NOTES AND BONDS PAYABLE

9 Months Ended

Sep. 30, 2022

As of September 30, 2022 and December 31, 2021, the Company’s notes and bonds payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):


	Book Value as of September 30, 2022		Book Value as of December 31, 2021		Contractual Interest Rate as of September 30, 2022	Effective Interest Rate at September 30, 2022 (1)	Payment Type (2)	Maturity Date (3)
Richardson Portfolio Mortgage Loan	$	18,944	$	28,470	LIBOR + 2.50%	5.64%	Principal & Interest	11/1/2022 (4)
Park Centre Mortgage Loan	26,104		26,185		BSBY + 1.75%	4.88%	Principal & Interest	06/27/2023
1180 Raymond Mortgage Loan (5)	31,070		31,070		BSBY + 2.25%	5.38%	Interest Only	12/01/2023
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (6)	326,523		271,978		3.93%	3.93%	(6)	01/31/2026
Crown Pointe Mortgage Loan	53,758		52,315		SOFR + 2.30%	4.77%	Interest Only	04/01/2025
The Marq Mortgage Loan	60,998		61,874		BSBY + 1.55%	4.68%	Principal & Interest	06/06/2023
Eight & Nine Corporate Centre Mortgage Loan	48,095		48,545		BSBY + 1.60%	4.73%	Principal & Interest	06/08/2023
Georgia 400 Center Mortgage Loan	44,129		61,154		LIBOR + 1.55%	4.69%	Interest Only	05/22/2023
PORT Mortgage Loan 1	51,303		51,302		4.74%	4.74%	Interest Only	10/01/2025
PORT Mortgage Loan 2	10,523		10,523		4.72%	4.72%	Interest Only	03/01/2026
PORT MetLife Loans	153,703		60,000		3.90%	3.90%	Interest Only	04/10/2026
Springmaid Beach Resort Mortgage Loan	(7)		55,491		(7)	(7)	(7)	(7)
Q&C Hotel Mortgage Loan	24,815		25,000		LIBOR + 2.50% (8)	5.64%	Principal & Interest	12/23/2022
Lincoln Court Mortgage Loan (5)	35,314		34,623		SOFR + 3.25%	5.72%	Interest Only	08/07/2025
Lofts at NoHo Commons Mortgage Loan	71,536		74,536		SOFR + 2.18% (9)	4.65%	Interest Only	09/09/2023
210 West 31st Street Mortgage Loan (5)	3,000		8,850		BSBY + 3.00%	6.13%	Principal & Interest	12/16/2022
Oakland City Center Mortgage Loan (5)	89,250		96,075		BSBY + 3.00%	6.13%	Principal & Interest	09/01/2023
Madison Square Mortgage Loan	17,671		17,500		4.63%	4.63%	Interest Only	10/07/2024
Total Notes and Bonds Payable principal outstanding	1,066,736		1,015,491
Discount on Notes and Bonds Payable, net (10)	(13,376)		(8,146)
Deferred financing costs, net	(10,500)		(8,396)
Total Notes and Bonds Payable, net	$	1,042,860	$	998,949

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2022. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2022 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2022, where applicable.

(2) Represents the payment type required under the loan as of September 30, 2022. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bonds payable, see five-year maturity table below.

(3) Represents the initial maturity date or the maturity date as extended as of September 30, 2022; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(4) Subsequent to September 30, 2022, the Company extended the Richardson Portfolio Mortgage Loan to October 10, 2022.

(5) The Company’s notes and bond’s payable are generally non-recourse. These mortgage loans have guarantees over certain balances whereby the Company would be required to make guaranteed payments in the event that the Company turned the property over to the lender. The guarantees are typically 25% of the outstanding loan balance. As of September 30, 2022, the guaranteed amount in the aggregate was $41.9 million.

(6) See “Israeli Bond Financings” below.

(7) The Springmaid Beach Resort Mortgage Loan was paid off in conjunction with the sale of the Springmaid Beach Resort. See Note 3 for further details.

(8) The interest rate is variable at the higher of one-month LIBOR + 2.5% or 4.5%.

(9) The variable rate is at the higher of one-month SOFR or 1.75%, plus 2.18%.

(10) Represents the unamortized premium/discount on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bonds payable.

During the three and nine months ended September 30, 2022, the Company incurred $13.0 million and $33.3 million, respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2022 was $1.0 million and $2.6 million, respectively, of amortization of deferred financing costs. Included in interest expense for the three and nine months ended September 30, 2022 was $1.1 million and $3.4 million, respectively, of amortization on discount on notes and bonds payable, net. Additionally, during the three and nine months ended September 30, 2022, the Company capitalized $0.7 million and $1.7 million, respectively, of interest related to its investments in undeveloped land.

During the three and nine months ended September 30, 2021, the Company incurred $10.1 million and $30.7 million, respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2021 was $0.8 million and $2.5 million, respectively, of amortization of deferred financing costs. Included in interest expense for the three and nine months ended September 30, 2021 was $0.5 million and $1.9 million, respectively, of amortization on discount on notes and bonds payable, net. Additionally, during the three and nine months ended September 30, 2021, the Company capitalized $0.5 million and $1.6 million, respectively of interest related to its investments in undeveloped land.

As of September 30, 2022 and December 31, 2021, the Company’s interest payable was $5.2 million and $6.6 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of September 30, 2022 (in thousands):



October 1, 2022 through December 31, 2022	$	49,443
2023	368,500
2024	126,512
2025	249,216
2026	273,065
Thereafter	—
	$	1,066,736

As of November 14, 2022, the Company had a total of $383.0 million of debt obligations scheduled to mature over the next 12 months. The Company has extension options with respect to $185.4 million of the debt obligations outstanding that are scheduled to mature over the next 12 months; however, the Company cannot exercise these options if not then in compliance with certain financial covenants in the loans without making a cash payment and there is no assurance that the Company will be able to meet these requirements. All of the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, as outlined in the table above, except for the Company’s Series B Debentures. The Company plans to utilize available extension options or refinance the notes payable. The Company may also choose to market the properties for sale or may negotiate a turnover of the secured properties back to the related mortgage lender.

The Company’s notes payable contain financial debt covenants, including minimum equity requirements and liquidity ratios. As of September 30, 2022, the Company was in compliance with all of these debt covenants with the exception that the Oakland City Center Mortgage Loan and Georgia 400 Center Mortgage Loan were not in compliance with the debt service coverage requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for the Georgia 400 Center Mortgage Loan. Additionally, the Company may be required to partially pay down the Oakland City Center Mortgage Loan if the non-compliance continues through September 2023.

Israeli Bond Financings

On February 16, 2020, Pacific Oak SOR BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B Debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures will bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. On November 1, 2021, Pacific Oak SOR BVI issued additional Series B Debentures in the amount of 536.4 million Israeli new Shekels par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8 million as of November 1, 2021). On November 8, 2021, Pacific Oak SOR BVI also issued Series B Debentures in the amount of 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.7 million as of November 8, 2021).

Additionally, on May 2, 2022, Pacific Oak SOR BVI issued Series B Debentures in the amount of 320.4 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 4.0% discount, resulting in a total consideration of 307.6 million Israeli new Shekels ($95.3 million as of May 2, 2022). The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, without any right of precedence or preference between any of them.

The deed of trust that governs the Series B Debentures contain various financial covenants. As of September 30, 2022, the Company was in compliance with all of these financial debt covenants.