UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2022


☐			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

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________


Maryland		26-3842535
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
11766 Wilshire Blvd., Suite 1670
Los Angeles,	California	90025
(Address of Principal Executive Offices)		(Zip Code)

(424) 208-8100

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) for the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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

☒

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 ☒

As of ~~May 6,~~August 10, 2022, there were ~~104,420,389~~104,140,141 outstanding shares of common stock of Pacific Oak Strategic Opportunity REIT, Inc.

Table of Contents

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

FORM 10-Q

~~March 31,~~June 30, 2022

INDEX


PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of ~~March 31, 20~~2 2June 30, 2022 (unaudited) and December 31, ~~202~~12021	2
		Consolidated Statements of Operations (unaudited) for the Three and SixMonths Ended ~~March 31, 202~~2June 30, 2022 and ~~202~~12021	3
		Consolidated Statements of Equity (unaudited) for the Three and SixMonths Ended ~~March 31, 202~~2June 30, 2022 and ~~202~~12021	4
		Consolidated Statements of Cash Flows (unaudited) for the ~~Three~~Six Months Ended ~~March 31, 202~~2June 30, 2022 and 20 212021	56
		Condensed Notes to Consolidated Financial Statements as of ~~March 31, 202~~2June 30, 2022 (unaudited)	67
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3739
	Item 4.	Controls and Procedures	3840
PART II.	OTHER INFORMATION		3941
	Item 1.	Legal Proceedings	3941
	Item 1A.	Risk Factors	3941
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3941
	Item 3.	Defaults upon Senior Securities	4042
	Item 4.	Mine Safety Disclosures	4042
	Item 5.	Other Information	4142
	Item 6.	Exhibits	4143
SIGNATURES			4244

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
		(unaudited)					(unaudited)
Assets	Assets					Assets
Real estate held for investment, net (Note 3)		$	1,202,234	$	1,209,243
Real estate held for investment, net						Real estate held for investment, net	$	1,194,479	$	1,209,243

Real estate held for sale, net	Real estate held for sale, net	—		5,556		Real estate held for sale, net	—		5,556
Real estate equity securities (Note 5)		104,575		112,096
Real estate equity securities						Real estate equity securities	84,505		112,096

Total real estate and real estate-related investments, net	Total real estate and real estate-related investments, net	1,306,809		1,326,895		Total real estate and real estate-related investments, net	1,278,984		1,326,895
Cash and cash equivalents	Cash and cash equivalents	59,304		84,172		Cash and cash equivalents	104,389		84,172
Restricted cash	Restricted cash	38,123		21,259		Restricted cash	62,406		21,259
Investments in unconsolidated entities (Note 10)		88,934		88,256
Investments in unconsolidated entities						Investments in unconsolidated entities	107,339		88,256
Rents and other receivables, net	Rents and other receivables, net	19,775		21,795		Rents and other receivables, net	23,220		21,795
Above-market leases, net	Above-market leases, net	2,548		2,642		Above-market leases, net	2,455		2,642
Due from affiliate (Note 9)		8,240		7,039
Due from affiliate						Due from affiliate	1,792		7,039
Prepaid expenses and other assets	Prepaid expenses and other assets	21,028		18,108		Prepaid expenses and other assets	19,336		18,108
Goodwill	Goodwill	13,534		13,534		Goodwill	13,534		13,534

Assets related to real estate held for sale, net	Assets related to real estate held for sale, net	—		919		Assets related to real estate held for sale, net	—		919
Total assets	Total assets	$	1,558,295	$	1,584,619	Total assets	$	1,613,455	$	1,584,619
Liabilities, mezzanine equity and equity	Liabilities, mezzanine equity and equity					Liabilities, mezzanine equity and equity

Notes and bonds payable related to real estate held for investment, net	Notes and bonds payable related to real estate held for investment, net	$	981,931	$	989,879	Notes and bonds payable related to real estate held for investment, net	$	1,040,029	$	989,879
Note payable related to real estate held for sale, net	Note payable related to real estate held for sale, net	—		9,070		Note payable related to real estate held for sale, net	—		9,070
Notes and bonds payable, net (Note 6)		981,931		998,949
Notes and bonds payable, net						Notes and bonds payable, net	1,040,029		998,949
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	18,803		23,852		Accounts payable and accrued liabilities	24,595		23,852
Due to affiliate (Note 9)		3,881		1,903
Due to affiliates						Due to affiliates	12,343		1,903
Below-market leases, net	Below-market leases, net	3,730		4,080		Below-market leases, net	3,385		4,080
Other liabilities	Other liabilities	54,153		43,513		Other liabilities	54,610		43,513
Redeemable common stock payable	Redeemable common stock payable	3,064		684		Redeemable common stock payable	1,379		684
Restricted stock payable	Restricted stock payable	508		508		Restricted stock payable	508		508

Dividends payable	Dividends payable	—		11,016		Dividends payable	—		11,016

Total liabilities	Total liabilities	1,066,070		1,084,505		Total liabilities	1,136,849		1,084,505
Commitments and contingencies (Note 14)		0		0
Commitments and contingencies						Commitments and contingencies	0		0
Mezzanine equity	Mezzanine equity					Mezzanine equity

Noncontrolling cumulative convertible redeemable preferred stock (Note 13)		15,233		15,233
Noncontrolling cumulative convertible redeemable preferred stock						Noncontrolling cumulative convertible redeemable preferred stock	15,233		15,233
Redeemable noncontrolling interest	Redeemable noncontrolling interest	5,006		2,822		Redeemable noncontrolling interest	—		2,822
Equity	Equity					Equity
Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity					Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—		—		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, 104,496,165 and 94,141,251 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		1,045		941
Common stock, $.01 par value; 1,000,000,000 shares authorized, 104,319,092 and 94,141,251 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively						Common stock, $.01 par value; 1,000,000,000 shares authorized, 104,319,092 and 94,141,251 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	1,043		941
Additional paid-in capital	Additional paid-in capital	914,460		818,440		Additional paid-in capital	914,463		818,440
Cumulative distributions and net income		(453,770)		(347,691)
Cumulative distributions and net loss						Cumulative distributions and net loss	(464,506)		(347,691)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	461,735		471,690		Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	451,000		471,690
Noncontrolling interests	Noncontrolling interests	10,251		10,369		Noncontrolling interests	10,373		10,369
Total equity	Total equity	471,986		482,059		Total equity	461,373		482,059
Total liabilities, mezzanine equity and equity	Total liabilities, mezzanine equity and equity	$	1,558,295	$	1,584,619	Total liabilities, mezzanine equity and equity	$	1,613,455	$	1,584,619

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Revenues:	Revenues:						Revenues:
Rental income	Rental income	$	29,382	$	32,648		Rental income	$	28,979	$	32,670	$	58,360	$	65,378
Hotel revenues	Hotel revenues	5,917		2,575			Hotel revenues	12,854		9,849		18,771		12,424
Other operating income	Other operating income	841		968			Other operating income	887		1,218		1,728		2,124
Dividend income from real estate equity securities	Dividend income from real estate equity securities	2,387		2,753			Dividend income from real estate equity securities	819		751		3,206		3,504
Total revenues	Total revenues	38,527		38,944			Total revenues	43,539		44,488		82,065		83,430
Expenses:	Expenses:						Expenses:
Operating, maintenance, and management	Operating, maintenance, and management	9,875		10,433			Operating, maintenance, and management	10,342		10,342		20,218		20,775
Real estate taxes and insurance	Real estate taxes and insurance	5,024		5,289			Real estate taxes and insurance	5,079		5,399		10,103		10,688
Hotel expenses	Hotel expenses	5,113		3,390			Hotel expenses	6,998		5,841		12,109		9,233
Asset management fees to affiliate	Asset management fees to affiliate	3,127		3,852			Asset management fees to affiliate	3,189		3,527		6,315		7,380
General and administrative expenses	General and administrative expenses	2,991		1,869			General and administrative expenses	2,983		2,888		5,977		4,759
Foreign currency transaction gain, net		(7,266)		(8,346)
Foreign currency transaction (gain) loss, net							Foreign currency transaction (gain) loss, net	(23,833)		5,507		(31,098)		(2,839)
Depreciation and amortization	Depreciation and amortization	12,565		17,001			Depreciation and amortization	14,098		15,072		26,662		32,073
Interest expense	Interest expense	9,563		9,941			Interest expense	10,780		10,680		20,343		20,618
Total expenses	Total expenses	40,992		43,429			Total expenses	29,636		59,256		70,629		102,687
Other income (loss):

Other (loss) income:							Other (loss) income:
Equity in (loss) income of unconsolidated entities	Equity in (loss) income of unconsolidated entities	(679)		169			Equity in (loss) income of unconsolidated entities	(2,075)		256		(2,754)		425

Other interest income	Other interest income	46		45			Other interest income	48		48		94		94
(Loss) gain on real estate equity securities	(Loss) gain on real estate equity securities	(7,521)		10,753			(Loss) gain on real estate equity securities	(20,070)		4,800		(27,591)		15,553
Gain on sale of real estate		3,523		21
Change in subordinated performance fee due upon termination to affiliate							Change in subordinated performance fee due upon termination to affiliate	—		261		—		(200)
(Loss) gain on sale of real estate							(Loss) gain on sale of real estate	(175)		31,148		3,348		31,170
Gain on extinguishment of debt	Gain on extinguishment of debt	2,367		—			Gain on extinguishment of debt	—		13		2,367		13
Change in subordinated performance fee due upon termination to affiliate		—		(461)
Total other (loss) income, net	Total other (loss) income, net	(2,264)		10,527			Total other (loss) income, net	(22,272)		36,526		(24,536)		47,055

Net (loss) income	Net (loss) income	(4,729)		6,042			Net (loss) income	(8,369)		21,758		(13,100)		27,798
Net loss attributable to noncontrolling interests		118		663
Net (income) loss attributable to noncontrolling interests							Net (income) loss attributable to noncontrolling interests	(156)		98		(38)		761
Net loss attributable to redeemable noncontrolling interest	Net loss attributable to redeemable noncontrolling interest	47		32			Net loss attributable to redeemable noncontrolling interest	34		49		81		81
Preferred stock dividends	Preferred stock dividends	(191)		(225)			Preferred stock dividends	(528)		(230)		(718)		(453)
Net (loss) income attributable to common stockholders	Net (loss) income attributable to common stockholders	$	(4,755)	$	6,512		Net (loss) income attributable to common stockholders	$	(9,019)	$	21,675	$	(13,775)	$	28,187
Net (loss) income per common share, basic and diluted	Net (loss) income per common share, basic and diluted	$	(0.05)	$	0.07		Net (loss) income per common share, basic and diluted	$	(0.09)	$	0.22	$	(0.13)	$	0.29
Weighted-average number of common shares outstanding, basic and diluted	Weighted-average number of common shares outstanding, basic and diluted	101,419,947		98,036,134			Weighted-average number of common shares outstanding, basic and diluted	104,422,035		97,948,219		102,929,284		97,991,934

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended ~~March 31,~~June 30, 2022 and 2021

(unaudited)

(~~dollars~~ in ~~thousands)~~thousands, except share amounts)


		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Income (Loss)				Total Stockholders' Equity			Noncontrolling Interests			Total Equity				Common Stock								Additional Paid-in Capital			Cumulative Distributions and Net Income (Loss)						Total Stockholders' Equity			Noncontrolling Interests					Total Equity
		Shares	Amounts												Total Equity			Shares				Amounts			Additional Paid-in Capital		Cumulative Distributions and Net Income (Loss)									Total Stockholders' Equity	Noncontrolling Interests
Balance, December 31, 2021		94,141,251	$	941			$	818,440			$	(347,691)				$	471,690				$	10,369	$	482,059
Net loss		—	—		—				(4,755)				(4,755)			(118)			(4,873)
Balance, March 31, 2022																						Balance, March 31, 2022	104,496,165						$	1,045			$	914,460				$	(453,770)							$	461,735				$	10,251			$	471,986
Net (loss) income																						Net (loss) income	—			—					—			(9,019)								(9,019)			156					(8,863)

Transfers to redeemable common stock	Transfers to redeemable common stock	—	—		(2,380)				—				(2,380)			—			(2,380)			Transfers to redeemable common stock	—			—					1,685			—						1,685			—					1,685
Redemptions of common stock	Redemptions of common stock	(65,165)	—		(589)				—				(589)			—			(589)			Redemptions of common stock	(177,171)			(2)					(1,683)			—						(1,685)			—					(1,685)

Adjustment to redemption value of mezzanine equity redeemable noncontrolling interest		—	—		—				(2,231)				(2,231)			—			(2,231)

Adjustment to value of redeemable noncontrolling interest																						Adjustment to value of redeemable noncontrolling interest	—			—					—			(1,716)						(1,716)			—					(1,716)
Stock distribution issued	Stock distribution issued	10,420,079	104		98,989				(99,093)				—			—			—			Stock distribution issued	98			—					1			(1)						—			—					—
Noncontrolling interest distribution																						Noncontrolling interest distribution	—			—					—			—						—			(34)					(34)

Balance, March 31, 2022		104,496,165	$	1,045	$	914,460			$	(453,770)			$	461,735		$	10,251		$	471,986
Balance, June 30, 2022																						Balance, June 30, 2022	104,319,092			$	1,043				$	914,463		$	(464,506)					$	451,000		$	10,373				$	461,373

		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Income (Loss)				Total Stockholders' Equity			Noncontrolling Interests			Total Equity				Common Stock								Additional Paid-in Capital			Cumulative Distributions and Net Income (Loss)						Total Stockholders' Equity			Noncontrolling Interests					Total Equity
		Shares	Amounts												Total Equity			Shares				Amounts				Additional Paid-in Capital		Cumulative Distributions and Net Income (Loss)									Total Stockholders' Equity	Noncontrolling Interests
Balance, December 31, 2020		98,054,582	$	979			$	831,295			$	(325,720)				$	506,554				$	13,158	$	519,712
Balance, March 31, 2021																						Balance, March 31, 2021	97,966,439								$	979		$	831,295					$	(319,208)							$	513,066				$	12,515			$	525,581
Net income (loss)	Net income (loss)	—	—		—				6,512				6,512			(663)			5,849			Net income (loss)	—			—					—			21,675						21,675			(98)					21,577

Transfers from redeemable common stock		—	—		853				—				853			—			853
Transfers to redeemable common stock																						Transfers to redeemable common stock	—			—					(1,419)			—						(1,419)			—					(1,419)
Redemptions of common stock	Redemptions of common stock	(88,143)	—		(853)				—				(853)			—			(853)			Redemptions of common stock	(60,171)			—					(582)			—						(582)			—					(582)

Noncontrolling interests contributions	Noncontrolling interests contributions	—	—		—				—				—			20			20			Noncontrolling interests contributions	—			—					—			—						—			143					143

Balance, March 31, 2021		97,966,439	$	979	$	831,295			$	(319,208)			$	513,066		$	12,515		$	525,581

Balance, June 30, 2021																						Balance, June 30, 2021	97,906,268			$	979				$	829,294		$	(297,533)					$	532,740		$	12,560				$	545,300

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~EQUITY

For the Six Months Ended June 30, 2022 and 2021

(unaudited)

(in ~~thousands)~~thousands, except share amounts)
Three Months Ended March 31,
2022 2021
Cash Flows from Operating Activities:
Net (loss) income $ (4,729) $ 6,042
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Change in subordinated performance fee due upon termination to affiliate — 461
Equity in loss (income) of unconsolidated entities 1,560 (169)
Depreciation and amortization 12,565 17,001
Loss (gain) on real estate equity securities 7,521 (10,753)
Gain on sale of real estate (3,523) (21)
Gain on extinguishment of debt (2,367) —
Unrealized (gain) loss on interest rate caps (55) 13
Deferred rent (1,055) (1,085)
Amortization of above- and below-market leases, net (256) (326)
Amortization of deferred financing costs 680 813
Amortization of discount on bond and notes payable 1,016 482
Foreign currency transaction gain, net (7,266) (8,346)
Changes in assets and liabilities:
Rents and other receivables 2,937 349
Prepaid expenses and other assets (3,355) (1,857)
Accounts payable and accrued liabilities (4,983) (6,358)
Due to affiliates 1,978 2,223
Other liabilities (353) 220
Net cash provided by (used in) operating activities 315 (1,311)
Cash Flows from Investing Activities:
Acquisitions of real estate — (2,037)
Improvements to real estate (4,888) (4,434)
Proceed from sales of real estate, net 398 166
Investment in unconsolidated entities (1,500) (1,180)
Distributions of capital from unconsolidated entities 142 —
Purchase of interest rate caps (506) (18)
Escrow deposits for future real estate sales 13,500 —
Advance to affiliate (1,201) —
Proceeds from the sale of real estate equity securities — 14,439
Net cash provided by investing activities 5,945 6,936
Cash Flows from Financing Activities:
Proceeds from notes payable 53,758 97,125
Principal payments on notes payable (55,066) (61,300)
Payments of deferred financing costs (861) (1,054)
Payments to redeem common stock (589) (853)
Payment of prepaid other offering costs — (32)
Distributions paid (11,016) —
Preferred dividends paid (191) (225)
Noncontrolling interests contributions — 20
Other financing proceeds — 2,367
Net cash (used in) provided by financing activities (13,965) 36,048
Effect of exchange rate changes on cash, cash equivalents and restricted cash (299) (1,881)
Net (decrease) increase in cash, cash equivalents and restricted cash (8,004) 39,792
Cash, cash equivalents and restricted cash, beginning of period 105,431 74,319
Cash, cash equivalents and restricted cash, end of period $ 97,427 $ 114,111


	Common Stock			Additional Paid-in Capital		Cumulative Distributions and Net Income (Loss)		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Shares	Amounts
Balance, December 31, 2021	94,141,251	$	941	$	818,440	$	(347,691)	$	471,690	$	10,369	$	482,059
Net (loss) income	—	—		—		(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 issued	10,420,177	104		98,990		(99,094)		—		—		—
Noncontrolling interest distribution	—	—		—		—		—		(34)		(34)

Balance, June 30, 2022	104,319,092	$	1,043	$	914,463	$	(464,506)	$	451,000	$	10,373	$	461,373

	Common Stock			Additional Paid-in Capital		Cumulative Distributions and Net Income (Loss)		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Shares	Amounts
Balance, December 31, 2020	98,054,582	$	979	$	831,295	$	(325,720)	$	506,554	$	13,158	$	519,712
Net income (loss)	—	—		—		28,187		28,187		(761)		27,426
Transfers to redeemable common stock	—	—		(565)		—		(565)		—		(565)
Redemptions of common stock	(148,314)	—		(1,436)		—		(1,436)		—		(1,436)
Noncontrolling interests contributions	—	—		—		—		`		163		163
Balance, June 30, 2021	97,906,268	$	979	$	829,294	$	(297,533)	$	532,740	$	12,560	$	545,300

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Six Months Ended June 30,
	2022		2021
Cash Flows from Operating Activities:
Net (loss) income	$	(13,100)	$	27,798
Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Change in subordinated performance fee due upon termination to affiliate	—		200
Equity in loss (income) of unconsolidated entities	2,754		(425)
Depreciation and amortization	26,662		32,073
Loss (gain) on real estate equity securities	27,591		(15,553)
Gain on sale of real estate	(3,348)		(31,170)
Unrealized (gain) loss on interest rate caps	(270)		16
Deferred rent	(1,427)		(1,113)
Gain on extinguishment of debt	(2,367)		(13)
Amortization of above- and below-market leases, net	(508)		(720)
Amortization of deferred financing costs and discount on bonds and notes payable	3,844		3,023

Foreign currency transaction gain, net	(31,098)		(2,839)
Changes in assets and liabilities:
Rents and other receivables	(175)		791
Prepaid expenses and other assets	(1,150)		(1,206)
Accounts payable and accrued liabilities	502		(1,400)
Due to affiliates	3,753		(1,601)
Other liabilities	668		749
Net cash provided by operating activities	12,331		8,610
Cash Flows from Investing Activities:
Acquisitions of real estate	—		(4,107)
Improvements to real estate	(10,110)		(7,727)
Proceeds from sales of real estate, net	357		49,662

Contributions to unconsolidated entities	(22,500)		(4,024)
Distributions of capital from unconsolidated entities	569		—
Purchase of interest rate cap	(506)		(18)

Proceeds from the sale of real estate equity securities	—		14,439


Advance to affiliate	(1,201)		0
Proceeds from advances due from affiliates	6,448		—
Escrow deposits for future real estate sales	17,000		—
Proceeds for future development obligations	—		6,203
Funding for development obligations	(4,025)		—
Net cash (used in) provided by investing activities	(13,968)		54,428
Cash Flows from Financing Activities:
Proceeds from notes and bonds payable	145,104		157,246
Principal payments on notes and bonds payable	(61,613)		(131,672)
Payments of deferred financing costs	(2,829)		(2,133)
Payments to redeem common stock	(2,274)		(1,436)
Payment of prepaid other offering costs	—		(111)
Distributions paid	(11,016)		—
Preferred dividends paid	(718)		(453)
Noncontrolling interests distribution	(34)		—
Noncontrolling interests contributions	—		163
Other financing proceeds	—		2,367


Net cash provided by financing activities	66,620		23,971
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,619)		(310)
Net increase in cash, cash equivalents and restricted cash	61,364		86,699
Cash, cash equivalents and restricted cash, beginning of period	105,431		74,319
Cash, cash equivalents and restricted cash, end of period	$	166,795	$	161,018

See accompanying condensed notes to consolidated financial statements.

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

~~March 31,~~June 30, 2022

(unaudited)

1.ORGANIZATION

Pacific 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 Pacific Oak SOR (BVI) Holdings, Ltd. (“Pacific 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, Pacific Oak SOR BVI issued one certificate containing 10,000 common shares with no par value to Pacific 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. Pacific 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.

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, 2021. 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the 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 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 six months ended ~~March 31,~~June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, Pacific Oak SOR BVI and their direct and indirect wholly owned subsidiaries, joint ventures in which the Company has a controlling interest and VIEs in which the Company is the primary beneficiary. All significant intercompany balances and transactions are eliminated in consolidation.

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)

~~March 31,~~June 30, 2022

(unaudited)

Liquidity

The Company generally finances its real estate investments using notes payable that are typically structured as ~~non-course~~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 and as further discussed in Note 6,5, the Company has ~~$444.0~~$467.5 million of debt obligations coming due over the next 12-month period. 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 65 for further ~~discussion.~~details.

Reclassifications

Certain prior period amounts have been reclassified to conform to ~~our~~the current period presentation. In that regard, ~~we have~~the Company reclassified held for sale activity related to dispositions in ~~our~~its consolidated balance sheets as of December 31, 2021.

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.

Restricted Cash

Restricted cash is comprised of escrow deposits for future real estate sales and lender impound reserve accounts on the Company’s borrowings for security deposits, property taxes, insurance, debt service obligations and capital improvements and replacements.

Segments

The Company operates in ~~three~~3 reportable business segments: opportunistic real estate and real estate-related investments, single-family homes, and hotels, which is how the ~~Company's~~Company’s management manages the business. In general, the Company intends to hold its investments in opportunistic real estate and other real estate-related assets for capital appreciation. Traditional performance metrics of 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 opportunistic real estate and other real estate-related assets as similar investments and aggregated them into 1 reportable business segment. The Company owns single-family homes in 18 markets ~~and~~which are all aggregated into 1 reportable business segment due to the homes being stabilized, having high occupancy rates and have similar economic characteristics. Additionally, the Company owns 2 hotels ~~and~~which are aggregated into 1 reportable business segment due to the nature of the hotel business with short-term stays.

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)

~~March 31,~~June 30, 2022

(unaudited)

Per Share Data

~~We determine~~The Company determines basic earnings per share and basic earnings per unit based on the weighted average number of shares of common stock or units, as applicable, outstanding during the period and ~~we consider~~the Company considers any participating securities, including unvested restricted stock, for purposes of applying the two-class method. ~~We determine~~The Company determines diluted earnings per share and diluted earnings per unit based on the weighted average number of shares of common stock or units, as applicable, outstanding combined with the incremental weighted average number of shares or units, as applicable, that would have been outstanding assuming all potentially dilutive securities were converted into shares of common stock or units, as applicable, at the earliest date possible. The noncontrolling Series A convertible redeemable preferred shares of Pacific Oak Residential Trust, Inc. (“PORT”) were not included as the shares are contingent on PORT being public.

Square Footage, Occupancy and Other Measures

Any references to square footage, 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~~

~~On March 12, 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and on January 11, 2021, issued ASU 2021-01,~~ ~~Reference Rate Reform (Topic 848) – Scope~~, both of which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. These ASUs are effective through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions through March 31, 2022, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve

3. REAL ESTATE HELD FOR INVESTMENT

As of ~~March 31,~~June 30, 2022, the Company owned 8 office properties, 1 office portfolio consisting of 2 office buildings and 14 acres of undeveloped land, encompassing, in the aggregate, approximately 3.2 million rentable square feet. As of ~~March 31,~~June 30, 2022, these properties were ~~73%~~72% occupied. In addition, the Company owned 1 residential home portfolio consisting of ~~1,814~~1,815 single-family homes and encompassing approximately 2.5 million rental square feet and 2 apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which ~~was~~were 92% and ~~96%~~92% occupied, respectively, as of ~~March 31,~~June 30, 2022. As of ~~March 31,~~June 30, 2022, the Company also owned 2 hotel properties with an aggregate of 649 rooms and 3 investments in undeveloped land with approximately 800 developable acres and 1 office/retail development property. The following table summarizes the Company’s real estate held for investment as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively (in thousands):


		March 31, 2022		December 31, 2021			June 30, 2022		December 31, 2021
Land	Land	$	276,608	$	275,683	Land	$	277,513	$	275,683
Buildings and improvements	Buildings and improvements	1,021,399		1,017,465		Buildings and improvements	1,026,110		1,017,465
Tenant origination and absorption costs	Tenant origination and absorption costs	42,159		43,375		Tenant origination and absorption costs	38,935		43,375
Total real estate, cost	Total real estate, cost	1,340,166		1,336,523		Total real estate, cost	1,342,558		1,336,523
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(137,932)		(127,280)		Accumulated depreciation and amortization	(148,079)		(127,280)
Total real estate, net	Total real estate, net	$	1,202,234	$	1,209,243	Total real estate, net	$	1,194,479	$	1,209,243

~~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)~~

~~March 31, 2022~~

~~(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 ~~March 31,~~June 30, 2022, the leases, excluding options to extend, apartment leases and single-family ~~home leases,~~homes, which have terms that are generally one year or less, had remaining terms of up to ~~13.3~~13.2 years with a weighted-average remaining term of ~~3.8~~3.7 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty 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 related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets totaled ~~$6.8~~$6.1 million and $6.0 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

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, 2022

(unaudited)

During ~~both of~~ the three and six months ended ~~March 31,~~June 30, 2022, the Company recognized deferred rent from tenants of $0.4 million and $1.4 million, respectively, net of lease incentive amortization. During the three and six months ended June 30, 2021, the Company recognized deferred rent from tenants of $0.03 million and $1.1 million, respectively, net of lease incentive amortization. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was ~~$16.7~~$17.0 million and $16.3 million, respectively, and is included in rents and other receivables on the accompanying consolidated balance sheets. The cumulative deferred rent balance included ~~$3.0~~$2.8 million and $3.3 million of unamortized lease incentives as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

As of ~~March 31,~~June 30, 2022, the future minimum rental income from the Company’s properties, excluding apartment leases and single-family homes, under non-cancelable operating leases was as follows (in thousands):


April 1, 2022 through December 31, 2022		$	46,626
July 1, 2022 through December 31, 2022				July 1, 2022 through December 31, 2022	$	30,337
2023	2023	55,716		2023	56,342
2024	2024	49,067		2024	50,498
2025	2025	38,581		2025	39,743
2026	2026	26,872		2026	27,742
Thereafter	Thereafter	62,406		Thereafter	66,722
		$	279,268		$	271,384

As of ~~March 31,~~June 30, 2022, the Company’s commercial real estate properties were leased to approximately 300 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	Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent		Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Professional, Scientific, and Technical Services	Professional, Scientific, and Technical Services	44	$	8,375	12.8	%	Professional, Scientific, and Technical Services	41	$	7,837	12.4	%
Public Administration	Public Administration	12	7,592		11.6	%	Public Administration	13	7,720		12.3	%
Computer Systems Design		28	6,971		10.6	%
Computer Systems Design and Related Services							Computer Systems Design and Related Services	31	7,567		12.0	%
			$	22,938	35.0	%			$	23,124	36.7	%

_____________________

(1) Annualized base rent represents annualized contractual base rental income as of ~~March 31,~~June 30, 2022, 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.

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

~~Hotel Properties~~

~~The following table provides detailed information regarding the Company’s hotel revenues for its 2 hotel properties during the three months ended March 31, 2022 and 2021 (in thousands):~~
Three Months Ended March 31,
2022 2021
Hotel revenues:
Room $ 4,295 $ 1,673
Food, beverage and convention services 280 296
Campground 793 243
Other 549 363
Hotel revenues $ 5,917 $ 2,575

~~Contract liabilities~~

The following table summarizes the Company’s contract liabilities, which are comprised of hotel advanced deposits and deferred proceeds received from the buyers of the Park Highlands land sales and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which are included in other liabilities in the accompanying consolidated balance sheets, as of March 31, 2022 and December 31, 2021 (in thousands):
March 31, 2022 December 31, 2021
Contract liability $ 20,946 $ 7,313
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period $ 134 $ 159

Geographic Concentration Risk

As of ~~March 31,~~June 30, 2022, the Company’s real estate investments in California and Georgia represented ~~23.0%~~21.6% and ~~10.4%~~10.0%, 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 California and Georgia 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.

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, 2022

(unaudited)

Hotel Properties

The following table provides detailed information regarding the Company’s hotel revenues for its two hotel properties during the three and six months ended June 30, 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Hotel revenues:
Room	$	9,905	$	7,439	$	14,200	$	9,112
Food, beverage and convention services	309		1,082		589		1,378
Campground	1,603		269		2,395		512
Other	1,037		1,059		1,587		1,422
Hotel revenues	$	12,854	$	9,849	$	18,771	$	12,424

Contract Liabilities

The following table summarizes the Company’s contract liabilities, which are comprised of hotel advanced deposits and deferred proceeds from historical and future land sales received from the buyers of the Park Highlands land sales (discussed below) and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which are included in other liabilities in the accompanying consolidated balance sheets, as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Contract liability	$	24,081	$	7,313
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	373	$	159

Recent Real Estate Sale

On January 24, 2022, the Company, through an indirect wholly owned subsidiary, sold 2 office buildings related to the Richardson Portfolio and containing 141,950 rentable square feet in Richardson, Texas (“Greenway Buildings”) to a purchaser unaffiliated with the Company or the Advisor (as defined in Note 9)7), for $11.0 million, before closing costs and credits. The carrying value of the Greenway Buildings as of the disposition date was $5.6 million, which was net of $3.2 million of accumulated depreciation and amortization. In connection with the sale of the Greenway Buildings, the Company repaid $9.1 million of the outstanding principal balance due under the mortgage loan secured by the Greenway Buildings. The Company recognized a gain on sale of $3.6 million related to the disposition of the Greenway Buildings, net of closing costs and adjustments. As a result of the sale of the Greenway Buildings, certain assets and liabilities were reclassified to held for sale on the consolidated balance sheets as of December 31, 2021.

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

Park Highlands Land Purchase and Sale ~~Contract~~Contracts

The Company enters into land purchase and sale contracts to dispose of Park Highlands developed and undeveloped land. Under these contracts, the Company will receive a stated deposit from the buyer, held in escrow, in consideration for the right, but not the obligation, to purchase the land at a future point in time with predetermined terms. After a contractually specified date, the deposits are not refundable even in the event the contract terminates, at which point the Company records restricted cash and other liabilities on the consolidated balance sheets.

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, 2022

(unaudited)

On November 11, 2021, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 234 (previously 238 and amended to reduce by 4 acres) developable acres of undeveloped land located in North Las Vegas, Nevada, (“Park Highlands”) for gross sales proceeds of approximately $124.5 million, before closing costs and credits. The due diligence period expired on February 23, 2022 and the buyer’s deposit of $13.5 million is no longer ~~refundable.~~refundable and is recognized as restricted cash on the consolidated balance sheets. This deposit is held in an escrow account and will become available once the sale is completed. ~~Following the sale,~~Actions are required by the Company ~~is expected~~ to ~~own approximately 526~~complete the planned sale.

On March 10, 2022, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 77 developable acres of Park ~~Highlands. Of the 234 acres, 163 acres are scheduled to sell in~~Highlands for gross sales proceeds of approximately $52.9 million, before closing costs and credits. The due diligence period expired on May 31, 2022 and the ~~remainder~~buyer’s deposit of $3.5 million is no longer refundable and is recognized as restricted cash on the consolidated balance sheets. This deposit is held in ~~2023.~~an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.

On June 22, 2022, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, to sell 67 developable acres of Park Highlands for gross sales proceeds of approximately $55.0 million, before closing costs and credits. The due diligence period expires on October 20, 2022, after which the buyer’s deposit of $3.0 million will no longer be refundable and will be recognized as restricted cash on the consolidated balance sheets. This deposit is held in an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.

4. ~~TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES~~

As of March 31, 2022 and December 31, 2021, 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):
Tenant Origination and
Absorption Costs Above-Market
Lease Assets Below-Market
Lease Liabilities
March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021
Cost $ 42,159 $ 43,375 $ 4,138 $ 4,138 $ (6,622) $ (6,719)
Accumulated Amortization (21,976) (20,738) (1,590) (1,496) 2,892 2,639
Net Amount $ 20,183 $ 22,637 $ 2,548 $ 2,642 $ (3,730) $ (4,080)

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 months ended March 31, 2022 and 2021 were as follows (in thousands):
Tenant Origination and
Absorption Costs Above-Market
Lease Assets Below-Market
Lease Liabilities
For the Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31,
2022 2021 2022 2021 2022 2021
Amortization $ (2,490) $ (5,222) $ (94) $ (234) $ 350 $ 560

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

As of March 31, 2022 and December 31, 2021, the Company had recorded a housing subsidy intangible asset, net of amortization, which is included in prepaid expenses and other assets in the accompanying balance sheets of $1.9 million. During both of the three months ended March 31, 2022 and 2021, the Company recorded amortization expense of $18,000 related to the housing subsidy intangible asset.

Additionally, as of March 31, 2022 and December 31, 2021, the Company had recorded tax abatement intangible assets, net of amortization, on real estate investments, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $0.6 million and $0.7 million, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded amortization expense of $0.1 million and $0.3 million related to tax abatement intangible assets, respectively.

~~The remaining unamortized balance for these outstanding intangible assets and liabilities as of March 31, 2022 will be amortized for the years ending December 31 as follows (in thousands):~~
Tenant Origination and
Absorption Costs Above-Market
Lease Assets Below-Market
Lease Liabilities Housing Subsidy Tax Abatements
April 1, 2022 through December 31, 2022 $ (4,875) $ (274) $ 1,029 $ (53) $ (352)
2023 (5,004) (356) 1,102 (71) (229)
2024 (3,787) (355) 835 (71) (6)
2025 (2,521) (339) 552 (71) —
2026 (1,224) (309) 139 (71) —
Thereafter (2,772) (915) 73 (1,536) —
$ (20,183) $ (2,548) $ 3,730 $ (1,873) $ (587)
Weighted-Average Remaining Amortization Period 4.6 years 8.1 years 3.3 years 26.6 years 1.3 years

5. REAL ESTATE EQUITY SECURITIES

As of March 31, 2022, the Company owned three investments in real estate equity securities. The following table sets forth the number of shares owned by the Company and the related carrying value of the shares as of March 31, 2022 and December 31, 2021 (dollars in thousands):
March 31, 2022 December 31, 2021
Real Estate Equity Security Number of Shares Owned Total Carrying Value Number of Shares Owned Total Carrying Value
Keppel Pacific Oak US REIT 64,165,352 $ 47,162 64,165,352 $ 51,332
Franklin Street Properties Corp. 6,915,089 40,799 6,915,089 41,145
Plymouth Industrial REIT, Inc. 613,085 16,614 613,085 19,619
71,693,526 $ 104,575 71,693,526 $ 112,096

The following summarizes the portion of gain and loss for the period related to real estate equity securities held during the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (in thousands):


		Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Net (loss) gain recognized during the period on real estate equity securities	Net (loss) gain recognized during the period on real estate equity securities	$	(7,521)	$	10,753		Net (loss) gain recognized during the period on real estate equity securities	$	(20,070)	$	4,800	$	(27,591)	$	15,553
Less net gain recognized during the period on real estate equity securities sold during the period	Less net gain recognized during the period on real estate equity securities sold during the period	—		(225)			Less net gain recognized during the period on real estate equity securities sold during the period	—		—		—		(225)
Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	$	(7,521)	$	10,528		Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period	$	(20,070)	$	4,800	$	(27,591)	$	15,328

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)

~~March 31,~~June 30, 2022

(unaudited)

~~During the three months ended March 31, 2022 and 2021, the Company recognized $2.4 million and $2.8 million, respectively, of dividend income from real estate equity securities.~~

6.5. NOTES AND BONDS PAYABLE

As of ~~March 31,~~June 30, 2022 and December 31, 2021, 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 March 31, 2022		Book Value as of December 31, 2021		Contractual Interest Rate as of March 31, 2022	Effective Interest Rate at March 31, 2022 (1)	Payment Type (2)	Maturity Date (3)		Book Value as of June 30, 2022		Book Value as of December 31, 2021		Contractual Interest Rate as of June 30, 2022	Effective Interest Rate at June 30, 2022 (1)	Payment Type (2)	Maturity Date (3)
Richardson Portfolio Mortgage Loan	Richardson Portfolio Mortgage Loan	$	19,190	$	28,470	Floating Rate + 2.50%	2.95%	Principal & Interest	11/01/2022	Richardson Portfolio Mortgage Loan	$	19,055	$	28,470	Floating Rate + 2.50%	4.30%	Principal & Interest	11/01/2022
Park Centre Mortgage Loan	Park Centre Mortgage Loan	26,185		26,185		Floating Rate + 1.75%	2.20%	Interest Only	06/27/2022	Park Centre Mortgage Loan	26,185		26,185		Floating Rate + 1.75%	3.55%	Interest Only	06/27/2023
1180 Raymond Mortgage Loan (4)	1180 Raymond Mortgage Loan (4)	31,070		31,070		Floating Rate + 2.25%	2.70%	Interest Only	12/01/2023	1180 Raymond Mortgage Loan (4)	31,070		31,070		Floating Rate + 2.25%	3.83%	Interest Only	12/01/2023
Pacific Oak SOR BVI Series B Debentures (5)		264,503		271,978		3.93%	3.93%	(5)	01/31/2026
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (5)										Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (5)	333,356		271,978		3.93%	3.93%	(5)	01/31/2026
Crown Pointe Mortgage Loan	Crown Pointe Mortgage Loan	53,758		52,315		Floating Rate + 2.30%	2.75%	Interest Only	04/01/2025	Crown Pointe Mortgage Loan	53,758		52,315		Floating Rate + 2.30%	3.80%	Interest Only	04/01/2025
The Marq Mortgage Loan	The Marq Mortgage Loan	61,683		61,874		Floating Rate + 1.55%	2.00%	Principal & Interest	06/06/2022	The Marq Mortgage Loan	61,556		61,874		Floating Rate + 1.55%	3.35%	Principal & Interest	06/06/2023
Eight & Nine Corporate Centre Mortgage Loan	Eight & Nine Corporate Centre Mortgage Loan	48,395		48,545		Floating Rate + 1.60%	2.05%	Principal & Interest	06/08/2022	Eight & Nine Corporate Centre Mortgage Loan	48,295		48,545		Floating Rate + 1.60%	3.40%	Principal & Interest	06/08/2023
Georgia 400 Center Mortgage Loan	Georgia 400 Center Mortgage Loan	61,154		61,154		Floating Rate + 1.55%	2.00%	Interest Only	05/22/2023	Georgia 400 Center Mortgage Loan	61,154		61,154		Floating Rate + 1.55%	3.35%	Interest Only	05/22/2023
PORT Mortgage Loan 1	PORT Mortgage Loan 1	51,302		51,302		4.74%	4.74%	Interest Only	10/01/2025	PORT Mortgage Loan 1	51,303		51,302		4.74%	4.74%	Interest Only	10/01/2025
PORT Mortgage Loan 2	PORT Mortgage Loan 2	10,523		10,523		4.72%	4.72%	Interest Only	03/01/2026	PORT Mortgage Loan 2	10,523		10,523		4.72%	4.72%	Interest Only	03/01/2026
PORT MetLife Loan	PORT MetLife Loan	60,000		60,000		3.90%	3.90%	Interest Only	04/10/2026	PORT MetLife Loan	60,000		60,000		3.90%	3.90%	Interest Only	04/10/2026
Springmaid Beach Resort Mortgage Loan	Springmaid Beach Resort Mortgage Loan	55,143		55,491		Floating Rate + 2.25% (6)	5.75%	Principal & Interest	08/12/2022	Springmaid Beach Resort Mortgage Loan	53,054		55,491		Floating Rate + 2.25% (6)	5.75%	Principal & Interest	08/12/2022 (7)
Q&C Hotel Mortgage Loan	Q&C Hotel Mortgage Loan	25,000		25,000		Floating Rate + 2.50% (7)	4.50%	Principal & Interest	12/23/2022	Q&C Hotel Mortgage Loan	24,904		25,000		Floating Rate + 2.50% (8)	4.50%	Principal & Interest	12/23/2022
Lincoln Court Mortgage Loan (4)	Lincoln Court Mortgage Loan (4)	34,524		34,623		Floating Rate + 1.75%	2.20%	Principal & Interest	04/01/2022 (8)	Lincoln Court Mortgage Loan (4)	32,491		34,623		Floating Rate + 2.25%	4.05%	Principal & Interest	08/1/2022 (9)
Lofts at NoHo Commons Mortgage Loan	Lofts at NoHo Commons Mortgage Loan	74,536		74,536		Floating Rate + 2.18% (9)	3.93%	Interest Only	09/09/2022	Lofts at NoHo Commons Mortgage Loan	74,536		74,536		Floating Rate + 2.18% (10)	3.98%	Interest Only	09/09/2022
210 West 31st Street Mortgage Loan (4)	210 West 31st Street Mortgage Loan (4)	7,425		8,850		Floating Rate + 3.00%	3.45%	Principal & Interest	06/16/2022	210 West 31st Street Mortgage Loan (4)	6,000		8,850		Floating Rate + 3.00%	4.80%	Principal & Interest	06/16/2022 (11)
Oakland City Center Mortgage Loan	Oakland City Center Mortgage Loan	95,747		96,075		Floating Rate + 1.75%	2.20%	Principal & Interest	09/01/2022	Oakland City Center Mortgage Loan	95,415		96,075		Floating Rate + 1.75%	3.55%	Principal & Interest	09/01/2022
Madison Square Mortgage Loan	Madison Square Mortgage Loan	17,500		17,500		4.63%	4.63%	Interest Only	10/07/2024	Madison Square Mortgage Loan	17,649		17,500		4.63%	4.63%	Interest Only	10/07/2024
Total Notes and Bonds Payable principal outstanding	Total Notes and Bonds Payable principal outstanding	997,638		1,015,491						Total Notes and Bonds Payable principal outstanding	1,060,304		1,015,491
Discount on Notes and Bonds Payable, net (10)		(7,130)		(8,146)
Discount on Notes and Bonds Payable, net (12)										Discount on Notes and Bonds Payable, net (12)	(9,636)		(8,146)
Deferred financing costs, net	Deferred financing costs, net	(8,577)		(8,396)						Deferred financing costs, net	(10,639)		(8,396)
Total Notes and Bonds Payable, net	Total Notes and Bonds Payable, net	$	981,931	$	998,949					Total Notes and Bonds Payable, net	$	1,040,029	$	998,949

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of ~~March 31,~~June 30, 2022. Effective interest rate is calculated as the actual interest rate in effect as of ~~March 31,~~June 30, 2022 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at ~~March 31,~~June 30, 2022, where applicable.

(2) Represents the payment type required under the loan as of ~~March 31,~~June 30, 2022. 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.

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

(3) Represents the initial maturity date or the maturity date as extended as of ~~March 31,~~June 30, 2022; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(4) The Company’s notes and bond’s payable are generally non-recourse. These mortgage loans have guarantees over certain balances whereby the Company would be required to make guaranteed payments in the event that the Company turned the property over to the lender. The guarantees are typically 25% of the outstanding loan balance. As of ~~March 31,~~June 30, 2022, the guaranteed amount in the aggregate was ~~$23.8~~$21.9 million.

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, 2022

(unaudited)

(5) See “Israeli Bond ~~Financing”~~Financings” below.

(6) The interest rate is variable at the higher of one-month LIBOR + 2.25% or 5.77%.

(7) Subsequent to June 30, 2022, the Company extended the Springmaid Beach Resort Mortgage Loan to October 10, 2022.

(8)The interest rate is variable at the higher of one-month LIBOR + 2.5% or 4.5%.

~~(8)~~(9) ~~Subsequent to March 31,~~On July 29, 2022, the Company ~~extended~~refinanced the Lincoln Court Mortgage Loan with a new lender for an amount up to $39.4 million, of which $35.3 million was funded at the time of closing. The loan is an interest only with an annual variable rate of 3.25% plus the floating rate (SOFR). Additionally, the loan has an initial maturity date toof August ~~1, 2022.~~7, 2025 with an available three-year extension.

~~(9)~~(10) The ~~floating interest~~LIBOR rate is variable at the higher of one-month LIBOR or 1.75%, plus 2.18%.

~~(10)~~(11) Subsequent to June 30, 2022, the Company extended the maturity of the 210 West 31st Street Mortgage Loan to December 16, 2022. Monthly principal payments of $1.0 million beginning on July 10, 2022.

(12) 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 six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ the Company incurred ~~$9.6~~$10.8 million and ~~$9.9~~$20.3 million, respectively, of interest expense. Included in interest expense ~~during~~for the three and six months ended ~~March 31,~~June 30, 2022 ~~and 2021~~ was ~~$0.7~~$0.8 million and ~~$0.8~~$1.6 million, respectively, of amortization of deferred financing 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 six months ended ~~March 31,~~June 30, 2022, the Company capitalized $0.5 million and $1.0 million, respectively, of interest related to its investments in undeveloped land.

During the three and six months ended June 30, 2021, the Company incurred $10.7 million and $20.6 million, respectively, of interest expense. Included in interest expense for the three and six months ended June 30, 2021 was $0.8 million and $1.6 million, respectively, of amortization of deferred financing costs. Included in interest expense for the three and six months ended June 30, 2021 was $1.0 million and $1.4 million, respectively, of amortization of discount on notes and bonds payable, net. Additionally, during the three and six months ended June 30, 2021, the Company capitalized $0.5 million and ~~$0.6~~$1.1 million, respectively of interest related to its investments in undeveloped land.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company’s interest payable was ~~$3.6~~$7.9 million and $6.6 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of ~~March 31,~~June 30, 2022 (in thousands):


April 1, 2022 through December 31, 2022		$	447,827
July 1, 2022 through December 31, 2022				July 1, 2022 through December 31, 2022	$	306,320
2023	2023	92,224		2023	227,395
2024	2024	105,668		2024	128,767
2025	2025	193,229		2025	216,180
2026	2026	158,690		2026	181,642
Thereafter	Thereafter	—		Thereafter	—
		$	997,638		$	1,060,304

As of ~~May 6,~~August 12, 2022, the Company had a total of ~~$444.0~~$467.5 million of debt obligations scheduled to mature over the next 12 months. The Company has extension options with respect to ~~$309.6~~$258.8 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 wethe Company will be able to meet these requirements. All of 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 contain financial debt covenants, including minimum equity requirements and liquidity ratios. As of March 31, 2022, the Company was in compliance with all of these debt covenants with the exception that the Georgia 400 Center Mortgage Loan and Q&C Hotel Mortgage Loan were not in compliance with the debt service coverage requirement and the Lofts at Noho Commons Mortgage Loan was not in compliance with the debt yield requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for these mortgage loans, as well as a deposit for the Georgia 400 Center Mortgage Loan. See Note 14 for further details on the deposit.

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)

~~March 31,~~June 30, 2022

(unaudited)

The Company’s notes payable contain financial debt covenants, including minimum equity requirements and liquidity ratios. As of June 30, 2022, the Company was in compliance with all of these debt covenants with the exception that the Oakland City Center Mortgage Loan and Georgia 400 Center Mortgage Loan which were not in compliance with the debt service coverage requirement and the Lofts at Noho Commons Mortgage Loan which was not in compliance with the debt yield requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for the Lofts at NoHo Commons Mortgage Loan and the Georgia 400 Center Mortgage Loan, as well as a deposit for the Georgia 400 Center Mortgage Loan. On April 4, 2022, the Company paid a deposit of $20.4 million to the lender of the Georgia 400 Center Mortgage Loan and recorded as restricted cash on the consolidated balance sheets. Additionally, the Company may be required to partially pay down the Oakland City Center Mortgage Loan if the non-compliance continues.

Israeli Bond Financings

On February 16, 2020, Pacific Oak SOR BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B Debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures will bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. On November 1, 2021, Pacific Oak ~~Strategic Opportunity~~SOR BVI issued additional Series B Debentures in the amount of 536.4 million Israeli new Shekels par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8 million as of November 1, 2021). ~~Additionally, on~~On November 8, 2021, Pacific Oak ~~Strategic Opportunity~~SOR BVI also issued Series B Debentures in the amount of 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.7 million as of November 8, 2021).

Additionally, on May 2, 2022, Pacific Oak SOR BVI issued Series B Debentures in the amount of 320.4 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 4.0% discount, resulting in a total consideration of 307.6 million Israeli new Shekels ($95.3 million as of May 2, 2022). The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, ~~which were initially issued,~~ without any right of precedence or preference between any of them.

The deed of trust that governs the ~~terms of the and~~ Series B Debentures contain various financial covenants. As of ~~March 31,~~June 30, 2022, the Company was in compliance with all of these financial debt covenants.

~~7. DERIVATIVE INSTRUMENTS~~

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 term 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 March 31, 2022, the Company had entered into 3 interest rate caps, which were not designated as a hedging instruments. The following table summarizes the notional amounts and other information related to the Company’s derivative instruments as of March 31, 2022. 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~~

~~09/15/2021~~

~~09/15/2022~~

~~75,950~~

~~One-month LIBOR at 3.50%~~

~~Interest rate cap~~

~~06/21/2019~~

~~05/22/2023~~

~~51,252~~

~~One-month LIBOR at 4.00%~~

~~Interest rate cap~~

~~03/24/2022~~

~~04/01/2024~~

~~53,758~~

~~One-month SOFR at 2.50%~~

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 March 31, 2022 and December 31, 2021 (dollars in thousands):
March 31, 2022 December 31, 2021
Derivative Instruments Balance Sheet Location Number of Instruments Fair Value Number of Instruments Fair Value
Derivative instruments not designated as hedging instruments
Interest rate caps Prepaid expenses and other assets 3 $ 569 2 $ 8

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

8.6. FAIR VALUE DISCLOSURES

The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of ~~March 31,~~June 30, 2022 and December 31, 2021, which carrying amounts do not approximate the fair values (in thousands):
March 31, 2022 December 31, 2021
Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value
Financial liabilities (Level 3):
Notes payable $ 733,135 $ 729,713 $ 727,436 $ 743,513 $ 740,176 $ 740,347
Financial liabilities (Level 1):
Pacific Oak SOR BVI Series B Debentures $ 264,503 $ 252,218 $ 262,453 $ 271,978 $ 258,773 $ 274,697


	June 30, 2022						December 31, 2021
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value


Financial liabilities (Level 3):
Notes and bond payable	$	726,948	$	724,395	$	718,214	$	743,513	$	740,176	$	740,347
Financial liabilities (Level 1):

Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures	$	333,356	$	315,634	$	314,530	$	271,978	$	258,773	$	274,697

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.

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, 2022

(unaudited)

As of ~~March 31,~~June 30, 2022, the Company measured the following assets at fair value (in thousands):


				Fair Value Measurements Using									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)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:	Recurring Basis:									Recurring Basis:
Real estate equity securities	Real estate equity securities	$	104,575	$	104,575	$	—	$	—	Real estate equity securities	$	84,505	$	84,505	$	—	$	—
Asset derivative - interest rate caps	Asset derivative - interest rate caps	$	569	$	—	$	569	$	—	Asset derivative - interest rate caps	$	784	$	—	$	784	$	—

As of December 31, 2021, the Company measured the following assets and liabilities at fair value (in thousands):


			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	$	112,096	$	112,096	$	—	$	—
Asset derivative - interest rate caps	$	8	$	—	$	8	$	—

9.7. RELATED PARTY TRANSACTIONS

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 ~~the~~ 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 is currently effective through November 1, 2022; however the Company or the Advisor may terminate the Advisory Agreement without cause or penalty upon providing 60 days’ written notice. The Advisor conducts the Company’s operations and manages its portfolio of real estate and other real estate-related investments.

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)

~~March 31,~~June 30, 2022

(unaudited)

Pursuant to the terms of the Advisory Agreement, summarized below are the related-party costs incurred by the Company for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and any related amounts payable as of ~~March 31,~~June 30, 2022 and December 31, 2021 (in thousands):
Incurred during the three months ended March 31, Payable as of
2022 2021 March 31, 2022 December 31, 2021
Expensed
Asset management fees $ 3,127 $ 3,852 $ 3,850 $ 1,903
Property management fees (1)
125 120 31 —
Change in subordinated performance fee due upon termination to affiliate (2)
— 461 (2) (2)
Capitalized
Acquisition fees on real estate (3)
— 20 — —
Disposition fees on real estate 107 — — —
Acquisition fee on investment in unconsolidated entities — 29 — —
$ 3,359 $ 4,482 $ 3,881 $ 1,903


	Incurred								Payable as of
	Three Months Ended June 30,				Six Months Ended June 30,				June 30, 2022		December 31, 2021
Expensed	2022		2021		2022		2021
Asset management fees	$	3,189	$	3,527	$	6,315	$	7,380	$	5,656	$	1,903
Property management fees (1)	133		123		258		243		—		—
Disposition fees (2)	—		504		107		504		—		—
Change in subordinated performance fee due upon termination to affiliate (3)	—		(261)		—		200		(3)		(3)
Capitalized
Acquisition fees on real estate (4)	—		—		—		20		—		—

Acquisition fee on investment in unconsolidated entities	—		16		—		45		—		—
	$	3,322	$	3,909	$	6,680	$	8,392	$	5,656	$	1,903

_____________________

(1) Property management fees are for single-family homes ~~under Battery Point Trust Inc. (“Battery Point”)~~ and paid to ~~a subsidiary~~an affiliate of the ~~Advisor (“DayMark”).~~Advisor. These fees are included in the line item “Operating, maintenance, and management cost” in the consolidated statement of operations.

(2) Disposition fees with respect to real estate sold are included in the gain (loss) on sale of real estate in the accompanying consolidated statements of operations.

(3) Change in estimate of fees payable to the Company’s previous advisor, KBS Capital Advisors LLC (“KBS Capital Advisors) due to the termination of the former advisory agreement with KBS Capital Advisors.

~~(3)~~(4) Acquisition fees associated with asset acquisitions are capitalized, while costs associated with business combinations expensed as incurred.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company provided $1.2 million of funding to the 110 William Joint Venture, an unconsolidated entity, for mortgage loan refinancing fees. In the prior year, the Company provided $7.0 million of funding to the 353 Sacramento Joint Venture, an unconsolidated entity, for mortgage loan refinancing fees and was partially repaid during the six months ended June 30, 2022. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company recognized a due from affiliate of ~~$8.2~~$1.8 million and $7.0 million, ~~respectively,~~respectively.

On June 24, 2022, the Company’s board of ~~which $7.0 million from both periods~~directors authorized and approved the redemption of the 510,816 Special Common Units of PORT OP LP, a consolidated subsidiary of the Company (“PORT OP”), representing approximately 3.20% interest, held by BPT Holdings, LLC (“BPT Holdings”), a subsidiary of the Advisor, for a price of $13.09 per unit. The Special Common Units are ~~related~~included as due to ~~funding provided to~~affiliates on the ~~353 Sacramento Joint Venture~~consolidated balance sheets. In July 2022, the Company redeemed the special common units of PORT OP for ~~mortgage loan refinancing fees.~~$6.7 million. Following the redemption, the Company owned 100% of PORT OP.

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, 2022

(unaudited)

Pacific Oak Opportunity Zone Fund I

As of ~~March 31,~~June 30, 2022, the Company ~~owned 124 Class A Units in~~contributed $27.4 million to the Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”), which ~~are~~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 ~~they incur~~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 will distributed to the Company. During the three and six months ended ~~March 31,~~June 30, 2022, ~~and 2021,~~ the Company recorded $0.1 million and $0.2 million, respectively, of waived asset management fees recorded as equity in income of unconsolidated entities, of which ~~$0.1 million~~$0 was a receivable as of ~~March 31, 2022~~June 30, 2022. During the three and ~~included~~six months ended June 30, 2021, the Company recorded $0.2 million and $0.3 million, respectively, of waived asset management fees recorded as equity in ~~rents and other receivables, net on the consolidated balance sheet.~~

~~Table~~income 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)~~

~~March 31, 2022~~

~~(unaudited)~~

unconsolidated entities.

PORT II

As of ~~March 31,~~June 30, 2022, the Company contributed ~~$13.0~~$34.0 million in PORT II OP ~~LLC~~LP (“PORT II OP”), a wholly owned subsidiary of Pacific Oak Residential Trust II, Inc. ("(“PORT ~~II"~~II”). On August 31, 2020, PORT II entered into an advisory agreement (as subsequently amended and restated on October 9, 2020, “PORT II Advisory Agreement”) with Pacific Oak Residential Advisors, LLC (“PORA”), an affiliate of the Advisor. Pursuant to the PORT II Advisory Agreement, PORT II has engaged PORA to act as its external advisor with respect to PORT II’s operations and assets. Because the Company has separately engaged the Advisor to manage its operations and assets, including its interests in PORT II, on November 12, 2020, the Company and the Advisor agreed to amend their advisory agreement to provide that PORT II’s operations and assets will be managed by PORA and not by the Advisor.

On July 1, 2022, the Company determined that it became the primary beneficiary of PORT II as a result of events that occurred, including a tender offer arrangement to return equity to unrelated investors. As such, in July 2022, the Company consolidated PORT II into the Company’s consolidated financial statements. See Note 13 for further details.

On August 31, 2020, PORT II entered into a property management agreement with DMH Realty, LLC (“DMH”), an affiliate of the Advisor and PORA. Pursuant to the property management agreement, PORT II will pay to DMH a base fee equal to the following: (a) for all rent collections up to $50 million per year, 8%; (b) for all rent collections in excess of $50 million per year, but less than or equal to $75 million per year, 7%; and (c) for all rent collections in excess of $75 million per year, 6%. PORT II will also pay DMH market-based leasing fees that will depend on the type of tenant, shared fees equal to 100% of any application fees collected and 50% of any insufficient funds fees, late fees and certain other fees collected. DMH may also perform additional services at rates that would be payable to unrelated parties.

~~10. INVESTMENT IN UNCONSOLIDATED ENTITIES~~

~~As of March 31, 2022 and December 31, 2021, the Company’s investments in unconsolidated entities were composed of the following (dollars in thousands):~~
Number of Properties as of March 31, 2022 Investment Balance as of
Joint Venture Location Ownership % March 31, 2022 December 31, 2021
110 William Joint Venture 1 New York, New York 60.0% $ — —
353 Sacramento Joint Venture 1 San Francisco, California 55.0% 49,280 49,916
Pacific Oak Opportunity Zone Fund I 3 Various 46.0% 27,214 27,215
PORT II OP LP 251 Various 91.9% 12,440 11,125
$ 88,934 $ 88,256

~~Investment in 110 William Joint Venture~~

On December 23, 2013, the Company, through an indirect wholly owned subsidiary, entered into an agreement with 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, the 110 William Joint Venture acquired an office property containing 928,157 rentable square feet located on approximately 0.8 acres of land in New York, New York (“110 William Street”). Each of 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 its investment in the 110 William Joint Venture under the equity method of accounting. Income, losses, contributions and distributions are generally allocated based on the members’ respective equity interests.

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)

~~March 31,~~June 30, 2022

(unaudited)

8. INVESTMENT IN UNCONSOLIDATED ENTITIES

As of ~~March 31,~~June 30, 2022 and December 31, 2021, the ~~book value~~Company’s investments in unconsolidated entities were composed of the ~~Company’s investment~~following (dollars in the 110 William Joint Venture was $0. During the three months ended March 31, 2019, the Company suspended the equity method of accounting and the Company will not record the Company's share of losses and will not record the Company's share of any subsequent income for the 110 William Joint Venture until the Company’s share of net income exceeds the gain recorded and the Company’s share of the net losses not recognized during the period the equity method was suspended. During both of the three months ended March 31, 2022 and 2021, the Company did not record equity in income from the 110 William Joint venture.thousands):


	Number of Properties as of June 30, 2022			Investment Balance at
Joint Venture		Location	Ownership %	June 30, 2022		December 31, 2021
110 William Joint Venture	1	New York, New York	60.0%	$	—	$	—
353 Sacramento Joint Venture	1	San Francisco, California	55.0%	47,377		49,916
Pacific Oak Opportunity Zone Fund I	3	Various	46.0%	27,356		27,215
PORT II OP LP	588	Various	94.2%	32,606		11,125
				$	107,339	$	88,256

~~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 a joint venture (the “353 Sacramento Joint Venture”). On July 6, 2017, the Company sold a 45% equity interest 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, California (“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 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.

During the three months ended March 31, 2021, the Company made a contribution of $0.9 million to the 353 Sacramento Joint Venture. There were no contributions during the three months ended March 31, 2022. During the three months ended March 31, 2022 and 2021, the Company recognized a $0.6 million loss and income of $0.2 million, respectively, related to the 353 Sacramento Joint Venture.

~~Investment in Pacific Oak Opportunity Zone Fund I~~

As of March 31, 2022, the book value of the Company’s investment in Pacific Oak Opportunity Zone Fund I was $27.2 million, which includes $0.2 million of acquisition fees. As of March 31, 2022, Pacific Oak Opportunity Zone Fund I consolidated 3 joint ventures with real estate under development. As of March 31, 2022, the Company has concluded that Pacific Oak Opportunity Zone Fund I qualifies as a Variable Interest Entity (“VIE”) because there is insufficient equity at risk to finance the entity’s activities and the entity is structured with non-substantive voting rights. The Company concluded it is not the primary beneficiary of this VIE since it does not have the power to direct the activities that most significantly impact the entity’s economic performance and will account for its investment under the equity method of accounting.

During the three months ended March 31, 2022 and 2021, the Company recognized a $0.1 million and $0.2 million loss related to this investment. The Company’s maximum exposure to loss as a result of its involvement with this VIE is limited to the carrying value of the investment in Pacific Oak Opportunity Zone Fund I which totaled $27.2 million as of March 31, 2022.

~~Investment in~~ PORT II

PORT II is a Maryland corporation formed and sponsored by the Advisor to acquire, own and operate single family homes as rental properties as well as to acquire and own other interests, including mortgages on or securities related to single family homes. As of ~~March 31,~~June 30, 2022, the Company owns 600 shares of common stock of PORT ~~II, of which the~~II. The Company exercises significant influence over the operations, financial policies and decision making with respect to PORT II, but does not ~~control.~~control it. The Company made its investment through PORT OP, of which the Company owns ~~91.9%~~94.2% of PORT II OP as of ~~March 31,~~June 30, 2022. During the six months ended June 30, 2022, the Company contributed an additional $22.5 million to PORT II OP. As of ~~March 31,~~June 30, 2022, the Company has concluded that PORT II OP qualifies as a VIE because there is insufficient equity at risk to finance the entity’s activities and the entity is structured with non-substantive voting rights. The Company concluded it is not the primary beneficiary of this VIE since it does not have the power to direct the activities that most significantly impact the entity’s economic performance and will account for its investment under the equity method of accounting. During the three and six months ended ~~March 31,~~June 30, 2022, the Company recognized losses of $0.4 million and $0.5 million, respectively, related to this investment. During both of the three and six months ended June 30, 2021, the Company recognized ~~a $45,000 loss and $0, respectively,~~losses of $12,000 related to this investment.

On May 12, 2022, PORT II OP purchased a single-family home portfolio of 283 homes in Michigan for $80.3 million before closing costs and credits from an unaffiliated seller.

9. SUPPLEMENTAL CASH FLOW AND SIGNIFICANT NONCASH TRANSACTION DISCLOSURES

Supplemental cash flow and significant noncash transaction disclosures were as follows (in thousands):


	Six Months Ended June 30,
	2022		2021
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,026 and $1,104 for the six months ended June 30, 2022 and 2021, respectively	$	15,446	$	17,571
Supplemental Disclosure of Significant Noncash Transactions:
Accrued improvements to real estate	3,262		6,075

Redeemable common stock payable	1,379		1,429
Distributions paid to common stockholders through common stock issuances	99,094		—

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)

~~March 31,~~June 30, 2022

(unaudited)

~~11. SUPPLEMENTAL CASH FLOW AND SIGNIFICANT NONCASH TRANSACTION DISCLOSURES~~

~~Supplemental cash flow and significant noncash transaction disclosures were as follows (in thousands):~~
Three Months Ended March 31,
2022 2021
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $479 and $559 for the three months ended March 31, 2022 and 2021, respectively $ 10,950 $ 11,227
Supplemental Disclosure of Significant Noncash Transaction:
Accrued improvements to real estate 2,685 3,906
Redeemable common stock payable 3,064 11
Distributions paid to common stockholders through common stock issuances 99,093 —

~~12.~~10. REPORTING SEGMENTS

The Company recognizes 3 reporting segments for the three and six months ended ~~March 31,~~June 30, 2022 and ~~2021 and consists of~~2021: strategic opportunistic properties, single-family homes and hotels. All corporate related costs are included in the 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 ~~March 31,~~June 30, 2022 and 2021 are as follows (in thousands):


		Three Months Ended March 31, 2022									Three Months Ended June 30, 2022
		Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total			Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	Total revenues	$	26,867	$	5,743	$	5,917	$	38,527	Total revenues	$	24,884	$	5,801	$	12,854	$	43,539
Total expenses	Total expenses	(27,076)		(6,504)		(7,412)		(40,992)		Total expenses	(13,699)		(6,505)		(9,432)		(29,636)
Total other income		(4,589)		(42)		2,367		(2,264)
Total other (loss) income										Total other (loss) income	(21,797)		(479)		4		(22,272)
Net (loss) income	Net (loss) income	$	(4,798)	$	(803)	$	872	$	(4,729)	Net (loss) income	$	(10,612)	$	(1,183)	$	3,426	$	(8,369)

		Three Months Ended March 31, 2021									Six Months Ended June 30, 2022
		Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total			Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	Total revenues	$	31,063	$	5,306	$	2,575	$	38,944	Total revenues	$	51,750	$	11,544	$	18,771	$	82,065
Total expenses	Total expenses	(31,594)		(6,184)		(5,651)		(43,429)		Total expenses	(40,776)		(13,009)		(16,844)		(70,629)
Total other income		10,504		23		—		10,527
Net income (loss)		$	9,973	$	(855)	$	(3,076)	$	6,042
Total other (loss) income										Total other (loss) income	(26,387)		(521)		2,372		(24,536)
Net (loss) income										Net (loss) income	$	(15,413)	$	(1,986)	$	4,299	$	(13,100)



	Three Months Ended June 30, 2021
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	29,075	$	5,564	$	9,849	$	44,488
Total expenses	(43,932)		(6,999)		(8,325)		(59,256)
Total other income	36,459		54		13		36,526
Net income (loss)	$	21,602	$	(1,381)	$	1,537	$	21,758

	Six Months Ended June 30, 2021
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	60,136	$	10,870	$	12,424	$	83,430
Total expenses	(75,528)		(13,183)		$	(13,976)	(102,687)
Total other income	46,964		78		$	13	47,055
Net income (loss)	$	31,572	$	(2,235)	$	(1,539)	$	27,798

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)

~~March 31,~~June 30, 2022

(unaudited)

Total assets and goodwill related to the reporting segments as of ~~March 31,~~June 30, 2022 and December 31, 2021 are as follows (in thousands):
March 31, 2022
Strategic Opportunistic Properties Single-Family Homes Hotels Total
Total assets $ 1,199,749 $ 208,737 $ 149,809 $ 1,558,295
Goodwill 9,489 — 4,045 13,534
December 31, 2021
Strategic Opportunistic Properties Single-Family Homes Hotels Total
Total assets (1)
$ 1,223,122 $ 211,050 $ 150,447 $ 1,584,619
Goodwill (1)
9,489 — 4,045 13,534

~~_____________________~~

~~(1)~~ During the year ended December 31, 2021, the Company recorded impairment charges on real estate and related intangibles and on goodwill of $11.0 million and $2.8 million, respectively, related to the Strategic Opportunistic Properties segment.


	June 30, 2022
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total assets	$	1,234,238	$	227,704	$	151,513	$	1,613,455
Goodwill	9,489		—		4,045		13,534

	December 31, 2021
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total assets	$	1,223,122	$	211,050	$	150,447	$	1,584,619
Goodwill	9,489		—		4,045		13,534

~~13.~~11. PORT MEZZANINE EQUITY

The ~~Company has authorized and issued~~following is a reconciliation of PORT’s noncontrolling cumulative convertible redeemable preferred stock ~~from a subsidiary. The Company has elected to use~~for the ~~measurement method described under ASC 480-10-S99-3A, paragraph 15(b), resulting~~six months ended June 30, 2022 and 2021 (dollars in ~~the common and preferred stock being classified in mezzanine equity and measured based on the estimated future redemption value as of March 31, 2021.~~thousands):


	Series A Preferred Stock			Series B Preferred Stock
	Shares	Amounts		Shares	Amounts


Balance, December 31, 2021	15,000	$	15,134	125	$	99
Dividends Available Upon Redemption	—	672		—	8
Dividends Paid	—	(672)		—	(8)
Balance, June 30, 2022	15,000	$	15,134	125	$	99


	Series A Preferred Stock			Series B Preferred Stock
	Shares	Amounts		Shares	Amounts


Balance, December 31, 2020	15,000	$	15,134	125	$	99
Dividends Available Upon Redemption	—	453		—	—
Dividends Paid	—	(453)		—	—
Balance, June 30, 2021	15,000	$	15,134	125	$	99

On ~~November 6, 2019, PORT issued 15,000 shares out~~July 1, 2020, the Company acquired, through its subsidiaries, Battery Point Trust Inc. (“Battery Point”). Battery Point is a real estate investment trust that owned, at the time of ~~its available 25,000,000 shares~~acquisition, 559 single-family rental homes throughout the midwestern and southeastern United States. All of Series A Cumulative Convertible Redeemable Preferred Stock for gross proceeds of $1,000 per share resulting in net proceeds of $15.0 million before issuance costs. The shares provide for an annual dividend of 6% payable quarterly, which increases to 12% if all sharesthese assets are ~~not redeemed~~held by the Company immediately following the redemption date. However, the 12% dividend rate does not apply until the aggregate number of shares selected for redemption do not constitute 10% or more of all outstanding shares. The shares may be redeemed by the holders beginning on November 4, 2021 for $1,000 per share plus all accrued but unpaid dividends through the redemption date, or after November 4, 2022 for $1,120 per share plus all accrued but unpaid dividends through the redemption date. In addition, after November 4, 2020, the shares are redeemable at the Company’s option, at any time or from time to time, at a redemption price of $1,120 per share plus unpaid accrued dividends. Additionally, if the common shares ofits subsidiary, PORT are publicly traded, the holder may elect to convert its preferred shares into PORT common shares based on a value of the preferred shares of $1,120 per share plus unpaid accrued dividends, and a conversion price of the common shares as stated in the agreement.

On November 22, 2019, PORT issued 125 shares of its Series B Cumulative Redeemable Preferred Stock for gross proceeds of $1,000 per share resulting in net proceeds of $0.1 million after issuance costs. The shares provide for an annual dividend of 12.5% payable semiannually. The shares may be redeemed by the holders for $1,000 per share.OP.

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)

~~March 31,~~June 30, 2022

(unaudited)

~~The following is a reconciliation of the Company’s noncontrolling cumulative convertible redeemable preferred stock for the three months ended March 31, 2022 and 2021 (dollars in thousands):~~
Series A Preferred Stock Series B Preferred Stock
Shares Amounts Shares Amounts
Balance, December 31, 2021 15,000 $ 15,134 125 $ 99
Dividends Available Upon Redemption — 191 — —
Dividends Paid — (191) — —
Balance, March 31, 2022 15,000 $ 15,134 125 $ 99

Series A Preferred Stock Series B Preferred Stock
Shares Amounts Shares Amounts
Balance, December 31, 2020 15,000 $ 15,134 125 $ 99
Dividends Available Upon Redemption — 225 — —
Dividends Paid — (225) — —
Balance, March 31, 2021 15,000 $ 15,134 125 $ 99

On July 1, 2020, the Company acquired, through its subsidiaries, Battery Point. Battery Point is a real estate investment trust that owned, at the time of acquisition, 559 single-family rental homes throughout the Midwestern and Southeastern United States. All of these assets are held by the Company through its subsidiary, PORT OP.

The Company acquired Battery Point by acquiring all the 1,000,000 outstanding shares of Battery Point common stock from BPT ~~Holdings, LLC (“BPT Holdings”), a partially owned subsidiary of the Advisor.~~Holdings. The Advisor is the Company’s external advisor and is owned and controlled by Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter M. McMillan, the Company’s President and Chairman of the Board. In exchange, BPT Holdings received 510,816 ~~common equity units~~Special Common Units in PORT OP, approximately 4.5% of the outstanding common equity units, as of July 1, 2020. The value of the interests exchanged was estimated by the participants at approximately $3.0 million. The common equity units issued to BPT Holdings are redeemable after one year at the request of BPT Holdings for all or a portion of the common equity units at a redemption price equal to and in the form of cash based on the unit price of PORT OP. The following table summarizes the redeemable non-controlling interest activity related to the PORT OP equity units held by BPT Holdings for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 (in thousands):



December 31, 2021	$	2,822
Net loss attributable to redeemable noncontrolling interest	~~(47)~~(81)
Adjustment to value of redeemable noncontrolling interest (1)	3,946
~~Adjustment to redemption value of mezzanine equity redeemable noncontrolling interest~~June 30, 2022	~~2,231~~
~~March 31, 2022~~	$	~~5,006~~6,687



December 31, 2020	$	2,968
Net loss attributable to redeemable noncontrolling interest	~~(32)~~(81)
~~March 31,~~June 30, 2021	$	~~2,936~~2,887

_____________________

(1) On June 24, 2022, the Company’s board of directors approved the redemption of the 510,816 PORT OP Special Common Units held by BPT Holdings for a price of $13.09 per unit. As the Company determined that the redemption of the units was certain of occurrence, as of June 30, 2022, the Company reclassified the redeemable noncontrolling interests to due to affiliates on the consolidated balance sheets and recorded at its fair value. The Company redeemed the noncontrolling interest in PORT OP in July 2022. See Note 7 for further details.

~~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)~~

~~March 31, 2022~~

~~(unaudited)~~

~~14.~~12. COMMITMENTS AND CONTINGENCIES

The Company owns 2 hotels, Springmaid Beach Resort and Q&C Hotel. The operation for both hotels are externally managed by third-party hotel operators, in which the Company have contractual obligations under the management agreements.

Management Agreement

Springmaid Beach Resort

The consolidated joint venture entity through which the Company leases the operations for Springmaid Beach Resort has entered into a management agreement with Doubletree Management LLC, an independent third-party hotel operator (the “Operator”) pursuant to which the Operator will manage and operate the Springmaid Beach Resort. The hotel was branded a DoubleTree by Hilton in September 2016 (the “Brand Commencement Date”).

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, 2022

(unaudited)

The management agreement expires on December 31 of the 20th full year following the Brand Commencement Date. Upon mutual agreement, the parties may extend the term of the agreement for two successive periods of five years each. If an event of default occurs and continues beyond any applicable notice and cure periods set forth in the management agreement, the non-defaulting party generally has, among other remedies, the option of terminating the management agreement upon written notice to the defaulting party with no termination fee payable to ~~Doubletree.~~the Operator. In addition, the Company has the right to terminate the management agreement without the payment of a termination fee if ~~Doubletree~~the Operator fails to achieve certain criteria relating to the performance of the hotel for any two consecutive years following the Brand Commencement Date. Under certain circumstances following a casualty or condemnation event, either party may terminate the management agreement provided ~~Doubletree~~the Operator receives a termination fee an amount equal to two years of the base fee. The Company is permitted to terminate the management agreement upon a sale, lease or other transfer of the Springmaid Beach Resort at any time so long as the buyer is approved for, and enters into ~~a DoubleTree by Hilton~~the Operator’s franchise agreement for the balance of the agreement’s term. Finally, the Company is restricted in its ability to assign the management agreement upon a sale, lease or other transfer of the Springmaid Beach Resort unless the transferee is approved by ~~Doubletree~~the Operator to assume the management agreement.

Pursuant to the management agreement the Operator receives the following fees:

•a base fee, which is a percentage of total operating revenue that starts at 2.5% and increases to 2.75% in the second year following the Brand Commencement Date and further increases in the third year following the Brand Commencement Date and thereafter to 3.0%;

•a campground area management fee, which is 2% of any campground revenue;

•an incentive fee, which is 15% of operating cash flow (after deduction for capital renewals reserve and the joint venture owner’s priority, which is 12% of the joint venture owner’s total investment);

•an additional services fee in the amount reasonably determined by the Operator from time to time; and

•a brand services fee in the amount of 4% of total rooms revenue, and an other brand services fee in an amount determined by the Operator from time to time.

The management agreement contains specific standards for the operation and maintenance of the hotel, which allows the Operator to maintain uniformity in the system created by the Operator’s franchise. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with the management agreement will require the Company to make significant expenditures for capital improvements.

During ~~each of~~ the three and six months ended ~~March 31,~~June 30, 2022, the Company incurred $0.3 million and $0.4 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2021, the Company incurred ~~$0.1~~$0.2 million and $0.3 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.

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)

~~March 31,~~June 30, 2022

(unaudited)

Q&C Hotel

A wholly owned subsidiary of the joint venture through which the Company leases the operations of the Q&C Hotel (“Q&C Hotel Operations”) has entered into a management agreement with Encore Hospitality, LLC (“Encore Hospitality”), an affiliate of the joint venture partner, pursuant to which Encore Hospitality will manage and operate the Q&C Hotel. The management agreement expires on December 17, 2035. Subject to certain conditions, Encore Hospitality may extend the term of the agreement for a period of five years. Pursuant to the management agreement Encore Hospitality will receive a base fee, which is 4.0% of gross revenue (as defined in the management agreement). During the three and six months ended ~~March 31,~~June 30, 2022, the Company incurred $0.1 million and $0.2 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations. During the three and six months ended June 30, 2021, the Company incurred ~~$0.2~~$0.05 million and $0.1 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.

Q&C Hotel Operations has also entered into a franchise agreement with Marriott International (“Marriott”) pursuant to which Marriott has granted Q&C Hotel Operations a limited, non-exclusive license to establish and operate the Q&C Hotel using certain of Marriott’s proprietary marks and ~~systems and the~~systems. The hotel was branded as a Marriott Autograph Collection hotel on May 25, 2016. The franchise agreement will expire on May 25, 2041. Pursuant to the franchise agreement, Q&C Hotel Operations pays Marriott a monthly franchise fee equal to a percent of gross room sales on a sliding scale that is initially 2% and increases to 5% on May 25, 2019 and a monthly marketing fund contribution fee equal to 1.5% of the Q&C Hotel’s gross room sales. In addition, the franchise agreement requires the maintenance of a reserve account to fund all renovations at the hotel based on a percentage of gross revenues which starts at 2% of gross revenues and increases to 5% of gross revenues on May 25, 2019. Q&C Hotel Operations is also responsible for the payment of certain other fees, charges and costs as set forth in the agreement. During ~~each of~~ the three and six months ended ~~March 31,~~June 30, 2022, the Company incurred $0.3 million and $0.5 million, respectively, of fees related to the Marriott franchise agreement, which are included in hotel expenses on the accompanying consolidated statement of operations. During the three and six months ended June 30, 2021, the Company incurred $0.1 million and $0.2 million, respectively, of fees related to the Marriott franchise agreement, which are included in hotel expenses on the accompanying consolidated statement of operations.

In addition, in connection with the execution of the franchise agreement, SOR US Properties II, a wholly owned subsidiary of the Company, is providing an unconditional guarantee that all Q&C Hotel Operations’ obligations under the franchise agreement will be punctually paid and performed. Finally, certain transfers of the Q&C Hotel or an ownership interest therein are subject to a notice and consent requirement, and the franchise agreement further provides Marriott with a right of first refusal with respect to a sale of the hotel to a competitor of Marriott.

Lease Obligations

As of ~~March 31,~~June 30, 2022, the Company’s lease and rights to a leasehold interest with respect to 210 West 31st, an office/retail building in New York, NY, which was accounted for as a finance lease, are included in the consolidated balance sheet as follows:



Right-of-use asset (included in real estate held for investment, ~~net~~net))	$	8,074
Lease obligation (included in other ~~liabilities~~liabilities))	~~9,381~~9,403

Remaining lease term	~~91.8~~91.5 years
Discount rate	4.8		%

The components of lease expense were as follows:
Interest on lease obligation for the three months ended June 30, 2022	111
Interest on lease obligation for the six months ended June 30, 2022	223

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)

~~March 31,~~June 30, 2022

(unaudited)

As of ~~March 31,~~June 30, 2022, the Company had a leasehold interest expiring onin 2114. Future minimum lease payments owed by the Company under the finance lease as of ~~March 31,~~June 30, 2022 are as follows (in thousands):
April 1, 2022 through December 31, 2022 $ 270
2023 360
2024 360
2025 393
2026 396
Thereafter 52,167
Total expected minimum lease obligations 53,946
Less: Amount representing interest (1)
(44,565)
Present value of net minimum lease payments (2)
$ 9,381



July 1, 2021 through December 31, 2021	$	180
2022	360
2023	360
2024	393
2025	396
Thereafter	52,167
Total expected minimum lease obligations	53,856
Less: Amount representing interest (1)	(44,453)
Present value of net minimum lease payments (2)	$	9,403

_____________________

(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.

Economic Dependency

The Company is dependent on the Advisor 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 is 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 ~~March 31, 2021.~~June 30, 2022. 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.

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)

~~March 31,~~June 30, 2022

(unaudited)

~~15.~~13. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

~~Georgia 400 Mortgage Loan Deposit~~PORT II Reconsideration

On April 4, 2022, the Company paid a deposit of $20.4 million to the lender of the Georgia 400 Center Mortgage Loan as a result of being out of compliance with the debt service coverage requirement and required a cash sweep. Additionally, the Company was unable to be in compliance with the debt service coverage requirement within 180 days of the cash sweep initiation.

~~Series B Debentures~~

~~On May 2,~~July 1, 2022, the Company, through ~~Pacific Oak SOR BVI, raised approximately $95.3 million (foreign currency denominated as approximately 320.4 million Israeli new Shekels at~~PORT OP, made a tender offer to purchase 76,735 shares of PORT II common stock held by unrelated parties for a price of ~~0.96~~$14.66 per share. As a result, the Company determined that it became the primary beneficiary of PORT II, which resulted in the consolidation of PORT II into the Company’s consolidated financial statements. On July 29, 2022, the Company consummated the transactions with the unrelated parties and owned 100% of PORT II. The Company is in the process of assessing the fair value of the assets and liabilities to be consolidated. The Company’s preliminary fair values are: $135.1 million of 588 single-family homes and $82.6 million to the notes payable. There are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to PORT II. The Company and the aforementioned unrelated parties did not guarantee any debt in connection with the transaction. Please refer to Notes 8 and 9 for ~~every 1)~~additional details.

Springmaid Beach Resort Purchase and Sale Contract

On July 14, 2022, the Company’s board of ~~additional Series B Debentures to Israeli investors pursuant~~directors committed to a ~~private offering registered with~~plan to sell the ~~Israel Securities Authority.~~Springmaid Beach Resort to an unrelated party. On July 15, 2022, the Company, through an indirect wholly owned subsidiary, entered into an amended purchase and sale agreement, to sell the Springmaid Beach Resort for $91.0 million, before closing costs and credits. The ~~Series B Debentures would be identical~~mortgage loan secured by the property had an outstanding principal balance of $53.1 million as of July 15, 2022. The due diligence period has expired and the buyer’s deposit of $2.0 million is no longer refundable. The Company expects to close the transaction in the ~~terms and pari passu to~~third quarter of 2022, but can give no assurances that the ~~existing bonds discussed in Note 6.~~sale will be completed.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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 Pacific Oak Strategic Opportunity REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Pacific Oak Strategic Opportunity REIT, Inc., a Maryland corporation, and, as required by context, Pacific 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 Pacific 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.

•Because our advisor, Pacific Oak Capital Advisors, LLC, was recently formed, it could face challenges with employee hiring and retention, information technology, vendor relationships, and funding; if Pacific Oak Capital Advisors faces challenges in performing its obligations to us, it could negatively impact our ability to achieve our investment objectives.

•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.

•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 Pacific 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 Pacific 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

•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

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)~~

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 assets

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, 2021, as filed with the Securities and Exchange Commission (the “SEC”).

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. Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”) is our advisor and as our advisor, Pacific Oak Capital Advisors manages our day-to-day operations and our portfolio of investments. Pacific Oak Capital Advisors also has the authority to make all of the decisions regarding our investments, subject to the limitations in our charter and the direction and oversight of our board of directors. Pacific 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-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments. We conduct our business primarily through our operating partnership, of which we are the sole general partner.

Market Outlook – Real Estate and Real Estate Finance Markets

Volatility in global financial markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment 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 terms of existing indebtedness. Further, increases in interest rates would increase the amount of our debt payments on our variable rate debt to the extent the interest rates on such debt are not limited by interest rate caps. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.

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 obligations, redemptions and purchases of our common stock 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

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. As of ~~March 31,~~June 30, 2022, we had sold 6,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $76.5 million. 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, 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.

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 ~~collectibility~~collectability of rent and operating recoveries from our tenants and how well we manage our expenditures. As of ~~March 31,~~June 30, 2022, our office properties were collectively ~~73%~~72% occupied, our residential home portfolio was 92% occupied and our apartment properties were ~~96%~~92% occupied.

Our investments in hotel properties generate cash flow in the form of room, food, beverage and convention services, campground and other revenues, which are reduced by hotel expenses, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our hotel properties are primarily dependent upon the occupancy levels of our hotels, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel properties for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021:



		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,
Property	Number of Rooms	2022	2021	2022	2021	2022	2021
Springmaid Beach Resort	453	57.0%	49.1%	$199.36	$191.62	$113.63	$94.12
Q&C Hotel	196	66.3%	33.0%	$207.64	$118.99	$137.63	$39.30

Percentage Occupied for the Three Months Ended March 31, Average Daily Rate for the Three Months Ended March 31, Average Revenue per Available Room for the Three Months Ended March 31,
Property Number of Rooms 2022 2021 2022 2021 2022 2021
Springmaid Beach Resort 453 39.3% 26.9% $136.45 $111.82 $53.63 $30.11
Q&C Hotel 196 62.3% 24.3% $191.97 $104.11 $119.54 $25.24

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of ~~March 31,~~June 30, 2022, we had three investments in real estate equity securities outstanding with a total carrying value of ~~$104.6~~$84.5 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 has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended ~~March 31,~~June 30, 2022 did not exceed the charter-imposed limitation.

For the ~~three~~six months ended ~~March 31,~~June 30, 2022, our cash needs for capital expenditures, redemptions of common stock and debt servicing were met with proceeds from dispositions of real estate, proceeds from debt financing and cash on hand. 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 ~~March 31,~~June 30, 2022, we had outstanding debt obligations in the aggregate principal amount of ~~$997.6 million,~~$1.1 billion, with a weighted-average remaining term of ~~2.0~~1.1 years. As of ~~March 31,~~June 30, 2022, we had a total of ~~$447.8~~$502.6 million of debt obligations scheduled to mature within 12 months of that date. 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 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.

Table of Contents

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 ~~March 31,~~June 30, 2022, we consolidated eight office properties, one office portfolio consisting of two office buildings and 14 acres of undeveloped land, two apartment properties, two hotel properties, one residential home portfolio consisting of ~~1,814~~1,815 single-family homes, three investments in undeveloped land with approximately 800 developable acres, one office/retail development property and owned four investments in unconsolidated entities and three investments in real estate equity securities. During the ~~three~~six months ended ~~March 31,~~June 30, 2022, net cash provided by operating activities was ~~$0.3~~$12.3 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.

Cash Flows from Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$5.9~~$14.0 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and primarily consisted ~~primarily~~ of the following:

•Contributions to an unconsolidated entity of $22.5 million;

•Earnest money received of ~~$13.5~~$17.0 million related to the pending sale of Park ~~Highlands;~~Highlands land;

•Improvements to real estate of ~~$4.9~~$10.1 million;

•~~Investment in an unconsolidated entity~~Proceeds from advances due from affiliates of ~~$1.5~~$6.4 million; and

•~~Advance~~Funding of $4.0 million for development obligations related to ~~affiliate of $1.2 million.~~Park Highlands land.

Cash Flows from Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$14.0~~$66.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and primarily consisted ~~primarily~~ of the following:

•$80.7 million of net cash provided by proceeds from notes payable of $145.1 million and partially offset by principal payments on notes payable of $61.6 million and payments of deferred financing costs of $2.8 million;

•$11.0 million of cash distributions paid;

•$2.2 million of net cash used in debt and other financings as a result of principal payments on notes payable of $55.1 million and payments of deferred financing costs of $0.9 million and partially offset by proceeds from notes payable of $53.8 million; and

•$~~0.6~~2.3 million of cash used for redemptions of common stock.

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 ~~March 31,~~June 30, 2022, our borrowings and other liabilities were both approximately ~~66%~~67% of the cost (before depreciation and other noncash reserves) and the book value (before depreciation) of our tangible assets.

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 the Series B Debentures to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures will bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. On November 1, 2021, Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures in the amount of 536.4 million Israeli new Shekels par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8 million as of November 1, 2021). ~~Additionally, on~~On November 8, 2021, Pacific Oak Strategic Opportunity BVI also issued Series B Debentures in the amount of 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.7 million as of November 8, 2021).

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Additionally, on May 2, 2022, Pacific Oak Strategic Opportunity BVI also issued Series B Debentures in the amount of 320.4 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 4.0% discount resulting in a total consideration of 307.6 million Israeli new Shekels ($95.3 million as of May 2, 2022). All additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, which were initially issued, without any right of precedence or preference between any of them. ~~Refer to the Subsequent Events note for additional discussion related to proceeds raised.~~

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of 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).

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.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of ~~March 31,~~June 30, 2022 (in thousands):


				Payments Due During the Years Ending December 31,											Payments Due During the Years Ending December 31,
Contractual Obligations	Contractual Obligations	Total		Remainder of 2022		2023-2024		2025-2026		Thereafter		Contractual Obligations	Total		Remainder of 2022		2023-2024		2025-2026		Thereafter
Outstanding debt obligations (1)	Outstanding debt obligations (1)	$	997,638	$	447,827	$	197,892	$	351,919	$	—	Outstanding debt obligations (1)	$	1,060,304	$	306,320	$	356,162	$	397,822	$	—
Interest payments on outstanding debt obligations (2)	Interest payments on outstanding debt obligations (2)	64,323		20,686		33,799		9,838		—		Interest payments on outstanding debt obligations (2)	68,906		17,141		42,043		9,722		—
Finance lease obligation	Finance lease obligation	53,946		270		720		789		52,167		Finance lease obligation	53,856		180		720		789		52,167

_____________________

(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 ~~March 31,~~June 30, 2022.

Table of Contents

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 March 31, 2021, we consolidated nine office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, two apartment properties, two hotel properties, one residential home portfolio consisting of 1,786 single-family homes, three investments in undeveloped land with approximately 1,000 developable acres, one office/retail development property and owned four investments in unconsolidated entities and three investments in real estate equity securities. As of March 31,June 30, 2022, we consolidated eight office properties, one office portfolio consisting of two office buildings and 14 acres of undeveloped land, two apartment properties, two hotel properties, one residential home portfolio consisting of ~~1,814~~1,815 single-family homes, three investments in undeveloped land with approximately 800 developable acres, one office/retail development property and owned four investments in unconsolidated entities and three investments in real estate equity securities. As of June 30, 2021, we consolidated nine office properties (of which one office property was held for sale), one office portfolio consisting of four office buildings and 14 acres of undeveloped land, two apartment properties, two hotel properties, one residential home portfolio consisting of 1,807 single-family homes, three investments in undeveloped land with approximately 800 developable acres, one office/retail development property and owned four investments in unconsolidated entities and three investments in real estate equity securities. Our results of operations for the three and six months ended ~~March 31,~~June 30, 2022 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our ~~office~~ properties, excluding our residential home portfolio, has not been stabilized. As of ~~March 31,~~June 30, 2022, our office properties were collectively ~~73%~~72% occupied, our residential home portfolio was 92% occupied and our apartment ~~property was 96%~~properties were 92% occupied. However, due to the amount of near-term lease 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 occupancies of our assets will increase, or that we will recognize a gain on the sale of our assets. 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 June 30, 2022 versus the three months ended June 30, 2021

The following table provides summary information about our results of operations for the three months ended June 30, 2022 and 2021 (dollar amounts in thousands):


	Three Months Ended June 30,				Increase (Decrease)		Percentage Change		$ Change Due to Acquisitions/ Dispositions (1)		$ Change Due to Investments Held Throughout Both Periods (2)
	2022		2021
Rental income	$	28,979	$	32,670	$	(3,691)	(11)	%	$	(4,191)	$	500
Hotel revenues	12,854		9,849		3,005		31	%	—		3,005
Other operating income	887		1,218		(331)		(27)	%	(278)		(53)
Dividend income from real estate equity securities	819		751		68		9	%	—		68
Operating, maintenance, and management	10,342		10,342		—		—	%	(1,088)		1,088
Real estate taxes and insurance	5,079		5,399		(320)		(6)	%	(536)		216
Hotel expenses	6,998		5,841		1,157		20	%	—		1,157
Asset management fees to affiliate	3,189		3,527		(338)		(10)	%	(303)		(35)
General and administrative expenses	2,983		2,888		95		3	%	n/a		n/a
Foreign currency transaction (gain) loss, net	(23,833)		5,507		(29,340)		(533)	%	n/a		n/a
Depreciation and amortization	14,098		15,072		(974)		(6)	%	(762)		(212)
Interest expense	10,780		10,680		100		1	%	(590)		690
Equity in (loss) income of unconsolidated entities	(2,075)		256		(2,331)		(911)	%	—		(2,331)
Other interest income	48		48		—		—	%	n/a		n/a
(Loss) gain on real estate equity securities	(20,070)		4,800		(24,870)		(518)	%	—		(24,870)
Change in subordinated performance fee due upon termination to affiliate	—		261		(261)		(100)	%	n/a		n/a
(Loss) gain on sale of real estate	(175)		31,148		(31,323)		(101)	%	(31,323)		—
Gain on extinguishment of debt	—		13		(13)		100	%	n/a		n/a

_____________________

(1) Represents the dollar amount increase (decrease) for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 related to real estate and real estate-related investments acquired or disposed on or after July 1, 2021.

(2) Represents the dollar amount increase (decrease) for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~Comparison of the three months ended March 31, 2022 versus the three months ended March 31, 2021~~

~~The following table provides summary information about our results of operations for the three months ended March 31, 2022 and 2021 (dollar amounts in thousands):~~
Three Months Ended March 31, Increase (Decrease) Percentage Change
$ Change Due to Acquisitions/ Dispositions (1)
$ Change Due to
Investments Held Throughout
Both Periods (2)
2022 2021
Rental income $ 29,382 $ 32,648 $ (3,266) (10) % $ (3,917) $ 651
Hotel revenues 5,917 2,575 3,342 100 % — 3,342
Other operating income 841 968 (127) (13) % (227) 100
Dividend income from real estate equity securities 2,387 2,753 (366) (13) % (366) —
Operating, maintenance, and management costs 9,875 10,433 (558) (5) % (924) 366
Real estate taxes and insurance 5,024 5,289 (265) (5) % (464) 199
Hotel expenses 5,113 3,390 1,723 100 % — 1,723
Asset management fees to affiliate 3,127 3,852 (725) (19) % (294) (431)
General and administrative expenses 2,991 1,869 1,122 60 % n/a n/a
Foreign currency transaction gain, net (7,266) (8,346) 1,080 (13) % n/a n/a
Depreciation and amortization 12,565 17,001 (4,436) (26) % (1,809) (2,627)
Interest expense 9,563 9,941 (378) (4) % (417) 39
Equity in income of unconsolidated entities, net (679) 169 (848) (502) % — (848)
Other interest income 46 45 1 2 % n/a n/a
(Loss) gain on real estate equity securities (7,521) 10,753 (18,274) (170) % 2,811 (21,085)
Gain on sale of real estate 3,523 21 3,502 100 % 3,502 —
Gain on extinguishment of debt 2,367 — 2,367 100 % — 2,367
Change in subordinated performance fee due upon termination to affiliate — (461) 461 100 % n/a n/a

~~_____________________~~

~~(1)~~ Represents the dollar amount increase (decrease) for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 related to real estate and real estate-related investments acquired or disposed on or after January 1, 2021.

~~(2)~~ Represents the dollar amount increase (decrease) for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income decreased from ~~$32.6~~$32.7 million for the three months ended ~~March 31,~~June 30, 2021 to ~~$29.4~~$29.0 million for the three months ended ~~March 31,~~June 30, 2022, primarily as a result of the disposition of City Tower on July 27, 2021, which accounted for ~~$3.8~~$3.6 million of rental income during the three months ended ~~March 31,~~June 30, 2021. ~~The~~There were no significant changes to the occupancy ~~of our office properties held throughout both periods slightly decreased from 74% as of March 31, 2021 to 73% as of March 31, 2022. Annualized~~rate and annualized base rent per square foot ~~increased from $27.76 as~~ of ~~March 31, 2021 to $27.98 as of March 31, 2022 related to~~our office properties held throughout both periods. We expect rental income to increase in future periods as a result of leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

Hotel revenues increased from ~~$2.6~~$9.8 million for the three months ended ~~March 31,~~June 30, 2021 to ~~$5.9~~$12.9 million for the three months ended ~~March 31,~~June 30, 2022, primarily as a result of the increase in occupancy from ~~26.9%~~71.1% to ~~39.3%~~74.5% and a slight increase in average daily rate ~~from $111.82 to $136.45~~ for the Springmaid Beach Resort as well as the increase in occupancy from ~~24.3%~~41.7% to ~~62.3%~~70.3% and average daily rate from ~~$104.11~~$127.54 to ~~$191.97~~$221.37 for the Q&C Hotel.

~~Other~~Property operating ~~income decreased from $1.0 million~~costs were consistent for ~~the~~both of three months ended ~~March 31,~~June 30, 2022 and 2021 towith $0.8 million for the three months ended March 31, 2022, primarily as a result of the disposition of City Tower, which account for $0.3 million of other operating income during the three months ended March 31, 2021. We expect other operating income to increase in future periods as a result of leasing additional space, increases in parking income as we stabilize properties and to the extent we acquire additional properties, but to decrease ~~to the extent we dispose of properties.~~

Dividend income from real estate equity securities decreased from $2.8 million for the three months ended March 31, 2021 to $2.4 million for the three months ended March 31, 2022, primarily as a result of real estate equity securities disposed subsequent to March 31, 2021. We expect dividend income from real estate equity securities to vary in future periods as a result of the timing of dividends declared and investment activity.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)~~

Property operating costs decreased from $10.4 million for the three months ended March 31, 2021 to $9.9 million for the three months ended March 31, 2022 and real estate taxes and insurance decreased from $5.3 million for the three months ended March 31, 2021 to $5.0 million for the three months ended March 31, 2022, primarily due to the disposition of City Tower which ~~accounted for $0.8 million of property operating costs~~was partially offset by an increase in legal fees related to various properties, and ~~$0.4 million of real~~an increase in rental marketing efforts. Real estate taxes and insurance ~~during~~slightly decreased between the ~~three months ended March 31, 2021.~~two periods. We expect property operating costs and real estate taxes and insurance to increase in future periods to the extent we acquire additional properties, ~~increasing~~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 decreased~~Hotel expenses increased from ~~$3.9~~$5.8 million for the three months ended ~~March 31,~~June 30, 2021 to ~~$3.1~~$7.0 million for the three months ended ~~March 31,~~June 30, 2022, primarily ~~due~~as a result of the increase in occupancy from 71.1% to 74.5% for the Springmaid Beach Resort as well as the increase in occupancy from 41.7% to 70.3% for the Q&C Hotel. We expect hotel expenses to vary in future periods based on occupancy rates.

Asset management fees slightly decreased from $3.5 million for the three months ended June 30, 2021 to $3.2 million for the three months ended June 30, 2022, primarily as a result of the disposition of City Tower, which ~~accounted for~~attributed to $0.3 million of asset management fees during the three months ended ~~March 31,~~June 30, 2021. We expect asset management fees to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

General and administrative expenses increased from $1.9 million for the three months ended March 31, 2021 to $3.0 million for the three months ended March 31, 2022, primarily due to legal and advisory expenses of $0.6 million related to the pending Park Highlands sale and other portfolio matters. We expect general and administrative expenses to fluctuate in future periods based on investment and disposition activity as well as costs incurred to evaluate strategic transactions.

We recognized a ~~$7.3~~$23.8 million foreign currency transaction gain, net for the three months ended ~~March 31,~~June 30, 2022 and ~~$8.3~~$5.5 million of foreign currency transaction ~~gain,~~loss, net, for the three months ended ~~March 31,~~June 30, 2021, related to the debentures 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.

Depreciation and amortization decreased from ~~$17.0~~$15.1 million for the three months ended ~~March 31,~~June 30, 2021 to ~~$12.6~~$14.1 million for the three months ended ~~March 31,~~June 30, 2022, primarily as a result of the disposition of City Tower, which ~~accounted for $1.8~~attributed to $0.7 million of depreciation ~~during the three months ended March 31, 2021~~ and ~~lease intangibles that were fully amortized during the three months ended March 31, 2021 and accounted for $2.0 million.~~amortization expense. We expect depreciation and amortization to increase in future periods to the extent we acquire additional properties, but to decrease as a result of amortization of ~~lease intangibles~~tenant origination costs related to lease expirations and disposition of properties.

~~Interest expense~~Equity in income of unconsolidated entities decreased from ~~$9.9~~gain of $0.3 million for the three months ended ~~March 31,~~June 30, 2021 to ~~$9.6~~a loss of $2.1 million for the three months ended ~~March 31,~~June 30, 2022, primarily ~~due to decreased outstanding loan balances and partially offset by increased one-month floating rates during~~as a result of the allowance for credit losses for the 353 Sacramento joint venture for the three months ended ~~March 31,~~June 30, 2022. 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, including annual principal installment payments on the Debentures.

Gain on real estate equity securities ~~was $10.8~~decreased from $4.8 million for the three months ended ~~March 31, 2021. Loss on real estate equity securities was $7.5~~June 30, 2021 to a $20.1 million loss for the three months ended ~~March 31,~~June 30, 2022. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in share prices of our investments in real estate equity securities.

During the three months ended June 30, 2021, we sold approximately 193 developable acres of Park Highlands undeveloped land that resulted in a gain on sale of $31.1 million. There were no dispositions during the three months ended June 30, 2022.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the six months ended June 30, 2022 versus the six months ended June 30, 2021

The following table provides summary information about our results of operations for the six months ended June 30, 2022 and 2021 (dollar amounts in thousands):


	Six Months Ended June 30,				Increase (Decrease)		Percentage Change		$ Change Due to Acquisitions/ Dispositions (1)		$ Change Due to Investments Held Throughout Both Periods (2)
	2022		2021
Rental income	$	58,360	$	65,378	$	(7,018)	(11)	%	$	(8,286)	$	1,268
Hotel revenues	18,771		12,424		6,347		51	%	—		6,347
Other operating income	1,728		2,124		(396)		(19)	%	(525)		129
Dividend income from real estate equity securities	3,206		3,504		(298)		(9)	%	—		(298)
Operating, maintenance, and management	20,218		20,775		(557)		(3)	%	(2,120)		1,563
Real estate taxes and insurance	10,103		10,688		(585)		(5)	%	(1,047)		462
Hotel expenses	12,109		9,233		2,876		31	%	—		2,876
Asset management fees to affiliate	6,315		7,380		(1,065)		(14)	%	(598)		(467)
General and administrative expenses	5,977		4,759		1,218		26	%	n/a		n/a
Foreign currency transaction (gain) loss, net	(31,098)		(2,839)		(28,259)		995	%	n/a		n/a
Depreciation and amortization	26,662		32,073		(5,411)		(17)	%	(2,624)		(2,787)
Interest expense	20,343		20,618		(275)		(1)	%	(1,038)		763

Equity in (loss) income of unconsolidated entities	(2,754)		425		(3,179)		(748)	%	—		(3,179)
Other interest income	94		94		—		—	%	n/a		n/a
(Loss) gain on real estate equity securities	(27,591)		15,553		(43,144)		(277)	%	225		(43,369)
Change in subordinated performance fee due upon termination to affiliate	—		(200)		200		(100)	%	n/a		n/a
Gain on sale of real estate	3,348		31,170		(27,822)		(89)	%	(27,822)		—
Gain on extinguishment of debt	2,367		13		2,354		100	%	n/a		n/a

_____________________

(1) Represents the dollar amount increase (decrease) for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 related to real estate and real estate-related investments acquired or disposed on or after July 1, 2021.

(2) Represents the dollar amount increase (decrease) for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income decreased from $65.4 million for the six months ended June 30, 2021 to $58.4 million for the six months ended June 30, 2022, primarily as a result of the disposition of City Tower, which accounted for $7.2 million of rental income during the six months ended June 30, 2021. There were no significant changes to the occupancy rate and annualized base rent per square foot of our office properties held throughout both periods. We expect rental income to increase in future periods as a result of leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

Hotel revenues increased from $12.4 million for the six months ended June 30, 2021 to $18.8 million for the six months ended June 30, 2022, primarily as a result of the increase in occupancy from 49.1%% to 57.0% and average daily rate from $94.12 to $113.63 for the Springmaid Beach Resort as well as the increase in occupancy from 33.0% to 66.3% and average daily rate from $39.30 to $137.63 for the Q&C Hotel.

Property operating costs slightly decreased from $20.8 million for the six months ended June 30, 2022 to $20.2 million for the six months ended June 30, 2021, primarily due to a $1.6 million decrease due to the disposition of City Tower and partially offset by an increase in legal fees related to various properties and an increase in rental marketing efforts. Real estate taxes and insurance slightly decreased between the two periods. We expect property operating costs and real estate taxes and insurance to increase in future periods to 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.

Hotel expenses increased from $9.2 million for the six months ended June 30, 2021 to $12.1 million for the six months ended June 30, 2022, primarily as a result of the increase in occupancy from 49.1%% to 57.0% for the Springmaid Beach Resort as well as the increase in occupancy from 33.0% to 66.3% for the Q&C Hotel. We expect hotel expenses to vary in future periods based on occupancy rates.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Asset management fees decreased from $7.4 million for the six months ended June 30, 2021 to $6.3 million for the six months ended June 30, 2022, primarily as a result of the disposition of City Tower, which attributed to $0.6 million of asset management fees during the six months ended June 30, 2021. We expect asset management fees to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

General and administrative expenses increased from $4.8 million for the six months ended June 30, 2021 to $6.0 million for the six months ended June 30, 2022, primarily due to increased accounting and advisory expenses. We expect general and administrative expenses to fluctuate in future periods based on investment and disposition activity as well as costs incurred to evaluate strategic transactions.

We recognized a $2.8 million foreign currency transaction gain, net for the six months ended June 30, 2021 and $31.1 million foreign currency transaction gain, net, for the six months ended June 30, 2022, related to the debentures 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.

Depreciation and amortization decreased from $32.1 million for the six months ended June 30, 2021 to $26.7 million for the six months ended June 30, 2022, primarily as a result of the disposition of City Tower, which attributed to $2.4 million of depreciation and amortization expense. We expect depreciation and amortization to increase in future periods as a result of the extent we acquire additional properties, but to decrease as a result of amortization of tenant origination costs related to lease expirations and disposition of properties.

Equity in income of unconsolidated entities decreased from income of $0.4 million for the six months ended June 30, 2021 to loss of $2.8 million for the six months ended June 30, 2022, primarily as a result of the allowance for credit losses for the 353 Sacramento joint venture for the six months ended June 30, 2022.

Gain on real estate equity securities decreased from $15.6 million for the six months ended June 30, 2021 to a $27.6 million loss for the six months ended June 30, 2022. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in share prices of our investments in real estate equity securities.

During the six months ended June 30, 2021, we sold approximately 193 developable acres of Park Highlands undeveloped land that resulted in a gain on sale of $31.1 million. During the six months ended June 30, 2022, we sold two office buildings related to the Richardson Portfolio and recognized a gain on sale of $3.5 million.

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 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. 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 Institute 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.

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.

~~Table of Contents~~

~~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, mark to market foreign currency transaction adjustments and 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;

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

•Mark-to-market foreign currency transaction adjustments. The U.S. Dollar 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

•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 and do not provide an indication of future 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, FFO and MFFO. In addition, adjusted MFFO includes an adjustment for casualty loss. We believe excluding this item appropriately presents the ongoing operating performance of our real estate investments on a comparative basis.

~~Table of Contents~~

~~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 six months ended ~~March 31,~~June 30, 2022 and 2021 ~~and 2020~~ (in thousands). No conclusions or comparisons should be made from the presentation of these periods.


		For the Three Months Ended March 31,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021				2022		2021		2022		2021
Net (loss) income attributable to common stockholders	Net (loss) income attributable to common stockholders	$	(4,755)	$	6,512		Net (loss) income attributable to common stockholders	$	(9,019)	$	21,675	$	(13,775)	$	28,187
Depreciation of real estate assets	Depreciation of real estate assets	8,294		9,249			Depreciation of real estate assets	8,368		8,871		16,662		18,120
Amortization of lease-related costs	Amortization of lease-related costs	4,271		7,752			Amortization of lease-related costs	5,730		6,201		10,000		13,953
Gain on sale of real estate (1)		(3,523)		(21)
Loss (gain) on sale of real estate (1)							Loss (gain) on sale of real estate (1)	175		(31,148)		(3,348)		(31,170)
Loss (gain) on real estate equity securities	Loss (gain) on real estate equity securities	7,521		(10,753)			Loss (gain) on real estate equity securities	20,070		(4,800)		27,591		(15,553)
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	(298)		(451)			Adjustments for noncontrolling interests - consolidated entities (2)	(287)		(384)		(584)		(838)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	689		1,126			Adjustments for investments in unconsolidated entities (3)	2,021		(364)		2,933		772
FFO attributable to common stockholders	FFO attributable to common stockholders	12,199		13,414			FFO attributable to common stockholders	27,058		51		39,479		13,471
Straight-line rent and amortization of above- and below-market leases	Straight-line rent and amortization of above- and below-market leases	(1,312)		(1,411)			Straight-line rent and amortization of above- and below-market leases	(621)		(422)		(1,935)		(1,833)
Amortization of net premium/discount on bond and notes payable		1,016		482
Amortization of premium/discount on bond and notes payable, net							Amortization of premium/discount on bond and notes payable, net	1,477		963		2,255		1,445
Gain on extinguishment of debt							Gain on extinguishment of debt	—		(13)		(2,367)		(13)
Unrealized (gain) loss on interest rate caps	Unrealized (gain) loss on interest rate caps	(55)		13			Unrealized (gain) loss on interest rate caps	(215)		3		(270)		16
Gain on extinguishment of debt		(2,367)		—
Foreign currency transaction gain, net		(7,266)		(8,346)
Mark-to-market foreign currency transaction (gain) loss, net							Mark-to-market foreign currency transaction (gain) loss, net	(23,833)		5,507		(31,098)		(2,839)
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	(40)		(51)			Adjustments for noncontrolling interests - consolidated entities (2)	(42)		(47)		(82)		(98)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	(47)		(136)			Adjustments for investments in unconsolidated entities (3)	3,166		1,782		2,901		1,647
MFFO attributable to common stockholders	MFFO attributable to common stockholders	2,128		3,965			MFFO attributable to common stockholders	6,990		7,824		8,883		11,796
Other capitalized operating expenses (4)	Other capitalized operating expenses (4)	(3,061)		(679)			Other capitalized operating expenses (4)	(638)		(651)		(1,211)		(1,329)

Change in subordinated performance fee due upon termination to affiliate	Change in subordinated performance fee due upon termination to affiliate	—		461			Change in subordinated performance fee due upon termination to affiliate	—		(261)		—		200

Adjusted MFFO attributable to common stockholders	Adjusted MFFO attributable to common stockholders	$	(933)	$	3,747		Adjusted MFFO attributable to common stockholders	$	6,352	$	6,912	$	7,672	$	10,667

_____________________

(1) Reflects an adjustment to eliminate gain on sale of real estate.

(2) Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net (loss) income ~~(loss)~~ attributable to common stockholders to FFO, MFFO and Adjusted MFFO.

(3) Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net (loss) income ~~(loss)~~ attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investments in unconsolidated ~~entities.~~joint ventures.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

(4) Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain of our investments in undeveloped 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 (loss) 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.

Distributions

There were no distributions declared for the ~~three~~six months ended ~~March 31, 2021.~~June 30, 2022. Our net loss attributable to common stockholders for the ~~three~~six months ended ~~March 31, 2021~~June 30, 2022 was ~~$4.8~~$13.8 million and our cash flows provided by operations were ~~$0.3~~$12.3 million. Our cumulative distributions paid and net income attributable to common stockholders from inception through ~~March 31,~~June 30, 2022 ~~was $453.8~~were $464.5 million. We have funded our cumulative distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with prior period cash flow from operating activities in excess of distributions paid and with cash from gains realized from the disposition of 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.

~~Table of Contents~~

~~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, require estimates about matters that are inherently uncertain and because they 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 at 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, 2021 filed with the SEC. There have been no significant changes to our policies during 2022.

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

~~Georgia 400 Mortgage Loan Deposit~~PORT II Reconsideration

On ~~April 4,~~July 1, 2022, we, ~~paid~~through our subsidiary, made a ~~deposit~~tender offer to purchase 76,735 shares of ~~$20.4~~PORT II common stock held by unrelated parties for a price of $14.66 per share. As a result, we determined that we became the primary beneficiary of PORT II, which resulted in the consolidation of PORT II into our consolidated financial statements. On July 29, 2022, we consummated the transactions with the unrelated parties and owned 100% of PORT II. We are in the process of assessing the fair value of the assets and liabilities to be consolidated. Our preliminary fair values are: $135.1 million of 588 single-family homes and $82.6 million to the ~~lender of~~notes payable. There are no liquidity arrangements or agreements to fund capital or purchase assets that could require us to provide financial support to PORT II. We and the ~~Georgia 400 Center Mortgage Loan as a result of being out of compliance~~aforementioned unrelated parties did not guarantee any debt in connection with the ~~debt service coverage requirement~~transaction. Please refer to Notes 8 and ~~required a cash sweep. Additionally, we were unable to be in compliance with the debt service coverage requirement within 180 days of the cash sweep initiation.~~9 for additional details.

~~Series B Debentures~~

~~On May 2,~~In July 2022, we, through ~~Pacific Oak SOR (BVI) Holdings, Ltd. (“Pacific Oak SOR BVI”) raised approximately $95.3 million (approximately 320.4 million Israeli new Shekels at~~our subsidiary, made a tender offer to purchase 76,735 of PORT II common stock held by unrelated parties for a price of ~~0.96 for every 1)~~$14.66 per share. As a result, we determined that we became the primary beneficiary of ~~additional Series B Debentures~~PORT II, which resulted in the consolidation of PORT II into our consolidated financial statements. We are in the process of assessing the fair value of the assets and liabilities to ~~Israeli investors pursuant~~be consolidated. Our preliminary fair values are: $135.1 million of 588 single-family homes and $82.6 million to ~~a private offering registered~~the notes payable. There are no liquidity arrangements or agreements to fund capital or purchase assets that could require us to provide financial support to PORT II. We and the aforementioned unrelated parties did not guarantee any debt in connection with the ~~Israel Securities Authority. The Series B Debentures would be identical in the terms and pari passu to the existing bonds.~~transaction.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Springmaid Beach Resort Purchase and Sale Contract

On July 14, 2022, our board of directors committed to a plan to sell the Springmaid Beach Resort to an unrelated party. On July 15, 2022, we, through an indirect wholly owned subsidiary, entered into an amended purchase and sale agreement, to sell the Springmaid Beach Resort for $91.0 million, before closing costs and credits. The mortgage loan secured by the property had an outstanding principal balance of $53.1 million as of July 15, 2022. The due diligence period has expired and the buyer’s deposit of $2.0 million is no longer refundable. We expect to close the transaction in the third quarter of 2022, but can give no assurances that the sale will be completed.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Generally, the composition of our investments is such that declining interest rates will increase our net income, while rising interest rates will decrease our net income. Recently, interest rates have remained at relatively low levels on a historical basis and the Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However, in March 2022, the Federal Reserve approved a 0.25% rate increase and additionally approved 0.75% rate increases in both June and July 2022. The Federal Reserve has indicated that it foresees further increases in interest rates throughout the year and into 2023 and 2024, considering the current inflationary environment.

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 3.93% Series B Debentures issued to investors in Israel. 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 ~~March 31,~~June 30, 2022, we held ~~1.9~~195.4 million Israeli new Shekels and ~~18.3~~24.6 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of ~~March 31,~~June 30, 2022, we had bonds outstanding and the related interest payable in the amounts of ~~844.1 million~~1.2 billion Israeli new Shekels and ~~5.5~~15.9 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 ~~three~~six months ended ~~March 31,~~June 30, 2022, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$20.4~~$25.0 million and ~~$32.1~~$30.5 million, respectively, for the same period.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)~~

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 ~~March 31,~~June 30, 2022, the fair value of our Pacific Oak SOR BVI Series B Debentures was ~~$262.5~~$314.5 million and the outstanding principal balance was ~~$264.5~~$333.4 million. As of ~~March 31,~~June 30, 2022, excluding the Pacific Oak SOR BVI Series B Debentures, the fair value of our fixed rate debt was ~~$135.8~~$134.3 million and the outstanding principal balance of our fixed rate debt was ~~$139.3~~$139.4 million. The fair value estimate of our Pacific Oak SOR BVI Series B Debentures were calculated using the quoted bond price as of ~~March 31,~~June 30, 2022 on the Tel Aviv Stock Exchange of ~~99.88~~95.99 Israeli new ~~Shekels, respectively.~~Shekels. 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 ~~March 31,~~June 30, 2022. 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)

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 ~~March 31,~~June 30, 2022, we had entered into three separate interest rate caps with an aggregate notional of $181.0 million which effectively limits our exposure to increases in one-month LIBOR and SOFR above certain thresholds. Based on interest rates as of ~~March 31,~~June 30, 2022, if interest rates were 100 basis points higher or lower during the 12 months ending ~~March 31,~~June 30, 2022, interest expense on our variable rate debt would increase or decrease by ~~$4.4~~$5.3 million and ~~$2.0~~$4.4 million, respectively.

The weighted-average interest rates of our fixed rate debt and variable rate debt as of ~~March 31,~~June 30, 2022 were 4.1% and ~~2.9%~~3.9%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of ~~March 31,~~June 30, 2022 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of ~~March 31,~~June 30, 2022 where applicable.

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 ~~March 31,~~June 30, 2022, we owned real estate equity securities with a book value of ~~$104.6~~$84.5 million. Based solely on the prices of real estate equity securities as of ~~March 31,~~June 30, 2022, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$10.5~~$8.5 million.

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.

3840

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

~~Please see~~There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended March 31, 2022, each as filed with the SEC.

Item 22. 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.

•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 ~~the~~ 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. Furthermore, during any calendar year, once we have received requests for redemptions, whether in connection with a stockholder’s death, “qualifying ~~disability~~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~~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~~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~~disability” or “determination of incompetence” during such month.

3941

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”) and (b) any excess capacity carried over to such fiscal quarter from a prior 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 quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders.

We may amend, suspend or terminate the program upon ten 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.

•Separate from the funding described in the first bullet above, on March 10, 2022 and July 22, 2022, our board of directors made available a total of $3.0 million and $2.5 million, respectively for redemptions in connection with a stockholder's death, “qualifying disability”, or “determination of incompetence” and that will carry forward until depleted. As of ~~March 31,~~June 30, 2022, ~~$3.0~~$1.4 million remained available.

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, 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	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	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 2022	January 2022	—	$	—	(2)	January 2022	—	$	—	(2)
February 2022	February 2022	42,430	$	9.51	(2)	February 2022	42,430	$	9.51	(2)
March 2022	March 2022	22,735	$	9.51	(2)	March 2022	22,735	$	9.51	(2)

April 2022						April 2022	75,875	$	9.51	(2)
May 2022						May 2022	62,376	$	9.51	(2)
June 2022						June 2022	38,920	$	9.51	(2)

Total	Total	65,165				Total	242,336

_____________________

(1) On January 26, 2022, our board of directors approved an estimated value per share of our common stock of $9.51. The change in the redemption price became effective for the January 2022 redemption date and is effective until the estimated value per share is updated. We expect to update our estimated value per share no later than December 2022.

(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the ~~three~~six months ended ~~March 31,~~June 2022, we redeemed ~~$0.6~~$2.3 million of common stock under the program, which represented all redemption requests received in good order and eligible for redemption through the ~~March~~June 2022 redemption date, except for the ~~$131.8~~$133.7 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 Twelfth SRP, we had ~~$3.1~~$1.4 million available for redemptions in the remainder of 2022 as of ~~March 31,~~June 2022, all of which are in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations described above.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

~~Table of Contents~~

~~PART II. OTHER INFORMATION (CONTINUED)~~

Item 5. Other Information

None.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 6. Exhibits


Ex.						Description

3.1						Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed February 4, 2010

3.2						Articles of Amendment, incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed November 1, 2019

3.3						Articles of Amendment, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 23, 2019

3.4						Third Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 1, 2019

4.1						Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-156633 filed February 25, 2009

4.2						Fifth Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2015

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

99.1						Twelfth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.5 to the Company's Current Report on Form 8-K filed December 4, 2020

99.2						Amendment No. 1 to the Twelfth Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed August 6, 2021

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

4143

Table of Contents

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.



		PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

Date:	~~May 6,~~August 12, 2022	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Date:	~~May 6,~~August 12, 2022	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			Chief Financial Officer
			(principal financial officer)

4244




	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Cost	$	42,159	$	43,375	$	4,138	$	4,138	$	(6,622)	$	(6,719)
Accumulated Amortization	(21,976)		(20,738)		(1,590)		(1,496)		2,892		2,639
Net Amount	$	20,183	$	22,637	$	2,548	$	2,642	$	(3,730)	$	(4,080)




	March 31, 2022			December 31, 2021
Real Estate Equity Security	Number of Shares Owned	Total Carrying Value		Number of Shares Owned	Total Carrying Value

Keppel Pacific Oak US REIT	64,165,352	$	47,162	64,165,352	$	51,332
Franklin Street Properties Corp.	6,915,089	40,799		6,915,089	41,145
Plymouth Industrial REIT, Inc.	613,085	16,614		613,085	19,619
	71,693,526	$	104,575	71,693,526	$	112,096




	Incurred during the three months ended March 31,				Payable as of
	2022		2021			March 31, 2022	December 31, 2021
Expensed
Asset management fees	$	3,127	$	3,852			$	3,850	$	1,903
Property management fees (1)	125		120				31		—



Change in subordinated performance fee due upon termination to affiliate (2)	—		461				(2)		(2)
Capitalized
Acquisition fees on real estate (3)	—		20				—		—
Disposition fees on real estate	107		—				—		—
Acquisition fee on investment in unconsolidated entities	—		29				—		—
	$	3,359	$	4,482			$	3,881	$	1,903


	Number of Properties as of March 31, 2022			Investment Balance as of
Joint Venture		Location	Ownership %	March 31, 2022		December 31, 2021
110 William Joint Venture	1	New York, New York	60.0%	$	—	—
353 Sacramento Joint Venture	1	San Francisco, California	55.0%	49,280		49,916
Pacific Oak Opportunity Zone Fund I	3	Various	46.0%	27,214		27,215
PORT II OP LP	251	Various	91.9%	12,440		11,125
				$	88,934	$	88,256



		Percentage Occupied for the Three Months Ended March 31,		Average Daily Rate for the Three Months Ended March 31,		Average Revenue per Available Room for the Three Months Ended March 31,
Property	Number of Rooms	2022	2021	2022	2021	2022	2021
Springmaid Beach Resort	453	39.3%	26.9%	$136.45	$111.82	$53.63	$30.11
Q&C Hotel	196	62.3%	24.3%	$191.97	$104.11	$119.54	$25.24