Pacific Oak Bond Unit Slips Into Shareholders’ Deficit as Debt Arrangement Stalls

With annual and quarterly reporting discontinued, these unaudited translations are now the main disclosure US stockholders receive on the assets backing their shares.

September 4, 2026

Pacific Oak Strategic Opportunity REIT‘s Israeli-listed bond issuer has crossed into balance-sheet insolvency. Pacific Oak SOR (BVI) Holdings reported a shareholders’ deficit of $38.0 million as of June 30, 2026, reversing $80.5 million of positive equity six months earlier, and management concluded there is significant doubt about the entity’s ability to continue as a going concern.

The disclosure carries unusual weight for the REIT’s US stockholders. Since the board dropped annual and quarterly reporting in February and dissolved its audit committee, the BVI subsidiary’s unaudited IFRS statements have served as the primary window into a portfolio that represents substantially all of the parent’s assets.

Losses Deepen as the Balance Sheet Inverts

The subsidiary lost $118.8 million in the first half of 2026, including $98.3 million in the second quarter alone. Revenue fell to $51.6 million from $65.2 million a year earlier. Total assets stood at $905.8 million against $943.8 million of liabilities. Fair value writedowns on investment properties took $41.6 million, and equity losses from unconsolidated joint ventures another $25.8 million.

The working capital shortfall reached $553.2 million, driven by matured and near-term maturities:

• $327.5 million across the Series B and Series D bonds;
• $286.0 million of other mortgage debt;
• $53.9 million tied to the residential homes portfolio.

Both Bond Series Out of Compliance

The deeds of trust require consolidated equity of at least $475 million for Series B and $450 million for Series D — tested against a reported deficit — and cap net adjusted debt to net adjusted capital at 75% against a reported 103%. Adjusted net operating income of $42.5 million for the trailing twelve months cleared its $35 million floor. The subsidiary continues to operate under a standstill agreement.

Court-Approved Arrangement Still Unconsummated

The Tel Aviv District Court approved a debt arrangement with bondholders and certain other creditors on June 5, 2026, providing for amended maturities, additional security, and restrictions on distributions and asset sales. Conditions precedent remain unsatisfied, and bondholders approved a further 90-day extension of that deadline on June 21.

Two days later, counsel for the trustee notified the company of potential claims against current and former directors and officers, alleging breaches of fiduciary duty, statutory and contractual obligations, and reporting deficiencies.

Pressure at the Asset Level

Senior and mezzanine loans of $305.3 million and $24.0 million secured by the 110 William Street office property in Manhattan matured July 5 without repayment, and the joint venture received a default notice weeks later. Five consolidated office complexes totaling roughly 1.8 million square feet were 61% occupied.

Management also cut the count of homes classified as held for sale to 347 from 753, citing slower-than-expected progress listing and selling individual properties.

Bradley E. Scher, installed as chairman and chief executive of the parent in June, signed the report.