Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172023
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-54382

KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________
Maryland26-3842535
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

Identification No.)
800 Newport Center Drive,11766 Wilshire Blvd., Suite 700
Newport Beach, California
1670		92660
Los Angeles,California90025
(Address of Principal Executive Offices)(Zip Code)
(949) 417-6500(424) 208-8100
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) for the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒    No  ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer¨☐Accelerated Filer¨☐
Non-Accelerated Filer
x  (Do not check if a smaller reporting company)
☒		Smaller reporting company¨☐
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐No  x☒
As of NovemberAugust 9, 2017,2023, there were 52,107,629103,610,544 outstanding shares of common stock of KBSPacific Oak Strategic Opportunity REIT, Inc.


Table of Contents

KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
FORM 10-Q
SeptemberJune 30, 20172023
INDEX
PART I.
2
Item 1.
2
Consolidated Balance Sheets as of SeptemberJune 30, 20172023 (unaudited) and December 31, 20162022
2
3
4
5
Consolidated Statements of Cash Flows (unaudited) for the NineSix Months Ended
SeptemberJune 30, 20172023 and 20162022
6
78
Item 2.
3525
Item 3.
5037
Item 4.
5139
PART II.
5240
Item 1.
5240
Item 1A.
5240
Item 2.
5241
Item 3.
5343
Item 4.
5343
Item 5.
5343
Item 6.
5443
5545


1

Table of Contents
PART I.FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Item 1. Financial Statements



KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
  September 30, 2017 December 31, 2016
  (unaudited)  
Assets    
Real estate held for investment, net $1,045,671
 $1,060,098
Real estate held for sale, net —
 46,933
Real estate equity securities 47,022
 —
Real estate debt securities, net 17,642
 4,683
Total real estate and real estate-related investments, net 1,110,335
 1,111,714
Cash and cash equivalents 97,487
 40,432
Restricted cash 16,086
 24,018
Investments in unconsolidated joint ventures 58,329
 75,849
Rents and other receivables, net 30,252
 27,521
Above-market leases, net 395
 618
Assets related to real estate held for sale, net —
 1,488
Prepaid expenses and other assets 31,469
 28,476
Total assets $1,344,353
 $1,310,116
Liabilities and equity    
Notes and bonds payable, net    
Notes and bonds payable related to real estate held for investment, net $990,248
 $919,174
Notes payable related to real estate held for sale, net —
 31,450
Total notes and bonds payable, net 990,248
 950,624
Accounts payable and accrued liabilities 27,473
 26,624
Due to affiliate 33
 55
Below-market leases, net 3,751
 6,029
Liabilities related to real estate held for sale, net —
 522
Other liabilities 21,904
 18,095
Redeemable common stock payable 11,386
 12,617
Total liabilities 1,054,795
 1,014,566
Commitments and contingencies (Note 14) 
 
Redeemable common stock 52,000
 —
Equity    
KBS Strategic Opportunity REIT, Inc. stockholders' equity    
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding —
 —
Common stock, $.01 par value per share; 1,000,000,000 shares authorized, 56,795,632 and 56,775,767 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 568
 568
Additional paid-in capital 405,220
 455,373
Cumulative distributions and net losses (173,964) (162,289)
Accumulated other comprehensive income 3,714
 —
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity 235,538
 293,652
Noncontrolling interests 2,020
 1,898
Total equity 237,558
 295,550
Total liabilities and equity $1,344,353
 $1,310,116
 June 30, 2023December 31, 2022
 (unaudited)
Assets
Real estate held for investment, net$1,162,118 $1,216,898 
Real estate held for sale, net— 2,506 
Real estate equity securities30,474 60,153 
Total real estate and real estate-related investments, net1,192,592 1,279,557 
Cash and cash equivalents69,521 97,931 
Restricted cash45,984 61,113 
Investments in unconsolidated entities52,509 70,842 
Rents and other receivables, net23,323 21,518 
Prepaid expenses and other assets25,211 22,848 
Goodwill5,436 5,436 
Total assets$1,414,576 $1,559,245 
Liabilities and equity
Notes and bonds payable, net$975,842 $1,044,709 
Accounts payable and accrued liabilities22,203 25,231 
Due to affiliates6,683 2,799 
Other liabilities71,386 66,967 
Redeemable common stock payable1,426 2,638 
Restricted stock payable508 508 
Total liabilities1,078,048 1,142,852 
Commitments and contingencies (Note 10)
Equity
Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding— — 
Common stock, $.01 par value; 1,000,000,000 shares authorized, 103,626,096 and 103,932,083 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively1,036 1,039 
Additional paid-in capital905,046 907,044 
Cumulative distributions and net loss(572,838)(495,782)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity333,244 412,301 
Noncontrolling interests3,284 4,092 
Total equity336,528 416,393 
Total liabilities and equity$1,414,576 $1,559,245 
See accompanying condensed notes to consolidated financial statements.

2

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenues:
Rental income$32,152 $28,979 $64,229 $58,360 
Hotel revenues2,565 12,854 5,478 18,771 
Other operating income1,066 887 2,204 1,728 
Dividend income from real estate equity securities113 819 2,110 3,206 
Total revenues35,896 43,539 74,021 82,065 
Expenses:
Operating, maintenance, and management11,107 10,342 22,275 20,218 
Real estate taxes and insurance5,843 5,079 12,260 10,103 
Hotel expenses1,984 6,998 3,945 12,109 
Asset management fees to affiliates3,710 3,189 7,684 6,315 
General and administrative expenses3,222 2,983 6,220 5,977 
Foreign currency transaction loss (gain), net6,272 (23,833)3,553 (31,098)
Depreciation and amortization12,110 14,098 24,158 26,662 
Interest expense15,788 10,780 31,819 20,343 
Impairment charges on real estate and related intangibles18,926 — 36,589 — 
Total expenses78,962 29,636 148,503 70,629 
Other (loss) income:
Loss from unconsolidated entities, net(14,630)(2,075)(16,962)(2,754)
Other interest income1,012 48 1,216 94 
Loss on real estate equity securities, net(4,089)(20,070)(16,122)(27,591)
Gain (loss) on sale of real estate3,292 (175)32,761 3,348 
Gain on extinguishment of debt— — — 2,367 
Total other (loss) income, net(14,415)(22,272)893 (24,536)
Net loss before income taxes(57,481)(8,369)(73,589)(13,100)
Income tax provision— — (3,662)— 
Net loss(57,481)(8,369)(77,251)(13,100)
Net loss (income) loss attributable to noncontrolling interests6 (156)195 (38)
Net loss attributable to redeemable noncontrolling interest— 34 — 81 
Preferred stock dividends— (528)— (718)
Net loss attributable to common stockholders$(57,475)$(9,019)$(77,056)$(13,775)
Net loss per common share, basic and diluted$(0.55)$(0.09)$(0.74)$(0.13)
Weighted-average number of common shares outstanding, basic and diluted103,737,734 104,422,035 103,804,676 102,929,284 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues:        
Rental income $27,850
 $29,229
 $90,200
 $76,646
Tenant reimbursements 6,094
 5,902
 18,188
 15,484
Other operating income 944
 1,002
 3,484
 2,580
Interest income from real estate debt securities 511
 —
 1,271
 —
Dividend income from real estate equity securities 1,015
 —
 1,505
 —
Interest income from real estate loan receivable —
 —
 —
 3,655
Total revenues 36,414
 36,133
 114,648
 98,365
Expenses:        
Operating, maintenance, and management 11,431
 10,932
 33,638
 29,755
Real estate taxes and insurance 4,780
 4,516
 14,932
 12,419
Asset management fees to affiliate 2,800
 2,639
 8,404
 6,932
Real estate acquisition fees to affiliate —
 1,690
 —
 2,964
Real estate acquisition fees and expenses —
 274
 —
 542
General and administrative expenses 1,170
 1,337
 4,291
 4,172
Foreign currency transaction loss, net 4,356
 6,639
 11,454
 4,602
Depreciation and amortization 13,228
 14,337
 43,136
 37,436
Interest expense 9,618
 7,992
 29,327
 20,354
Total expenses 47,383
 50,356
 145,182
 119,176
Other income (loss):        
Income from unconsolidated joint venture —
 —
 1,869
 —
Other interest income 340
 7
 536
 22
Equity in loss of unconsolidated joint ventures (2,152) (791) (3,928) (1,139)
Gain on sale of real estate 2,239
 —
 36,267
 —
Total other income (loss), net 427
 (784) 34,744
 (1,117)
Net (loss) income (10,542) (15,007) 4,210
 (21,928)
Net loss attributable to noncontrolling interests 8
 56
 10
 124
Net (loss) income attributable to common stockholders $(10,534) $(14,951) $4,220
 $(21,804)
Net (loss) income per common share, basic and diluted $(0.19) $(0.25) $0.07
 $(0.37)
Weighted-average number of common shares outstanding, basic and diluted 56,643,160
 58,642,752
 56,712,752
 58,676,546

See accompanying condensed notes to consolidated financial statements.

3

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)EQUITY
For the Three Months Ended June 30, 2023 and 2022
(unaudited)
(in thousands)thousands, except share amounts)
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
 SharesAmounts
Balance, March 31, 2023103,788,298 $1,038 $907,045 $(515,363)$392,720 $3,903 $396,623 
Net loss— — — (57,475)(57,475)(6)(57,481)
Transfers to redeemable common stock, net— — (297)— (297)— (297)
Redemptions of common stock(162,202)(2)(1,702)— (1,704)— (1,704)
Noncontrolling interests distribution— — — — — (613)(613)
Balance, June 30, 2023103,626,096 $1,036 $905,046 $(572,838)$333,244 $3,284 $336,528 
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
SharesAmounts
Balance, March 31, 2022104,496,165 $1,045 $914,460 $(453,770)$461,735 $10,251 $471,986 
Net (loss) income— — — (9,019)(9,019)156 (8,863)
Transfers from redeemable common stock— — 1,685 — 1,685 — 1,685 
Redemptions of common stock(177,171)(2)(1,683)— (1,685)— (1,685)
Adjustment to value of redeemable noncontrolling interest— — — (1,716)(1,716)— (1,716)
Stock distribution issued98 — 1 (1)— — — 
Noncontrolling interests distribution— — — — — (34)(34)
Balance, June 30, 2022104,319,092 $1,043 $914,463 $(464,506)$451,000 $10,373 $461,373 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Net (loss) income $(10,542) $(15,007) $4,210
 $(21,928)
Other comprehensive income:        
Unrealized gain on real estate securities 2,865
 —
 3,714
 —
Total other comprehensive income 2,865
 —
 3,714
 —
Total comprehensive (loss) income (7,677) (15,007) 7,924
 (21,928)
Total comprehensive loss attributable to noncontrolling interests 8
 56
 10
 124
Total comprehensive (loss) income attributable to common stockholders $(7,669) $(14,951) $7,934
 $(21,804)

See accompanying condensed notes to consolidated financial statements.

4

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
For the Year Ended December 31, 2016 and the NineSix Months Ended SeptemberJune 30, 20172023 and 2022
(unaudited)
(dollars in thousands)thousands, except share amounts)
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
 SharesAmounts
Balance, December 31, 2022103,932,083 $1,039 $907,044 $(495,782)$412,301 $4,092 $416,393 
Net loss— — — (77,056)(77,056)(195)(77,251)
Transfers to redeemable common stock, net— — 1,213 — 1,213 — 1,213 
Redemptions of common stock(305,987)(3)(3,211)— (3,214)— (3,214)
Noncontrolling interests distribution— — — — — (613)(613)
Balance, June 30, 2023103,626,096 $1,036 $905,046 $(572,838)$333,244 $3,284 $336,528 
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
 SharesAmounts
Balance, December 31, 202194,141,251 $941 $818,440 $(347,691)$471,690 $10,369 $482,059 
Net loss— — — (13,775)(13,775)38 (13,737)
Transfers to redeemable common stock— — (695)— (695)— (695)
Redemptions of common stock(242,336)(2)(2,272)— (2,274)— (2,274)
Adjustment to value of redeemable noncontrolling interest— — — (3,946)(3,946)— (3,946)
Stock distribution issued10,420,177 104 98,990 (99,094)— — — 
Noncontrolling interests contributions— — — — — (34)(34)
Balance, June 30, 2022104,319,092 $1,043 $914,463 $(464,506)$451,000 $10,373 $461,373 
                
 Common Stock 
Additional
Paid-in Capital
 Cumulative Distributions and Net Losses Accumulated Other Comprehensive Income Total Stockholders' Equity Noncontrolling Interests Total Equity
 Shares Amounts      
                
Balance, December 31, 201558,696,115
 $587
 $504,303
 $(111,527) $—
 $393,363
 $15,427
 $408,790
Net loss—
 —
 —
 (28,918) —
 (28,918) (208) (29,126)
Issuance of common stock938,662
 9
 12,607
 —
 —
 12,616
 —
 12,616
Transfers from redeemable common stock—
 —
 957
 —
 —
 957
 —
 957
Redemptions of common stock(2,859,010) (28) (38,545) —
 —
 (38,573) —
 (38,573)
Distributions declared—
 —
 —
 (21,844) —
 (21,844) —
 (21,844)
Acquisitions of noncontrolling interests—
 —
 (23,942) —
 —
 (23,942) (14,044) (37,986)
Other offering costs—
 —
 (7) —
 —
 (7) —
 (7)
Noncontrolling interests contributions—
 —
 —
 —
 —
 —
 803
 803
Distributions to noncontrolling interests—
 —
 —
 —
 —
 —
 (80) (80)
Balance, December 31, 201656,775,767
 $568
 $455,373
 $(162,289) $—
 $293,652
 $1,898
 $295,550
Net income (loss)—
 —
 —
 4,220
 —
 4,220
 (10) 4,210
Other comprehensive income—
 —
 —
 —
 3,714
 3,714
 —
 3,714
Issuance of common stock585,192
 6
 8,660
 —
 —
 8,666
 —
 8,666
Transfers to redeemable common stock—
 —
 (50,769) —
 —
 (50,769) —
 (50,769)
Redemptions of common stock(565,327) (6) (8,044) —
 —
 (8,050) —
 (8,050)
Distributions declared—
 —
 —
 (15,895) —
 (15,895) —
 (15,895)
Noncontrolling interests contributions—
 —
 —
 —
 —
 —
 150
 150
Distributions to noncontrolling interests—
 —
 —
 —
 —
 —
 (18) (18)
Balance, September 30, 201756,795,632
 $568
 $405,220
 $(173,964) $3,714
 $235,538
 $2,020
 $237,558

See accompanying condensed notes to consolidated financial statements.

5

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
  Nine Months Ended September 30,
  2017 2016
Cash Flows from Operating Activities:    
Net income (loss) $4,210
 $(21,928)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Loss due to property damages 668
 2,017
Equity in loss of unconsolidated joint ventures 3,928
 1,139
Depreciation and amortization 43,136
 37,436
Gain on real estate (36,267) —
Unrealized loss on interest rate caps 102
 —
Deferred rent (1,678) (2,020)
Bad debt expense 66
 488
Amortization of above- and below-market leases, net (2,253) (1,375)
Amortization of deferred financing costs 3,578
 2,908
Interest accretion on real estate debt securities (456) —
Net amortization of discount and (premium) on bond and notes payable 36
 28
Foreign currency transaction loss, net 11,454
 4,602
Changes in assets and liabilities:    
Rents and other receivables (2,245) (2,656)
Prepaid expenses and other assets (6,368) (7,255)
Accounts payable and accrued liabilities 1,575
 3,950
Due to affiliates (22) (8)
Other liabilities 261
 2,700
Net cash provided by operating activities 19,725
 20,026
Cash Flows from Investing Activities:    
Acquisitions of real estate (165,465) (293,831)
Improvements to real estate (28,775) (21,466)
Proceeds from sales of real estate, net 130,580
 —
Principal proceeds from assignment of real estate loan receivable
 —
 27,850
Insurance proceeds received for property damages 744
 1,767
Purchase of interest rate cap (107) —
Purchase of foreign currency option (3,434) —
Proceeds from termination of foreign currency collars 6,557
 —
Investment in unconsolidated joint venture —
 (2,820)
Distributions of capital from unconsolidated joint ventures 59,157
 —
Investment in real estate securities (43,308) —
Investment in real estate debt securities (12,514) —
Proceeds for future development obligations 1,367
 —
Funding of development obligations (926) (2,726)
Net cash used in investing activities (56,124) (291,226)
Cash Flows from Financing Activities:    
Proceeds from notes and bonds payable 176,777
 462,178
Principal payments on notes and bonds payable (73,907) (74,707)
Payments of deferred financing costs (2,339) (10,641)
Payments to redeem common stock (8,050) (31,454)
Payments of prepaid other offering costs (376) (168)
Distributions paid (7,229) (6,948)
Noncontrolling interests contributions 150
 769
Distributions to noncontrolling interests (18) (80)
Acquisitions of noncontrolling interests —
 (37,986)
Other financing proceeds, net —
 693
Net cash provided by financing activities 85,008
 301,656
Effect of exchange rate changes on cash, cash equivalents and restricted cash 514
 3,711
Net increase in cash, cash equivalents and restricted cash 49,123
 34,167
Cash, cash equivalents and restricted cash, beginning of period 64,450
 28,865
Cash, cash equivalents and restricted cash, end of period $113,573
 $63,032
Six Months Ended June 30,
 20232022
Cash Flows from Operating Activities:
Net loss$(77,251)$(13,100)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Impairment charges on real estate and related intangibles36,589 — 
Loss from unconsolidated entities, net16,962 2,754 
Depreciation and amortization24,158 26,662 
Loss on real estate equity securities, net16,122 27,591 
Gain on sale of real estate(32,761)(3,348)
Unrealized gain on interest rate caps(328)(270)
Deferred rent(1,508)(1,427)
Gain on extinguishment of debt— (2,367)
Amortization of above- and below-market leases, net(151)(508)
Amortization of deferred financing costs and debt discount and premium, net4,567 3,844 
Foreign currency transaction loss (gain), net3,553 (31,098)
Changes in assets and liabilities:
Rents and other receivables, net(409)(175)
Prepaid expenses and other assets(3,120)(1,150)
Accounts payable and accrued liabilities(3,068)502 
Due to affiliates3,884 3,753 
Other liabilities3,355 668 
Net cash (used in) provided by operating activities(9,406)12,331 
Cash Flows from Investing Activities:
Improvements to real estate(10,349)(10,110)
Proceed from sales of real estate, net40,795 357 
Contribution to unconsolidated entity— (22,500)
Distribution of capital from unconsolidated entity1,144 569 
Purchase of interest rate caps(347)(506)
Advance to affiliate— (1,201)
Purchase of foreign currency derivatives(67,140)— 
Proceeds from disposition of foreign currency derivatives49,176 — 
Proceeds from advances due from affiliates— 6,448 
Proceeds from the sale of real estate equity securities13,557 — 
Escrow deposit for future real estate sale— 17,000 
Proceeds for development obligations1,855 — 
Funding for development obligations(1,421)(4,025)
Net cash provided by (used in) investing activities27,270 (13,968)
Cash Flows from Financing Activities:
Proceeds from notes payable980 145,104 
Principal payments on notes payable(56,922)(61,613)
Payments of deferred financing costs(409)(2,829)
Payments to redeem common stock(3,214)(2,274)
Distributions paid— (11,016)
Preferred dividends paid— (718)
Noncontrolling interests distribution(613)(34)
Net cash (used in) provided by financing activities(60,178)66,620 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(1,225)(3,619)
Net (decrease) increase in cash, cash equivalents and restricted cash(43,539)61,364 
Cash, cash equivalents and restricted cash, beginning of period159,044 105,431 
Cash, cash equivalents and restricted cash, end of period$115,505 $166,795 
See accompanying condensed notes to consolidated financial statements.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
(in thousands)
Six Months Ended June 30,
20232022
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,743 and $1,026 for the six months ended June 30, 2023 and 2022, respectively27,379 15,446 
Supplemental Disclosure of Significant Noncash Transaction:
Accrued improvements to real estate1,915 3,262 
Redeemable common stock payable1,426 1,379 
Distributions paid to common stockholders through common stock issuances— 99,094 
PPP notes forgiveness— 2,367 
See accompanying condensed notes to consolidated financial statements.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172023
(unaudited)




1.ORGANIZATION
1.ORGANIZATION
KBSPacific Oak Strategic Opportunity REIT, Inc. (the “Company”) was formed on October 8, 2008 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. The Company conducts its business primarily through KBS Strategic OpportunityPacific Oak SOR (BVI) Holdings, Ltd. (“KBS Strategic OpportunityPacific Oak SOR BVI”), a private company limited by shares according to the British Virgin Islands Business Companies Act, 2004, which was incorporated on December 18, 2015 and is authorized to issue a maximum of 50,000 common shares with no par value. Upon incorporation, KBS Strategic OpportunityPacific Oak SOR BVI issued one certificate containing 10,000 common shares with no par value to KBSPacific Oak Strategic Opportunity Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on December 10, 2008. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBSPacific Oak Strategic Opportunity Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on December 9, 2008, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings.
Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company renewed with the Advisor on October 8, 2017 (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of real estate, real estate-related debt securities and other real estate-related investments. The Advisor owns 20,000 shares of the Company’s common stock.
On January 8, 2009, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public (the “Offering”), of which 100,000,000 shares were registered in a primary offering and 40,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on November 20, 2009. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and continues to offer shares under its dividend reinvestment plan.
The Company sold 56,584,976 shares of common stock in its primary offering for gross offering proceeds of $561.7 million. As of September 30, 2017, the Company had sold 6,620,362 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $74.0 million. Also, as of September 30, 2017, the Company had redeemed 6,705,949 shares for $85.0 million. Additionally, on December 29, 2011 and October 23, 2012, the Company issued 220,994 shares and 55,249 shares of common stock, respectively, for $2.0 million and $0.5 million, respectively, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On March 2, 2016, KBS Strategic Opportunity BVI filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels.  In the aggregate, KBS Strategic Opportunity 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%.  KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.
In connection with the above-referenced offering, on March 8, 2016, the Operating Partnership assigned to KBS Strategic Opportunity BVI all of its interests in the subsidiaries through which the Company indirectly owns all of its real estate and real estate-related investments.  The Operating Partnership owns all of the issued and outstanding equity of KBS Strategic Opportunity BVI.  As a result of these transactions, the Company now holds all of its real estate and real estate-related investments indirectly through KBS Strategic Opportunity BVI.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

As of September 30, 2017, the Company consolidated 20 real estate investments comprised of 11 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, two investments in undeveloped land with approximately 1,100 developable acres, and owned three investments in unconsolidated joint ventures, an investment in real estate debt securities and an investment in real estate equity securities.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2016, except for the adoption of ASU No. 2017-01 on January 1, 2017 and the addition of an accounting policy with respect to real estate equity securities.2022. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 20162022 included in the Company’s Annual Report on Form 10-K filed with the SEC.Securities and Exchange Commission (“SEC”).
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and ninesix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2023.
The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, KBS Strategic OpportunityPacific Oak SOR BVI and their direct and indirect wholly owned subsidiaries, and joint ventures in which the Company has a controlling interest.interest and VIEs in which the Company is the primary beneficiary. All significant intercompany balances and transactions are eliminated in consolidation.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2023
(unaudited)
Liquidity
The Company generally finances its real estate investments using notes payable that are typically structured as non-recourse secured mortgages with maturities of approximately three to five years, with short term extension options available upon the Company meeting certain debt covenants. Each reporting period management evaluates the Company’s ability to continue as a going concern by evaluating conditions and events, including assessing the liquidity needs to satisfy upcoming debt obligations and the ability to satisfy debt covenant requirements. Through the normal course of operations, as of July 1, 2023, the Company has $460.1 million of debt obligations scheduled to mature within 12 months of that date. In order to satisfy obligations as they mature, management will evaluate its options and may seek to utilize extension options available in the respective loan agreements, may make partial loan paydowns to meet debt covenant requirements, may seek to refinance certain debt instruments, may sell real estate equity securities to convert to cash to make principal payments, may market one or more properties for sale or may negotiate a turnover of one or more secured properties back to the related mortgage lender and remit payment for any associated loan guarantee. Historically, the Company has successfully refinanced debt instruments or utilized extension options in order to satisfy debt obligations as they come due and has not negotiated a turnover of a secured property back to a lender, though the Company may utilize such option if necessary. Based upon these plans, management believes it will have sufficient liquidity to satisfy its obligations as they come due and to continue as a going concern. There can be no assurance as to the certainty or timing of any of management’s plans. Refer to Note 5 for further discussion.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Real Estate Equity Securities
The Company determines the appropriate classification for real estate equity securities at acquisition (on the trade date) and reevaluates such designation as of each balance sheet date. As of September 30, 2017, the Company classified its investment in real estate equity securities as available-for-sale as the Company intends to hold the securities for the purpose of collecting dividend income and for longer term price appreciation. These investments are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses are reported in accumulated other comprehensive income (loss). Upon the sale of a security, the previously recognized unrealized gain (loss) would be reversed out of accumulated other comprehensive income (loss) and the actual realized gain (loss) recognized in earnings. Dividend income is recognized on an accrual basis based on eligible shares as of the ex-dividend date.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

Any non-temporary decline in the market value of an available-for-sale real estate equity security below cost results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the real estate security is established. When a real estate equity security is impaired, the Company considers whether it has the ability and intent to hold the investment for a time sufficient to allow for any anticipated recovery in market value and considers whether evidence indicating the cost of the investment being recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to period end and forecasted performance of the investee.
Reclassifications
Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of the prior period. During the year ended December 31, 2016, the Company elected to early adopt ASU No. 2016-18 (as defined below).  As a result, the Company no longer presents transfers between cash and restricted cash in the consolidated statements of cash flows.  Instead, restricted cash is included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the consolidated statements of cash flows. During the nine months ended September 30, 2017, the Company disposed of one office property. As a result, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets for all periods presented.
Redeemable Common Stock
On December 8, 2016, the Company adopted a tenth amended and restated share redemption program (the “Tenth Amended Share Redemption Program”) that may enable stockholders to sell their shares to the Company in limited circumstances. Pursuant to the Tenth Amended Share Redemption Program, except for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” the price at which we will redeem shares is 95% of our most recent estimated value per share as of the applicable redemption date. The Tenth Amended Share Redemption Program was effective on December 30, 2016.
Pursuant to the share redemption program there are several limitations on the Company’s ability to redeem shares:
•Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), the Company may not redeem shares until the stockholder has held the shares for one year.
•The Company may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that the Company redeems less than $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) in a given fiscal quarter, any remaining excess capacity to redeem shares in such fiscal quarter will be added to the Company’s capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during succeeding fiscal quarters.  The last $1.0 million of net proceeds from the dividend reinvestment plan during the prior year is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence.” The share redemption plan also provides that, to the extent that in the last month of any calendar year the amount of redemption requests in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” is less than the $1.0 million reserved for such redemptions under the share redemption plan, any excess funds may be used to redeem shares not requested in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” during such month. The Company may increase or decrease this limit upon ten business days’ notice to stockholders.  The Company’s board of directors may approve an increase in this limit to the extent that the Company has received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

•During any calendar year, the Company may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
•The Company has no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
The Company’s board of directors may amend, suspend or terminate the share redemption program with ten business days’ notice to its stockholders.
On September 14, 2017, the Company commenced a self-tender offer (the “SOR Offer”) for up to 3,553,660 shares of common stock at a price of $14.07 per share, or approximately $50.0 million of shares. On October 18, 2017, the Company increased the number of shares accepted for payment in the SOR Offer by up to 1,135,912 shares at a price of $14.07 per share, or approximately $16.0 million of shares. On October 23, 2017, the Company accepted for purchase 4,688,671 shares for an aggregate cost of $66.0 million, excluding fees and expenses related to the SOR Offer.
Because of the SOR Offer, the Tenth Amended Share Redemption Program was suspended from September 29, 2017 through October 31, 2017, meaning no redemptions were made in September or October (including those requested following a stockholder’s death, “qualifying disability” or “determination of incompetence”). The Company cancelled all outstanding redemption requests under the SRP as of the commencement of the SOR Offer and was not accepting any redemption requests under the SRP during the term of the SOR Offer.
The Company records amounts that are redeemable under the share redemption program and the SOR Offer as redeemable common stock in its consolidated balance sheets because the shares are redeemable at the option of the holder to the extent there is sufficient capacity under the share redemption program and therefore their redemption is outside the control of the Company. However, because the amounts that can be redeemed will be determinable and only contingent on an event that is likely to occur (e.g., the passage of time), the Company presents the net proceeds from the current year and prior year DRP, net of current year redemptions, as redeemable common stock in its consolidated balance sheets.
The Company classifies as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are contingently redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.
The Company limits the dollar value of shares that may be redeemed under the program as described above. The Company recorded $11.4 million of other liabilities on the Company’s balance sheet as of September 30, 2017 related to shares submitted for tender under the SOR Offer as of September 30, 2017. The Company recorded $12.6 million of other liabilities on the Company’s balance sheet as of December 31, 2016 related to unfulfilled redemption requests received in good order under the share redemption program as of December 31, 2016. As of September 30, 2017, the Company recorded $52.0 million of redeemable common stock consisting of (i) $38.6 million of the amount available to tender related to the SOR Offer (excludes shares already submitted for tender as of September 30, 2017), (ii) $4.7 million available for all redemptions in the remainder of 2017, including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence” based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2016 and (iii) $8.7 million available for all redemptions in 2018, including shares that are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence” based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2017.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

Segments
The Company has investedoperates in non-performing loans,three reportable business segments: opportunistic real estate and other real estate-related assets.investments, residential homes, and hotel, which is how the Company’s management manages the business. In general, the Company intends to hold its investments in non-performing loans, opportunistic real estate and other real estate‑relatedestate-related assets for capital appreciation. Traditional performance metrics of non-performing loans, opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views non-performing loans, opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenueinvestments and net income (loss) is from non-performing loans, opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segmentsthem into one reportable business segment.
Per Share Data
Basic net income (loss) per share The Company owned residential homes in 18 markets, which are all aggregated into one reportable business segment due to the homes being stabilized, having high occupancy rates and having similar economic characteristics. Additionally, as of common stockJune 30, 2023 the Company owned one hotel, which is calculated by dividing net income (loss) attributablea separate reportable business segment due to common stockholders by the weighted-average numbernature of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2017 and 2016.
Distributions declared per share were $0.09452055 and $0.28047945 during the three and nine months ended September 30, 2017, respectively, and $0.09426230 and $0.28073770 during the three and nine months ended September 30, 2016, respectively.hotel business with short-term stays.
Square Footage, Occupancy and Other Measures
Any references to square footage, acreage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
Recently Issued Accounting Standards Updates
In May 2014,There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entitythree and six months ended June 30, 2023 that are of significance or potential significance to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The primary source of revenue for the Company is generated through leasing arrangements, which are excluded from this standard. The Company’s revenues that may be impacted by this standard primarily include other operating income, sales of real estate, including land parcels and operating properties, and other ancillary income earned at its properties. In 2016, other operating income and other ancillary income were approximately 5% of consolidated revenue. The Company is in the process of evaluating how this standard will impact sales of real estate. The Company continues to evaluate the impact that the standard will have on its consolidated financial statements. The Company expects to adopt the standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the adoption.Company.




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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

3. REAL ESTATE HELD FOR INVESTMENT
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”).  The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected.  ASU No. 2016-01 supersedes the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and requires equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements.  ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early application of certain provisions of the standard is permitted for financial statements that have not been previously issued. Upon adoption, the Company will be required to record net unrealized gain or loss on real estate equity securities in earnings and record a cumulative effect adjustment to the balance sheet.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.   ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available-for-sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”).  ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement); and (d) Relating to distributions received from equity method investments, ASU No. 2016-15 provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using a (1) cumulative earnings approach, or (2) nature of distribution approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity method earnings since inception.  Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Alternatively, an investor can choose to classify the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis; (e) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow.  ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The Company is still evaluating the impact of adopting ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents.  Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.  ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company elected to early adopt ASU No. 2016-18 for the reporting period ending December 31, 2016 and was applied retrospectively. As a result of adoption of ASU No. 2016-18, the Company no longer presents the changes within restricted cash in the consolidated statements of cash flows.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2017-01”) to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  ASU No. 2017-01 provides a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that, when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.  If the screen is not met, ASU No. 2017-01 (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace missing elements.  ASU No. 2017-01 provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs.  Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs.  ASU No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  The amendments can be applied to transactions occurring before the guidance was issued (January 5, 2017) as long as the applicable financial statements have not been issued.  The Company elected to early adopt ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, the Company’s acquisitions of investment properties beginning January 1, 2017 could qualify as asset acquisitions (as opposed to business combinations). Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed as incurred. 
3.REAL ESTATE HELD FOR INVESTMENT
As of SeptemberJune 30, 2017,2023, the Company owned 11eight office properties, one office campus consisting of nine office buildings, one office portfolio consisting of fourtwo office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property encompassing, in the aggregate, approximately 6.03.2 million rentable square feet. As of September 30, 2017,feet and these properties were 83%69% occupied. In addition, the Company owned one residential home portfolio consisting of 2,453 residential homes and encompassing approximately 3.5 million rental square feet and two apartment properties, containing 383609 units and encompassing approximately 0.30.5 million rentable square feet, which were 97% occupied.95% and 93% occupied, respectively. The Company also owned one hotel property with 196 rooms, two investments in undeveloped land with approximately 1,100671 developable acres.acres and one office/retail development property. The following table summarizes the Company’s real estate held for investment as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively (in thousands):
June 30, 2023December 31, 2022
Land$258,570 $267,634 
Buildings and improvements1,035,684 1,062,822 
Tenant origination and absorption costs20,937 27,996 
Total real estate, cost1,315,191 1,358,452 
Accumulated depreciation and amortization(153,073)(141,554)
Total real estate held for investment, net$1,162,118 $1,216,898 
  September 30, 2017 December 31, 2016
Land $280,254
 $312,623
Buildings and improvements 847,773
 814,347
Tenant origination and absorption costs 49,210
 46,557
Total real estate, cost 1,177,237
 1,173,527
Accumulated depreciation and amortization (131,566) (113,429)
Total real estate, net $1,045,671
 $1,060,098

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

The following table provides summary information regarding the Company’s real estate held for investment as of September 30, 2017 (in thousands):
Property Date
Acquired or Foreclosed on		 City State Property Type Land Building
and Improvements		 Tenant Origination and Absorption Total
Real Estate, at Cost		 Accumulated Depreciation and Amortization Total
Real Estate, Net		 Ownership %
Northridge Center I & II (1)
 03/25/2011 Atlanta GA Office $2,234
 $6,914
 $—
 $9,148
 $(2,584) $6,564
 100.0%
Iron Point Business Park (1)
 06/21/2011 Folsom CA Office 2,671
 19,547
 —
 22,218
 (5,648) 16,570
 100.0%
Richardson Portfolio:                      
Palisades Central I 11/23/2011 Richardson TX Office 1,037
 10,278
 —
 11,315
 (2,202) 9,113
 90.0%
Palisades Central II 11/23/2011 Richardson TX Office 810
 17,540
 —
 18,350
 (4,111) 14,239
 90.0%
Greenway I 11/23/2011 Richardson TX Office 561
 2,309
 —
 2,870
 (791) 2,079
 90.0%
Greenway III 11/23/2011 Richardson TX Office 702
 3,802
 559
 5,063
 (1,736) 3,327
 90.0%
Undeveloped Land 11/23/2011 Richardson TX Undeveloped Land 3,134
 —
 —
 3,134
 —
 3,134
 90.0%
Total Richardson Portfolio         6,244
 33,929
 559
 40,732
 (8,840) 31,892
  
Park Highlands (2)
 12/30/2011 North Las Vegas NV Undeveloped Land 33,594
 —
 —
 33,594
 —
 33,594
 
(2) 

Bellevue Technology
Center (1)
 07/31/2012 Bellevue WA Office 25,506
 56,409
 1,767
 83,682
 (10,418) 73,264
 100.0%
Powers Ferry Landing
East (1)
 09/24/2012 Atlanta GA Office 1,643
 7,642
 —
 9,285
 (2,505) 6,780
 100.0%
1800 West Loop (1)
 12/04/2012 Houston TX Office 8,360
 60,481
 4,176
 73,017
 (14,100) 58,917
 100.0%
West Loop I & II (1)
 12/07/2012 Houston TX Office 7,300
 32,867
 1,662
 41,829
 (7,024) 34,805
 100.0%
Burbank Collection 12/12/2012 Burbank CA Retail 4,175
 12,551
 725
 17,451
 (2,198) 15,253
 90.0%
Austin Suburban Portfolio (3)
 03/28/2013 Austin TX Office 8,288
 69,478
 836
 78,602
 (10,851) 67,751
 100.0%
Westmoor Center (1)
 06/12/2013 Westminster CO Office 10,058
 73,283
 5,083
 88,424
 (15,050) 73,374
 100.0%
Central Building 07/10/2013 Seattle WA Office 7,015
 27,055
 1,428
 35,498
 (4,701) 30,797
 100.0%
1180 Raymond 08/20/2013 Newark NJ Apartment 8,292
 38,049
 —
 46,341
 (4,938) 41,403
 100.0%
Park Highlands II 12/10/2013 North Las Vegas NV Undeveloped Land 24,692
 —
 —
 24,692
 —
 24,692
 100.0%
Maitland Promenade II (1)
 12/18/2013 Orlando FL Office 3,434
 25,033
 3,313
 31,780
 (5,492) 26,288
 100.0%
Plaza Buildings (1)
 01/14/2014 Bellevue WA Office 53,040
 139,383
 7,190
 199,613
 (23,723) 175,890
 100.0%
424 Bedford 01/31/2014 Brooklyn NY Apartment 8,860
 25,615
 —
 34,475
 (2,616) 31,859
 90.0%
Richardson Land II 09/04/2014 Richardson TX Undeveloped Land 3,418
 —
 —
 3,418
 —
 3,418
 90.0%
Westpark Portfolio 05/10/2016 Redmond WA Office/Flex/Industrial 36,085
 88,125
 7,663
 131,873
 (7,871) 124,002
 100.0%
Crown Pointe 02/14/2017 Dunwoody GA Office 22,590
 57,815
 5,855
 86,260
 (2,807) 83,453
 100.0%
125 John Carpenter 09/15/2017 Irving TX Office 2,755
 73,597
 8,953
 85,305
 (200) 85,105
 100.0%
          $280,254
 $847,773
 $49,210
 $1,177,237
 $(131,566) $1,045,671
  
_____________________
(1) On November 8, 2017, the Company sold this property. See note 15, “Subsequent Events - Singapore Transaction” for more information.
(2) On September 7, 2016, a subsidiary of the Company that owns a portion of Park Highlands, sold 820 units of 10% Class A non-voting preferred membership units for $0.8 million to accredited investors. The amount of the Class A non-voting preferred membership units raised, net of offering costs, is included in other liabilities on the accompanying consolidated balance sheets.
(3) On November 8, 2017, the Company sold two of the three office properties, Westech 360 and Great Hills Plaza. See note 15, “Subsequent Events - Singapore Transaction” for more information.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)


Operating Leases
Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of SeptemberJune 30, 2017,2023, the leases, excluding options to extend, apartment leases and apartmentresidential home leases, which have terms that are generally one year or less, had remaining terms of up to 14.712.1 years with a weighted-average remaining term of 3.83.7 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions or foreclosures related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets totaled $5.5 million and totaled $7.3$6.5 million and $7.2 million as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively.
During the ninethree and six months ended SeptemberJune 30, 2017 and 2016,2023, the Company recognized deferred rent from tenants of $1.7$0.7 million and $2.0$1.5 million, respectively, net of lease incentive amortization.amortization, respectively. As of SeptemberJune 30, 20172023 and December 31, 2016,2022, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $27.0$20.2 million and $26.1$18.3 million, respectively, and is included in rents and other receivables on the accompanying consolidated balance sheets. The cumulative deferred rent balance included $3.0$2.9 million and $3.2$2.8 million of unamortized lease incentives as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred.









10

Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2023
(unaudited)
As of SeptemberJune 30, 2017,2023, the future minimum rental income from the Company’s properties, excluding apartment and residential leases which generally have initial terms of 12 months or less, under non-cancelable operating leases was as follows (in thousands):
July 1, 2023 through December 31, 2023$31,253 
202458,854 
202548,673 
202634,938 
202726,894 
Thereafter60,377 
$260,989 

October 1, 2017 through December 31, 2017$25,468
201899,939
201987,116
202071,983
202155,922
Thereafter137,582
 $478,010
As of SeptemberJune 30, 2017,2023, the Company’s commercial real estate properties were leased to approximately 600300 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:
Industry Number of Tenants 
Annualized Base Rent (1) 
(in thousands)
 
Percentage of
Annualized Base Rent
Insurance Carriers & Related Activities 35 $11,256
 10.6%
Computer System Design & Programming 55 11,246
 10.6%
    $22,502
 21.2%
IndustryNumber of Tenants
Annualized Base Rent (1)
(in thousands)
Percentage of
Annualized Base Rent
Public Administration15$7,221 11.6 %
Professional, Scientific, and Technical Services387,133 11.5 %
Computer Systems Design and Related Services296,865 11.1 %
$21,219 34.2 %
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of SeptemberJune 30, 2017,2023, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.
No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

Geographic Concentration Risk
As of SeptemberJune 30, 2017,2023, the Company’s real estate investments in WashingtonCalifornia and TexasGeorgia represented 30.0%20.4% and 21.0%10.8%, respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the WashingtonCalifornia and TexasGeorgia real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.
Recent Real Estate Land SaleHotel Properties
On May 1, 2017, the Company sold an aggregate of 102 developable acres of Park Highlands undeveloped land for an aggregate sales price, net of closing credits, of $17.4 million, excluding closing costs. The purchasers are not affiliated with the Company or the Advisor. The Company recognized a gain on sale based on the percentage of completion method due tofollowing table provides detailed information regarding the Company’s continuing development obligations tohotel revenues for its hotel property (the Springmaid Beach Resort was sold on September 1, 2022) during the purchasers. three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Hotel revenues:
Room$2,240 $9,905 $4,805 $14,200 
Food, beverage and convention services214 309 445 589 
Campground— 1,603 — 2,395 
Other111 1,037 228 1,587 
Hotel revenues$2,565 $12,854 $5,478 $18,771 
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2023
(unaudited)
Contract Liabilities
The Company recognized a gain on salefollowing table summarizes the Company’s contract liabilities, which are comprised of $5.2 million related to the land sale, which is net ofhotel advanced deposits and deferred profit of $2.6 million. In addition, the Company deferred $1.7 million related to proceeds received from the purchasersbuyers of the Park Highlands land sales (referenced below) and another developer for the value of land that was contributed to a master association whichthat is consolidated by the Company.Company, which are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2023 and December 31, 2022 (in thousands):
June 30, 2023December 31, 2022
Contract liabilities$27,137 $23,904 
Revenue recognized in the period from:
 Amounts included in contract liabilities at the beginning of the period$1,547 $9,215 
Recent Sale of Partial Interest of
Real Estate Sale
On July 6, 2017, KBS SOR Properties, LLC, an indirect wholly owned affiliate ofIn May 2023, the Company entered into (i) a Common Unit Purchase and Sale Agreement and Escrow Instructions with Migdal Insurance Company LTD., Migdal-Makefet Pension and Provident Funds LTD. and affiliates (the “Migdal Members”) (the “Purchase and Sale Agreement”), (ii) the Amended and Restated Limited Liability Company Agreement of KBS SOR Acquisition XXIX, LLC (the “Joint Venture Agreement”), (iii) an Investment Agreement with Migdal Members and Willowbrook Asset Management LLC, which is owned by Keith D. Hall and Peter McMillan III, who are principals of the Advisor and directors and officers of the Company (“WBAM”), and (iv) a waiver letter agreement with the Advisor (the “Waiver Agreement”).
Pursuant to the Purchase and Sale Agreement, on July 6, 2017, KBS SOR Properties, LLC sold a 45% equity interestvacant building within the Madison Square property in an entity that owns an office building containing 284,751 rentable square feet located on approximately 0.35 acres of land in San Francisco, CaliforniaPhoenix, Arizona (“353 Sacramento”Madison Square School”) for approximately $39.1proceeds of $6.4 million, (the “353 Sacramento Transaction”) to the Migdal Members, third parties unaffiliated with the Company or the Advisor. The sale resulted in 353 Sacramento being owned by a joint venture (the “353 Sacramento Joint Venture”) in which the Company indirectly owns 55% of the equity interestsbefore closing costs and the Migdal Members indirectly own 45% in the aggregate of the equity interests.
The Company exercises significant influence over the operations, financial policies and decision making with respect to the 353 Sacramento Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accounted for its investment in the 353 Sacramento Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.
Therefore, as of July 6, 2017, the Company deconsolidated 353 Sacramento and accounted for this investment as an unconsolidated joint venture under the equity method of accounting.credits. The Company recognized a gain on sale of $1.7$3.3 million related to the disposition of the Madison Square School, net of closing costs and adjustments. The purchaser is not affiliated with the Company nor the Advisor. As a result of the sale and deconsolidation. See note 12, “Investment in Unconsolidated Joint Ventures”of the Madison Square School, certain assets were reclassified to held for a further discussionsale on the consolidated balance sheets as of December 31, 2022. As of June 30, 2023, the Madison Square property had three office buildings remaining.
In February 2023, the Company sold approximately 71 developable acres of undeveloped land in North Las Vegas, Nevada (“Park Highlands”) for proceeds of $34.5 million, net of closing costs and credits of $1.9 million for future development obligations. The Company recognized a pre-tax gain on sale of real estate of $29.5 million related to the disposition within the consolidated statements of operations. The purchaser is not affiliated with the Company nor the Advisor.
In addition, the land parcels were held and sold through one of the Company’s investmenttaxable REIT subsidiaries (“TRS”) for certain tax planning purposes and to ensure preservation of the Company’s REIT status. For purposes of the determination of U.S. federal and state income taxes, the Company’s TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP. In connection with the Park Highlands sales, the Company recorded an income tax provision of $3.7 million at the TRS level. There were no state taxes related to this disposition. The U.S. federal statutory and effective income tax rate for the transaction’s taxable gain is 21%.
Impairment of Real Estate
The evolving office rental business environment and slowdown in economic growth due to rising interest rates led the Company to reassess its real estate and related intangibles. During the three and six months ended June 30, 2023, the Company recorded impairment charges on real estate and related intangibles in the 353 Sacramento Joint Venture.amounts of $18.9 million and $36.6 million, respectively, to write down the carrying value of two strategic opportunistic properties to their estimated fair values due to increases in the discount and cap rate assumptions and decreases in projected cash flows. There were no impairment charges during the three and six months ended June 30, 2022.



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12

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

4. REAL ESTATE EQUITY SECURITIES
Recent Acquisitions
Crown Pointe
On February 14, 2017,The following summarizes the Company, through an indirect wholly owned subsidiary, acquired an office property consistingportion of two office buildings containing an aggregate of 499,968 rentable square feet in Dunwoody, Georgia (“Crown Pointe”).  The seller is not affiliated withloss for the Company or the Advisor. The purchase price (net of closing credits) of Crown Pointe was $83.1 million plus $1.1 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $22.6 millionperiod related to land, $56.6 million to building and improvements, $6.0 million to tenant origination and absorption costs and $1.0 million to below-market lease liabilities. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods as of the date of acquisition of 4.9 years for tenant origination and absorption costs and 4.2 years for below-market lease liabilities. Duringreal estate equity securities held during the three and ninesix months ended SeptemberJune 30, 2017,2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Loss on real estate equity securities, net$(4,089)$(20,070)$(16,122)$(27,591)
Less net gain recognized during the period on real estate equity securities sold during the period5,809 — 5,809 — 
Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period$(9,898)$(20,070)$(21,931)$(27,591)

5. NOTES AND BONDS PAYABLE
As of June 30, 2023 and December 31, 2022, the Company recognized $2.3 millionCompany’s notes and $6.1 million, respectively, of total revenues and $1.9 million and $4.7 million, respectively, of operating expenses from this property.
125 John Carpenter
On September 15, 2017, the Company, through an indirect wholly owned subsidiary, acquired an office property consisting of two office buildings containing an aggregate of 442,039 rentable square feet in Irving, Texas (“125 John Carpenter”). The seller is not affiliated with the Company or the Advisor. The purchase price (net of closing credits) of 125 John Carpenter was $82.8 million plus $0.5 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $2.7 million to land, $73.6 million to building and improvements, $9.0 million to tenant origination and absorption costs and $2.1 million to below-market lease liabilities. The intangible assets and liabilities acquired in connection with this acquisition have weighted-average amortization periods asbonds payable consisted of the date of acquisition of 6.9 years for tenant origination and absorption costs and 5.2 years for below-market lease liabilities. During the three and nine months ended September 30, 2017, the Company recognized $0.5 million of total revenues and $0.3 million of operating expenses from this property.following (dollars in thousands):
 
Book Value as of
June 30, 2023
Book Value as of
December 31, 2022
Contractual Interest Rate as of
June 30, 2023
Effective Interest Rate at
June 30, 2023 (1)
Payment Type (2)
Maturity Date (3)
Richardson Portfolio Mortgage Loan$18,675 $18,844 SOFR + 2.50%7.57%Principal & Interest11/01/2023
Park Centre Mortgage Loan26,072 26,233 BSBY + 4.75%9.92%Principal & Interest
06/27/2023 (4)
1180 Raymond Mortgage Loan (5)
31,070 31,070 BSBY + 2.25%7.42%Interest Only12/01/2023
Pacific Oak SOR BVI Series B
Debentures (6)
314,130 331,213 3.93%3.93%(6)01/31/2026
Crown Pointe Mortgage Loan54,738 53,758 SOFR + 2.30%7.37%Interest Only04/01/2025
The Marq Mortgage Loan60,460 60,796 BSBY + 4.55%9.72%Principal & Interest
06/06/2023 (4)
Eight & Nine Corporate Centre Mortgage Loan (7)
— 47,945 (7)(7)(7)(7)
Georgia 400 Center Mortgage Loan40,432 44,129 SOFR + 1.55%6.62%Interest Only05/22/2024
PORT Mortgage Loan 151,304 51,302 4.74%4.74%Interest Only10/01/2025
PORT Mortgage Loan 210,523 10,523 4.72%4.72%Interest Only03/01/2026
PORT MetLife Loan60,000 60,000 3.90%3.90%Interest Only04/10/2026
PORT II Metlife Loan (8)
93,701 93,701 3.99%3.99%Interest Only04/10/2026
Q&C Hotel Mortgage Loan24,671 24,784 SOFR + 3.50%8.57%Principal & Interest01/31/2024
Lincoln Court Mortgage Loan (5)
35,314 35,314 SOFR + 3.25%8.32%Interest Only08/07/2025
Lofts at NoHo Commons Mortgage Loan71,536 71,536 
SOFR + 2.18% (9)
7.25%Interest Only09/09/2023
Oakland City Center Mortgage Loan (5)
82,500 87,000 BSBY + 3.00%8.17%Principal & Interest09/01/2023
Madison Square Mortgage Loan17,961 17,964 4.63%4.63%Interest Only10/07/2024
Total Notes and Bonds Payable principal outstanding993,087 1,066,112 
Deferred financing costs and debt discount and premium, net (10)
(17,245)(21,403)
Total Notes and Bonds Payable, net975,842 1,044,709 
4.TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
As of September 30, 2017 and December 31, 2016, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):
13
  
Tenant Origination and
Absorption Costs
 
Above-Market
Lease Assets
 
Below-Market
Lease Liabilities
  September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Cost $49,210
 $46,557
 $1,330
 $1,808
 $(6,015) $(9,189)
Accumulated Amortization (21,621) (22,327) (935) (1,190) 2,264
 3,160
Net Amount $27,589
 $24,230
 $395
 $618
 $(3,751) $(6,029)


18
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):
  
Tenant Origination and
Absorption Costs
 
Above-Market
Lease Assets
 
Below-Market
Lease Liabilities
  For the Three Months Ended
September 30,		 For the Three Months Ended
September 30,		 For the Three Months Ended
September 30,
  2017 2016 2017 2016 2017 2016
Amortization $(2,190) $(3,068) $(62) $(119) $278
 $1,045
  Tenant Origination and
Absorption Costs		 Above-Market
Lease Assets		 Below-Market
Lease Liabilities
  For the Nine Months Ended
September 30,		 For the Nine Months Ended
September 30,		 For the Nine Months Ended
September 30,
  2017 2016 2017 2016 2017 2016
Amortization $(8,268) $(7,765) $(229) $(359) $2,482
 $1,734
Additionally, as of September 30, 2017 and December 31, 2016, the Company had recorded tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $5.6 million and $6.3 million, respectively.  During the three and nine months ended September 30, 2017, the Company recorded amortization expense of $0.2 million and $0.7 million, respectively, related to tax abatement intangible assets.  During the three and nine months ended September 30, 2016, the Company recorded amortization expense of $0.2 million and $0.7 million, respectively, related to tax abatement intangible assets.
5.REAL ESTATE EQUITY SECURITIES
During the nine months ended September 30, 2017, the Company purchased 3,603,189 shares of common stock of Whitestone REIT (Ticker: WSR) for an aggregate purchase price of $43.3 million, including $0.4 million of acquisition fees paid to the Advisor. The Company's investment in real estate equity securities is classified as available-for-sale as the Company intends to hold the securities for the purpose of collecting dividend income and for longer term price appreciation. These investments are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses are reported in accumulated other comprehensive income (loss). The following summarizes the activity related to real estate equity securities for the nine months ended September 30, 2017 (in thousands): 
  Amortized Cost Basis Unrealized Gains Total
Real estate equity securities - December 31, 2016 $—
 $—
 $—
Purchase of real estate equity securities 42,845
 —
 42,845
Acquisition fee to affiliate and purchase commission 463
 —
 463
Unrealized change in market value of real estate equity securities —
 3,714
 3,714
Real estate equity securities - September 30, 2017 $43,308
 $3,714
 $47,022
During the three and nine months ended September 30, 2017, the Company recognized $1.0 million and $1.5 million, respectively, of dividend income from real estate equity securities.

19
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

6.REAL ESTATE DEBT SECURITIES
As of September 30, 2017, the Company owned an investment in real estate debt securities. The Company’s investment in real estate debt securities is classified as held to maturity, as the Company has the intent and ability to hold its investment until maturity, and it is not more likely than not that the Company would be required to sell its investment before recovery of the Company’s amortized cost basis.  The information for those real estate debt securities as of September 30, 2017 and December 31, 2016 is set forth below (in thousands):
Debt Securities Name Dates Acquired Debt Securities Type 
Outstanding Principal Balance as of
September 30, 2017 (1)
 
Book Value as of
September 30, 2017 (2)
 
Book Value as of
December 31, 2016 (2)
 
Contractual Interest Rate (3)
 
Annualized Effective
Interest Rate (3)
 Maturity Date
Battery Point Series B Preferred Units 
10/28/2016 /
03/30/2017 /
05/12/2017
 Series B Preferred Units $17,500
 $17,642
 $4,683
 9.0% 11.1% 10/28/2019
_____________________
(1) Outstanding principal balance as of September 30, 2017 represents principal balance outstanding under the real estate debt securities.
(2) Book value of the real estate debt securities represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees and direct origination and acquisition costs and additional interest accretion.
(3) Contractual interest rate is the stated interest rate on the face of the real estate securities.  Annualized effective interest rate is calculated as the actual interest income recognized in 2017, using the interest method, annualized (if applicable) and divided by the average amortized cost basis of the investment.  The annualized effective interest rate and contractual interest rate presented are as of September 30, 2017.
The following summarizes the activity related to real estate debt securities for the nine months ended September 30, 2017 (in thousands): 
Real estate debt securities - December 31, 2016 $4,683
Face value of additional real estate debt securities acquired 12,500
Deferred interest receivable and interest accretion 218
Closing costs 3
Accretion of commitment fee, net of closing costs 238
Real estate debt securities - September 30, 2017 $17,642
For the three and nine months ended September 30, 2017, interest income from real estate debt securities consisted of the following (in thousands):
  Three Months Ended Nine Months Ended
  September 30, 2017 September 30, 2017
Contractual interest income $403
 $815
Interest accretion 97
 218
Accretion of commitment fee, net of closing costs and acquisition fee 11
 238
Interest income from real estate debt securities $511
 $1,271

20
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

7.REAL ESTATE SALES
During the three and nine months ended September 30, 2017, the Company disposed of one office property. During the year ended December 31, 2016, the Company did not dispose of any real estate properties.
On July 11, 2013, the Company, through an indirect wholly owned subsidiary, acquired an office building containing 179,872 rentable square feet located in Boston, Massachusetts (“50 Congress Street”). On May 15, 2017, the Company sold 50 Congress Street to a purchaser unaffiliated with the Company or the Advisor for $79.0 million, or $78.8 million net of concessions and credits. The carrying value of 50 Congress Street as of the disposition date was $47.7 million, which was net of $5.9 million of accumulated depreciation and amortization. The Company recognized a gain on sale of $29.4 million related to the disposition of 50 Congress Street.
The following summary presents the major components of assets and liabilities related to real estate held for sale as of September 30, 2017 and December 31, 2016 (in thousands):
 September 30, 2017 December 31, 2016
Assets related to real estate held for sale   
Real estate, cost$—
 $53,680
Accumulated depreciation and amortization—
 (6,747)
Real estate, net—
 46,933
Other assets—
 1,488
Total assets related to real estate held for sale$—
 $48,421
Liabilities related to real estate held for sale   
Notes payable, net—
 31,450
Other liabilities—
 522
Total liabilities related to real estate held for sale$—
 $31,972
The operations of this property and gain on sale are included in continuing operations on the accompanying statements of operations. The following table summarizes certain revenue and expenses related to this property for the three and nine months ended September 30, 2017 and 2016 (in thousands):
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues        
Rental income $—
 $1,481
 $2,287
 $4,462
Tenant reimbursements and other operating income —
 151
 98
 323
Total revenues $—
 $1,632
 $2,385
 $4,785
Expenses        
Operating, maintenance, and management $—
 $400
 $714
 $1,244
Real estate taxes and insurance —
 269
 475
 864
Asset management fees to affiliate —
 102
 150
 303
Depreciation and amortization —
 593
 604
 1,808
Interest expense —
 209
 396
 599
Total expenses $—
 $1,573
 $2,339
 $4,818

21
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

8.NOTES AND BONDS PAYABLE
As of September 30, 2017 and December 31, 2016, the Company’s notes and bonds payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):
  Book Value as of September 30, 2017 Book Value as of December 31, 2016 
Contractual Interest Rate as of September 30, 2017 (1)
 
Effective Interest Rate at
September 30, 2017(1)
 Payment Type 
Maturity
Date (2)
Richardson Portfolio Mortgage Loan $37,036
 $40,594
 One-Month LIBOR + 2.10% 3.34% Principal & Interest 05/01/2018
Bellevue Technology Center Mortgage Loan (3)
 58,860
 59,400
 One-Month LIBOR + 2.25% 3.49% Principal & Interest 03/01/2019
Portfolio Revolving Loan Facility (4)
 44,600
 11,799
 One-Month LIBOR + 2.75% 3.99% Principal & Interest 05/01/2019
Portfolio Mortgage Loan (5)
 107,905
 106,479
 One-Month LIBOR + 2.25% 3.49% Principal & Interest 07/01/2018
Burbank Collection Mortgage Loan 9,591
 9,812
 One-Month LIBOR + 2.35% 3.60% Principal & Interest 09/30/2018
50 Congress Mortgage Loan (6)
 —
 31,525
 
(6) 
 
(6) 
 
(6) 
 
(6) 
1180 Raymond Bond Payable 6,505
 6,635
 6.50% 6.50% Principal & Interest 09/01/2036
Central Building Mortgage Loan 27,600
 27,600
 One-Month LIBOR + 1.75% 2.99% Interest Only 11/13/2018
Maitland Promenade II Mortgage Loan (3)
 21,830
 20,877
 One-Month LIBOR + 2.90% 4.13% Principal & Interest 01/01/2018
Westmoor Center Mortgage Loan (3)
 61,582
 62,000
 One-Month LIBOR + 2.25% 3.49% Principal & Interest 02/01/2018
Plaza Buildings Senior Loan (3)
 108,886
 109,866
 One-Month LIBOR + 1.90% 3.14% Principal & Interest 01/14/2018
424 Bedford Mortgage Loan 24,422
 24,832
 3.91% 3.91% Principal & Interest 10/01/2022
1180 Raymond Mortgage Loan 31,000
 31,000
 One-Month LIBOR + 2.25% 3.49% Interest Only 12/01/2017
KBS SOR (BVI) Holdings, Ltd. Series A Debentures (7)
 274,541
 251,811
 4.25% 4.25% 
(7) 
 03/01/2023
Westpark Portfolio Mortgage Loan 85,200
 83,200
 One-Month LIBOR + 2.50% 3.74% 
Interest Only (8)
 07/01/2020
353 Sacramento Mortgage Loan (9)
 —
 85,500
 
(9) 
 
(9) 
 
(9) 
 
(9) 
Crown Pointe Mortgage Loan 50,500
 —
 One-Month LIBOR + 2.60% 3.84% Interest Only 02/13/2020
125 John Carpenter Mortgage Loan 50,130
 —
 
(10) 
 2.99% Interest Only 10/01/2022
Total Notes and Bonds Payable principal outstanding 1,000,188
 962,930
        
Net Premium/(Discount) on Notes and Bonds Payable (11)
 124
 88
        
Deferred financing costs, net (10,064) (12,394)        
Total Notes and Bonds Payable, net $990,248
 $950,624
        
_____________________
(1) Contractual interest rate represents the interest rate in effect under the loan as of SeptemberJune 30, 2017. Effective2023. The interest rate is calculated as the actual interest rate in effect as of SeptemberJune 30, 20172023 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at SeptemberJune 30, 2017,2023, where applicable.
(2) Represents the initial maturity date or the maturity date as extended as of September 30, 2017; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.
(3) On November 8, 2017, in connection with the sale of property, the Company repaid the entire principal balance and all other sums due under this loan. See note 15, “Subsequent Events - Singapore Transaction” for more information.


22
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

(4) The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. On May 1, 2017, the Company entered into a loan modification agreement to extend the maturity date of the Portfolio Revolving Loan Facility to May 1, 2019. As a result of this modification, the Portfolio Revolving Loan Facility bears interest at a floating rate of 2.75% over one-month LIBOR. The Portfolio Revolving Loan Facility is comprised of $30.0 million of revolving debt and $45.0 million of non-revolving debt available to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. As of September 30, 2017, $44.6 million of non-revolving debt had been disbursed to the Company and $29.8 million of revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents. On November 8, 2017, in connection with the sale of property, the Company repaid the entire principal balance and all other sums due under this loan. See note 15, “Subsequent Events - Singapore Transaction” for more information.
(5) On November 8, 2017, in connection with the sale of certain properties secured by this loan, the Company repaid all but $10.0 million principal balance. The Portfolio Mortgage Loan is now only secured by one office property in the Austin Suburban Portfolio, Park Centre. See note 15, “Subsequent Events - Singapore Transaction” for more information.
(6) On May 15, 2017, in connection with the disposition of 50 Congress Street, the Company repaid the $31.4 million outstanding principal balance due under the 50 Congress Street Mortgage Loan.
(7) See “ – Israeli Bond Financing” below.
(8) Represents the payment type required under the loan as of SeptemberJune 30, 2017.2023. 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.
(9) On July 6, 2017,(3) Represents the initial maturity date or the maturity date as extended as of June 30, 2023; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.
(4) As filing date of this Quarterly Report on Form 10-Q, the Company was in connectionrefinancing negotiations with the partial interest sale of 353 Sacramento,lender for loans that have matured, see below for further discussion.
(5) The Company’s notes and bonds payable are generally non-recourse. These mortgage loans have guarantees over certain balances whereby the 353 Sacramento Mortgage Loan was deconsolidated fromCompany would be required to make guaranteed payments in the Company's balance sheet. See note 12, “Investment in Unconsolidated Joint Ventures” for a further discussion onevent that the Company’s partial sale of 353 Sacramento.
(10) Company turned the property over to the lender. The 125 John Carpenter Mortgage Loan bears interest at a floating rateguarantees are typically 25% of the greateroutstanding loan balance. As of (a) 2.0%June 30, 2023, the guaranteed amount in the aggregate was $37.2 million.
(6) See “Israeli Bond Financing” below.
(7) This loan was paid off during the six months ended June 30, 2023.
(8) As of June 30, 2023, $93.7 million had been disbursed to the Company and up to $6.3 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents.
(9) The variable rate is at the higher of one-month SOFR or (b) 175 basis points over one-month LIBOR.1.75%, plus 2.18%.
(11) (10) 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 discount/premium is amortized over the remaining life of the notes and bonds payable.
During the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company incurred $9.6$15.8 million and $29.3$31.8 million, respectively, of interest expense. Included in interest expense respectively.during the three and six months ended June 30, 2023 was $1.1 million and $2.4 million, respectively, deferred financing costs and debt discount and premium, net. Included in interest expense for the three and ninesix months ended SeptemberJune 30, 20172023 was $1.0$1.1 million and $3.6$2.2 million, respectively, of amortization of deferred financing costs, respectively.on discount on notes and bonds payable, net. Additionally, during the three and ninesix months ended SeptemberJune 30, 2017,2023, the Company capitalized $0.6$0.9 million and $1.7 million, respectively, of interest related to its investments in undeveloped land, respectively. land.
During the three and ninesix months ended SeptemberJune 30, 2016,2022, the Company incurred $8.0$10.8 million and $20.4$20.3 million, respectively, of interest expense, respectively.expense. Included in interest expense for the three and ninesix months ended SeptemberJune 30, 20162022 was $1.1$0.8 million and $2.9$1.6 million, respectively, of amortization of deferred financing costs, respectively.costs. Included in interest expense for the three and six months ended June 30, 2022 was $1.2 million and $2.3 million, respectively, of amortization on discount on notes and bonds payable, net. Additionally, during the three and ninesix months ended SeptemberJune 30, 2016 ,2022, the Company capitalized $0.5 million and $1.5$1.0 million, respectively, of interest related to its investments in undeveloped land, respectively.land.
As of SeptemberJune 30, 2017, the Company’s deferred financing costs were $10.1 million, net of amortization, which are included in notes and bonds payable, net on the accompanying consolidated balance sheets. As of December 31, 2016, the Company’s deferred financing costs were $12.5 million, net of amortization, of which $12.4 million is included in notes and bonds payable, net and $0.1 million is included in prepaid expenses and other assets on the accompanying consolidated balance sheets, respectively. As of September 30, 20172023 and December 31, 2016,2022, the Company’s interest payable was $3.0$9.3 million and $5.3$9.1 million, respectively.
The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of SeptemberJune 30, 20172023 (in thousands):
July 1, 2023 through December 31, 2023$264,241 
2024213,847 
2025246,066 
2026268,933 
2027— 
Thereafter— 
$993,087 

14
October 1, 2017 through December 31, 2017 $32,706
2018 376,228
2019 158,157
2020 189,922
2021 55,787
Thereafter 187,388
  $1,000,188

The Company’s notes payable contain financial debt covenants. As of September 30, 2017, the Company was in compliance with all of these debt covenants.

23
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

The Company has extension options with respect to $70.3 million of the debt obligations outstanding that are 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 the Company will be able to meet these requirements. All the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, as outlined in the table above, except for the Company’s 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.
The Company’s notes payable contains financial debt covenants, including minimum equity requirements and liquidity ratios. As of June 30, 2023, the Company was in compliance with all of these debt covenants with the exception that the Park Centre Mortgage Loan, Lofts at NoHo Commons Mortgage Loan, Richardson Portfolio Mortgage Loan, and Lincoln Court Mortgage Loan were not in compliance with the debt service coverage requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for the Lincoln Court Mortgage Loan, and the remaining loans are at-risk of cash sweeps and/or principal pay downs if in consecutive non-compliance.
The Company is in discussion with the lender regarding refinancing loans that have matured. As of the filing date of this Quarterly Report on Form 10-Q, the Company did not fulfill the obligation to repay $86.5 million, the outstanding principal amount, of the two mortgage loans by the maturity dates, resulting in the accrual of penalty interest. The two mortgage loans are non-recourse to the Company. There are several potential outcomes, including negotiating a modification to the loans, refinancing the loans, or consensual short sales. However, there is no assurance that the Company will be successful in achieving any of these potential outcomes. If unsuccessful, the lenders would retain their right to exercise the remedies under the loans including, but not limited to, declaring the debt to be immediately payable and foreclosing on the assets.
Israeli Bond Financing
On March 2, 2016, KBS Strategic OpportunityFebruary 16, 2020, 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 Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels.  In the aggregate, KBS Strategic Opportunity BVI accepted 970.2issued 254.1 million Israeli new Shekels (approximately $249.2$74.1 million as of March 8, 2016) in bothFebruary 16, 2020) of Series B debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the institutional and public tendersIsrael Securities Authority. The Series B Debentures bear interest at an annual interestthe rate of 4.25%.  KBS Strategic Opportunity BVI issued the3.93% per year. The Series B Debentures on March 8, 2016. The terms of the Debentures requirehave principal installment payments equal to 20%33.33% of the face valueamount of the Series B Debentures on March 1stJanuary 31st of each year from 20192024 to 2023. As2026. Pacific Oak SOR BVI issued additional Series B Debentures subsequent to the initial issuance and as of SeptemberJune 30, 2017,2023, 1.2 billion Israeli new Shekels (approximately $314.1 million as of June 30, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the Company has one foreign currency option for an aggregate notional amountinitial Series B Debentures without any right of $285.4 million to hedge its exposure to foreign currency exchange rate movements. See note 9, “Derivative Instruments” for a further discussion on the Company’s foreign currency option.precedence or preference between any of them.
The deed of trust that governs the terms of the Series B Debentures contains various financial covenants. As of SeptemberJune 30, 2017,2023, the Company was in compliance with all of these financial debt covenants.
9.DERIVATIVE INSTRUMENTS
On July 6, 2023, Pacific Oak SOR BVI issued 319.6 million Israeli new Shekels (approximately $86.4 million) of Series C bonds (the “Series C Bonds”) to Israeli investors pursuant to a public offering registered with the Israeli Securities Authority. Additionally, on July 17, 2023, Pacific Oak SOR BVI issued an additional 20.7 million Israeli new Shekels (approximately $5.6 million) of Series C bonds (the “Series C Expansion”). The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest ratesSeries C Expansion has an equal level of security, pari passu, amongst themselves and foreign currency exchange rate movements.between them and the Series C Bonds without any right of precedence or preference between any of them. The primary goaldeed of trust that governs the terms of the Company’s risk management practices relatedSeries C Bonds and Series C Expansion contains various financial covenants. Refer to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivativesNote 11 for speculative purposes.further discussion.
The Company enters into foreign currency options and foreign currency collars to mitigate its exposure to foreign currency exchange rate movements on its bonds payable outstanding denominated in Israeli new Shekels. The foreign currency collar consists of a purchased call option to buy and a sold put option to sell Israeli new Shekels. A foreign currency collar guarantees that the exchange rate of the currency will not fluctuate beyond the range of the options’ strike prices. The foreign currency option consists of a call option to buy Israeli new Shekels.
The following table summarizes the notional amount and other information related to the Company’s foreign currency collars as of December 31, 2016. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (currency in thousands):

15
Derivative Instruments Notional Amount Strike Price Trade Date Maturity Date
Derivative instruments not designated as hedging instruments      
Foreign currency collar $100,000
 3.72 - 3.83 ILS-USD 08/08/2016 08/08/2017
Foreign currency collar 50,000
 3.67 - 3.77 ILS-USD 08/16/2016 08/16/2017
Foreign currency collar 50,000
 3.68 - 3.78 ILS-USD 08/16/2016 08/16/2017
Foreign currency collar 50,000
 3.67 - 3.77 ILS-USD 08/22/2016 08/22/2017
  $250,000
      

On August 3, 2017, the Company terminated the foreign currency collars and as a result received $6.6 million. On August 3, 2017, the Company entered into a foreign currency option, a USD put/ILS call option, to hedge against a change in the exchange rate of the Israeli new Shekel versus the U.S. Dollar as it now has the right, but not the obligation, to purchase up to 970.2 million Israeli Shekels at the rate of ILS 3.4 per USD. The cost of the foreign currency option was $3.4 million.

24
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

6. FAIR VALUE DISCLOSURES
The following table summarizes the notional amount and other information related to the Company’s foreign currency option as of September 30, 2017. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (currency in thousands):
Derivative Instrument Notional Amount Strike Price Trade Date Maturity Date
Derivative instrument not designated as hedging instrument      
Foreign currency option $285,361
 3.40 ILS-USD 08/03/2017 08/03/2018
The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero.
As of September 30, 2017, the Company had entered into an interest rate cap, which was not designated as a hedging instrument. The following table summarizes the notional amount and other information related to the Company’s derivative instrument as of September 30, 2017. The notional amount is an indication of the extent of the Company’s involvement in the instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):
Derivative Instrument Effective Date Maturity Date Notional Value Reference Rate
Interest rate cap 02/21/2017 02/13/2020 $46,875
 One-month LIBOR at 3.00%
The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2017 and December 31, 2016 (dollars in thousands):
    September 30, 2017 December 31, 2016
Derivative Instruments Balance Sheet Location Number of Instruments Fair Value Number of Instruments Fair Value
Derivative instruments not designated as hedging instruments        
Interest rate cap Prepaid expenses and other assets 1 $17
 1 $12
Foreign currency collars Other liabilities — $—
 4 $(3,910)
Foreign currency option Prepaid expenses and other assets 1 $3,884
 — $—
The change in fair value of foreign currency options and collars that are not designated as cash flow hedges are recorded as foreign currency transaction gains or losses in the accompanying consolidated statements of operations. During the three months ended September 30, 2017, the Company recognized a $8.1 million loss related to the foreign currency option and collars, which is shown net against $3.7 million of foreign currency transaction gain in the accompanying consolidated statements of operations as foreign currency transaction loss, net. During the nine months ended September 30, 2017, the Company recognized a $10.9 million gain related to the foreign currency option and collars, which is shown net against $22.4 million of foreign currency transaction loss in the accompanying consolidated statements of operations as foreign currency transaction loss, net. During the three and nine months ended September 30, 2016, the Company recognized $1.5 million of foreign currency transaction gain, which is shown net against $8.2 million and $6.1 million, respectively, of foreign currency transaction losses in the accompanying consolidated statements of operations as foreign currency transaction loss, net. During the three and nine months ended September 30, 2017, the Company recorded unrealized losses of $14,000 and $102,000, respectively, on interest rate caps, which was included in interest expense on the accompanying consolidated statements of operations.

25
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

10.FAIR VALUE DISCLOSURES
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value:
Cash and cash equivalents, rent and other receivables and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.
Real estate equity securities: The Company's real estate equity securities are presented at fair value on the accompanying consolidated balance sheets. The fair value of real estate equity securities was based on a quoted price in an active market on a major stock exchange. The Company classifies these inputs as Level 1 inputs.
Real estate debt securities: The Company’s real estate debt securities are presented in the accompanying consolidated balance sheets at their amortized cost net of recorded loss reserves (if any) and not at fair value.  The fair value of real estate debt securities was estimated using an internal valuation model that considers the expected cash flows for the loans, underlying collateral values (for collateral dependent loans) and estimated yield requirements of institutional investors for real estate debt securities with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements.  The Company classifies these inputs as Level 3 inputs.
Notes and bonds payable: The fair values of the Company’s notes and bonds payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs. The Company’s bonds issued in Israel are publicly traded on the Tel-Aviv Stock Exchange. The Company used the quoted price as of September 30, 2017 for the fair value of its bonds issued in Israel. The Company classifies this input as a Level 1 input.

26
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2017
(unaudited)

Derivativeinstruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets.  The valuation of these instruments is determined using a proprietary model that utilizes observable inputs.  As such, the Company classifies these inputs as Level 2 inputs. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities. The fair value of foreign currency option is based on a Black-Scholes model tailored for currency derivatives.
The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of SeptemberJune 30, 20172023 and December 31, 2016,2022, which carrying amounts do not approximate the fair values (in thousands):
  September 30, 2017 December 31, 2016
  Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value
Financial asset:            
Real estate debt securities $17,500
 $17,642
 $17,358
 $5,000
 $4,683
 $4,683
Financial liabilities:            
Notes and bond payable $725,647
 $722,673
 $727,521
 $711,119
 $707,169
 $711,425
KBS SOR (BVI) Holdings, Ltd. Series A Debentures $274,541
 $267,575
 $288,817
 $251,811
 $243,455
 $253,120
June 30, 2023December 31, 2022
Face ValueCarrying AmountFair ValueFace ValueCarrying AmountFair Value
Financial liabilities (Level 3):
Notes payable$678,957 $660,208 $660,879 $734,899 $728,433 $716,813 
Financial liabilities (Level 1):
Pacific Oak SOR BVI Series B Debentures$314,130 $315,634 $296,389 $331,213 $316,276 $304,758 
Disclosure of the fair value of financial instruments 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 SeptemberJune 30, 2017,2023, the Company measured the following assets at fair value (in thousands):
  Fair Value Measurements Using
TotalQuoted 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$30,474 $30,474 $— $— 
Asset derivative - interest rate caps (1)
$1,764 $— $1,764 $— 
Liability derivative - foreign currency collar (1)
$4,437 $— $4,437 $— 
Nonrecurring Basis:
Impaired real estate (2)
$182,436 $— $— $182,436 
Impaired investment in unconsolidated entity (2)
$26,290 $— $— $26,290 
_____________________
(1) Interest rate caps and foreign currency collars are included in prepaid expenses and other assets and other liabilities, respectively, on the consolidated balance sheets.
(2) Amounts represent the fair value for real estate assets and investment in unconsolidated entity impacted by impairment charges during the six months ended June 30, 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.
As of June 30, 2023, two of the Company’s real estate properties were measured at the estimated fair values. The two 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, including discount rates between 7.5 to 9.0% and terminal cap rates of 7.0 to 8.25%. One investment in unconsolidated entity was measured at the estimated value of the Company’s ownership calculated based on a hypothetical liquidation of the net assets, discounted for lack of marketability and control. The Company used a discount rate of 8.75% and a cap rate of 7.0% to estimate the fair value of the real estate, an interest rate adjustment of 0.15% to estimate the fair value of the debt, a discount rate of 20% for lack of marketability, and a discount rate of 20% for lack of control.
16
    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 $47,022
 $47,022
 $—
 $—
Asset derivatives - interest rate caps $17
 $—
 $17
 $—
Asset derivative - foreign currency option $3,884
 $—
 $3,884
 $—


27
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

As of December 31, 2022, the Company measured the following assets at fair value (in thousands):
Fair Value Measurements Using
TotalQuoted 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$2,267 $— $2,267 $— 
Liability derivative - foreign currency collar$3,115 $— $3,115 $— 
Nonrecurring Basis:
Impaired real estate$212,800 $— $— $212,800 
Impaired goodwill$5,436 $— $— $5,436 
11.RELATED PARTY TRANSACTIONS

7. RELATED PARTY TRANSACTIONS
Pacific Oak Capital Advisors, LLC
As described further below, the Company has entered into agreements with certain affiliates pursuant to which they provide services to the Company. Keith D. Hall and Peter McMillan III control and indirectly own Pacific Oak Holding Group, LLC (“Pacific Oak Holding”), the Company’s sponsor since November 1, 2019. Pacific Oak Holding is the sole owner of Pacific Oak Capital Advisors, LLC (the “Advisor”), the Company’s advisor since November 1, 2019. Messrs. Hall and McMillan are also two of the Company’s executive officers and directors.
Subject to certain restrictions and limitations, the business of the Company is externally managed by the Advisor pursuant to an advisory agreement (the “Advisory Agreement”). The Advisory Agreement entitlesis currently effective through November 1, 2023; however, the Company or the Advisor to specified feesmay terminate the Advisory Agreement without cause or penalty upon providing 60 days’ written notice. The Advisor conducts the provision of certain services with regard to the investment of funds in real estateCompany’s operations and real estate-related investments and the dispositionmanages its portfolio of real estate and other real estate-related investments (includinginvestments.
Pacific Oak Residential Advisors, LLC
Effective September 1, 2022, the discounted payoff of non-performing loans) among other services, as well as reimbursement of certain costs incurred by the Advisor in providing services to the Company. The Advisory Agreement may also entitle the Advisor to certain back-end cash flow participation fees. The Company alsoCompany’s wholly-owned subsidiary, Pacific Oak Residential Trust, Inc. (“PORT”), entered into a fee reimbursementan advisory agreement with Pacific Oak Residential Advisors, LLC (“PORA”) (the “AIP Reimbursement“PORT Advisory Agreement”) with KBS Capital Markets Group LLC, the dealer manager for the Company’s initial public offering (the “Dealer Manager”), pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the Depository Trust & Clearing Corporation Alternative Investment Product PlatformPORA will act as a product specialist with respect to certain accountsthe Company’s residential homes portfolio, held through PORT. The PORT Advisory Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Advisory Agreement, PORT will pay PORA: (1) an acquisition fee equal to 1.0% of the cost of each asset which consists of the price paid for the asset plus any amounts funded or budgeted at the time of acquisition for capital expenditures; and (2) a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of the Company’s investors servicedresidential homes portfolio assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter. In the case of investments made through a joint venture, the platform. The Advisor and Dealer Manageracquisition fee will be based on PORT’s proportionate share of the joint venture. For substantial assistance in connection with the sale of properties or other investments related to the Company’s residential homes portfolio, PORT also serve aspays PORA or its affiliates 1.0% of the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”).contract sales price with a limit to not exceed commission paid to unaffiliated third parties.
On January 6, 2014,In connection with the PORT Advisory Agreement, the Company togetheramended and restated its advisory agreement with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, the Dealer Manager, the Advisor, and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program wherealso effective September 1, 2022, which was subsequently renewed as of November 1, 2022. Under the lower tiers of coverage are shared. The cost of these lower tiers is allocated byAdvisory Agreement, the Company does not pay acquisition fees, asset management fees or disposition fees to the Advisor and its insurance broker among each of the various entities covered by the plan, and is billed directly to each entity. The allocation of these shared coverage costs is proportionatewith respect to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT.Company’s residential homes portfolio. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionateCompany’s residential homes portfolio will still be considered when computing any potential incentive fees due to the respective entities’ prior cost forAdvisor under the errors and omissions insurance. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. In June 2017, the Company renewed its participation in the program, and the program is effective through June 30, 2018. As KBS REIT I is implementing its plan of liquidation, at renewal in June 2017, KBS REIT I elected to cease participation in the program and obtain separate insurance coverage.Advisory Agreement.
During the three and nine months ended September 30, 2017 and 2016, no other business transactions occurred between the Company and these other KBS-sponsored programs.


28
17

Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

DMH Realty, LLC
Effective September 1, 2022, PORT entered into a property management agreement with DMH Realty, LLC (“DMH Realty”), an affiliate of PORA and the Advisor (the “PORT Property Management Agreement”) for the Company’s residential homes portfolio. The PORT Property Management Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Property Management Agreement, PORT will pay DMH Realty a property management fee equal to the following: (a) 8% of Collected Rental Revenues, as defined below, up to $50.0 million per annum; (b) 7% of Collected Rental Revenues in excess of $50.0 million per annum, but less than or equal to $75.0 million per annum; and (c) 6% of Collected Rental Revenues in excess of $75.0 million per annum, “Collected Rental Revenues” means the amount of rental revenue actually collected for each property per the terms of the lease pertaining to each property (including lease breakage fees) or pursuant to any early termination buyouts, but excluding other income items, fees or revenue collected by DMH Realty, including but not limited to: application fees, insufficient funds fees, late fees, move-in fees, pet fees, and security deposits (except to the extent applied to rent per the terms of the lease pertaining to any property).
Pacific Oak Capital Markets, LLC
On September 9, 2022, PORT commenced a private offering of up to $500 million of common stock in a primary offering and up to $50 million of common stock under its distribution reinvestment plan (the “Private Offering”). PORT engaged Pacific Oak Capital Markets, LLC (“POCM”), an affiliate of the Advisor, PORA, and DHM Realty, to be the dealer manager for the Private Offering, pursuant to a dealer manager agreement effective as of September 9, 2022, which was subsequently amended and restated as of January 13, 2023 to reflect the creation of a $5 million escrow arrangement (the “PORT Dealer Manager Agreement”). Pursuant to the PORT Dealer Manager Agreement, with respect to Class A shares, PORT will generally pay POCM: (1) selling commissions equal to up to 6.0% of the net asset value (“NAV”) of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 1.5% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 1.5% of the NAV of each share sold in the primary offering. With respect to Class T shares, PORT will generally pay POCM: (1) selling commissions equal to up to 3.0% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 0.75% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 0.75% of the NAV of each share sold in the primary offering. PORT will not pay any selling commissions, dealer manager or placement agent fees in connection with the sale of shares under the distribution reinvestment plan. The Advisor is the sponsor for the Private Offering and as the sponsor, they will incur reimbursable organization and offering costs on behalf of PORT. PORT will ratably reimburse the Advisor over a 60-month period following the first anniversary of the commencement of the offering. PORT will incur an organization and offering expense fee equal to 0.5% of the NAV of each share sold in the Private Offering to help fund the reimbursement to the sponsor.
Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively, and any related amounts payable as of SeptemberJune 30, 20172023 and December 31, 20162022 (in thousands):
Incurred during the three months ended June 30,Incurred during the six months ended June 30,Payable as of
Expensed2023202220232022June 30, 2023December 31, 2022
Asset management fees$3,710 $3,189 $7,684 $6,315 $5,491 $2,618 
Property management fees (1)
859 133 1,523 258 298 181 
Disposition fees58 — 420 107 — — 
Capitalized
Reimbursable offering costs (2)
894 — 894 — 894 — 
$5,521 $3,322 $10,521 $6,680 $6,683 $2,799 
18
  Incurred Payable as of
  Three Months Ended September 30, Nine Months Ended September 30, September 30, 2017 December 31, 2016
  2017 2016 2017 2016  
Expensed            
Asset management fees $2,800
 $2,639
 $8,404
 6,932
 $—
 $—
Acquisition fees on real estate (1)
 —
 1,690
 —
 2,964
 —
 —
Reimbursable operating expenses (2)
 51
 57
 184
 170
 33
 55
Disposition fees (3)
 —
 —
 785
 279
 —
 —
Capitalized            
Acquisition fees on real estate (1)
 71
 —
 907
 —
 —
 —
Acquisition fees on real estate equity securities 43
 —
 429
 —
 —
 —
  $2,965
 $4,386
 $10,709
 $10,345
 $33
 $55

_____________________
(1) As a result of the adoption of ASU No. 2017-01, the Company’s acquisitions of real estate properties beginning January 1, 2017 generally qualify as an asset acquisition (as opposed to a business combination).  Acquisition fees associated with asset acquisitions will be capitalized, while costs associated with business combinations will continue to be expensed as incurred.
(2) The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $49,000 and $168,000 for the three and nine months ended September 30, 2017, respectively, and $30,000 and $114,000 for the three and nine months ended September 30, 2016, respectively, and were the only employee costs reimbursed under the Advisory Agreement during these periods. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company's direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.
(3) Disposition fees with respect to real estate sold are included in the gain on sale of real estate in the accompanying consolidated statements of operations. Disposition fees with respect to the assignment of the Company's real estate loan receivable are included in general and administrative expenses in the accompanying consolidated statements of operations.
During the nine months ended September 30, 2017, the Advisor reimbursed the Company $0.4 million for expenses incurred to evaluate certain strategic transactions for which the Advisor has agreed to reimburse the Company and $0.1 million for a property insurance rebate. During the nine months ended September 30, 2016, the Advisor reimbursed the Company $0.1 million for a property insurance rebate and $0.1 million for legal and professional fees.
Pursuant to the Waiver Agreement, the Advisor waived any right it may have had to receive a disposition fee in connection with the 353 Sacramento Transaction and also waived its rights to future acquisition fees in an amount equal to 45% of the acquisition fees paid to the Advisor in connection with the Company’s original purchase of 353 Sacramento in July of 2016. Accordingly, the Advisor waived $0.8 million of acquisition fees for the purchase of 125 John Carpenter.
In connection with the 353 Sacramento Transaction, the Company paid a $0.1 million broker commission to Monarch Global Partners, LLC. The son of a member of the board of directors of KBS Strategic Opportunity BVI is a partner at Monarch Global Partners, LLC.

29
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

_____________________
12.INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
(1) Property management fees related to DMH Realty are recorded as operating, maintenance, and management expenses on the Company’s consolidated statements of operations.
(2) Reimbursable offering costs to the Advisor related to the Private Offering are capitalized and recorded as prepaid expenses and other assets on the Company’s consolidated balance sheet.
Pacific Oak Opportunity Zone Fund I
As of SeptemberJune 30, 20172023, the Company’s investment balance in the Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”) is $26.2 million, which is included in investments in unconsolidated entities on the consolidated balance sheets. The Advisor is entitled to certain fees in connection with the fund. Pacific Oak Opportunity Zone Fund I will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness incurred (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on the Company’s proportionate share of the investment. The Advisor is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s investment. In addition, side letter agreements between the Advisor and Pacific Oak Opportunity Zone Fund I were executed on February 28, 2020 and stipulate that any asset management fees allocable to the Company and waived by Pacific Oak Capital Advisors for Pacific Oak Opportunity Zone Fund I would be distributed to the Company.

8. INVESTMENTS IN UNCONSOLIDATED ENTITIES
As of June 30, 2023 and December 31, 2016,2022, the Company’s investments in unconsolidated joint venturesentities were composed of the following (dollars in(in thousands):
Number of Properties as of June 30, 2023Investment Balance as of
Joint VentureLocationOwnership %June 30, 2023December 31, 2022
110 William Joint Venture1New York, New York
60% (1)
$— (2)$— 
353 Sacramento Joint Venture1San Francisco, California55.0%26,290 45,173 
Pacific Oak Opportunity Zone Fund I (3)
3Various46.0%26,219 25,669 
$52,509 $70,842 
_____________________
        Investment Balance at
Joint Venture Number of Properties Location Ownership % September 30, 2017 December 31, 2016
NIP Joint Venture 8 Various Less than 5.0% $4,317
 $5,305
110 William Joint Venture 1 New York, New York 60.0% 8,668
 70,544
353 Sacramento Joint Venture 1 San Francisco, California 55.0% 45,344
 —
        $58,329
 $75,849
Investment in National Industrial Portfolio Joint Venture
(1)On May 18, 2012, the Company, through an indirect wholly owned subsidiary, entered into a joint venture (the “NIP Joint Venture”) with OCM NIP JV Holdings, L.P. and HC KBS NIP JV, LLC (“HC-KBS”). As of September 30, 2017, the NIP Joint Venture owned eight industrial properties and a master lease with respect to another industrial property encompassing 4.4 million square feet. The Company made an initial capital contribution of $8.0 million which represents less than a 5.0% ownership interest in the NIP Joint Venture as of September 30, 2017. The Company has virtually no influence over the NIP Joint Venture’s operations, financial policies or decision making. Accordingly, the Company has accounted for its investment in the NIP Joint Venture under the cost method of accounting. Income, losses and distributions from the NIP Joint Venture are generally allocated among the members based on their respective equity interests.
KBS REIT I, an affiliate of the Advisor, is a member of HC-KBS and has a participation interest in certain future potential profits generated by the NIP Joint Venture.  However, KBS REIT I does not have any equity interest in the NIP Joint Venture. None of the other joint venture partners are affiliated with the Company or the Advisor.
As of September 30, 2017 and December 31, 2016, the book value of the Company’s investment in the NIP Joint Venture was $4.3 million and $5.3 million, respectively. During the three months ended September 30, 2017, the Company did not receive any distributions related to its investment in the NIP Joint Venture. During the nine months ended September 30, 2017, the Company received a distribution of $2.9 million related to its investment in the NIP Joint Venture. The Company recognized $1.9 million of income distributions and $1.0 million of return of capital from the NIP Joint Venture. During the three and nine months ended September 30, 2016, the Company did not receive any distributions related to its investment in the NIP Joint Venture.
Investment in 110 William Joint Venture
On December 23, 2013, the Company, through an indirect wholly owned subsidiary, entered into an agreement withJune 27, 2023, Pacific Oak SOR SREF III 110 William, JV, LLC (the “110 William JV Partner”) to form a joint venture (the “110 William Joint Venture”). On May 2, 2014, executed a lease for approximately 640,000 square feet of office space in the 110 William Joint Venture’s property. Additionally, in July 2023, the 110 William Joint Venture acquired an office property containing 928,157 rentable square feet located on approximately 0.8 acrescompleted a debt and equity restructuring. Refer to Note 11 for further discussion.
(2) As of land in New York, New York (“110 William Street”). Each ofJune 30, 2023, the Company and the 110 William JV Partner hold a 60% and 40% ownership interest in the 110 William Joint Venture, respectively.
The Company exercises significant influence over the operations, financial policies and decision making with respect to the 110 William Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accounted for itsCompany’s investment in the 110 William Joint Venture underwas $0 due to historical distributions from the 110 William Joint Venture exceeding the Company’s book value and the Company suspended the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on
(3) The maximum exposure to loss as a result of the members’ respective equity interests.Company’s investment in the Pacific Oak Opportunity Zone Fund I is limited to the carrying amount of the investment.






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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

Summarized financial information for investments in unconsolidated entities (in thousands):
As
June 30, 2023December 31, 2022
Assets:
Real estate held for investment, net$475,063 $471,503 
Total assets541,670 546,142 
Liabilities:
Notes payable related to real estate held for investment, net498,579 490,302 
Total liabilities526,208 501,861 
Total equity$15,462 $44,281 
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Total revenues$10,673 $12,461 $21,793 $24,570 
Operating loss(13,718)(6,807)(27,753)(12,060)
Net loss$(13,771)$(6,795)$(27,719)$(12,036)
The Company’s investments in unconsolidated entities are reviewed for impairment annually or when conditions exist that may indicate that the decrease in the carrying amount of Septemberthe investment has occurred and is other-than-temporary. Triggering events or impairment indicators for the Company’s investments in unconsolidated entities may include recurring operating losses, change in economic environment, and weakening of the general market condition of the geographic area. Upon determination that an other-than-temporary impairment has occurred, an impairment is recognized in loss from unconsolidated entities, net to reduce the carrying amount of the investment to its estimated fair value.
During the three and six months ended June 30, 2017 and December 31, 2016,2023, the book valuecarrying amount of the Company’s investment in a joint venture was impaired by $14.8 million, primarily due to weakening market conditions of the 110 William Joint Venture was $8.7 milliongeographic area. During three and $70.5 million, respectively, which includes $1.5 million of unamortized acquisition fees and expenses incurred directly by the Company. During the ninesix months ended SeptemberJune 30, 2017, the 110 William Joint Venture made a $58.2 million return of capital distribution to the Company and a $38.8 million return of capital distribution to the 110 William JV Partner funded with proceeds from the 110 William refinancing discussed below.2022, no investments in unconsolidated entities were impaired.
Summarized financial information for the 110 William Joint Venture follows (in thousands):

20
  September 30, 2017 December 31, 2016
Assets:    
       Real estate assets, net of accumulated depreciation and amortization $252,428
 $262,192
       Other assets 31,135
 23,355
       Total assets $283,563
 $285,547
Liabilities and equity:    
       Notes payable, net (1)
 $259,123
 $157,628
       Other liabilities 12,468
 12,872
       Partners’ capital 11,972
 115,047
Total liabilities and equity $283,563
 $285,547

_____________________
(1) See “- 110 William Joint Venture Refinance” below.
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Revenues $9,614
 $8,461
 $27,328
 $25,100
Expenses:        
       Operating, maintenance, and management 2,577
 3,162
 7,343
 8,120
       Real estate taxes and insurance 1,637
 1,535
 4,725
 4,502
       Depreciation and amortization 4,664
 3,563
 12,277
 9,831
       Interest expense 3,951
 1,517
 9,150
 4,541
Total expenses 12,829
 9,777
 33,495
 26,994
Other income 14
 16
 42
 48
Net loss $(3,201) $(1,300) $(6,125) $(1,846)
Company’s equity in loss of unconsolidated joint venture $(1,930) $(791) $(3,706) $(1,139)

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

9. REPORTING SEGMENTS
110 William Joint Venture Refinance
On May 2, 2014, in connection with the acquisition of 110 William Street, the 110 William Joint Venture assumed a mortgage loan with a face amount of $141.5 million and a mezzanine loan with a face amount of $20.0 million (the “110 William Street Existing Loans”). On March 6, 2017, the 110 William Joint Venture closed the refinancing of the 110 William Street Existing Loans (the “Refinancing”). The 110 William Joint Venture repaid $156.0 million of principal related to the 110 William Street Existing Loans. The Refinancing was comprised of the following loans from unaffiliated lenders: (i) a mortgage loan in the maximum amount of up to $232.3 million from Morgan Stanley Bank, N.A., a national banking association (the “110 William Street Mortgage Loan”), (ii) a senior mezzanine loan in the maximum amount of up to $33.8 million from Morgan Stanley Mortgage Capital Holdings LLC, a New York limited liability company (the “110 William Street Senior Mezzanine Loan”), and (iii) a junior mezzanine loan in the maximum amount of up to $33.8 million from Morgan Stanley Mortgage Capital Holdings LLC, a New York limited liability company (the “110 William Street Junior Mezzanine Loan”).
The loans under the Refinancing mature on March 7, 2019, with three one-year extension options. The 110 William Street Mortgage Loan bears interest at a floating rate of 2.2472% over one-month LIBOR. The 110 William Street Senior Mezzanine Loan and the 110 William Street Junior Mezzanine Loan bear interest at a floating rate of 6.25% over one-month LIBOR. The 110 William Joint Venture entered into three interest rate caps that effectively limit one-month LIBOR at 3.00% on $275.0 million of the Refinancing amount as of the effective date, up to $300.0 million, accreting according to a notional schedule, effective March 6, 2017 through March 7, 2019. The loans under the Refinancing have monthly payments that are interest-only with the entire unpaid principal balance and all outstanding interest and fees due at maturity. The 110 William Joint Venture has the right to prepay the loans in whole at any time or in part from time to time to the extent necessary, subject to the payment of certain expenses potentially incurred by the lender as a result of the prepayment, the payment of a prepayment premium and breakage costs in certain circumstances, and certain other conditions contained in the loan documents. At closing, $205.0 million had been disbursed from the 110 William Street Mortgage Loan to the 110 William Joint Venture with $27.3 million remaining available for future disbursements to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. At closing, $29.85 million had been disbursed from the 110 William Street Senior Mezzanine Loan to the 110 William Joint Venture and $29.85 million had been disbursed from the 110 William Junior Mezzanine Loan to the 110 William Joint Venture, with $4.0 million remaining available under the 110 William Street Senior Mezzanine Loan and $4.0 million remaining available under the 110 William Street Junior Mezzanine Loan for future disbursements to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents under the 110 William Street Senior Mezzanine Loan and the 110 William Street Junior Mezzanine Loan.
Investment in 353 Sacramento Joint Venture
On July 6, 2017, the Company, through an indirect wholly owned subsidiary, entered into an agreement with the Migdal Members to form the 353 Sacramento Joint Venture. On July 6, 2017, the Company sold a 45% equity interest in an entity that owns 353 Sacramento to the Migdal Members. The sale resulted in 353 Sacramento being owned by the 353 Sacramento Joint Venture, in which the Company indirectly owns 55% of the equity interests and the Migdal Members indirectly own 45% in the aggregate of the equity interests.
The Company exercises significant influence over the operations, financial policies and decision making with respect to the 353 Sacramento Joint Venture but significant decisions require approval from both members. Accordingly, the Company has accountedrecognizes three reporting segments for its investment in the 353 Sacramento Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.
As of September 30, 2017, the book value of the Company’s investment in the 353 Sacramento Joint Venture was $45.3 million. During the three and ninesix months ended SeptemberJune 30, 2017, the Company did not receive any distributions2023 and 2022: strategic opportunistic properties, residential homes and hotels. All corporate related to its investmentcosts are included in the 353 Sacramento Joint Venture.strategic opportunistic properties segment to align with how financial information is presented to the chief operating decision maker. The selected financial information for reporting segments for the three and six months ended June 30, 2023 and 2022 are as follows (in thousands):
Three Months Ended June 30, 2023
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total revenues$23,874 $9,457 $2,565 $35,896 
Total expenses(64,298)(11,403)(3,261)(78,962)
Total other (loss) income(14,482)21 46 (14,415)
Net (loss) before income taxes$(54,906)$(1,925)$(650)$(57,481)
Six Months Ended June 30, 2023
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total revenues$49,761 $18,782 $5,478 $74,021 
Total expenses(119,673)(22,668)(6,162)(148,503)
Total other income797 21 75 893 
Net (loss) income before income taxes$(69,115)$(3,865)$(609)$(73,589)



Three Months Ended June 30, 2022
Strategic Opportunistic PropertiesSingle-Family HomesHotelsTotal
Total revenues$24,884 $5,801 $12,854 $43,539 
Total expenses(13,699)(6,505)(9,432)(29,636)
Total other (loss) income(21,797)(479)4 (22,272)
Net (loss) income before income taxes$(10,612)$(1,183)$3,426 $(8,369)
Six Months Ended June 30, 2022
Strategic Opportunistic PropertiesSingle-Family HomesHotelsTotal
Total revenues$51,750 $11,544 $18,771 $82,065 
Total expenses(40,776)(13,009)(16,844)(70,629)
Total other (loss) income(26,387)(521)2,372 (24,536)
Net (loss) income before income taxes$(15,413)$(1,986)$4,299 $(13,100)

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

Summarized financial information forTotal assets and goodwill related to the 353 Sacramento Joint Venture follows (in thousands):
  September 30, 2017
Assets:  
       Real estate assets, net of accumulated depreciation and amortization $170,477
       Other assets 5,438
       Total assets $175,915
Liabilities and equity:  
       Notes payable, net $87,605
       Other liabilities 6,358
       Partners’ capital 81,952
Total liabilities and equity $175,915
  For the Period from July 6, 2017 to September 30, 2017
Revenues $3,507
Expenses:  
       Operating, maintenance, and management 936
       Real estate taxes and insurance 603
       Depreciation and amortization 1,724
       Interest expense 1,138
Total expenses 4,401
Net loss $(894)
Company’s equity in loss of unconsolidated joint venture $(222)
13.SUPPLEMENTAL CASH FLOW AND SIGNIFICANT NONCASH TRANSACTION DISCLOSURES
Supplemental cash flowreporting segments as of June 30, 2023 and significant noncash transaction disclosures wereDecember 31, 2022 are as follows (in thousands):
June 30, 2023
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total assets$1,029,968 $333,241 $51,367 $1,414,576 
Goodwill4,220 — 1,216 5,436 
December 31, 2022
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total assets$1,173,481 $333,128 $52,636 $1,559,245 
Goodwill4,220 — 1,216 5,436 

10. COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of June 30, 2023, the Company’s lease and rights to a leasehold interest with respect to 210 West 31st, which was accounted for as a finance lease, are included in the consolidated balance sheets as follows:
Right-of-use asset (included in real estate held for investment, net, in thousands)$7,281 
Lease obligation (included in other liabilities, in thousands)9,491 
Remaining lease term90.4
Discount rate4.8 %
The components of lease expense were as follows:
Interest on lease obligation for the three months ended June 30, 2023 (in thousands)$113 
Interest on lease obligation for the six months ended June 30, 2023 (in thousands)225 

As of June 30, 2023, the Company had a leasehold interest expiring in 2114. Future minimum lease payments owed by the Company under the finance lease as of June 30, 2023 are as follows (in thousands):
July 1, 2023 through December 31, 2023$180 
2024360 
2025393 
2026396 
2027396 
Thereafter51,771 
Total expected minimum lease obligations53,496 
Less: Amount representing interest (1)
(44,005)
Present value of net minimum lease payments (2)
$9,491 
_____________________
(1) Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.
(2) The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.
22
  Nine Months Ended September 30,
  2017 2016
Supplemental Disclosure of Cash Flow Information:    
Interest paid, net of capitalized interest of $1,732 and $1,478 for the nine months ended September 30, 2017 and 2016, respectively $27,732
 $16,146
Supplemental Disclosure of Significant Noncash Transactions:    
Assets and liabilities deconsolidated in connection with the 353 Sacramento partial sale:    
Real estate, net 170,586
 —
Rents and other receivables, net 1,244
 —
Prepaid expenses and other assets 555
 —
Notes payable, net 87,132
 —
Accounts payable and accrued liabilities 1,574
 —
Below-market leases, net 2,960
 —
Other liabilities 924
 —
Application of escrow deposits to acquisition of real estate 2,000
 —
Increase in accrued improvements to real estate 1,319
 1,686
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan 8,666
 9,520


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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SeptemberJune 30, 20172023
(unaudited)

14.COMMITMENTS AND CONTINGENCIES
Economic Dependency
The Company is dependent on the Advisor, PORA, and DMH Realty for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor, isPORA, and DMH Realty are unable to provide these services, the Company will be required to obtain such services from other sources.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of SeptemberJune 30, 2017.2023. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.
Legal Matters
From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

15.SUBSEQUENT EVENTS
11. SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Singapore Transaction110 William Joint Venture
On November 8, 2017, the Company, through 11 wholly owned subsidiaries, sold 11 of its properties (the “Singapore Portfolio”) to various subsidiaries of Keppel-KBS US REIT, a newly formed Singapore real estate investment trust (the “SREIT”) that was listed on the Singapore Stock Exchange (the “Singapore Transaction”).  The sale price of the Singapore Portfolio was $804.0 million, before third-party closing costs of approximately $7.7 million and excluding any disposition fees payable to the Advisor. The Singapore Portfolio consists of the following properties: 1800 West Loop, Westech 360 (part of the Austin Suburban Portfolio), Great Hills Plaza (part of the Austin Suburban Portfolio), Westmoor Center, Iron Point Business Park, the Plaza Buildings, Bellevue Technology Center, Northridge Center I and II, West Loop I and II, Powers Ferry Landing East and Maitland Promenade II. As of September 30, 2017, the carrying value of the Singapore Portfolio was $546.5 million. In connection with the Singapore Transaction, the Company repaid $401.7 million of outstanding debt secured by the properties in the Singapore Portfolio. The Company also used approximately $52.5 million of the proceeds to acquire units in the SREIT representing a 9.5% ownership interest. Currently, the SREIT does not own any properties other than the Singapore Portfolio. The SREIT was established with the investment strategy of principally investing, directly or indirectly, in a diversified portfolio of income-producing commercial assets and real estate-related assets in the key growth markets of the United States.
The SREIT will be externally managed by a joint venture (the “Manager”) between (i) an entity in which Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter McMillan III, the Company’s President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with the Company. The SREIT is expected to pay certain purchase and sale commissions and asset management fees to the ManagerJuly 5, 2023, in exchange for the provisionCompany’s 77.5% preferred interest ownership percentage in the 110 William Joint Venture, the Company agreed to make future capital contributions of certain management services.up to $105.0 million to fund expenditures and improvements (the “Capital Contributions”). The 110 William Joint Venture also exchanged a mezzanine loan encumbering the property of approximately $85.7 million between 110 William Mezz III, LLC, an indirect subsidiary of 110 William Joint Venture, as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchange for contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for previously contributed capital.

110 William Joint Venture entered into an amended loan agreement, which restructured the original loan of $248.7 million (the “Original Loan”), and increased the supplemental loan by $56.7 million (the “Supplemental Loan”). The initial maturity date of the Original Loan and the Supplemental Loan are July 5, 2026, although the maturity date may be extended. The interest rate with respect to the Original Loan is the sum of SOFR plus a spread beginning at 2% and increasing up to 3% during the term of the loan and any extension period, and the interest rate with respect to the Supplemental Loan is the sum of SOFR plus a spread beginning at 3% and increasing up to 3.5% during the term of the loan and any extension period. Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company is the guarantor for all debt service under the amended loan agreement and the Capital Contributions.

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PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2023
(unaudited)
Series C Bonds
On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to Israeli investors, of 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange on July 9, 2023. The terms of the Series C Bonds are governed by a deed of trust, containing various financial covenants, among Pacific Oak SOR BVI and Reznik Paz Nevo Trusts Ltd., as trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by land.
On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the amount of 20.7 million Israeli new Shekels. The Series C Expansion was issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the initial Series C Bonds, without any right of precedence or preference between any of them.
24

Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBSPacific Oak Strategic Opportunity REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBSPacific Oak Strategic Opportunity REIT, Inc., a Maryland corporation, and, as required by context, KBSPacific Oak Strategic Opportunity Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBSPacific Oak Strategic Opportunity REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•We depend on our advisor to conduct our operations and eventually dispose of our investments.
•We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.
•Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in some other types of real estate and real estate-related investments.
•Inflation and increased interest rates may adversely affect our financial condition and results of operations, including with respect to our ability to refinance maturing debt.
•We have paid distributions from financings and in the future, we may not pay distributions solely from our cash flow from operations or gains from asset sales. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have less funds available for investment in loans, properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.
•All of our executive officers and some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other KBS-affiliatedPacific Oak-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other KBS-advisedPacific Oak-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us.
•We pay substantial fees to and expenses of our advisor and its affiliates. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase our stockholders’ risk of loss.
We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program, future funding obligations under any real estate loans receivable we acquire, the funding of capital expenditures on our real estate investments or the repayment of debt. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.
•We have focused, and may continue to focus, our investments in non-performing real estate and real estate-related loans, real estate-related loans secured by non-stabilized assets and real estate-related securities, which involve more risk than investments in performing real estate and real estate-related assetsassets.
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162022, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, each as filed with the Securities and Exchange Commission (the “SEC”).


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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Overview
We were formed on October 8, 2008 as a Maryland corporation, elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010 and intend to operate in such manner. KBSPacific Oak Capital Advisors, LLC (“KBSPacific Oak Capital Advisors”) is our advisor. Asadvisor and as our advisor, KBSPacific Oak Capital Advisors manages our day-to-day operations and our portfolio of investments. KBSPacific Oak Capital Advisors also has the authority to make all of the decisions regarding our investments, except for our residential homes portfolio. Our residential homes portfolio, held through our subsidiary Pacific Oak Residential Trust, Inc. (“PORT”), is managed by Pacific Oak Residential Advisors, LLC (“PORA”), an affiliate of Pacific Oak Capital Advisors. The advisory duties are subject to the limitations in our charter and the direction and oversight of our board of directors. KBSPacific Oak Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. We have sought to invest in and manage a diverse portfolio of real estate‑relatedestate-related loans, opportunistic real estate, real estate-related debt securities, real estate equity securities and other real estate-related investments. We conduct our business primarily through our operating partnership,Operating Partnership, of which we are the sole general partner.
On January 8, 2009, we filed a registration statement on Form S-11 with the SEC to offer a minimum of 250,000 shares and a maximum of 140,000,000 shares of common stock for sale to the public, of which 100,000,000 shares were registered in our primary offering and 40,000,000 shares were registered under our dividend reinvestment plan. We ceased offering shares of common stock in our primary offering on November 14, 2012. We sold 56,584,976 shares of common stock in the primary offering for gross offering proceeds of $561.7 million. We continue to offer shares of common stock under the dividend reinvestment plan. As of SeptemberJune 30, 2017, we had sold 6,620,362 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $74.0 million. Also as of September 30, 2017, we had redeemed 6,705,949 of the shares sold in our offering for $85.0 million. Additionally, on December 29, 2011 and October 23, 2012, we issued 220,994 shares and 55,249 shares of common stock, respectively, for $2.0 million and $0.5 million, respectively, in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.
On March 2, 2016, KBS Strategic Opportunity (BVI) Holdings, Ltd. (“KBS Strategic Opportunity BVI”), our wholly owned subsidiary, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels.  In the aggregate, KBS Strategic Opportunity 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%.  KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.
As of September 30, 2017,2023, we consolidated 20 real estate investments comprised of 11eight office properties, one office campus consisting of nine office buildings, one office portfolio consisting of fourtwo office buildings and 25 acres of undeveloped land, two apartment properties, one officehotel property, one residential home portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties,2,453 residential homes, two investments in undeveloped land with approximately 1,100671 developable acres, one office/retail development property and owned three investments in unconsolidated joint ventures, an investmententities and three investments in real estate debt securities and an investment in real estateequity securities.
Market Outlook – Real Estate and Real Estate Finance Markets
The following discussion is based on management’s beliefs, observationsVolatility in global financial markets and expectations with respect to the real estate and real estate finance markets.
The global economy is broadly improving albeit at an uneven pace. European economic growth has recently picked up, with improving employment data in most of the European Union countries. The U.K. and China remain areas of concern. The U.K. is working through its BREXIT process, whereas the Chinese economy has shown signs of stabilization, but is still struggling with uncertainty in its banking system in relation to bad loans. Against this backdrop, the central banks of the world’s major industrialized economies are beginning to back away from their strong monetary accommodation. Quantitative easing (“QE”) in Japan and Europe is slowing, but the liquidity generated from these programs continues to impact the global capital markets.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

At a duration of 100 months (as of the end of third quarter 2017), the current business cycle, which commenced in June 2009, is the third longest in U.S. history, behind only the periods between 1961 - 1969 and 1991 - 2001. In June 2017, the U.S. Federal Reserve (the “Fed”) increased interest rates for the fourth time in three years. Expectations are that the Fed will increase rates again in December, citing low unemployment and strong economic growth. The Fed is still attempting to normalize the level of interest rateschanging political environments can cause fluctuations in the United States. U.S. interest rates are relatively high when compared to Europe, where the European Central Bank is still engaging in QE. Global inflation is starting to show signsperformance of life, as U.S. inflation has grown to approximately 1.9% versus 2.9% in the U.K. and 1.5% in the Eurozone. Real gross domestic product (“GDP”) in the United States has had two consecutive quarters of 3.0% or greater growth, and the U.S. unemployment rate is currently a relatively low 4.2%. Personal income growth has started to increase and unemployment statistics indicate that labor market conditions are finally showing real improvements. Political uncertainty surrounding the current administration’s budget, tax reform plans and the continued weakness in retailers, all may adversely impact business and consumer confidence.
In 2017, the U.S. commercial real estate market has seen a declinemarkets. Possible future declines in transaction volumerental rates, slower or potentially negative net absorption of leased space and a slowingexpectations of price increases. In the aggregate, property level operating income growth has begunfuture rental concessions, including free rent to slow, while lending standards have tightened. The United States continuesrenew tenants early, to benefit from inflows of foreign capital, albeit at a slowing rate. The capitalretain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from China have droppedinvestment properties. To the extent there are increases in the cost of financing due to higher interest rates, this may cause difficulty in refinancing debt obligations at terms as favorable as the Chinese government has successfully imposed constraints on capital leaving the country. The industrial property sector is a standout for investors, as internet sales volumes continue toterms of existing indebtedness. Further, increases in interest rates would increase the demand for warehouses and logistics-related assets. Traditional sourcesamount of capitalour debt payments on our variable rate debt to the extent the interest rates on such debt are favoring a “risk-off” approach, as capital flows have shifted equity towards debt, or secured, investing. Commercialnot limited by interest rate caps. Market conditions can change quickly, potentially negatively impacting the value of real estate returns are increasingly being driven by property income (yield), as opposedinvestments. Management continuously reviews our investment and debt financing strategies to price appreciation through cap rate compression.optimize our portfolio and the cost of our debt exposure.
Lenders with long memories remain disciplined in their underwriting of investments. For balance sheet lenders, such as banks and insurance companies, underwriting standards for commercial real estate have tightened. This has resulted in lower loan-to-value and higher debt coverage ratios. CMBS originations rebounded in the third quarter as banks and insurance companies tightened loan terms. CMBS volumes are on pace to beat 2016 issuance volumes. This is a positive for the U.S. commercial real estate markets as it illustrates the virtues of having a diversified set of funding sources.
Liquidity and Capital Resources
Our principal demand for funds during the short and long-term is and will be for the acquisition of real estate and real estate-related investments, payment of operating expenses, capital expenditures and general and administrative expenses, payments under debt and funding obligations, redemptions and purchases of our common stock (including shares purchased under a tender offer) and payments of distributions to stockholders. To date, we have had six primary sources of capital for meeting our cash requirements:
•Proceeds from the primary portion of our initial public offering; 
•Proceeds from our dividend reinvestment plan;
•Proceeds from our public bond offering in Israel;
•Debt financing;
•Proceeds from the sale of real estate and the repayment of real estate-related investments; and
•Cash flow generated by our real estate and real estate-related investments. 
We sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $561.7 million. We ceased offering shares in the primary portion of our initial public offering on November 14, 2012. We continue to offer shares of common stock under the dividend reinvestment plan.$561.7 million. As of SeptemberJune 30, 2017,2023, we had sold 6,620,3626,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $74.0 million.$76.5 million. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and suspended offering shares under its dividend reinvestment plan as of March 28, 2023. To date, we have invested all of the net proceeds from our initial public offering in real estate and real estate-related investments. We intend to use our cash on hand, proceeds from asset sales, proceeds from debt financing and, cash flow generated by our real estate operations and real estate-related investments and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures and corporate general and administrative expenses. Cash flow from operations from our real estate investments is primarily dependent upon the occupancy levels of our properties, the net effective rental rates on our leases, the collectibilitycollectability of rent and operating recoveries from our tenants and how well we manage our expenditures. As of SeptemberJune 30, 2017,2023, our properties, excluding apartmentoffice properties were collectively 83%68% occupied, our residential home portfolio was 95% occupied and our apartment properties were collectively 97%93% occupied.
InvestmentsOur investment in real estate debt securities generatethe hotel property generates cash flow in the form of interest income,room, food, beverage and convention services, campground and other revenues, which are reduced by loanhotel expenses, capital expenditures, debt service fees,payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our hotel property is primarily dependent upon the occupancy levels of our hotel, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel property for the six months ended June 30, 2023 and 2022:
Percentage Occupied for the Six Months Ended June 30,Average Daily Rate for the Six Months Ended June 30,Average Revenue per Available Room for the Six Months Ended June 30,
PropertyNumber of Rooms202320222023202220232022
Q&C Hotel19671.0%66.3%$190.77$207.64$135.45$137.63

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of SeptemberJune 30, 2017,2023, we had an investment in real estate debt securities outstanding with a total book value of $17.6 million and an investmentthree investments in real estate equity securities outstanding with a total bookcarrying value of $47.0$30.5 million.
Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee of our board of directors has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expense reimbursementsexpenses for the four fiscal quarters ended SeptemberJune 30, 20172023 did not exceed the charter imposedcharter-imposed limitation.
For the ninesix months ended SeptemberJune 30, 2017,2023, our cash needs for capital expenditures, redemptions of common stock and debt servicingrequirements were met with proceeds from debt financing,dispositions of real estate, proceeds from our dividend reinvestment plandebt financing and cash on hand.hand, except where otherwise noted. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand. As of SeptemberJune 30, 2017,2023, we had outstanding debt obligations in the aggregate principal amount of $1.0 billion,$993.1 million, with a weighted-average remaining term of 2.71.7 years. As of SeptemberJune 30, 2017,2023, we had a total of $380.4$460.1 million of debt obligations scheduled to mature within 12 months of that date. On November 8, 2017, we repaid $291.9 million of this outstanding balance at September 30, 2017, see “Subsequent Events - Singapore Transaction” for more information. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates. We have also agreed to fund expenditures and improvements in our 110 William Joint Venture of up to $105.0 million. We have begun conversations with our lenders about refinancing options upon maturity and we believe it is possible that we will be successful in refinancing the amounts outstanding. There can be no assurance that the refinancing will occur or on the terms currently contemplated. If sufficient refinancing cannot be arranged to satisfy our upcoming obligations, we believe we have other options to meet our obligations. These other options include but are not limited to, refinancing with other lending institutions, issuing additional debt, and selling properties and using net sales proceeds to satisfy the obligations. We believe that with these options we have sufficient cash on hand and availability to address our debt maturities and capital needs scheduled to mature within 12 months of June 30, 2023.
We have elected to be taxed as a REIT and intend to operate as a REIT. To maintain our qualification as a REIT, we are required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We have not established a minimum distribution level.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cash Flows from Operating Activities
As of SeptemberJune 30, 2017,2023, we consolidated 20 real estate investments comprised of 11eight office properties one office campus consisting of nine office buildings, , one office portfolio consisting of fourtwo office buildings and 25 acres of undeveloped land, two apartment properties, one officehotel property, one residential home portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties,2,453 residential homes, two investments in undeveloped land with approximately 1,100671 developable acres, one office/retail development property and owned three investments in unconsolidated joint ventures, an investment in real estate debt securitiesentities and an investmentthree investments in real estate equity securities. During the ninesix months ended SeptemberJune 30, 2017,2023, net cash provided byused in operating activities was $19.7$9.4 million. We expect that our cash flows from operating activities will increase in future periods as a result of leasing additional space that is currently unoccupied and anticipated future acquisitions of real estate and real estate-related investments. However, our cash flows from operating activities may decrease to the extent that we dispose of additional assets.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash Flows from Investing Activities
Net cash used inprovided by investing activities was $56.1$27.3 million for the ninesix months ended SeptemberJune 30, 20172023 and primarily consisted of the following:
Acquisition•Proceeds from sales of two office properties for $165.5real estate of $40.8 million;
•Net cash paid on foreign currency derivative settlements of $18.0 million, as a result of purchase of foreign currency derivatives of $67.1 million and proceeds from disposition of foreign currency derivatives of $49.2 million;
•Proceeds from the sale of one office property, 102 acres of undeveloped land and the partial sale of 353 Sacramento of $130.6 million;
Distributions of capital from unconsolidated joint ventures of $59.2 million, of which $58.2 million relates to the 110 William Joint Venture and $1.0 million relates to the NIP Joint Venture;
Investment in real estate equity securities of $43.3$13.6 million; and
•Improvements to real estate of $28.8 million;
Investment in real estate debt securities of $12.5 million;
Proceeds from disposition of foreign currency collars of $6.6 million;
Purchase of a foreign currency option for $3.4 million;
Proceeds for future development obligations of $1.4 million;
Funding of development obligations of $0.9 million;
Insurance proceeds for property damages of $0.7 million; and
Purchase of an interest rate cap for $0.1$10.3 million.
Cash Flows from Financing Activities
Net cash provided byused in financing activities was $85.0$60.2 million for the ninesix months ended SeptemberJune 30, 20172023 and primarily consisted primarily of the following:
•$100.556.3 million of net cash provided byused in debt and other financings as a result of proceeds from notes payable of $176.8 million, partially offset by principal payments on notes and bonds payable of $73.9$56.9 million and payments of deferred financing costs of $2.3$0.4 million and partially offset by proceeds from notes payable of $1.0 million; and
•$8.13.2 million of cash used for redemptions of common stock;stock.
$7.2 million of net cash distributions to stockholders, after giving effect to distributions reinvested by stockholders of $8.7 million;
$0.4 million of payments made in connection with a potential offering; and
$0.2 million of contributions to noncontrolling interests.
In order to execute our investment strategy, we utilize secured debt and we may, to the extent available, utilize unsecured debt, to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinancing and interest risks, are properly balanced with the benefit of using leverage. There is no limitation on the amount we may borrow for any single investment. Our charter limits our total liabilities such that our total liabilities may not exceed 75% of the cost of our tangible assets; however, we may exceed that limit if a majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our common stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of SeptemberJune 30, 2017,2023, our borrowings and other liabilities were approximately 72%64% of the cost (before depreciation and other noncash reserves) and book value (before depreciation) of our tangible assets.
In March 2016, we, through a wholly-owned subsidiary,On February 16, 2020, Pacific Oak Strategic Opportunity BVI issued 970.2254.1 million Israeli new Shekels (approximately $249.2$74.1 million as of March 8, 2016) in 4.25% bondsFebruary 16, 2020) of Series B debentures (the “Series B Debentures”) to Israeli investors in Israel pursuant to a public offering registered in Israel.with the Israel Securities Authority. The bondsSeries B Debentures bear interest at the rate of 3.93% per year. The Series B Debentures have a seven year term, with 20%principal installment payments equal to 33.33% of the principal payableface amount of the Series B Debentures on January 31st of each year from 20192024 to 2023. We have used a portion of the proceeds from the issuance of these bonds to make2026. Pacific Oak Strategic Opportunity BVI issued additional investments.
On September 14, 2017, we commenced a self-tender offer (the “SOR Offer”) for up to 3,553,660 shares of common stock at a price of $14.07 per share, or approximately $50.0 million of shares. On October 18, 2017, we increased the number of shares accepted for payment in the SOR Offer by up to 1,135,912 shares at a price of $14.07 per share, or approximately $16.0 million of shares. On October 23, 2017, we accepted for purchase 4,688,671 shares for an aggregate cost of $66.0 million, excluding fees and expenses relatedSeries B Debentures subsequent to the initial issuance and as of June 30, 2023, 1.2 billion Israeli new Shekels (approximately $314.1 million as of June 30, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, without any right of precedence or preference between any of them.
On July 6, 2023, Pacific Oak Strategic Opportunity BVI completed a public offering to Israeli investors 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. Additionally, on July 17, 2023, Pacific Oak SOR Offer.

BVI issued an additional 20.7 million Israeli new Shekels (approximately $5.6 million) of Series C Expansion. Refer to the Subsequent Events section for further discussion.
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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
BecauseItem 2. Management's Discussion and Analysis of the SOR Offer, the share redemption program was suspended from September 29, 2017 through October 31, 2017, meaning no redemptions were made in September or October (including those requested following a stockholder’s death, qualifying disability or determinationFinancial Condition and Results of incompetence). We cancelled all outstanding redemption requests under the share redemption program as of the commencement of the SOR Offer and were not accepting any redemption requests under the share redemption program during the term of the SOR Offer.Operations (continued)
In addition to making investments in accordance with our investment objectives, we use or have used our capital resources to make certain payments to our advisor and our dealer manager. During our offering stage, these payments included payments to our dealer manager for selling commissions and dealer manager fees related to sales in our primary offering and payments to our dealer manager and our advisor for reimbursement of certain organization and other offering expenses related both to the primary offering and the dividend reinvestment plan. During our acquisition and development stage, we expect to continue to make payments to our advisor in connection with the selection and origination or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us as well as for any dispositions of assets (including the discounted payoff of non-performing loans). In addition, an affiliate of our advisor, KBS Management Group, was recently formed to provide property management services with respect to certain properties owned by KBS-advised companies.  In the future, we may engage KBS Management Group with respect to one or more of our properties to provide property management services.  With respect to any such properties, we would expect to pay KBS Management Group a monthly fee equal to a percentage of the rent (to be determined on a property by property basis, consistent with current market rates).
The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and our conflicts committee.
Among the fees payable to our advisor is an asset management fee. With respect to investments in loans and any investments other than real property, the asset management fee is a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount actually paid or allocated to acquire or fund the loan or other investment, inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the sum of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property, and inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment, inclusive of our proportionate share of any fees and expenses related thereto. Investments made in or through PORT are excluded from the calculation of the asset management fee we pay to our advisor. In addition to other fees described in the advisory agreement between PORT and PORA, PORT pays PORA a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of PORT’s assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter.
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of SeptemberJune 30, 20172023 (in thousands):
    Payments Due During the Years Ending December 31,
Contractual Obligations Total Remainder of 2017 2018-2019 2020-2021 Thereafter
Outstanding debt obligations (1)
 $1,000,188
 $32,706
 $534,385
 $245,709
 $187,388
Interest payments on outstanding debt obligations (2)
 82,210
 9,278
 45,271
 19,689
 7,972
Payments Due During the Years Ending December 31,
Contractual ObligationsTotalRemainder of 20232024-20252026-2027Thereafter
Outstanding debt obligations (1)
$993,087 $264,241 $459,913 $268,933 $— 
Interest payments on outstanding debt obligations (2)
68,174 23,098 42,624 2,452 — 
Finance lease obligation53,496 180 753 792 51,771 
_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amounts, maturity dates, foreign currency rates and interest rates in effect at SeptemberJune 30, 2017. We incurred interest expense of $27.3 million, excluding amortization of deferred financing costs of $3.6 million and unrealized losses on interest rate caps of $0.1 million and including interest capitalized of $1.7 million, for the nine months ended September 30, 2017.2023.




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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Results of Operations
Overview
As of SeptemberJune 30, 2016,2023, we owned 11consolidated eight office properties, one office campus consisting of nine office buildings, one office portfolio consisting of fourtwo office buildings and 25 acres of undeveloped land, two apartment properties, one officehotel property, one residential home portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties, two investments in undeveloped land encompassing an aggregate of 1,670 acres, one first mortgage loan and two investments in unconsolidated joint ventures. As of September 30, 2017, we owned 11 office properties, one office campus consisting of nine office buildings, one office portfolio consisting of four office buildings and 25 acres of undeveloped land, one office portfolio consisting of three office properties, one office/flex/industrial portfolio consisting of 21 buildings, one retail property, two apartment properties,2,453 residential homes, two investments in undeveloped land with approximately 1,100671 developable acres, one office/retail development property and owned three investments in unconsolidated joint ventures, an investment in real estate debt securitiesentities and an investmentthree investments in real estate equity securities. Our results of operations for the three and ninesix months ended SeptemberJune 30, 20172023 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our office properties has not been stabilized. As of SeptemberJune 30, 2017,2023, our office and retail properties were collectively 83%69% occupied, our residential home portfolio was 95% occupied and our apartment properties were collectively 97%was 93% occupied. However, due to the short outstanding weighted-averageamount of near-term lease term in the portfolio of less than four years,expirations, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that occupanciesthe occupancy of our assets will increase, or that we will recognize a gain on the sale of our assets. We funded the acquisitions of these investments with proceeds from our initial public offering and debt financing. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of leasing additional space and acquiring additional assets but decrease due to disposition activity.
Comparison of the three months ended SeptemberJune 30, 20172023 versus the three months ended SeptemberJune 30, 20162022
The following table provides summary information about our results of operations for the three months ended SeptemberJune 30, 20172023 and 20162022 (dollar amounts in thousands):
  Three Months Ended September 30, Increase (Decrease) Percentage Change 
$ Change Due to Acquisitions/ Originations/ Dispositions (1)
 
$ Change Due to 
Investments Held Throughout
Both Periods (2)
  2017 2016    
Rental income $27,850
 $29,229
 $(1,379) (5)% $(1,895) $516
Tenant reimbursements 6,094
 5,902
 192
 3 % (277) 469
Other operating income 944
 1,002
 (58) (6)% 38
 (96)
Interest income from real estate debt securities 511
 —
 511
 n/a
 511
 —
Dividend income from real estate equity securities 1,015
 —
 1,015
 n/a
 1,015
 —
Operating, maintenance, and management costs 11,431
 10,932
 499
 5 % (151) 650
Real estate taxes and insurance 4,780
 4,516
 264
 6 % (395) 659
Asset management fees to affiliate 2,800
 2,639
 161
 6 % 100
 61
Real estate acquisition fees to affiliate —
 1,690
 (1,690) n/a
 (1,690) —
Real estate acquisition fees and expenses —
 274
 (274) n/a
 (274) —
General and administrative expenses 1,170
 1,337
 (167) (12)% n/a
 n/a
Foreign currency transaction loss, net 4,356
 6,639
 (2,283) (34)% n/a
 n/a
Depreciation and amortization 13,228
 14,337
 (1,109) (8)% (682) (427)
Interest expense 9,618
 7,992
 1,626
 20 % n/a
 n/a
Equity in loss of unconsolidated joint ventures (2,152) (791) (1,361) 172 % (222) (1,139)
Gain on sale of real estate 2,239
 —
 2,239
 n/a
 2,239
 —
 Three Months Ended June 30,Increase (Decrease)Percentage Change
$ Change Due to Acquisitions/Dispositions (1)
$ Change Due to 
Investments Held Throughout
Both Periods (2)
20232022
Rental income$32,152 $28,979 $3,173 11 %$3,611 $(438)
Hotel revenues2,565 12,854 (10,289)(80)%(9,755)(534)
Other operating income1,066 887 179 20 %— 179 
Dividend income from real estate equity securities113 819 (706)(86)%— (706)
Operating, maintenance, and management11,107 10,342 765 7 %883 (118)
Real estate taxes and insurance5,843 5,079 764 15 %845 (81)
Hotel expenses1,984 6,998 (5,014)(72)%(5,187)173 
Asset management fees to affiliates3,710 3,189 521 16 %606 (85)
General and administrative expenses3,222 2,983 239 8 %n/an/a
Foreign currency transaction loss (gain), net6,272 (23,833)30,105 (126)%n/an/a
Depreciation and amortization12,110 14,098 (1,988)(14)%750 (2,738)
Interest expense15,788 10,780 5,008 46 %(5)5,013 
Impairment charges on real estate and related intangibles18,926 — 18,926 100 %n/an/a
Loss from unconsolidated entities, net(14,630)(2,075)(12,555)605 %355 (12,910)
Other interest income1,012 48 964 2,008 %n/an/a
Loss on real estate equity securities, net(4,089)(20,070)15,981 (80)%— 15,981 
Gain (loss) on sale of real estate3,292 (175)3,467 (1,981)%3,467 — 
_____________________
(1) Represents the dollar amount increase (decrease) for the three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022 related to real estate and real estate-related investments acquired originated, repaid,or disposed or deconsolidated on or after July 1, 2016.2022.
(2) Represents the dollar amount increase (decrease) for the three months ended SeptemberJune 30, 20172023 compared to the three months ended SeptemberJune 30, 20162022 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Rental income decreased from $29.2increased to $32.2 million for the three months ended SeptemberJune 30, 2016 to $27.92023 from $29.0 million for the three months ended SeptemberJune 30, 2017 and tenant reimbursements increased from $5.9 million for the three months ended September 30, 2016 to $6.1 million for the three months ended September 30, 2017,2022, primarily as a result of the saleconsolidation of a 45% interestPacific Oak Residential Trust II, Inc. (“PORT II”) in July 2022, which accounted for approximately $3.7 million of rental income during the 353 Sacramento property, which resulted in deconsolidation,three months ended June 30, 2023. There were no significant changes to the occupancy rate and a decrease in occupancy related to our office and retail properties held throughout both periods, partially offset by the growth in our real estate portfolio, an increase in annualized base rent per square foot related toof our properties held throughout both periods and an increase in occupancy related to our apartmentoffice properties held throughout both periods. Annualized base rent per square foot increased from $20.46 as of September 30, 2016 to $20.90 as of September 30, 2017 related to properties (excluding apartments) held throughout both periods. The occupancy of our office and retail properties, collectively, held throughout both periods decreased from 87% as of September 30, 2016 to 85% as of September 30, 2017 and the occupancy of our apartment properties, collectively, held throughout both periods increased from 90% as of September 30, 2016 to 97% as of September 30, 2017. We expect rental income and tenant reimbursements to increase in future periods as a result of owning real estate acquired in 2017 for an entire period, future acquisitions of real estate and leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.
Property operatingHotel revenues decreased to $2.6 million for the three months ended June 30, 2023 from $12.9 million for the three months ended June 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately $9.4 million of hotel revenues during the three months ended June 30, 2022.
Operating, maintenance, and management costs, and real estate taxes and insurance increased from $10.9to $11.1 million and $4.5$5.8 million, respectively, for the three months ended SeptemberJune 30, 2016 to $11.42023 from $10.3 million and $4.8$5.1 million, respectively for the three months ended SeptemberJune 30, 2017,2022, primarily as a resultdue to the consolidation of the growth in ourPORT II, which accounted for approximately $0.9 million and $0.8 million of operating, maintenance, and management costs, and real estate portfolio, increase in assessed property valuestaxes and inflation, offset byinsurance, respectively, during the sale of a 45% interest in the 353 Sacramento property, which resulted in deconsolidation.three months ended June 30, 2023. We expect property operating, maintenance, and management costs and real estate taxes and insurance to increase in future periods as a result of owning real estate acquired in 2017 for an entire period, future acquisitions of real estate, increasingto the extent we acquire additional properties, increase occupancy of our real estate assets and due to general inflation, but to decrease to the extent we dispose of properties.
Asset management fees increased from $2.6Hotel expenses decreased to $2.0 million for the three months ended SeptemberJune 30, 2016 to $2.82023 from $7.0 million for the three months ended SeptemberJune 30, 20172022, primarily as a result of the growth in our real estate portfolio, offset bydisposition of the saleSpringmaid Beach Resort during 2022, which accounted for approximately $4.6 million of a 45% interest inhotel expenses during the 353 Sacramento property,three months ended June 30, 2022
Asset management fees increased to $3.7 million for the three months ended June 30, 2023 from $3.2 million for the three months ended June 30, 2022, primarily due to the consolidation of PORT II, which resulted in deconsolidation.accounted for approximately $0.8 million increase during the three months ended June 30, 2023. We expect asset management fees to increase in future periods as a result of owning real estate-related investments acquired in 2017 for an entire period, future acquisitions of real estate and capital expendituresto the extent we acquire additional properties, but to decrease to the extent we dispose of properties. All asset management fees incurred as of September 30, 2017 have been paid.
Real estate acquisition fees and expenses to affiliates and non-affiliates were $2.0 million for the three months ended September 30, 2016. During the three months ended September 30, 2017, we did not acquire any investments accounted for as a business combination. We adopted ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, our acquisitions of real estate properties beginning January 1, 2017 qualified as asset acquisitions as opposed to business combinations. Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.
General and administrative expenses decreased from $1.3 million for the three months ended September 30, 2016 to $1.2 million for the three months ended September 30, 2017, primarily due to decreased legal and auditor costs related to the Israeli securities law compliance requirements of KBS Strategic Opportunity BVI. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.
We recognized $6.6a $6.3 million of foreign currency transaction loss, net for the three months ended SeptemberJune 30, 20162023 and $4.4$23.8 million of foreign currency transaction loss,gain, net, for the three months ended SeptemberJune 30, 20172022, related to the Series A debentures issued in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates but expect our exposure to be limited to the extent that we have entered into a foreign currency collar or hedge. For the three months ended September 30, 2017, the foreign currency transaction loss, net, consists of $3.7 millionand partially offset by results of foreign currency transaction gain, partially offset by a $8.1 million loss related to our foreign currency collars and hedge.collars.
Depreciation and amortization decreased from $14.3to $12.1 million for the three months ended SeptemberJune 30, 2016 to $13.22023 from $14.1 million for the three months ended SeptemberJune 30, 2017,2022, primarily as a resultdue to the disposition of the saleSpringmaid Beach Resort, which accounted for approximately $0.5 million of a 45% interest indepreciation and amortization during the 353 Sacramento property, which resulted in deconsolidation,three months ended June 30, 2022 and lease intangibles that were fully amortized during the three months ended June 30, 2022 and partially offset by the growth in our real estate portfolio.consolidation of PORT II, which accounted for $1.3 million of depreciation and amortization during the three months ended June 30, 2023. We expect depreciation and amortization to increase in future periods as a result of owning real estate acquired in 2017 for an entire period and future acquisitions of real estateto the extent we acquire additional properties, but to decrease as a result of amortization of tenant origination costslease intangibles related to lease expirations and disposition of properties.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Interest expense increased from $8.0to $15.8 million for the three months ended SeptemberJune 30, 2016 to $9.62023 from $10.8 million for the three months ended SeptemberJune 30, 2017,2022 primarily due to increased borrowings as a result of acquisition activity. Excluded from interest expense was $0.6 million and $0.5 million of interest capitalized to our investments in undeveloped landone-month floating rates during the three months ended SeptemberJune 30, 20172023 and 2016, respectively.partially offset by a decrease in the outstanding debt balance during three months ended June 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and paydown debt.pay down debt, including annual principal installment payments on the debentures.
Equity in lossDuring the three months ended June 30, 2023, we recognized impairment charges of $18.9 million for our two real estate properties. There were no impairments recognized during the three months ended June 30, 2022.
Loss from unconsolidated joint venturesentities, net increased from $0.8to $14.6 million for the three months ended SeptemberJune 30, 2016 to $2.22023 from $2.1 million for the three months ended SeptemberJune 30, 2017,2022, primarily duerelated to increased interest expensethe impairment of an unconsolidated joint venture of $14.8 million and partially offset by income recognized from an unconsolidated joint venture, which accounted for $1.1 million of income from unconsolidated entities for the three months ended June 30, 2023.
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Loss on real estate equity securities, net decreased to $4.1 million for the three months ended June 30, 2023 from $20.1 million for the three months ended June 30, 2022, which was composed of $9.9 million unrealized loss on real estate equity securities held at June 30, 2023 and $5.8 million realized gain on real estate equity securities sold during the three months ended June 30, 2023. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of increased borrowings associated with the 110 William Joint Venture refinancingchanges in share prices of its mortgage loans on March 6, 2017 and theour investments in real estate equity in loss related to 353 Sacramento, which has been accounted for as an unconsolidated joint venture under the equity method of accounting beginning July 2017.securities.
During the three months ended SeptemberJune 30, 2016, we had no dispositions. During the three months ended September 30, 2017,2023, we sold a 45% interest in the 353 Sacramento property, which resulted in deconsolidation, and recognized deferred profitvacant building related to the sale of 102 acres of undeveloped landMadison Square property in Phoenix, Arizona (“Madison Square School”) that resulted in a total gain on sale of $2.2 million. We recognized a gain on sale of $1.7 million related toreal estate of $3.3 million. There were no material dispositions during the sale of a 45% interest in the 353 Sacramento property. We recognized $0.5 million of the deferred profit related to the land sale.three months ended June 30, 2022.
Comparison of the ninesix months ended SeptemberJune 30, 20172023 versus the ninesix months ended SeptemberJune 30, 20162022
The following table provides summary information about our results of operations for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 (dollar amounts in thousands):
  Nine Months Ended September 30, Increase (Decrease) Percentage Change 
$ Change Due to Acquisitions/ Originations/ Dispositions (1)
 
$ Change Due to 
Investments Held Throughout
Both Periods (2)
  2017 2016    
Rental income $90,200
 $76,646
 $13,554
 18% $11,521
 $2,033
Tenant reimbursements 18,188
 15,484
 2,704
 17% 1,573
 1,131
Other operating income 3,484
 2,580
 904
 35% 104
 800
Interest income from real estate debt securities 1,271
 —
 1,271
 n/a
 1,271
 —
Dividend income from real estate equity securities 1,505
 —
 1,505
 n/a
 1,505
 —
Interest income from real estate loan receivable —
 3,655
 (3,655) n/a
 (3,655) —
Operating, maintenance, and management costs 33,638
 29,755
 3,883
 13% 4,218
 (335)
Real estate taxes and insurance 14,932
 12,419
 2,513
 20% 1,477
 1,036
Asset management fees to affiliate 8,404
 6,932
 1,472
 21% 1,291
 181
Real estate acquisition fees to affiliate —
 2,964
 (2,964) n/a
 (2,964) —
Real estate acquisition fees and expenses —
 542
 (542) n/a
 (542) —
General and administrative expenses 4,291
 4,172
 119
 3% n/a
 n/a
Foreign currency transaction loss, net 11,454
 4,602
 6,852
 149% n/a
 n/a
Depreciation and amortization 43,136
 37,436
 5,700
 15% 7,005
 (1,305)
Interest expense 29,327
 20,354
 8,973
 44% n/a
 n/a
Income from unconsolidated joint venture 1,869
 —
 1,869
 n/a
 —
 1,869
Equity in loss of unconsolidated joint ventures (3,928) (1,139) (2,789) 245% (222) (2,567)
Gain on sale of real estate 36,267
 —
 36,267
 n/a
 36,267
 —
 Months Ended June 30,Increase (Decrease)Percentage Change
$ Change Due to Acquisitions/ Dispositions (1)
$ Change Due to 
Investments Held Throughout
Both Periods (2)
20232022
Rental income$64,229 $58,360 $5,869 10 %$7,138 $(1,269)
Hotel revenues5,478 18,771 (13,293)(71)%(13,269)(24)
Other operating income2,204 1,728 476 28 %(15)491 
Dividend income from real estate equity securities2,110 3,206 (1,096)(34)%— (1,096)
Operating, maintenance, and management22,275 20,218 2,057 10 %1,651 406 
Real estate taxes and insurance12,260 10,103 2,157 21 %689 1,468 
Hotel expenses3,945 12,109 (8,164)(67)%(8,693)529 
Asset management fees to affiliates7,684 6,315 1,369 22 %1,166 203 
General and administrative expenses6,220 5,977 243 4 %n/an/a
Foreign currency transaction loss (gain), net3,553 (31,098)34,651 (111)%n/an/a
Depreciation and amortization24,158 26,662 (2,504)(9)%1,170 (3,674)
Interest expense31,819 20,343 11,476 56 %(447)11,923 
Impairment charges on real estate and related intangibles36,589 — 36,589 100 %n/an/a
Loss from unconsolidated entities, net(16,962)(2,754)(14,208)516 %451 (14,659)
Other interest income1,216 94 1,122 1,194 %n/an/a
Loss on real estate equity securities, net(16,122)(27,591)11,469 (42)%— 11,469 
Gain on sale of real estate32,761 3,348 29,413 879 %29,413 — 
Gain on extinguishment of debt— 2,367 (2,367)(100)%n/an/a
Income tax provision(3,662)— (3,662)100 %(3,662)— 
_____________________
(1) Represents the dollar amount increase (decrease) for the ninesix months ended SeptemberJune 30, 20172023 compared to the ninesix months ended SeptemberJune 30, 20162022 related to real estate and real estate-related investments acquired originated, repaid,or disposed or deconsolidated on or after JanuaryJuly 1, 2016.2022.
(2) Represents the dollar amount increase (decrease) for the ninesix months ended SeptemberJune 30, 20172023 compared to the ninesix months ended SeptemberJune 30, 20162022 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Rental income and tenant reimbursements increased from $76.6to $64.2 million and $15.5 million, respectively, for the ninesix months ended SeptemberJune 30, 2016 to $90.22023 from $58.4 million and $18.2 million, respectively, for the ninesix months ended SeptemberJune 30, 2017,2022, primarily as a result of the growthconsolidation of PORT II in our real estate portfolio, an increase inJuly 2022, which accounted for approximately $7.3 million of rental income during the six months ended June 30, 2023. There were no significant changes to the occupancy rate and annualized base rent per square foot related toof our properties held throughout both periods and an increase in occupancy related to our apartment properties held throughout both periods, partially offset by a decrease in occupancy related to our office and retail properties held throughout both periods. Annualized base rent per square foot increased from $21.42 as of September 30, 2016 to $21.95 as of September 30, 2017 related to properties (excluding apartments) held throughout both periods. The occupancy of our office and retail properties, collectively, held throughout both periods decreased from 88% as of September 30, 2016 to 85% as of September 30, 2017 and the occupancy of our apartment properties, collectively, held throughout both periods increased from 90% as of September 30, 2016 to 97% as of September 30, 2017. We expect rental income and tenant reimbursements to increase in future periods as a result of owning real estate acquired in 2017 for an entire period, future acquisitions of real estate and leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.
Property operatingHotel revenues decreased to $5.5 million for the six months ended June 30, 2023 from $18.8 million for the six months ended June 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately $12.7 million of hotel revenues during the six months ended June 30, 2022.
32

Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Operating, maintenance, and management costs, and real estate taxes and insurance increased from $29.8to $22.3 million and $12.4$12.3 million, respectively, for the ninesix months ended SeptemberJune 30, 2016 to $33.62023 from $20.2 million and $14.9$10.1 million, respectively for the ninesix months ended SeptemberJune 30, 2017,2022, primarily as a resultdue to the consolidation of the growth in ourPORT II, which accounted for approximately $1.7 million and $1.7 million of operating, maintenance, and management costs, and real estate portfolio, increase in assessed property valuestaxes and inflation.insurance, respectively, during the six months ended June 30, 2023. We expect property operating, maintenance, and management costs and real estate taxes and insurance to increase in future periods as a result of owning real estate acquired in 2017 for an entire period, future acquisitions of real estate, increasingto the extent we acquire additional properties, increase occupancy of our real estate assets and due to general inflation, but to decrease to the extent we dispose of properties.
Asset management fees increased from $6.9Hotel expenses decreased to $3.9 million for the ninesix months ended SeptemberJune 30, 2016 to $8.42023 from $12.1 million for the ninesix months ended SeptemberJune 30, 20172022, primarily as a result of the growthdisposition of the Springmaid Beach Resort in our real estate portfolio.September 2022, which accounted for approximately $8.1 million of hotel expenses during the six months ended June 30, 2022.
Asset management fees increased to $7.7 million for the six months ended June 30, 2023 from $6.3 million for the six months ended June 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $1.5 million increase during the six months ended June 30, 2023. We expect asset management fees to increase in future periods as a result of owning real estate-related investments acquired in 2017 for an entire period, future acquisitions of real estate and capital expendituresto the extent we acquire additional properties, but to decrease to the extent we dispose of properties. All asset management fees incurred as of September 30, 2017 have been paid.
Real estate acquisition fees and expenses to affiliates and non-affiliates were $3.5 million for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, we did not acquire any investments accounted for as a business combination. We adopted ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, our acquisitions of real estate properties beginning January 1, 2017 qualified as asset acquisitions as opposed to business combinations. Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed. We expect real estate acquisition fees and expenses to vary in future periods based upon acquisition activity.
We recognized $4.6a $3.6 million of foreign currency transaction loss, net for the ninesix months ended SeptemberJune 30, 20162023 and $11.5a $31.1 million of foreign currency transaction loss,gain, net for the ninesix months ended SeptemberJune 30, 20172022, related to the Series A debentures issued in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates but expect our exposure to be limited to the extent that we have entered into a foreign currency collar or hedge. For the nine months ended September 30, 2017, the foreign currency transaction loss, net, consists of $22.4 millionand partially offset by results of foreign currency transaction loss, partially offset by a $10.9 million gain related to our foreign currency collars and hedge.collars.
Depreciation and amortization increased from $37.4decreased to $24.2 million for the ninesix months ended SeptemberJune 30, 2016 to $43.12023 from $26.7 million for the ninesix months ended SeptemberJune 30, 2017,2022, primarily as a resultdue to the disposition of the growth in our real estate portfolio,Springmaid Beach Resort, which accounted for approximately $1.0 million of depreciation and amortization during the six months ended June 30, 2022 and lease intangibles that were fully amortized during the six months ended June 30, 2022 and partially offset by a decrease related to properties held throughout both periods as a resultthe consolidation of PORT II, which accounted for $2.2 million of depreciation and amortization of tenant origination costs related to lease expirations.during the six months ended June 30, 2023. We expect depreciation and amortization to increase in future periods as a result of owning real estate acquired in 2017 for an entire period and future acquisitions of real estateto the extent we acquire additional properties, but to decrease as a result of amortization of tenant origination costslease intangibles related to lease expirations and disposition of properties.
Interest expense increased from $20.4to $31.8 million for the ninesix months ended SeptemberJune 30, 2016 to $29.32023 from $20.3 million for the ninesix months ended SeptemberJune 30, 2017,2022, primarily due to increased borrowings as a result of our bond offering and acquisition activity. Excluded from interest expense was $1.7 million and $1.0 million of interest capitalized to our investments in undeveloped landone-month floating rates during the ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively.partially offset by a decrease in the outstanding debt balance during the six months ended June 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and paydown debt.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

pay down debt, including annual principal installment payments on the debentures.
During the ninesix months ended SeptemberJune 30, 2017,2023, we received a distributionrecognized impairment charges of $2.9$36.6 million for our two real estate properties. There were no impairments recognized during the six months ended June 30, 2022.
Loss from unconsolidated entities, net increased to $17.0 million for the six months ended June 30, 2023 from $2.8 million for the six months ended June 30, 2022, primarily related to our investment in the NIP Joint Venture consistingimpairment of $1.9an unconsolidated joint venture of $14.8 million and partially offset by income recognized from an unconsolidated joint venture, which accounted for $0.5 million of income distributions and $1.0 million of return of capital from unconsolidated entities for the NIP Joint Venture. During the ninesix months ended SeptemberJune 30, 2016, we did not receive any distributions related2023.
Loss on real estate equity securities, net decreased to our investment in the NIP Joint Venture.
Equity in loss of unconsolidated joint ventures increased from $1.1$16.1 million for the ninesix months ended SeptemberJune 30, 2016 to $3.92023 from $27.6 million for the ninesix months ended SeptemberJune 30, 2017, primarily due2022, which was composed of $21.9 million unrealized loss on real estate equity securities held at June 30, 2023 and $5.8 million realized gain on real estate equity securities sold during the six months ended June 30, 2023. We expect gains and losses on real estate equity securities to increased interest expensefluctuate in future periods as a result of increased borrowings associated with the 110 William Joint Venture refinancingchanges in share prices of its mortgage loans on March 6, 2017 and theour investments in real estate equity in loss related to 353 Sacramento, which has been accounted for as an unconsolidated joint venture under the equity method of accounting beginning July 2017.securities.
During the ninesix months ended SeptemberJune 30, 2016, we had no dispositions. During the nine months ended September 30, 2017,2023, we sold one office property, a 45% interest in the 353 Sacramento property and 102approximately 71 acres of undevelopeddevelopable land that resulted in a gain on sale of $36.3 million. Weand the Madison Square School and recognized a gain on sale of $29.4real estate of $29.5 million and $3.3 million, respectively. During the six months ended June 30, 2022, we sold two office buildings related to the disposition of the office property. WeRichardson Portfolio and recognized a gain on sale of $1.7 million related to the sale$3.6 million.

33

Table of a 45% interest in the 353 Sacramento property. We recognized a gain on sale related to the dispositionContents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of the undeveloped land based on the percentageFinancial Condition and Results of completion method due to our continuing development obligations to the purchasers. We recognized a gain on sale of $5.2 million related to the land sale, which is net of deferred profit of $2.6 million. In addition, we deferred $1.7 million related to proceeds received from the purchasers and another developer for the value of land that was contributed to a master association that we consolidated.Operations (continued)
Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures.entities. In addition, we elected the option to exclude mark-to-market changes in value recognized on equity securities in the calculation of FFO. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.
Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above- and below-market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the Investment Program AssociationInstitute for Portfolio Alternatives (“IPA”) in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.
In addition, our management uses an adjusted MFFO (“Adjusted MFFO”) as an indicator of our ongoing performance, as well as our dividend sustainability. Adjusted MFFO provides adjustments to reduce MFFO related to operating expenses that are capitalized with respect to certain of our investments in undeveloped land. 

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

We believe that MFFO and Adjusted MFFO are helpful as measures of ongoing operating performance because they exclude costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that excluding acquisition costs, prior to our early adoption of ASU No. 2017-01 on January 1, 2017, from MFFO and Adjusted MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage. MFFO and Adjusted MFFO also exclude non-cash items such as straight-line rental revenue. Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.
FFO, MFFO and Adjusted MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO, MFFO and Adjusted MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO, MFFO and Adjusted MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO, MFFO and Adjusted MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO, MFFO and Adjusted MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Although MFFO includes other adjustments, the exclusion of straight-line rent, the amortization of above- and below-market leases, the amortization of discountspremium or discount on bond and closing costs,notes payable, mark to market foreign currency transaction adjustmentadjustments and acquisition fees and expenses (as applicable)extinguishment of debt are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations:
•Adjustments for straight-line rent. These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;
•Amortization of above- and below-market leases. Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue.  Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;
•Amortization of discountspremium or discount on bond and closing costs.  Discountsnotes payable. These are adjustments to interest expense as required by GAAP to recognize bond and closing costs related to debt investments are amortizednotes payable discount and premiums on a straight-line basis over the termlife of the loan as an adjustment to interest income.  This application results in income recognition that is different than the underlying contractual terms of the debt investments.respective bond or notes payable. We have excluded the amortization of discounts and closing costs related to our debt investmentsthese adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our bond and notes payable and related interest expense;
•Loss or gain on extinguishment of debt. A loss or gain on extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss or gain from extinguishment of debt in our calculation of MFFO because these losses or gains do not impact the current operating performance of our investments as discounts willand do not be economically recognized until the loan is repaid and closing costs are essentially the same as acquisition fees and expenses on real estate (discussed below).  We believe excluding these items provides investors with a useful supplemental metric that directly addresses coreprovide an indication of future operating performance;
and
•Mark-to-market foreign currency transaction adjustments. The U.S. dollarDollar is our functional currency. Transactions denominated in currency other than our functional currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the foreign currency at the exchange rate on that date. In addition, we have entered into foreign currency collars and foreign currency options that results in a foreign currency transaction adjustment. These amounts can increase or reduce net income. We exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis; and

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Acquisition fees and expenses. Prior to our early adoption of ASU No. 2017-01 on January 1, 2017, acquisition fees and expenses related to the acquisition of real estate were generally expensed.  Although these amounts reduced net income in 2016, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis.  Additionally, acquisition fees and expenses have been funded from the proceeds from our now-terminated initial public offering and debt financings and not from our operations.  We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance.
Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain of our investments in undeveloped land. We have included adjustments for the costs incurred necessary to bring these investments to their intended use, as these costs are recurring operating costs that are capitalized in accordance with GAAP and not reflected in our net (loss) income, (loss), FFO and MFFO. In addition, adjusted MFFO includes an adjustment for income tax provision. We believe excluding this item appropriately presents the ongoing operating performance of our real estate investments on a comparative basis.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculations of MFFO and Adjusted MFFO, for the three and ninesix months ended SeptemberJune 30, 20172023 and 20162022 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.
 For the Three Months Ended
September 30,		 For the Nine Months Ended
September 30,
 2017 2016 2017 2016
Net (loss) income attributable to common stockholders$(10,534) $(14,951) $4,220
 $(21,804)
Depreciation of real estate assets8,354
 8,047
 25,650
 21,512
Amortization of lease-related costs4,874
 6,290
 17,486
 15,924
Gain on sale of real estate(2,239) —
 (36,267) —
Adjustments for noncontrolling interests - consolidated entities (1)
(120) (121) (377) (371)
Adjustments for investments in unconsolidated entities (2)
3,757
 2,148
 8,346
 5,930
FFO attributable to common stockholders4,092
 1,413
 19,058
 21,191
Straight-line rent and amortization of above- and below-market leases(524) (1,971) (3,931) (3,395)
Amortization of discounts and closing costs(108) —
 (456) —
Real estate acquisition fees to affiliate—
 1,690
 —
 2,964
Real estate acquisition fees and expenses—
 274
 —
 542
Amortization of net premium/discount on bond and notes payable13
 11
 36
 28
Unrealized loss on derivative instruments14
 —
 102
 —
Mark-to-market foreign currency transaction loss, net4,356
 6,639
 11,454
 4,602
Adjustments for noncontrolling interests - consolidated entities (1)
(8) (2) (31) (11)
Adjustments for investments in unconsolidated entities (2)
(1,146) (1,042) (2,820) (3,381)
MFFO attributable to common stockholders6,689
 7,012
 23,412
 22,540
Other capitalized operating expenses (3)
(684) (610) (1,992) (1,787)
Adjustments for noncontrolling interests - consolidated entities (1)
—
 —
 —
 61
Adjusted MFFO attributable to common stockholders$6,005
 $6,402
 $21,420
 $20,814
For the Three Months Ended June 30,For the Six Months Ended June 30,
2023202220232022
Net loss attributable to common stockholders$(57,475)$(9,019)$(77,056)$(13,775)
Depreciation of real estate assets9,615 8,368 19,001 16,662 
Impairment charges on real estate and related intangibles18,926 — 36,589 — 
Amortization of lease-related costs2,495 5,730 5,157 10,000 
(Gain) loss on sale of real estate (1)
(3,292)175 (32,761)(3,348)
Loss on real estate equity securities, net4,089 20,070 16,122 27,591 
Adjustments for noncontrolling interests - consolidated entities (2)
112 (287)(70)(584)
Adjustments for investments in unconsolidated entities (3)
10,872 2,021 7,368 2,933 
FFO attributable to common stockholders(14,658)27,058 (25,650)39,479 
Straight-line rent and amortization of above- and below-market leases(814)(621)(1,841)(1,935)
Amortization of net premium/discount on bond and notes payable1,082 1,477 2,185 2,255 
Gain on extinguishment of debt— — — (2,367)
Unrealized gain on interest rate caps(364)(215)(328)(270)
Foreign currency transaction loss (gain), net6,272 (23,833)3,553 (31,098)
Adjustments for noncontrolling interests - consolidated entities (2)
(3)(42)(7)(82)
Adjustments for investments in unconsolidated entities (3)
384 3,166 811 2,901 
MFFO attributable to common stockholders(8,101)6,990 (21,277)8,883 
Other capitalized operating expenses (4)
(2,002)(638)(2,002)(1,211)
Income tax provision— — 3,662 — 
Adjusted MFFO attributable to common stockholders$(10,103)$6,352 $(19,617)$7,672 
_____________________
(1)Reflects an adjustment to eliminate pre-tax gain on sale of real estate.
(2)Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO.
(2)(3)Reflects adjustments to add back our noncontrolling interest share of the adjustments and an impairment charge to an unconsolidated entity to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investments in unconsolidated joint ventures.entities.
(3) (4)Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain of our investments in undeveloped land.land and unconsolidated entity. During the periods in which we are incurring costs necessary to bring these investments to their intended use, certain normal recurring operating costs are capitalized in accordance with GAAP and not reflected in our net income (loss), FFO and MFFO.
FFO, MFFO and Adjusted MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, MFFO and Adjusted MFFO, such as tenant improvements, building improvements and deferred leasing costs. We expect FFO, MFFO and Adjusted MFFO to improve in future periods to the extent that we continue to lease up vacant space and acquire additional assets. We expect FFO, MFFO and Adjusted MFFO to decrease as a result of dispositions.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Distributions
DistributionsThere were no distributions declared distributions paid and cash flows provided by operations were as follows for the first, second and third quarters of 2017 (in thousands, except per share amounts):
  Distribution Declared Distributions Declared Per Share Distributions Paid Cash Flows Provided by Operations
Period   Cash Reinvested Total 
First Quarter 2017 $5,247
 $0.092
 $2,323
 $2,924
 $5,247
 $3,391
Second Quarter 2017 5,298
 0.093
 2,405
 2,893
 5,298
 9,466
Third Quarter 2017 5,350
 0.095
 2,501
 2,849
 5,350
 6,868
  $15,895
 $0.280
 $7,229
 $8,666
 $15,895
 $19,725
On March 9, 2017, our board of directors authorized a distribution in the amount of $0.09246575 per share of common stock to stockholders of record as of the close of business on March 13, 2017. We paid this distribution on March 16, 2017 and this was the only distribution declared and paid during the first quarter of 2017.
On June 6, 2017, our board of directors authorized a distribution in the amount of $0.09349315 per share of common stock to stockholders of record as of the close of business on June 12, 2017. We paid this distribution on June 15, 2017 and this was the only distribution declared and paid during the second quarter of 2017.
On September 13, 2017, our board of directors authorized a distribution in the amount of $0.09452055 per share of common stock to stockholders of record as of the close of business on September 15, 2017. We paid this distribution on September 22, 2017 and this was the only distribution declared and paid during the third quarter of 2017.
For the ninesix months ended SeptemberJune 30, 2017, we paid aggregate distributions of $15.9 million, including $7.2 million of distributions paid in cash and $8.7 million of distributions reinvested through our dividend reinvestment plan.2023. Our net incomeloss attributable to common stockholders for the ninesix months ended SeptemberJune 30, 20172023 was $4.2$77.1 million and our cash flows provided byused in operations were $19.7$9.4 million. Our cumulative distributions paid and net loss attributable to common stockholders from inception through SeptemberJune 30, 20172023 were $120.7 million and $53.3 million, respectively.$572.8 million. We have funded our cumulative distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with proceedsprior period cash flow from debt financingoperating activities in excess of $18.7 million, proceedsdistributions paid and with cash from gains realized from the dispositionsdisposition of property of $13.7 million and cash provided by operations of $88.3 million.properties. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have fewer funds available for investment in real estate-related loans, opportunistic real estate, real estate-related debt securities, real estate equity securities and other real estate-related investments, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies
Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments and assumptions, andrequires estimates about matters that are inherently uncertain.uncertain and which are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as ofat the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 20162022 filed with the SEC. There have been no significant changes to our policies during 2017, except for the adoption of ASU No. 2017-01 on January 1, 2017 and the addition of an accounting policy with respect to real estate equity securities.2023.

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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Real Estate Equity Securities
We determine the appropriate classification for real estate equity securities at acquisition (on the trade date) and reevaluate such designation as of each balance sheet date. As of September 30, 2017, we classified our investment in real estate equity securities as available-for-sale as we intend to hold the securities for the purpose of collecting dividend income and for longer term price appreciation. These investments are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses are reported in accumulated other comprehensive income (loss). Upon the sale of a security, the previously recognized unrealized gain (loss) would be reversed out of accumulated other comprehensive income (loss) and the actual realized gain (loss) recognized in earnings. Dividend income is recognized on an accrual basis based on eligible shares as of the ex-dividend date.
Any non-temporary decline in the market value of an available-for-sale real estate equity security below cost results in a reduction in the carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the real estate equity security is established. When a real estate equity security is impaired, we consider whether we have the ability and intent to hold the investment for a time sufficient to allow for any anticipated recovery in market value and consider whether evidence indicating the cost of the investment being recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment, the severity and duration of the impairment, changes in value subsequent to period end and forecasted performance of the investee.
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Singapore Transaction110 William
On November 8, 2017, we, through 11 wholly owned subsidiaries, sold 11 of our properties (the “Singapore Portfolio”) to various subsidiaries of Keppel-KBS US REIT, a newly formed Singapore real estate investment trust (the “SREIT”) that was listed on the Singapore Stock Exchange (the “Singapore Transaction”).  The sale price of the Singapore Portfolio was $804.0 million, before third-party closing costs of approximately $7.7 million and excluding any disposition fees payable to our advisor. The Singapore Portfolio consists of the following properties: 1800 West Loop, Westech 360 (part of the Austin Suburban Portfolio), Great Hills Plaza (part of the Austin Suburban Portfolio), Westmoor Center, Iron Point Business Park, the Plaza Buildings, Bellevue Technology Center, Northridge Center I and II, West Loop I and II, Powers Ferry Landing East and Maitland Promenade II. As of September 30, 2017, the carrying value of the Singapore Portfolio was $546.5 million. In connection with the Singapore Transaction, we repaid $401.7 million of outstanding debt secured by the properties in the Singapore Portfolio. We also used approximately $52.5 million of the proceeds to acquire units in the SREIT representing a 9.5% ownership interest. Currently, the SREIT does not own any properties other than the Singapore Portfolio. The SREIT was established with the investment strategy of principally investing, directly or indirectly, in a diversified portfolio of income-producing commercial assets and real estate-related assets in the key growth markets of the United States.
The SREIT will be externally managed by a joint venture (the “Manager”) between (i) an entity in which Keith D. Hall, our Chief Executive Officer and a director, and Peter McMillan III, our President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with us. The SREIT is expected to pay certain purchase and sale commissions and asset management fees to the ManagerJuly 5, 2023, in exchange for the provisionCompany’s 77.5% preferred interest ownership percentage in 110 William Joint Venture, the Company agreed to make future capital contributions of certain management services.up to $105.0 million to fund expenditures and improvements (the “Capital Contributions”). The 110 William Joint Venture also converted a mezzanine loan encumbering the property of approximately $85.7 million between 110 William Mezz III, LLC, an indirect subsidiary of 110 Williams Joint Venture, as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchange for contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for contributed capital.

110 William Joint Venture entered into an amended loan agreement, which restructured the original loan of $248.7 million (the “Original Loan”), and increased the supplemental loan by $56.7 million (the “Supplemental Loan”). The initial maturity date of the Original Loan and the Supplemental Loan is July 5, 2026, although the maturity date may be extended. The interest rate with respect to the Original Loan is the sum of SOFR plus a spread beginning at 2% and increasing up to 3% during the term of the loan and any extension period, and the interest rate with respect to the Supplemental Loan is the sum of SOFR plus a spread beginning at 3% and increasing up to 3.5% during the term of the loan and any extension period. Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company is the guarantor for all debt service under the amended loan agreement and the Capital Contributions.
Series C Bonds
On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to Israeli investors, of 319.6 million Israeli new Shekels (approximately $86.4 million) of Series C bonds (the “Series C Bonds”). The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange on July 9, 2023. The terms of the Series C Bonds are governed by a deed of trust, containing various financial covenants, among Pacific Oak SOR BVI and Reznik Paz Nevo Trusts Ltd., as trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by real estate held for investment.
On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the amount of 20.7 million Israeli new Shekels par value (the “Series C Expansion”). The Series C Expansion was issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the Series C Bonds, without any right of precedence or preference between any of them. The deed of trust that governs the terms of the Series C Bonds and Series C Expansion contains various financial covenants.





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PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency and Interest Rate Risk
Certain transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposure is Israeli New Shekel; in particular, we are exposed to the effects of foreign currency changes in Israel with respect to the Series B Debentures, the Series C Bonds and Series C Expansion issued to investors in Israel.
In addition, we are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. We are also exposed to the effects of foreign currency changes in Israel with respect to the 4.25% bonds issued to investors in Israel in March 2016. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes and foreign currency changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. In order to limit the effects of changes in foreign currency on our operations, we may utilize a variety of foreign currency hedging strategies such as cross currency swaps, forward contracts, puts or calls. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and the risk that the losses may exceed the amount we invested in the instruments. Additionally, certain of these strategies may cause us to fund a margin account periodically to offset changes in foreign currency rates which may also reduce the funds available for payments to holders of our common stock.
As of September 30, 2017, we had entered into one foreign currency option, a USD put/ILS call option, to hedge against a change in the exchange rate of the Israeli new Shekel versus the U.S. Dollar. The foreign currency option expires in August 2018 and has an aggregate U.S. Dollar notional amount of $285.4 million. The Company has the right, but not the obligation, to purchase up to 970.2 million Israeli Shekels at the rate of ILS 3.4 per USD.
As of SeptemberJune 30, 2017,2023, we held 0.239.8 million Israeli new Shekels and 21.824.7 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of SeptemberJune 30, 2017,2023, we had bonds outstanding and the related interest payable in the amounts of 970.2 million1.2 billion Israeli new Shekels and 20.619.1 million Israeli new Shekels, respectively. Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on the remeasurement for the ninesix months ended SeptemberJune 30, 2017,2023, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately $24.6$23.5 million and $30.0$37.5 million, respectively, for the same period, respectively. The foreign currency transaction income or loss as a result of the change in foreign currency exchange rates does not take into account any gains or losses on our foreign currency option as a result of such change, which would reduce our foreign currency exposure.period.
We borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of SeptemberJune 30, 2017,2023, the fair value of our KBS SOR (BVI) Holdings, Ltd. Series AB Debentures was $288.8$296.4 million and the outstanding principal balance was $274.5$314.1 million. As of SeptemberJune 30, 2017,2023, excluding the KBS SOR (BVI) Holdings, Ltd. Series AB Debentures, the fair value of our fixed rate debt was $32.7$219.7 million and the outstanding principal balance of our fixed rate debt was $30.9$233.5 million. The fair value estimate of our KBS SOR (BVI) Holdings, Ltd.the Series AB Debentures was calculated using the quoted bond price as of SeptemberJune 30, 20172023 on the Tel Aviv Stock Exchange of 105.2095.99 Israeli new Shekels.Shekels, respectively. The fair value estimate of our fixed rate debt was calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of SeptemberJune 30, 2017.2023. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting changes in fair value of our fixed rate instruments, would have a significant impact on our operations.
Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of SeptemberJune 30, 2017,2023, we were exposedhad entered into three separate interest rate caps with an aggregate notional of $156.6 million which effectively limits our exposure to market risks related to fluctuationsincreases in interest rates on $694.7 million of variable rate debt outstanding.one-month SOFR above certain thresholds. Based on interest rates as of SeptemberJune 30, 2017,2023, if interest rates were 100 basis points higher or lower during the 12 months ending SeptemberJune 30, 2018,2022, interest expense on our variable rate debt would increase or decrease by $6.9 million.$2.8 million and $5.3 million, respectively.
The weighted-average interest rates of our fixed rate debt and variable rate debt as of SeptemberJune 30, 20172023 were 4.3%4.1% and 3.5%7.5%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of SeptemberJune 30, 20172023 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of SeptemberJune 30, 20172023 where applicable.

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PART I.FINANCIAL INFORMATION (CONTINUED)
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)

We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of June 30, 2023, we owned real estate equity securities with a book value of $30.5 million. Based solely on the prices of real estate equity securities as of June 30, 2023, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately $3.1 million.
Item 4.
Item 4. Controls and Procedures

Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.OTHER INFORMATION

PART II. OTHER INFORMATION


Item 1.Legal Proceedings
Item 1. Legal Proceedings
None.

Item 1A.Risk Factors
PleaseItem 1A. Risk Factors
In addition to the risk factor discussed below, please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162022, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, each as filed with the SEC.
In certain cases, financings for our investments may be recourse to us.
Generally, commercial real estate financings are structured as nonrecourse to the borrower. However, lenders customarily will require that a creditworthy parent entity enter so-called “recourse carveout” guarantees. For example, a lender might require guarantees from the guarantors for the completion of tenant improvements, payment of the guarantor’s obligation, or against certain bad acts. In addition, certain guarantees typically provide that the loan will be a full personal recourse obligation of the guarantor, for certain actions.
The change in the value of Israeli currency may materially and adversely affect our results of operations and financial condition.
On February 16, 2020, Pacific Oak Strategic Opportunity 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, which bonds are denominated in Israeli new Shekels. The Series B Debentures 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. Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures subsequent to the initial issuance and as of June 30, 2023, 1.2 billion Israeli new Shekels (approximately $314.1 million as June 30, 2023) were outstanding.
On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to Israeli investors, of 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange on July 9, 2023. The terms of the Series C Bonds are governed by a deed of trust, among Pacific Oak SOR BVI and Reznik Paz Nevo Trusts Ltd., as trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by land. On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the amount of 20.7 million Israeli new Shekels par value. The Series C Bonds were issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The additional Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the Series C Bonds, without any right of precedence or preference between any of them. The deed of trust that governs the terms of the Series C Bonds and Series C Expansion contains various financial covenants.
As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between Israeli new Shekels and U.S. Dollars. More specifically, a significant change in the value of the Israeli new Shekels may have an adverse effect on our results of operations and financial condition. We have attempted to mitigate this foreign currency risk by using derivative contracts. However, there can be no assurance that those attempts to mitigate foreign currency risk will ultimately be successful.
Uncertain market conditions could cause us to sell our real estate investments or investments in unconsolidated entities at a loss in the future.
We intend to hold our real estate investments and investments in unconsolidated entities until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. We may exercise discretion as to whether and when to sell an investment, and we will have no obligation to sell at any particular time. We generally intend to hold our investments for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our investments, we may not be able to sell our investments at a profit in the future or at all. In addition, if we are unable to access the capital markets for financing in the future, we may need to sell some of our investments to raise capital. We may incur prepayment penalties in the event that we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, we could be forced to sell our investments at inopportune times which could result in us selling the affected investment at a substantial loss. Any inability to sell a property could adversely impact our ability to make debt payments as they come due.

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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
a)During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
b)Not applicable.
c)We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
a)During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.
b)Not applicable.
c)We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.
Pursuant to the share redemption program there are several limitations on our ability to redeem shares:
•Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year.
•During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
•We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
In 2017,•During any calendar year, we may redeem only the number of shares that we can purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year; provided, however, that this limit may be increased or decreased by us upon ten business days’ notice to our stockholders. To the extent that we redeem less than the number of shares that we can purchase in any calendar year with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year plus any additional funds approved by us, such excess capacity to redeem shares during any calendar year shall be added to our capacity to otherwise redeem shares during the subsequent calendar year. We indefinitely suspended the dividend reinvestment plan as of March 28, 2023. Furthermore, during any calendar year, once we have received requests for redemptions, whether in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $1.0 million or less, the last $1.0 million of available funds shall be reserved exclusively for shares being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence.” To the extent that, in the last month of any calendar year, the amount of redemption requests in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” is less than the amount of available funds reserved for such redemptions in accordance with the previous sentence, any excess funds may be used to redeem shares not in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” during such month.
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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds (Continued)
•We may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that, in a given fiscal quarter, we redeem less than the sum of (a) $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) inand (b) any excess capacity carried over to such fiscal quarter from a givenprior fiscal quarter as described below, any remaining excess capacity to redeem shares in such fiscal quarter will be added to our capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during succeeding fiscal quarters. The last $1.0 million of net proceeds from the dividend reinvestment plan during 2016 is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” with any excess funds being available to redeem shares not requested in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” during the December 2017 redemption date.quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders. Our board of directors may approve an increase in this limit to the extent that we have received proceeds from asset sales or the refinancing of debt or for any other reason deemed appropriate by the board of directors.
We may amend, suspend or terminate the program upon 10ten business days’ notice to our stockholders. We may provide notice to our stockholders by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.
On September 14, 2017, we commenced the SOR Offer for up to 3,553,660 shares of common stock at a price of $14.07 per share, or approximately $50.0 million of shares. On October 18, 2017, we increased the number of shares accepted for payment in the SOR Offer by up to 1,135,912 shares at a price of $14.07 per share, or approximately $16.0 million of shares. On October 23, 2017, we accepted for purchase 4,688,671 shares for an aggregate cost of $66.0 million, excluding fees and expenses related to the SOR Offer.
Because of the SOR Offer, the share redemption program was suspended from September 29, 2017 through October 31, 2017, meaning no redemptions were made in September or October (including those requested following a stockholder’s death, qualifying disability or determination of incompetence). We cancelled all outstanding redemption requests under the share redemption program as of the commencement of the SOR Offer and were not accepting any redemption requests under the share redemption program during the term of the SOR Offer.

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PART II.OTHER INFORMATION (CONTINUED)
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds (continued)

•During the ninesix months ended SeptemberJune 30, 2017,2023, we fulfilled redemption requests eligible for redemption under our share redemption program and received in good order and funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan and cash on hand. We redeemed shares pursuant to our share redemption program as follows:
Month 
Total Number
of Shares Redeemed 
 
Average Price Paid
Per Share (1)
 Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2017 24,963
 $14.81
 
(2) 
February 2017 1,500
 $14.81
 
(2)��
March 2017 227,362
 $14.12
 
(2) 
April 2017 33,319
 $14.81
 
(2) 
May 2017 8,213
 $14.81
 
(2) 
June 2017 222,798
 $14.10
 
(2) 
July 2017 8,811
 $14.81
 
(2) 
August 2017 27,516
 $14.81
 
(2) 
September 2017 —
 $—
 
(2) 
Total 554,482
    
_____________________
Month
Total Number
of Shares Redeemed
Average Price Paid
Per Share (1)
Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 202375,025 $10.50 (2)
February 202325,954 $10.50 (2)
March 202342,806 $10.50 (2)
April 202347,885 $10.50 (2)
May 202347,410 $10.50 (2)
June 202366,907 $10.50 (2)
Total305,987 
_____________________
(1) On December 8, 2016, our board of directors adopted a tenth amended and restated share redemption program (the “Tenth Amended Share Redemption Program”). Pursuant to the Tenth Amended Share Redemption Program, except for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” the price at which we will redeem shares is 95% of our most recent estimated value per share as of the applicable redemption date.  The Tenth Amended Share Redemption Program was effective on December 30, 2016. The Tenth Amended Share Redemption Program was suspended from September 29, 2017 through October 31, 2017, meaning no redemptions were made in September or October (including those requested following a stockholder’s death, qualifying disability or determination of incompetence). We cancelled all outstanding redemption requests under the share redemption program as of the commencement of the SOR Offer and were not accepting any redemption requests under the share redemption program during the term of the SOR Offer.
On December 8, 2016,2, 2022, our board of directors approved an estimated value per share of our common stock of $14.81, based on the estimated value of our assets less the estimated value of our liabilities, or net asset value, divided by the number of shares outstanding as of September 30, 2016.$10.50. The change in the redemption price became effective for the December 2016January 2023 redemption date and is effective until the estimated value per share is updated. We expect to engage KBS Capital Advisors and/ or an independent valuation firm to update our estimated value per share inno later than December 2017.2023.
(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the ninesix months ended September 30, 2017,June 2023, we redeemed $7.9$3.2 million of common stock.stock under the program, which represented all redemption requests received in good order and eligible for redemption through the June 2023 redemption date, except for the $146.8 million of shares in connection with redemption requests not made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” which redemption requests will be fulfilled subject to the limitations described above. Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2016,Twelfth SRP, we have $4.7had $1.4 million available for all redemptions in the remainder of 2017 under the Tenth Amended Share Redemption Program, including shares that2023, as of June 30, 2023, and on May 11, 2023 and August 10, 2023, our board of directors approved additional $2.0 million and 4.0 million, respectively, all of which are redeemed in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence”incompetence,” subject to the limitations described above.
In addition to the redemptions under the share redemption program described above, during the nine months ended September 30, 2017, we repurchased an additional 10,845 shares
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Table of our common stock at $14.07 per share for an aggregate price of $0.2 million.Contents
PART II. OTHER INFORMATION (CONTINUED)

Item 3.
Item 3. Defaults upon Senior Securities
None.
As of June 30, 2023, we had two outstanding mortgage loans which were past due. See Note 5 to our accompanying condensed notes to consolidated financial statements.

Item 4.Mine Safety Disclosures
Item 4. Mine Safety Disclosures
None.

Item 5. Other Information
Pursuant to the Twelfth Amended and Restated Share Redemption Program, on August 10, 2023, our board of directors approved an additional $4.0 million of funds available for redemptions in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence,” which will carry forward until depleted.

Item 6. Exhibits
Item 5.Ex.Other Information
None.

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PART II.OTHER INFORMATION (CONTINUED)
Description
Item 6.Exhibits

Ex.Description
3.1
3.1
3.2
3.3
4.13.4
4.1
4.2
10.1
10.2
10.3
10.4
10.210.5
10.6
10.7
10.8
10.9
10.331.1
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
32.1
32.2
99.1
101.INS99.2
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
Date:November 14, 2017August 11, 2023By:
/S/ KEITH D. HALL        
Keith D. Hall
Chief Executive Officer and Director
(principal executive officer)
Date:November 14, 2017August 11, 2023By:
/S/ JEFFREY K. WALDVOGEL        
MICHAEL A. BENDER   
Jeffrey K. WaldvogelMichael A. Bender
Chief Financial Officer Treasurer and Secretary
(principal financial officer)


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