Selling a Honolulu office building helped Pacific Office Properties Trust Inc. earn a modest second-quarter profit last year. But effects from that sale have created a much bigger loss this year.
Pacific Office said it lost $12.8 million in the third quarter ended Sept. 30, largely due to the sale of First Insurance Center on Ward Avenue last year.
The Honolulu-based firm indicated in a filing with the Securities and Exchange Commission that effects of a tax protection agreement tied to the sale of the building drove much of the third-quarter loss, which was more than three times the $3.7 million loss in last year’s third quarter.
The tax-related expense in the recent quarter was $8.7 million.
First Insurance Center on Ward Avenue was sold in June 2012 for $70.5 million, and Pacific Office recognized a $5.4 million gain on the deal that helped it earn $1.6 million in last year’s second quarter.
However, the company was obligated to pay for certain tax benefit losses for an affiliate firm of company founder Jay Shidler, the local commercial real estate investor who contributed buildings he owned to form Pacific Office in 2008.
Pacific Office said in its third-quarter report that it held settlement discussions regarding the tax protection agreement and was able to estimate the cost at $8.7 million and include it as a liability for the quarter.
At the end of September, Pacific Office owned 11 properties — four by itself and seven through joint ventures. All four wholly owned properties are in Honolulu: Clifford Center, Waterfront Plaza, Davies Pacific Center and the Pan Am Building. The other properties are in San Diego, Los Angeles and Phoenix.
The company said 76 percent of the office space in its portfolio is leased to tenants.
Over the past two years, the company has sold stakes in a few buildings and lost several to foreclosure. At one time Pacific Office owned 24 office properties.
Pacific Office has said it might consider a sale, merger or other business combination or recapitalization to help it improve its financial condition, though the company also noted that it had $16.5 million in unrestricted cash and cash equivalents on hand at the end of the quarter.
Shares of Pacific Office stock closed at 22 cents Friday, a day after the quarterly report was filed. On Monday shares rebounded to 35 cents, which was 3 cents below the last closing price before the report was released.
