| Investment properties | $ | 463,746 | ||||||
| Property plant and equipment - hotels, net | 137,000 | |||||||
| Financial assets at fair value through profit or loss | 6,271 | |||||||
| Cash and cash equivalents | 9,735 | |||||||
| Restricted cash | 3,243 | |||||||
| Investment in joint ventures | 3,150 | |||||||
| Rents and other receivables, net | 2,567 | |||||||
| Prepaid expenses and other assets | 3,341 | |||||||
| Total identifiable assets | $ | 629,053 | ||||||
| Notes and bonds payable, net | $ | (328,204) | ||||||
| Accounts payable and accrued liabilities | (9,926) | |||||||
| Due to affiliates | (2,123) | |||||||
| Other liabilities | (3,788) | |||||||
| Rental security deposits | (1,467) | |||||||
| Lease obligation | (8,251) | |||||||
| Total liabilities assumed | $ | (353,759) | ||||||
| Non-controlling interests | (20,542) | |||||||
| Total pro forma goodwill | $ | 25,715 | ||||||
B.As of September 30, 2020, the pro forma working capital shortfall amounted to $97.9 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 does not view the working capital shortfall as a liquidity problem.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the Pro Forma Statements are consistent with those applied in preparing the Company's unaudited interim financial statements as of September 30, 2020 and for the nine and three months periods then ended (the "interim financial statements"), which are consistent with those followed in the preparation of the Company's annual financial statements as of December 31, 2019 and for the year then ended (the "annual financial statements"), with the exception of the early adoption of IAS 1 and the accounting policies for property, plant, and equipment and hotel revenue. Pro Forma statements are based on assumptions and estimates. Therefore, the Pro Forma data should not be regarded as data that reflects the actual future Company's result occurred after the Pro Forma event.
11
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONT.)
IAS 1
The Company has elected to early adopt IAS 1, "Presentation of Financial Statement: Amendments to classification of liabilities as current or non-current." 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.
Property, plant and equipment
Items of property, plant and equipment are presented at cost, with the addition of direct acquisition costs, less accumulated depreciation, accumulated impairment losses and any related investment grants and excluding routine maintenance expenses.
Components of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item are depreciated separately using the component method.
Depreciation is calculated in equal annual installments on a straight-line basis over the useful life of the assets as follows:
| Buildings | 39 years | |||||||
| Furniture and equipment | 5 years | |||||||
| Leasehold improvements | 20 years | |||||||
Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term (including the extension option held by the Group which it intends to exercise) and the expected life of the improvement.
The useful life, the depreciation method and the residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.
Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized.
Revenue recognition
Revenues are recognized in profit or loss when they can be reliably measured, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be reliably measured. Revenues are measured at the fair value of the consideration in a transaction received, net of discounts.
The specific criteria for revenue recognition which must be fulfilled for the following types of revenues are as follows:
1.Revenues from hospitality services are recognized in the financial statements as the services are rendered.
2.Revenues from hotel management fees are recognized in the financial statements on an accrual's basis over the term of the management of each hotel.
3.Revenues from rental fees are recognized in the financial statements over the rental period.
12
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: PRO FORMA ASSUMPTIONS
A.General
The Pro Forma Consolidated Statement of Financial Position has been prepared to give effect of the acquisition of POSOR II, as if such acquisition occurred on September 30, 2020. The Pro Forma Consolidated Statements of Operations and Pro Forma Consolidated Statements of Comprehensive Income have been prepared to give effect to the acquisition of POSOR II, as if such acquisition occurred on January 1, 2018. The Pro Forma Statements have been prepared under certain assumptions, which are set forth below. It is clarified that the Pro Forma Statements do not reflect the actual results of the Company; rather, they have been prepared in order to provide additional information, based on different assumptions.
B.Principal assumptions used in preparing the Pro Forma Statements
The Pro Forma Statements have been prepared under the following assumptions:
1.The POSOR II merger occurred on September 30, 2020 for the Pro Forma Consolidated Statement of Financial Position and on January 1, 2018 for the Pro Forma Consolidated Statements of Operations and Pro Forma Consolidated Statements of Comprehensive Income.
2.An adjustment to accounts payable and general and administrative expenses reflects the amount of estimated acquisition costs incurred on October 5, 2020, not previously accrued for as of September 30, 2020.
3.An adjustment to depreciation and amortization is related to resetting the deprecation amounts based on the revised hotel cost basis.
Depreciation expenses in the pro forma consolidated financial statements were recognized according to temporary purchase price allocation. Hereunder details of the temporary purchase price allocation:
| Land | $ | 33,152 | ||||||
| Building | 101,187 | |||||||
| Furniture and equipment | 2,661 | |||||||
| Total estimated purchase price | $ | 137,000 | ||||||
4.An adjustment to asset management fees to affiliate based on the Company's back-to-back agreement of one-twelfth of 0.75% of the sum of the amount paid.
13
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: 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. As a result of the Merger, the Company recognized a third segment, hotel. Prior to November 2019, the Company had only one segment. The selected pro forma financial information for the three reporting segments as of and for the nine and three months ended September 30, 2020 and for the year ended December 31, 2019 is as follows:
September 30, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Investment properties | $ | 1,376,926 | $ | 206,421 | $ | — | $ | 1,583,347 | ||||||||||||||||||
| Property plant and equipment - hotels, net | $ | — | $ | — | $ | 137,000 | $ | 137,000 | ||||||||||||||||||
| Total assets | $ | 1,783,324 | $ | 221,424 | $ | 152,005 | $ | 2,156,753 | ||||||||||||||||||
| Total liabilities | $ | 943,027 | $ | 135,572 | $ | 92,838 | $ | 1,171,437 | ||||||||||||||||||
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 84,879 | $ | 11,520 | $ | 12,920 | $ | 109,319 | ||||||||||||||||||
| Gross profit | $ | 43,980 | $ | 5,524 | $ | 1,067 | $ | 50,571 | ||||||||||||||||||
| Finance expenses | $ | 23,853 | $ | 3,664 | $ | 3,838 | $ | 31,355 | ||||||||||||||||||
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 27,802 | $ | 5,417 | $ | 6,233 | $ | 39,452 | ||||||||||||||||||
| Gross profit | $ | 13,808 | $ | 2,656 | $ | 1,766 | $ | 18,230 | ||||||||||||||||||
| Finance expenses | $ | 7,310 | $ | 1,511 | $ | 1,288 | $ | 10,109 | ||||||||||||||||||
14
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: SEGMENT INFORMATION (CONT.)
Year ended December 31, 2019 | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 118,932 | $ | 1,884 | $ | 31,382 | $ | 152,198 | ||||||||||||||||||
| Gross profit | $ | 60,037 | $ | 948 | $ | 8,612 | $ | 69,597 | ||||||||||||||||||
| Finance expenses | $ | 43,986 | $ | 497 | $ | 4,242 | $ | 48,725 | ||||||||||||||||||
NOTE 5: SUBSEQUENT EVENTS
Dividend approval
On November 12, 2020, the Company’s board of directors approved a distribution of dividend in the amount of $14.3 million to the Owner.
- - - - - - - - - - - - - - - - - - -
15
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
BOARD OF DIRECTORS' EXPLANATIONS FOR PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A.GENERAL
Presented below are pro forma interim consolidated financial statements as of September 30, 2020 and for the nine and three months ended September 30, 2020 and 2019 and the year ended December 31, 2019 (together the "Pro Forma Periods"), in accordance with Regulation 38B of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 (the "Pro Forma Statements").
The Pro Forma Consolidated Statement of Financial Position has been prepared to give effect of the acquisition of the POSOR II (defined below) on October 5, 2020, as if such acquisition occurred on September 30, 2020. The Pro Forma Consolidated Statements of Operations and Pro Forma Consolidated Statements of Comprehensive Income have been prepared to give effect to the acquisition of the POSOR II on October 5, 2020, as if such acquisition occurred on January 1, 2018. The Pro Forma Statements have been prepared under certain assumptions, which are set forth in Note 2 to the Pro Forma Statements. It is clarified that the Pro Forma Statements do not reflect the actual results of the Company; rather, they have been prepared in order to provide additional information, based on different assumptions.
On February 19, 2020, the Parent Company, Pacific Oak SOR II, LLC, an indirect subsidiary of the Company and the Parent Company (“Merger Sub”), and Pacific Oak Strategic Opportunity REIT II, Inc. (“POSOR II”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Subject to the terms and conditions of the Merger Agreement, POSOR II will merge with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger (the “Surviving Entity”), such that following the Merger, the Surviving Entity will continue as an indirect subsidiary of the Parent Company. As a result of the Merger, POSOR II would cease to exist. At the effective time of the Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of POSOR II’s common stock (or a fraction thereof), $0.01 par value per share, will be converted into the right to receive 0.9643 shares of the Parent Company’s common stock, par value $0.01 per share. The combined company after the Merger will retain the name “Pacific Oak Strategic Opportunity REIT, Inc.” On October 5, 2020, pursuant to the Merger Agreement, POSOR II merged with and into Merger Sub, with Merger Sub surviving as an indirect subsidiary of the Company.
The Company acquired two hotel properties, three office properties, one apartment building, one consolidated joint venture to develop one office/retail property, two investments in real estate equity securities, two investments in joint ventures, working capital and loans.
Consideration of $280.5 million is based on POSOR’s most recent estimated value per share of $9.68 approved by POSOR’s board of directors on December 4, 2020, based on the estimated value of POSOR’s assets less the estimated value of POSOR’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2020, with the exception of the following adjustments: (i) an adjustment for the Merger and related expenses incurred and (ii) the issuance of 28,973,906 shares of POSOR’s common stock in connection with the Merger.
The following table summarizes the components of the estimated consideration (in thousands except per share information):
| POSOR II shares outstanding | 30,046,568 | |||||||
| Exchange ratio | 0.9643 | |||||||
| Total POSOR shares issued | 28,973,906 | |||||||
| POSOR price per share | $ | 9.68 | ||||||
| Estimated consideration paid | $ | 280,467 | ||||||
BOD - 1
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
BOARD OF DIRECTORS' EXPLANATIONS FOR PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The Company determined the cost of tangible assets and assumed liabilities acquired in the business combination based on their estimated fair values. The purchase accounting for this acquisition is preliminary and subject to change. The company measured the non-controlling interest right's in the acquiring company according to the relative part of the non-controlling interest in the equity of acquiring company. The Company allocated the preliminary and temporary purchase price as follows:
| Total purchase price | $ | 280,467 | ||||||
| Investment properties | $ | 463,746 | ||||||
| Property plant and equipment - hotels, net | 137,000 | |||||||
| Financial assets at fair value through profit or loss | 6,271 | |||||||
| Cash and cash equivalents | 9,735 | |||||||
| Restricted cash | 3,243 | |||||||
| Investment in joint ventures | 3,150 | |||||||
| Rents and other receivables, net | 2,567 | |||||||
| Prepaid expenses and other assets | 3,341 | |||||||
| Total identifiable assets | $ | 629,053 | ||||||
| Notes and bonds payable, net | $ | (328,204) | ||||||
| Accounts payable and accrued liabilities | (9,926) | |||||||
| Due to affiliates | (2,123) | |||||||
| Other liabilities | (3,788) | |||||||
| Rental security deposits | (1,467) | |||||||
| Lease obligation | (8,251) | |||||||
| Total liabilities assumed | $ | (353,759) | ||||||
| Non-controlling interests | (20,542) | |||||||
| Total pro forma goodwill | $ | 25,715 | ||||||
B.ANALYSIS OF PRO FORMA RESULTS OF OPERATIONS
1. Below is an analysis of the pro forma results of operations for the nine months ended September 30, 2020 and 2019:
Rental income with respect to POSOR II decreased from $22.7 million for the nine months ended September 30, 2019 to $22.5 million for the nine months ended September 30, 2020 and tenant reimbursements increased from $2.3 million for the nine months ended September 30, 2019 to $2.4 million for the nine months ended September 30, 2020. Hotel revenues decreased from $25.3 million for the nine months ended September 30, 2019 to $12.9 million for the nine months ended September 30, 2020, primarily as a result of COVID-19. On March 31, 2020, both hotels were temporarily closed due to COVID-19 (Coronavirus). The Springmaid Beach Resort reopened on May 1, 2020 and the Q&C Hotel reopened on September 1, 2020. The extent of the effects of the COVID-19 pandemic on the Company’s business and the hotel industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, governmental response, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.
Operating, maintenance, and management fees with respect to POSOR II decreased from $8.7 million for the nine months ended September 30, 2019 to $8.6 million for the nine months ended September 30, 2020 and real estate taxes and insurance increased from $4.3 million for the nine months ended September 30, 2019 to $4.4 million for the nine months ended September 30, 2020. Hotel expenses decreased from $17.6 million for the nine months ended September 30, 2019 to $11.9 million for the nine months ended September 30, 2020, primarily as a result of COVID-19.
The fair value adjustment of investment properties with respect to the POSOR II decreased from $24.1 million for the nine months ended September 30, 2019 to $28.6 million loss for the nine months ended September 30, 2020, as a result of adjustments made to reflect the fair values of the POSOR II properties. The loss incurred in 2020 was primarily as a result of COVID-19.
BOD - 2
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
BOARD OF DIRECTORS' EXPLANATIONS FOR PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Finance expenses with respect to POSOR II decreased from $15.2 million for the nine months ended September 30, 2019 to $11.5 million for the nine months ended September 30, 2020, primarily as a result of an decrease in the LIBOR index related to the variable rate debt of the POSOR II.
2. Below is an analysis of the pro forma results of operations for the three months ended September 30, 2020 and 2019:
Rental income with respect to POSOR II decreased from $7.7 million for the three months ended September 30, 2019 to $7.4 million for the three months ended September 30, 2020 and tenant reimbursements decreased from $0.8 million for the three months ended September 30, 2019 to $0.7 million for the three months ended September 30, 2020. Hotel revenues decreased from $9.3 million for the three months ended September 30, 2019 to $6.2 million for the three months ended September 30, 2020, primarily as a result of COVID-19. On March 31, 2020, both hotels were temporarily closed due to COVID-19 (Coronavirus). The Springmaid Beach Resort reopened on May 1, 2020 and the Q&C Hotel reopened on September 1, 2020. The extent of the effects of the COVID-19 pandemic on the Company’s business and the hotel industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, governmental response, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.
Operating, maintenance, and management fees with respect to POSOR II increased from $3.0 million for the three months ended September 30, 2019 to $3.3 million for the three months ended September 30, 2020 and real estate taxes and insurance remained consistent at $1.5 million for the three months ended September 30, 2019 and $1.5 million for the nine months ended September 30, 2020. Hotel expenses decreased from $6.2 million for the three months ended September 30, 2019 to $4.5 million for the three months ended September 30, 2020, primarily as a result of COVID-19.
The fair value adjustment of investment properties with respect to the POSOR II decreased from $24.4 million for the three months ended September 30, 2019 to $24.2 million loss for the three months ended September 30, 2020, as a result of adjustments made to reflect the fair values of the POSOR II properties. The loss incurred in 2020 was primarily as a result of COVID-19.
Finance expenses with respect to POSOR II decreased from $5.2 million for the three months ended September 30, 2019 to $3.6 million for the three months ended September 30, 2020, primarily as a result of an decrease in the LIBOR index related to the variable rate debt of the POSOR II.
December 22, 2020 | /s/ Peter McMillan III | /s/ Keith David Hall | ||||||||||||
Date of approval of | McMillan III, Peter | Hall, Keith David | ||||||||||||
pro forma financial statements | Chairman of Board of Directors | Chief Executive Officer | ||||||||||||
BOD - 3