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FAIR VALUE DISCLOSURES

12 Months Ended

Dec. 31, 2023

The following were the face values, carrying amounts and fair values of the Company’s financial liabilities as of December 31, 2023 and 2022, (in thousands):


	December 31, 2023						December 31, 2022
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities (Level 3):
Notes payable	$	624,636	$	620,262	$	611,725	$	734,899	$	728,433	$	716,813
Financial liabilities (Level 1):
Pacific Oak SOR BVI Series B Bonds	$	321,724	$	312,458	$	296,380	$	331,213	$	316,276	$	304,758
Pacific Oak SOR BVI Series C Bonds	$	99,461	$	95,963	$	102,664	$	—	$	—	$	—

Disclosure of the fair value of assets and liabilities is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

As of December 31, 2023, the Company measured the following assets at fair value (in thousands):


			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Real estate equity securities	$	41,609	$	41,609	$	—	$	—
Asset derivative - interest rate caps (1)	$	1,236	$	—	$	1,236	$	—
Asset derivative - foreign currency collar (1)	$	3,655	$	—	$	3,655	$	—
Nonrecurring Basis:
Impaired real estate (2)	$	193,529	$	—	$	—	$	193,529

_____________________

(1) Interest rate caps and foreign currency collars are included in prepaid expenses and other assets, respectively, in the accompanying consolidated balance sheets.

(2) Amount represents the fair value for a real estate asset impacted by impairment charges during the year ended December 31, 2023, as of the date that the fair value measurement was made. The carrying value for the real estate asset may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

During the year ended December 31, 2023, three of the Company’s real estate properties were impaired and written down to their estimated fair value. Two of the real estate properties were measured based on an income approach with the significant unobservable inputs used in evaluating the estimated fair value of these properties, which are discount rates between 8.75% to 9.0% and terminal cap rates between 8.0% to 8.25%, and one real estate property was measured at its estimated value based on a sales comparison approach.

The fair value of the Company's real estate was measured using significant unobservable inputs (Level 3) for the year ended December 31, 2023, which included terminal capitalization rates and discount rates.

As of December 31, 2022, the Company measured the following assets and liabilities at fair value (in thousands):


			Fair Value Measurements Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:
Real estate equity securities	$	60,153	$	60,153	$	—	$	—
Asset derivative - interest rate caps (1)	$	2,267	$	—	$	2,267	$	—
Liability derivative - foreign currency collar (1)	$	3,115	$	—	$	3,115	$	—

Nonrecurring Basis:
Impaired real estate (2)	$	212,800	$	—	$	—	$	212,800

_____________________

(1) Interest rate caps and foreign currency collars are included in prepaid expenses and other assets and other liabilities, respectively, in the accompanying consolidated balance sheets.

(2) Amount represents the fair value for a real estate asset impacted by impairment charges during the year ended December 31, 2022, as of the date that the fair value measurement was made. The carrying value for the real estate asset may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

During the year ended December 31, 2022, two of the Company’s real estate properties were impaired and written down to their estimated fair value. One real estate property was based on an income approach with the significant unobservable inputs used in evaluating the estimated fair value of these properties, which include a discount rate of 6.75% and a terminal cap rate of 6.00%, and one real estate property was measured at its estimated value based on a sales comparison approach.

Goodwill Impairment

During the year ended December 31, 2023, the Company determined that based on the decline in projected cash flows and the determination of appropriate discount and terminal capitalization rates for one strategic opportunistic property and one hotel, it was more likely than not that the fair value of the reporting units was less than the carrying value. During the year ended December 31, 2023, the Company recorded impairment charges on goodwill of $4.5 million in the accompanying consolidated statements of operations.

During the year ended December 31, 2022, the Company determined that based on the sale of one hotel and a decline in projected cash flows for one strategic opportunistic property, it was more likely than not that the fair value of the reporting units were less than the carrying value. The resulting real estate impairment charge on the strategic opportunistic property and the sale of one hotel, resulted in the fair value of the reporting units to be below fair value and the entirety of the goodwill associated with the reporting units to be written off. During the year ended December 31, 2022, the Company recorded impairment charges on goodwill of $8.1 million in the accompanying consolidated statements of operations.

The following table summarizes the goodwill impairment activity during years ended December 31, 2023 and 2022 (in thousands):


	Gross Goodwill		Accumulated Impairment		Net Goodwill
Balance, December 31, 2021	$	16,342	$	(2,808)	$	13,534
Impairment charges on goodwill	—		(8,098)		(8,098)
Balance, December 31, 2022	$	16,342	$	(10,906)	$	5,436
Impairment charges on goodwill	—		(4,488)		(4,488)
Balance, December 31, 2023	$	16,342	$	(15,394)	$	948

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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