Pacific Oak Sells Homes at Discount Amid Bondholder Concerns

American real estate company Pacific Oak is selling approximately 270 residential properties in the U.S. for a total of $35.2 million, at prices about 20% below their book value. This move is part of the company's effort to reduce liabilities and generate liquidity as its bonds trade at distressed levels. Bond series B is currently trading at just 16 agorot, down 70% year-to-date, while series D is at 16.8 agorot, down 69% year-to-date. These prices reflect market concerns about the company's ability to repay its debt, even after a debt settlement approved in June.

The sale of the properties, part of the PORT portfolio, includes two conditional agreements. The first involves selling about 220 homes in Alabama and Illinois to Align for $24.15 million, an average of $109,800 per home, representing a 19.7% discount from fair value and an expected accounting loss of $5.9 million. The second deal is for about 50 homes in Oklahoma to Texel for $11.06 million, averaging $221,000 per home, a 18.9% discount, with an expected accounting loss of $2.6 million.

Despite the $35.2 million in gross sales, the net cash flow for bondholders is expected to be minimal. The first deal, for $24.15 million, is projected to yield only about $1.3 million in net cash flow, contingent on lender Klirmark agreeing to modify repayment terms. The second deal is not expected to generate significant net cash flow. This situation highlights that a substantial portion of the proceeds from these sales is earmarked for repaying senior secured lenders in the U.S., leaving little for other creditors.

Pacific Oak owes its bondholders approximately 975 million shekels. The company has called a creditors' meeting for November 3rd to seek approval for mechanisms to sell its residential properties and finalize other financing agreements. This process is in line with the June court-approved debt settlement, which extended bond maturity dates to allow for orderly asset liquidation. The company is also advancing a modification to a land sale agreement for the Park Highlands project, expecting to receive about $78.9 million in December, with a significant portion also designated for a senior lender, WhiteHawk.

The company's shift to selling bundled properties stems from difficulties in meeting its planned sales pace. As of October 17th, only about 15 individual homes had been sold, while the company is obligated to sell 150 properties by November 8th under its financing agreement with Klirmark. Selling bundled properties allows for quicker completion of sales, though potentially at a lower price. The debt settlement, approved in June, includes deferred repayment dates until June 1, 2028, an 11.5% annual interest rate, and revised oversight mechanisms. However, the ability to repay bondholders hinges on asset sales and remaining funds after U.S. secured lenders are paid.