Attached files
| file | filename |
|---|---|
| EX-99.2 - EX-99.2 - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksorbviq22021finsa.htm |
| EX-99.1 - EX-99.1 - Pacific Oak Strategic Opportunity REIT, Inc. | pacificoaksorbviq22021fins.htm |
| 8-K - 8-K - Pacific Oak Strategic Opportunity REIT, Inc. | pacoaksor-20210809.htm |
Exhibit 99.3
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2021
AUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
Page | |||||
| Pro Forma Consolidated Statements of Profit or Loss | 2-6 | ||||
| Pro Forma Consolidated Statements of Comprehensive Income | 7-8 | ||||
| Notes to Pro Forma Interim Consolidated Financial Statements | 9-13 | ||||
- - - - - - - - - - - - - - - - - - -
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Six months ended June 30, 2021 | ||||||||||||||||||||
| As previously reported | Merger Adjustments | Pro Forma Total | ||||||||||||||||||
| Unaudited | ||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||
| Rental income | $ | 60,521 | $ | — | $ | 60,521 | ||||||||||||||
| Tenant reimbursements | 6,705 | — | 6,705 | |||||||||||||||||
| Hotel revenues | 12,424 | — | 12,424 | |||||||||||||||||
| Other operating income | 1,173 | — | 1,173 | |||||||||||||||||
| Total revenues and other income | 80,823 | — | 80,823 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Operating, maintenance, and management fees | (22,471) | — | (22,471) | |||||||||||||||||
| Real estate taxes and insurance | (10,688) | — | (10,688) | |||||||||||||||||
| Hotel expenses | (9,231) | — | (9,231) | |||||||||||||||||
| Total expenses | (42,390) | — | (42,390) | |||||||||||||||||
| Gross profit | 38,433 | — | 38,433 | |||||||||||||||||
| Fair value adjustment of investment properties, net | (6,822) | — | (6,822) | |||||||||||||||||
| Depreciation | (1,525) | — | (1,525) | |||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (3,002) | — | (3,002) | |||||||||||||||||
| Asset management fees to affiliate | (7,380) | — | (7,380) | |||||||||||||||||
| General and administrative expenses | (2,134) | — | (2,134) | |||||||||||||||||
| Operating profit | 17,570 | — | 17,570 | |||||||||||||||||
| Finance income | 94 | — | 94 | |||||||||||||||||
| Finance income from financial assets at fair value through profit or loss | 19,058 | — | 19,058 | |||||||||||||||||
| Finance expenses | (21,072) | — | (21,072) | |||||||||||||||||
| Gain on extinguishment of debt | 13 | — | 13 | |||||||||||||||||
| Foreign currency transaction adjustments, net | 2,839 | — | 2,839 | |||||||||||||||||
| Net income | $ | 18,502 | $ | — | $ | 18,502 | ||||||||||||||
| Net income attributable to owner | $ | 19,287 | $ | — | $ | 19,287 | ||||||||||||||
| Net loss attributable to non-controlling interests | (785) | — | (785) | |||||||||||||||||
| Net income | $ | 18,502 | $ | — | $ | 18,502 | ||||||||||||||
The accompanying notes are an integral part of the pro forma consolidated financial statements.
August 5, 2021 | /s/ Michael Allen Bender | /s/ Peter McMillan III | /s/ Keith David Hall | |||||||||||||||||
Date of approval of | Bender, Michael Allen | McMillan III, Peter | Hall, Keith David | |||||||||||||||||
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
| Six months ended June 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 40,122 | $ | 15,114 | $ | — | $ | 55,236 | ||||||||||||||||||
| Tenant reimbursements | 5,029 | 1,636 | — | 6,665 | ||||||||||||||||||||||
| Hotel revenues | — | 6,687 | — | 6,687 | ||||||||||||||||||||||
| Other operating income | 946 | 333 | — | 1,279 | ||||||||||||||||||||||
| Total revenues and other income | 46,097 | 23,770 | — | 69,867 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (15,118) | (5,341) | — | (20,459) | ||||||||||||||||||||||
| Real estate taxes and insurance | (6,779) | (2,902) | — | (9,681) | ||||||||||||||||||||||
| Hotel expenses | — | (7,386) | — | (7,386) | ||||||||||||||||||||||
| Total expenses | (21,897) | (15,629) | — | (37,526) | ||||||||||||||||||||||
| Gross profit | 24,200 | 8,141 | — | 32,341 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (24,206) | (4,364) | — | (28,570) | ||||||||||||||||||||||
| Depreciation | — | (1,272) | (390) | (1,662) | ||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (5,317) | — | — | (5,317) | ||||||||||||||||||||||
| Asset management fees to affiliate | (4,441) | (2,096) | (188) | (6,725) | ||||||||||||||||||||||
| General and administrative expenses | (1,564) | (3,101) | — | (4,665) | ||||||||||||||||||||||
| Operating loss | (11,328) | (2,692) | (578) | (14,598) | ||||||||||||||||||||||
| Finance income | 248 | 60 | — | 308 | ||||||||||||||||||||||
| Finance loss from financial assets at fair value through profit or loss | (12,688) | (4,327) | — | (17,015) | ||||||||||||||||||||||
| Finance expenses | (13,379) | (7,867) | — | (21,246) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | 12,783 | 27 | — | 12,810 | ||||||||||||||||||||||
| Net loss | $ | (24,364) | $ | (14,799) | $ | (578) | $ | (39,741) | ||||||||||||||||||
| Net loss attributable to owner | $ | (23,732) | $ | (13,549) | $ | (539) | $ | (37,820) | ||||||||||||||||||
| Net loss attributable to non-controlling interests | (632) | (1,250) | (39) | (1,921) | ||||||||||||||||||||||
| Net loss | $ | (24,364) | $ | (14,799) | $ | (578) | $ | (39,741) | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma consolidated financial statements.
3
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Three months ended June 30, 2021 | ||||||||||||||||||||
| As previously reported | Merger Adjustments | Pro Forma Total | ||||||||||||||||||
| Unaudited | ||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||
| Rental income | $ | 30,346 | $ | — | $ | 30,346 | ||||||||||||||
| Tenant reimbursements | 3,435 | — | 3,435 | |||||||||||||||||
| Hotel revenues | 9,849 | — | 9,849 | |||||||||||||||||
| Other operating income | 620 | — | 620 | |||||||||||||||||
| Total revenues and other income | 44,250 | — | 44,250 | |||||||||||||||||
| Expenses: | ||||||||||||||||||||
| Operating, maintenance, and management fees | (11,289) | — | (11,289) | |||||||||||||||||
| Real estate taxes and insurance | (5,399) | — | (5,399) | |||||||||||||||||
| Hotel expenses | (5,841) | — | (5,841) | |||||||||||||||||
| Total expenses | (22,529) | — | (22,529) | |||||||||||||||||
| Gross profit | 21,721 | — | 21,721 | |||||||||||||||||
| Fair value adjustment of investment properties, net | (15,456) | — | (15,456) | |||||||||||||||||
| Depreciation | (787) | — | (787) | |||||||||||||||||
| Equity in income of unconsolidated joint ventures | 57 | — | 57 | |||||||||||||||||
| Asset management fees to affiliate | (3,528) | — | (3,528) | |||||||||||||||||
| General and administrative expenses | (1,495) | — | (1,495) | |||||||||||||||||
| Operating profit | 512 | — | 512 | |||||||||||||||||
| Finance income | 49 | — | 49 | |||||||||||||||||
| Finance income from financial assets at fair value through profit or loss | 5,552 | — | 5,552 | |||||||||||||||||
| Finance expenses | (10,909) | — | (10,909) | |||||||||||||||||
| Gain on extinguishment of debt | 13 | — | 13 | |||||||||||||||||
| Foreign currency transaction adjustments, net | (5,507) | — | (5,507) | |||||||||||||||||
| Net loss | $ | (10,290) | $ | — | $ | (10,290) | ||||||||||||||
| Net loss attributable to owner | $ | (10,425) | $ | — | $ | (10,425) | ||||||||||||||
| Net income attributable to non-controlling interests | 135 | — | 135 | |||||||||||||||||
| Net loss | $ | (10,290) | $ | — | $ | (10,290) | ||||||||||||||
The accompanying notes are an integral part of the pro forma consolidated financial statements.
4
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Three months ended June 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 20,114 | $ | 7,544 | $ | — | $ | 27,658 | ||||||||||||||||||
| Tenant reimbursements | 2,497 | 757 | — | 3,254 | ||||||||||||||||||||||
| Hotel revenues | — | 2,607 | — | 2,607 | ||||||||||||||||||||||
| Other operating income | 399 | 152 | — | 551 | ||||||||||||||||||||||
| Total revenues and other income | 23,010 | 11,060 | — | 34,070 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (7,351) | (2,578) | — | (9,929) | ||||||||||||||||||||||
| Real estate taxes and insurance | (3,351) | (1,436) | — | (4,787) | ||||||||||||||||||||||
| Hotel expenses | — | (2,725) | — | (2,725) | ||||||||||||||||||||||
| Total expenses | (10,702) | (6,739) | — | (17,441) | ||||||||||||||||||||||
| Gross profit | 12,308 | 4,321 | — | 16,629 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (1,491) | — | — | (1,491) | ||||||||||||||||||||||
| Depreciation | — | (636) | (195) | (831) | ||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (6,619) | — | — | (6,619) | ||||||||||||||||||||||
| Asset management fees to affiliate | (2,335) | (1,052) | (90) | (3,477) | ||||||||||||||||||||||
| General and administrative expenses | (991) | (1,428) | — | (2,419) | ||||||||||||||||||||||
| Operating profit (loss) | 872 | 1,205 | (285) | 1,792 | ||||||||||||||||||||||
| Finance income | 6 | 25 | — | 31 | ||||||||||||||||||||||
| Finance income (loss) from financial assets at fair value through profit or loss | 12,235 | (577) | — | 11,658 | ||||||||||||||||||||||
| Finance expenses | (6,218) | (3,741) | — | (9,959) | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (2,213) | — | — | (2,213) | ||||||||||||||||||||||
| Net income (loss) | $ | 4,682 | $ | (3,088) | $ | (285) | $ | 1,309 | ||||||||||||||||||
| Net income (loss) attributable to owner | $ | 4,919 | $ | (2,876) | $ | (265) | $ | 1,778 | ||||||||||||||||||
| Net loss attributable to non-controlling interests | (237) | (212) | (20) | (469) | ||||||||||||||||||||||
| Net income (loss) | $ | 4,682 | $ | (3,088) | $ | (285) | $ | 1,309 | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma consolidated financial statements.
5
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF PROFIT OR LOSS
| Year ended December 31, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Revenues and other income: | ||||||||||||||||||||||||||
| Rental income | $ | 93,107 | $ | 22,509 | $ | — | $ | 115,616 | ||||||||||||||||||
| Tenant reimbursements | 10,171 | 2,375 | — | 12,546 | ||||||||||||||||||||||
| Hotel revenues | 3,718 | 12,920 | — | 16,638 | ||||||||||||||||||||||
| Other operating income | 1,927 | 456 | — | 2,383 | ||||||||||||||||||||||
| Total revenues and other income | 108,923 | 38,260 | — | 147,183 | ||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||
| Operating, maintenance, and management fees | (36,091) | (8,599) | — | (44,690) | ||||||||||||||||||||||
| Real estate taxes and insurance | (15,702) | (4,357) | — | (20,059) | ||||||||||||||||||||||
| Hotel expenses | (3,836) | (11,853) | — | (15,689) | ||||||||||||||||||||||
| Total expenses | (55,629) | (24,809) | — | (80,438) | ||||||||||||||||||||||
| Gross profit | 53,294 | 13,451 | — | 66,745 | ||||||||||||||||||||||
| Fair value adjustment of investment properties, net | (24,214) | (28,551) | — | (52,765) | ||||||||||||||||||||||
| Depreciation | (832) | (1,906) | (586) | (3,324) | ||||||||||||||||||||||
| Impairment on property plant and equipment - hotels | — | (503) | 503 | — | ||||||||||||||||||||||
| Equity in loss of unconsolidated joint ventures | (29,593) | (34) | — | (29,627) | ||||||||||||||||||||||
| Asset management fees to affiliate | (9,982) | (3,148) | (278) | (13,408) | ||||||||||||||||||||||
| General and administrative expenses | (3,590) | (4,184) | — | (7,774) | ||||||||||||||||||||||
| Operating loss | (14,917) | (24,875) | (361) | (40,153) | ||||||||||||||||||||||
| Transaction and related costs | (6,018) | — | 6,018 | — | ||||||||||||||||||||||
| Finance income | 318 | 58 | — | 376 | ||||||||||||||||||||||
| Finance loss from financial assets at fair value through profit or loss | (6,435) | (6,448) | — | (12,883) | ||||||||||||||||||||||
| Finance expenses | (30,126) | (11,511) | — | (41,637) | ||||||||||||||||||||||
| Gain on extinguishment of debt | 415 | — | — | 415 | ||||||||||||||||||||||
| Foreign currency transaction adjustments, net | (2,912) | 27 | — | (2,885) | ||||||||||||||||||||||
| Net (loss) income | $ | (59,675) | $ | (42,749) | $ | 5,657 | $ | (96,767) | ||||||||||||||||||
| Net (loss) income attributable to owner | $ | (63,293) | $ | (40,011) | $ | 5,665 | $ | (97,639) | ||||||||||||||||||
| Net income (loss) attributable to non-controlling interests | 3,618 | (2,738) | (8) | 872 | ||||||||||||||||||||||
| Net (loss) income | $ | (59,675) | $ | (42,749) | $ | 5,657 | $ | (96,767) | ||||||||||||||||||
The accompanying notes are an integral part of the pro forma consolidated financial statements.
6
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Six months ended June 30, 2021 | ||||||||||||||||||||
| As previously reported | Merger Adjustments | Pro Forma Total | ||||||||||||||||||
| Unaudited | ||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Net income | $ | 18,502 | $ | — | $ | 18,502 | ||||||||||||||
| Total comprehensive income | $ | 18,502 | $ | — | $ | 18,502 | ||||||||||||||
| Total comprehensive income attributable to owner | $ | 19,287 | $ | — | $ | 19,287 | ||||||||||||||
| Total comprehensive loss attributable to non-controlling interests | (785) | — | (785) | |||||||||||||||||
| Total comprehensive income | $ | 18,502 | $ | — | $ | 18,502 | ||||||||||||||
| Six months ended June 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net loss | $ | (24,364) | $ | (14,799) | $ | (578) | $ | (39,741) | ||||||||||||||||||
| Total comprehensive loss | $ | (24,364) | $ | (14,799) | $ | (578) | $ | (39,741) | ||||||||||||||||||
| Total comprehensive loss attributable to owner | $ | (23,732) | $ | (13,549) | $ | (539) | $ | (37,820) | ||||||||||||||||||
| Total comprehensive loss attributable to non-controlling interests | (632) | (1,250) | (39) | (1,921) | ||||||||||||||||||||||
| Total comprehensive loss | $ | (24,364) | $ | (14,799) | $ | (578) | $ | (39,741) | ||||||||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||||||
| As previously reported | Merger Adjustments | Pro Forma Total | ||||||||||||||||||
| Unaudited | ||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||
| Net loss | $ | (10,290) | $ | — | $ | (10,290) | ||||||||||||||
| Total comprehensive loss | $ | (10,290) | $ | — | $ | (10,290) | ||||||||||||||
| Total comprehensive loss attributable to owner | $ | (10,425) | $ | — | $ | (10,425) | ||||||||||||||
| Total comprehensive income attributable to non-controlling interests | 135 | — | 135 | |||||||||||||||||
| Total comprehensive loss | $ | (10,290) | $ | — | $ | (10,290) | ||||||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net income (loss) | $ | 4,682 | $ | (3,088) | $ | (285) | $ | 1,309 | ||||||||||||||||||
| Total comprehensive income (loss) | $ | 4,682 | $ | (3,088) | $ | (285) | $ | 1,309 | ||||||||||||||||||
| Total comprehensive income (loss) attributable to owner | $ | 4,919 | $ | (2,876) | $ | (265) | $ | 1,778 | ||||||||||||||||||
| Total comprehensive loss attributable to non-controlling interests | (237) | (212) | (20) | (469) | ||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 4,682 | $ | (3,088) | $ | (285) | $ | 1,309 | ||||||||||||||||||
7
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year ended December 31, 2020 | ||||||||||||||||||||||||||
| As previously reported | POSOR II | Merger Adjustments | Pro Forma Total | |||||||||||||||||||||||
| Audited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Net (loss) income | $ | (59,675) | $ | (42,749) | $ | 5,657 | $ | (96,767) | ||||||||||||||||||
| Total comprehensive (loss) income | $ | (59,675) | $ | (42,749) | $ | 5,657 | $ | (96,767) | ||||||||||||||||||
| Total comprehensive (loss) income attributable to owner | $ | (63,293) | $ | (40,011) | $ | 5,665 | $ | (97,639) | ||||||||||||||||||
| Total comprehensive income (loss) attributable to non-controlling interests | 3,618 | (2,738) | (8) | 872 | ||||||||||||||||||||||
| Total comprehensive (loss) income | $ | (59,675) | $ | (42,749) | $ | 5,657 | $ | (96,767) | ||||||||||||||||||
8
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL
A.Presented above are the pro forma interim consolidated financial statements for the six and three months ended June 30, 2021 and June 30, 2020 and for the year ended December 31, 2020 (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 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 | ||||||
9
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 1: GENERAL (Cont.)
The fair values of the assets acquired and liabilities assumed at the closing date were as follows (in thousands):
| Assets: | ||||||||
| Cash | $ | 9,735 | ||||||
| Rents and other receivables | 2,567 | |||||||
| Prepaid expenses and other assets | 3,341 | |||||||
| Investment property | 465,908 | |||||||
| Property plant and equipment - hotels, net | 137,000 | |||||||
| Investment in joint ventures | 3,150 | |||||||
| Financial assets at fair value through profit or loss | 6,271 | |||||||
| Restricted cash | 3,243 | |||||||
| Total assets | 631,215 | |||||||
| Liabilities: | ||||||||
| Notes payable | (328,203) | |||||||
| Accounts payable and accrued liabilities | (9,926) | |||||||
| Due to Owner | (2,123) | |||||||
| Other liabilities | (3,788) | |||||||
| Lease obligation | (9,258) | |||||||
| Rental security deposits | (1,467) | |||||||
| Total liabilities | (354,765) | |||||||
| Non-controlling interests | (12,325) | |||||||
| Fair value of identifiable intangible asset acquired: | ||||||||
| Goodwill | 16,342 | |||||||
| Total consideration | $ | 280,467 | ||||||
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 annual financial statements as of December 31, 2020.
NOTE 3: PRO FORMA ASSUMPTIONS
A.General
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.
10
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 3: PRO FORMA ASSUMPTIONS (Cont.)
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 January 1, 2018 for the Pro Forma Consolidated Statements of Operations and Pro Forma Consolidated Statements of Comprehensive Income.
2.An adjustment to depreciation 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 purchase price allocation:
| Land | $ | 33,152 | ||||||
| Building | 101,187 | |||||||
| Furniture and equipment | 2,661 | |||||||
| Total estimated purchase price | $ | 137,000 | ||||||
3.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.
11
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 for the six and three months ended June 30, 2021 and June 30, 2020 and the year ended December 31, 2020 (in thousands):
Six months ended June 30, 2021 | ||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| 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 | ||||||||||||||||||
Six months ended June 30, 2020 | ||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 57,077 | $ | 6,103 | $ | 6,687 | $ | 69,867 | ||||||||||||||||||
| Gross profit (loss) | $ | 30,172 | $ | 2,868 | $ | (699) | $ | 32,341 | ||||||||||||||||||
| Finance expenses | $ | 16,543 | $ | 2,153 | $ | 2,550 | $ | 21,246 | ||||||||||||||||||
Three months ended June 30, 2021 | ||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| 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 | ||||||||||||||||||
12
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
NOTES TO PRO FORMA INTERIM CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands
NOTE 4: SEGMENT INFORMATION (Cont.)
Three months ended June 30, 2020 | ||||||||||||||||||||||||||
| Unaudited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 28,267 | $ | 3,196 | $ | 2,607 | $ | 34,070 | ||||||||||||||||||
| Gross profit (loss) | $ | 15,120 | $ | 1,627 | $ | (118) | $ | 16,629 | ||||||||||||||||||
| Finance expenses | $ | 7,634 | $ | 1,047 | $ | 1,278 | $ | 9,959 | ||||||||||||||||||
Year ended December 31, 2020 | ||||||||||||||||||||||||||
| Audited | ||||||||||||||||||||||||||
| U.S. dollars in thousands | ||||||||||||||||||||||||||
| Strategic Opportunistic Properties | Single-Family Homes | Hotel | Total | |||||||||||||||||||||||
| Total revenues and other income | $ | 113,528 | $ | 17,017 | $ | 16,638 | $ | 147,183 | ||||||||||||||||||
| Gross profit | $ | 57,759 | $ | 8,217 | $ | 769 | $ | 66,745 | ||||||||||||||||||
| Finance expenses | $ | 31,123 | $ | 5,171 | $ | 5,343 | $ | 41,637 | ||||||||||||||||||
- - - - - - - - - - - - - - - - - - -
13
PACIFIC OAK SOR (BVI) HOLDINGS LTD.
BOARD OF DIRECTORS' EXPLANATIONS FOR PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
A.GENERAL
Presented are pro forma interim consolidated financial statements for the six and three months ended June 30, 2021 and June 30, 2020 and the year ended December 31, 2020 (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 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 | ||||||
August 5, 2021 | /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 - 1