NOTES AND BONDS PAYABLE

9 Months Ended

Sep. 30, 2020

As of September 30, 2020 and December 31, 2019, the Company’s notes and bonds payable consisted of the following (dollars in thousands):


	Book Value as of September 30, 2020		Book Value as of December 31, 2019		Contractual Interest Rate as of September 30, 2020 (1)	Effective Interest Rate at September 30, 2020 (1)	Payment Type (3)	Maturity Date (2)
Richardson Portfolio Mortgage Loan	$	36,000	$	36,000	One-Month LIBOR + 2.50%	2.65%	Interest Only (3)	11/01/2021
Park Centre Mortgage Loan	21,970		21,970		One-Month LIBOR + 1.75%	1.90%	Interest Only	06/27/2022

1180 Raymond Mortgage Loan	29,948		30,250		One-Month LIBOR + 2.50% (7)	3.50%	Principal & Interest	12/01/2021
1180 Raymond Bond Payable	5,930		6,080		6.50%	6.50%	Principal & Interest	09/01/2036

Pacific Oak SOR (BVI) Holdings, Ltd. Series A Debentures (4)	169,927		224,746		4.25%	4.25%	(4)	03/01/2023
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (4)	74,159		—		3.93%	3.93%	(4)	01/31/2026
Crown Pointe Mortgage Loan	53,254		51,171		One-Month LIBOR + 2.60%	2.75%	Principal & Interest	02/13/2021

City Tower Mortgage Loan	94,167		89,000		One-Month LIBOR + 1.55%	1.70%	Interest Only	03/05/2021
The Marq Mortgage Loan	58,331		53,408		One-Month LIBOR + 1.55%	1.70%	Interest Only	06/06/2021
Eight & Nine Corporate Centre Mortgage Loan	47,066		43,880		One-Month LIBOR + 1.60%	1.75%	Interest Only	06/08/2021
Georgia 400 Center Mortgage Loan	59,690		59,690		One-Month LIBOR + 1.55%	1.70%	Interest Only	05/22/2023
PORT Mortgage Loan 1	51,362		51,362		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 Mortgage Loan 3	12,000		—		5.00% (5)	5.00%	Interest Only	03/31/2021
Battery Point Trust Mortgage Loan	38,743		—		One-Month LIBOR + 2.50% (7)	3.50%	Interest Only	03/20/2022
Total Notes and Bonds Payable principal outstanding	763,070		678,080
Net premium on Notes and Bonds Payable (6)	175		783
Deferred financing costs, net	(5,170)		(5,200)
Total Notes and Bonds Payable, net	$	758,075	$	673,663

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(1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2020 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2020, where applicable.

(2) Represents the initial maturity date or the maturity date as extended as of September 30, 2020; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(3) Represents the payment type required under the loan as of September 30, 2020. 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.

(4) See “ – Israeli Bond Financing” below.

(5) Contractual interest is 5.0% through November 30, 2020 and 6.5% from December 1, 2020 through March 31, 2021.

(6) 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 premium/discount is amortized over the remaining life of the notes and bonds payable.

(7) The mortgage loans have a LIBOR floor of 1%.

During the three and nine months ended September 30, 2020, the Company incurred $6.3 million and $19.1 million, respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2020 was $0.8 million and $2.5 million, respectively, of amortization of deferred financing costs. Additionally, during the three and nine months ended September 30, 2020, the Company capitalized $0.7 million and $2.4 million, respectively of interest related to its investments in undeveloped land and an investment in unconsolidated entity.

During the three and nine months ended September 30, 2019, the Company incurred $7.4 million and $21.8 million, respectively, of interest expense. Included in interest expense for the three and nine months ended September 30, 2019 was $0.9 million and $2.6 million, respectively, of amortization of deferred financing costs. Additionally, during the three and nine months ended September 30, 2019, the Company capitalized $0.7 million and $2.1 million, respectively of interest related to its investments in undeveloped land.

As of September 30, 2020 and December 31, 2019, the Company’s interest payable was $2.3 million and $4.8 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of September 30, 2020 (in thousands):


October 1, 2020 through December 31, 2020	$	507
2021	387,178
2022	117,595
2023	116,587
2024	24,990
Thereafter	116,213
	$	763,070

As of November 13, 2020, the Company had a total of $357.9 million of debt obligations scheduled to mature over the next 12 months. On October 5, 2020, the Company assumed the debt obligations of POSOR II upon the close of the Merger, of which $155.1 million is scheduled to mature over the next 12 months. The Company and POSOR II have extension options with respect to $350.9 million of the debt obligations outstanding that is 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 we will be able to meet these requirements. All of the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, except for the Company’s Series A Debentures and 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. There can be no assurance as to the certainty or timing of any such transactions.

The Company’s notes payable contain financial debt covenants. As of September 30, 2020, the Company was in compliance with all of these debt covenants.

Israeli Bond Financing

On March 2, 2016, Pacific Oak SOR BVI, a wholly owned subsidiary of the Company, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of the Series A Debentures at an annual interest rate not to exceed 4.25%. On March 1, 2016, Pacific Oak SOR BVI commenced the institutional tender of the Series A Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, Pacific Oak SOR BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, Pacific Oak SOR BVI accepted 970.2 million Israeli new Shekels (approximately $249.2 million as of March 8, 2016) in both the institutional and public tenders at an annual interest rate of 4.25%. Pacific Oak SOR BVI issued the Debentures on March 8, 2016. The terms of the Series A Debentures require five equal annual installment principal payments on March 1st of each year from 2019 to 2023.

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.

The deeds of trust that govern the Series A Debentures and Series B Debentures contain various financial covenants. As of September 30, 2020, the Company was in compliance with all of these financial debt covenants.