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 ~~June~~September 30, 2023


☐			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 ~~August 9,~~November 13, 2023, there were ~~103,610,544~~103,407,427 outstanding shares of common stock of Pacific Oak Strategic Opportunity REIT, Inc.

Table of Contents

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

FORM 10-Q

~~June~~September 30, 2023

INDEX


PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of ~~June~~September 30, 2023 (unaudited) and December 31, 2022	2
		Consolidated Statements of Operations (unaudited) for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022	3
		Consolidated Statements of Equity (unaudited) for the Three and~~Six~~ NineMonths Ended ~~June~~September 30, 2023 and 2022	4
		Consolidated Statements of Cash Flows (unaudited) for the ~~Six~~N ine Months Ended ~~June~~September 30, 2023 and 2022	6
		Condensed Notes to Consolidated Financial Statements as of ~~June~~September 30, 2023 (unaudited)	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37
	Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION		40
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
	Item 3.	Defaults upon Senior Securities	4342
	Item 4.	Mine Safety Disclosures	4342
	Item 5.	Other Information	4342
	Item 6.	Exhibits	43
SIGNATURES			4544

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)


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
		(unaudited)					(unaudited)
Assets	Assets					Assets
Real estate held for investment, net	Real estate held for investment, net	$	1,162,118	$	1,216,898	Real estate held for investment, net	$	1,126,798	$	1,216,898
Real estate held for sale, net	Real estate held for sale, net	—		2,506		Real estate held for sale, net	—		2,506
Real estate equity securities	Real estate equity securities	30,474		60,153		Real estate equity securities	26,909		60,153

Total real estate and real estate-related investments, net	Total real estate and real estate-related investments, net	1,192,592		1,279,557		Total real estate and real estate-related investments, net	1,153,707		1,279,557
Cash and cash equivalents	Cash and cash equivalents	69,521		97,931		Cash and cash equivalents	77,794		97,931
Restricted cash	Restricted cash	45,984		61,113		Restricted cash	51,763		61,113
Investments in unconsolidated entities	Investments in unconsolidated entities	52,509		70,842		Investments in unconsolidated entities	70,379		70,842
Rents and other receivables, net	Rents and other receivables, net	23,323		21,518		Rents and other receivables, net	21,992		21,518

Prepaid expenses and other assets	Prepaid expenses and other assets	25,211		22,848		Prepaid expenses and other assets	25,320		22,848
Goodwill	Goodwill	5,436		5,436		Goodwill	5,436		5,436
Total assets	Total assets	$	1,414,576	$	1,559,245	Total assets	$	1,406,391	$	1,559,245
Liabilities and equity	Liabilities and equity					Liabilities and equity
Notes and bonds payable, net						Notes and bonds payable, net	$	1,033,318	$	1,044,709

Notes and bonds payable, net		$	975,842	$	1,044,709

Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	22,203		25,231		Accounts payable and accrued liabilities	22,706		25,231
Due to affiliates	Due to affiliates	6,683		2,799		Due to affiliates	6,354		2,799

Other liabilities	Other liabilities	71,386		66,967		Other liabilities	70,082		66,967
Redeemable common stock payable	Redeemable common stock payable	1,426		2,638		Redeemable common stock payable	3,469		2,638
Restricted stock payable	Restricted stock payable	508		508		Restricted stock payable	508		508

Total liabilities	Total liabilities	1,078,048		1,142,852		Total liabilities	1,136,437		1,142,852
Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)
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, 103,626,096 and 103,932,083 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		1,036		1,039
Common stock, $.01 par value; 1,000,000,000 shares authorized, 103,439,698 and 103,932,083 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively						Common stock, $.01 par value; 1,000,000,000 shares authorized, 103,439,698 and 103,932,083 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	1,034		1,039
Additional paid-in capital	Additional paid-in capital	905,046		907,044		Additional paid-in capital	901,048		907,044
Cumulative distributions and net loss	Cumulative distributions and net loss	(572,838)		(495,782)		Cumulative distributions and net loss	(633,070)		(495,782)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	333,244		412,301		Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	269,012		412,301
Noncontrolling interests	Noncontrolling interests	3,284		4,092		Noncontrolling interests	942		4,092
Total equity	Total equity	336,528		416,393		Total equity	269,954		416,393
Total liabilities and equity	Total liabilities and equity	$	1,414,576	$	1,559,245	Total liabilities and equity	$	1,406,391	$	1,559,245

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 June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Rental income	Rental income	$	32,152	$	28,979	$	64,229	$	58,360	Rental income	$	31,872	$	31,445	$	96,101	$	89,806
Hotel revenues	Hotel revenues	2,565		12,854		5,478		18,771		Hotel revenues	1,195		9,182		6,673		27,952
Other operating income	Other operating income	1,066		887		2,204		1,728		Other operating income	1,094		830		3,299		2,559
Dividend income from real estate equity securities	Dividend income from real estate equity securities	113		819		2,110		3,206		Dividend income from real estate equity securities	1,685		2,148		3,795		5,354
Total revenues	Total revenues	35,896		43,539		74,021		82,065		Total revenues	35,846		43,605		109,868		125,671
Expenses:	Expenses:									Expenses:
Operating, maintenance, and management	Operating, maintenance, and management	11,107		10,342		22,275		20,218		Operating, maintenance, and management	12,102		12,342		34,377		32,560
Real estate taxes and insurance	Real estate taxes and insurance	5,843		5,079		12,260		10,103		Real estate taxes and insurance	6,281		5,650		18,541		15,753
Hotel expenses	Hotel expenses	1,984		6,998		3,945		12,109		Hotel expenses	1,330		5,377		5,275		17,485
Asset management fees to affiliates	Asset management fees to affiliates	3,710		3,189		7,684		6,315		Asset management fees to affiliates	3,696		3,630		11,380		9,945
General and administrative expenses	General and administrative expenses	3,222		2,983		6,220		5,977		General and administrative expenses	1,952		2,504		8,176		8,486
Foreign currency transaction loss (gain), net	Foreign currency transaction loss (gain), net	6,272		(23,833)		3,553		(31,098)		Foreign currency transaction loss (gain), net	1,123		(6,001)		4,675		(37,100)
Depreciation and amortization	Depreciation and amortization	12,110		14,098		24,158		26,662		Depreciation and amortization	12,399		12,717		36,556		39,379
Interest expense	Interest expense	15,788		10,780		31,819		20,343		Interest expense	17,928		12,976		49,747		33,319
Impairment charges on real estate and related intangibles	Impairment charges on real estate and related intangibles	18,926		—		36,589		—		Impairment charges on real estate and related intangibles	28,260		11,942		64,849		11,942
Impairment charges on goodwill										Impairment charges on goodwill	—		8,098		—		8,098
Total expenses	Total expenses	78,962		29,636		148,503		70,629		Total expenses	85,071		69,235		233,576		139,867
Other (loss) income:	Other (loss) income:									Other (loss) income:
Loss from unconsolidated entities, net	Loss from unconsolidated entities, net	(14,630)		(2,075)		(16,962)		(2,754)		Loss from unconsolidated entities, net	(10,405)		(3,376)		(27,367)		(6,130)

Other interest income	Other interest income	1,012		48		1,216		94		Other interest income	639		61		1,855		155
Loss on real estate equity securities, net	Loss on real estate equity securities, net	(4,089)		(20,070)		(16,122)		(27,591)		Loss on real estate equity securities, net	(3,331)		(20,722)		(19,453)		(48,312)
Gain (loss) on sale of real estate		3,292		(175)		32,761		3,348
(Loss) gain on sale of real estate										(Loss) gain on sale of real estate	(221)		(75)		32,541		3,273
Gain on extinguishment of debt	Gain on extinguishment of debt	—		—		—		2,367		Gain on extinguishment of debt	—		—		—		2,367
Total other (loss) income, net		(14,415)		(22,272)		893		(24,536)
Gain from consolidation of previously unconsolidated entity										Gain from consolidation of previously unconsolidated entity	—		18,742		—		18,742
Total other loss, net										Total other loss, net	(13,318)		(5,370)		(12,424)		(29,905)
Net loss before income taxes	Net loss before income taxes	(57,481)		(8,369)		(73,589)		(13,100)		Net loss before income taxes	(62,543)		(31,000)		(136,132)		(44,101)
Income tax provision	Income tax provision	—		—		(3,662)		—		Income tax provision	—		—		(3,662)		—
Net loss	Net loss	(57,481)		(8,369)		(77,251)		(13,100)		Net loss	(62,543)		(31,000)		(139,794)		(44,101)
Net loss (income) loss attributable to noncontrolling interests		6		(156)		195		(38)
Net loss attributable to noncontrolling interests										Net loss attributable to noncontrolling interests	2,311		881		2,506		844
Net loss attributable to redeemable noncontrolling interest	Net loss attributable to redeemable noncontrolling interest	—		34		—		81		Net loss attributable to redeemable noncontrolling interest	—		—		—		81
Preferred stock dividends	Preferred stock dividends	—		(528)		—		(718)		Preferred stock dividends	—		(373)		—		(1,091)
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(57,475)	$	(9,019)	$	(77,056)	$	(13,775)	Net loss attributable to common stockholders	$	(60,232)	$	(30,492)	$	(137,288)	$	(44,267)
Net loss per common share, basic and diluted	Net loss per common share, basic and diluted	$	(0.55)	$	(0.09)	$	(0.74)	$	(0.13)	Net loss per common share, basic and diluted	$	(0.58)	$	(0.29)	$	(1.32)	$	(0.43)
Weighted-average number of common shares outstanding, basic and diluted	Weighted-average number of common shares outstanding, basic and diluted	103,737,734		104,422,035		103,804,676		102,929,284		Weighted-average number of common shares outstanding, basic and diluted	103,571,651		104,180,800		103,726,148		103,351,040

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 ~~June~~September 30, 2023 and 2022

(unaudited)

(in thousands, except share amounts)


		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Loss				Total Stockholders' Equity			Noncontrolling Interests			Total Equity					Common Stock								Additional Paid-in Capital					Cumulative Distributions and Net Loss							Total Stockholders' Equity				Noncontrolling Interests					Total Equity
		Shares	Amounts												Total Equity			Shares				Amounts					Additional Paid-in Capital		Cumulative Distributions and Net Loss										Total Stockholders' Equity		Noncontrolling Interests
Balance, March 31, 2023		103,788,298	$	1,038			$	907,045			$	(515,363)				$	392,720				$	3,903		$	396,623
Balance, June 30, 2023																						Balance, June 30, 2023		103,626,096						$	1,036					$	905,046					$	(572,838)								$	333,244				$	3,284	$	336,528
Net loss	Net loss	—	—		—				(57,475)				(57,475)			(6)			(57,481)			Net loss		—				—				—					(60,232)									(60,232)				(2,311)					(62,543)

Transfers to redeemable common stock, net	Transfers to redeemable common stock, net	—	—		(297)				—				(297)			—			(297)			Transfers to redeemable common stock, net		—				—				(2,043)					—							(2,043)				—					(2,043)
Redemptions of common stock	Redemptions of common stock	(162,202)	(2)		(1,702)				—				(1,704)			—			(1,704)			Redemptions of common stock		(186,398)				(2)				(1,955)					—							(1,957)				—					(1,957)

Noncontrolling interests distribution		—	—		—				—				—			(613)			(613)

Balance, June 30, 2023		103,626,096	$	1,036	$	905,046			$	(572,838)			$	333,244		$	3,284		$	336,528

		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Loss				Total Stockholders' Equity			Noncontrolling Interests			Total Equity
		Shares	Amounts												Total Equity
Balance, March 31, 2022		104,496,165	$	1,045			$	914,460			$	(453,770)				$	461,735					$	10,251		$	471,986
Net (loss) income		—	—		—				(9,019)				(9,019)			156			(8,863)

Transfers from redeemable common stock		—	—		1,685				—				1,685			—			1,685
Redemptions of common stock		(177,171)	(2)		(1,683)				—				(1,685)			—			(1,685)

Adjustment to value of redeemable noncontrolling interest		—	—		—				(1,716)				(1,716)			—			(1,716)
Stock distribution issued		98	—		1				(1)				—			—			—
Noncontrolling interests distribution		—	—		—				—				—			(34)			(34)
Noncontrolling interest distribution																						Noncontrolling interest distribution		—				—				—					—							—				(481)					(481)
Noncontrolling interest contribution																						Noncontrolling interest contribution		—				—				—					—							—				450					450
Balance, September 30, 2023																						Balance, September 30, 2023		103,439,698				$	1,034			$	901,048				$	(633,070)						$	269,012			$	942				$	269,954

																								Common Stock								Additional Paid-in Capital					Cumulative Distributions and Net Loss							Total Stockholders' Equity				Noncontrolling Interests					Total Equity
																								Shares				Amounts																			Total Equity
Balance, June 30, 2022	Balance, June 30, 2022	104,319,092	$	1,043	$	914,463			$	(464,506)			$	451,000		$	10,373		$	461,373		Balance, June 30, 2022		104,319,092				$	1,043					$	914,463				$	(464,506)								$	451,000				$	10,373		$	461,373
Net loss																						Net loss		—				—				—					(30,492)							(30,492)				(881)					(31,373)
Transfers to redeemable common stock payable, net																						Transfers to redeemable common stock payable, net		—				—				(188)					—							(188)				—					(188)
Redemptions of common stock																						Redemptions of common stock		(243,135)				(2)				(2,311)					—							(2,313)				—					(2,313)
Stock distributions issued																						Stock distributions issued		924				—				—					—							—				—					—
Acquisition of noncontrolling interests																						Acquisition of noncontrolling interests		—				—				—					—							—				1,125					1,125
Noncontrolling interests distribution																						Noncontrolling interests distribution		—				—				(2,431)					—							(2,431)				(8,199)					(10,630)
Noncontrolling interest contribution																						Noncontrolling interest contribution		—				—				—					—							—				300					300
Balance, September 30, 2022																						Balance, September 30, 2022		104,076,881				$	1,041			$	909,533				$	(494,998)						$	415,576			$	2,718				$	418,294

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 (CONTINUED)

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2023 and 2022

(unaudited)

(in thousands, except share amounts)


		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Loss				Total Stockholders' Equity			Noncontrolling Interests			Total Equity				Common Stock										Additional Paid-in Capital			Cumulative Distributions and Net Loss								Total Stockholders' Equity		Noncontrolling Interests						Total Equity
		Shares	Amounts												Total Equity			Shares				Amounts				Additional Paid-in Capital			Cumulative Distributions and Net Loss										Total Stockholders' Equity	Noncontrolling Interests
Balance, December 31, 2022	Balance, December 31, 2022	103,932,083	$	1,039			$	907,044			$	(495,782)				$	412,301				$	4,092	$	416,393	Balance, December 31, 2022						103,932,083				$	1,039		$			907,044		$	(495,782)				$	412,301		$	4,092		$	416,393
Net loss	Net loss	—	—		—				(77,056)				(77,056)			(195)			(77,251)			Net loss	—					—					—			(137,288)								(137,288)		(2,506)						(139,794)

Transfers to redeemable common stock, net	Transfers to redeemable common stock, net	—	—		1,213				—				1,213			—			1,213			Transfers to redeemable common stock, net	—					—					(830)			—								(830)		—						(830)
Redemptions of common stock	Redemptions of common stock	(305,987)	(3)		(3,211)				—				(3,214)			—			(3,214)			Redemptions of common stock	(492,385)					(5)					(5,166)			—								(5,171)		—						(5,171)

Noncontrolling interests distribution		—	—		—				—				—			(613)			(613)

Balance, June 30, 2023		103,626,096	$	1,036	$	905,046			$	(572,838)			$	333,244		$	3,284		$	336,528
Noncontrolling interests distributions																						Noncontrolling interests distributions	—					—					—			—								—		(1,094)						(1,094)
Noncontrolling interest contribution																						Noncontrolling interest contribution	—					—					—			—								—		450						450
Balance, September 30, 2023																						Balance, September 30, 2023	103,439,698					$	1,034				$	901,048		$	(633,070)							$	269,012	$	942					$	269,954

		Common Stock			Additional Paid-in Capital				Cumulative Distributions and Net Loss				Total Stockholders' Equity			Noncontrolling Interests			Total Equity				Common Stock										Additional Paid-in Capital			Cumulative Distributions and Net Loss								Total Stockholders' Equity		Noncontrolling Interests						Total Equity
		Shares	Amounts												Total Equity			Shares				Amounts					Additional Paid-in Capital			Cumulative Distributions and Net Loss									Total Stockholders' Equity	Noncontrolling Interests
Balance, December 31, 2021	Balance, December 31, 2021	94,141,251	$	941			$	818,440			$	(347,691)				$	471,690				$	10,369	$	482,059	Balance, December 31, 2021							94,141,251				$	941				$	818,440		$	(347,691)				$	471,690		$	10,369		$	482,059
Net loss	Net loss	—	—		—				(13,775)				(13,775)			38			(13,737)			Net loss	—					—						—			(44,267)								(44,267)		(844)						(45,111)
Transfers to redeemable common stock		—	—		(695)				—				(695)			—			(695)
Transfers to redeemable common stock payable, net																						Transfers to redeemable common stock payable, net	—					—					(883)			—								(883)		—						(883)
Redemptions of common stock	Redemptions of common stock	(242,336)	(2)		(2,272)				—				(2,274)			—			(2,274)			Redemptions of common stock	(485,471)					(4)					(4,583)			—								(4,587)		—						(4,587)
Adjustment to value of redeemable noncontrolling interest	Adjustment to value of redeemable noncontrolling interest	—	—		—				(3,946)				(3,946)			—			(3,946)			Adjustment to value of redeemable noncontrolling interest	—					—					—			(3,946)								(3,946)		—						(3,946)
Stock distribution issued	Stock distribution issued	10,420,177	104		98,990				(99,094)				—			—			—			Stock distribution issued	10,421,101					104					98,990			(99,094)								—		—						—
Acquisition of noncontrolling interest																						Acquisition of noncontrolling interest	—					—					—			—								—		1,125						1,125
Noncontrolling interests contributions	Noncontrolling interests contributions	—	—		—				—				—			(34)			(34)			Noncontrolling interests contributions	—					—					(2,431)			—								(2,431)		(8,232)						(10,663)
Balance, June 30, 2022		104,319,092	$	1,043	$	914,463			$	(464,506)			$	451,000		$	10,373		$	461,373
Noncontrolling interest contribution																						Noncontrolling interest contribution	—					—					—			—								—		300						300
Balance, September 30, 2022																						Balance, September 30, 2022	104,076,881					$	1,041				$	909,533		$	(494,998)							$	415,576	$	2,718					$	418,294

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,					Nine Months Ended September 30,
		2023		2022			2023		2022
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:					Cash Flows from Operating Activities:
Net loss	Net loss	$	(77,251)	$	(13,100)	Net loss	$	(139,794)	$	(44,101)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:	Adjustments to reconcile net loss to net cash (used in) provided by operating activities:					Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Impairment charges on real estate and related intangibles	Impairment charges on real estate and related intangibles	36,589		—		Impairment charges on real estate and related intangibles	64,849		11,942
Impairment charges on goodwill						Impairment charges on goodwill	—		8,098
Loss from unconsolidated entities, net	Loss from unconsolidated entities, net	16,962		2,754		Loss from unconsolidated entities, net	27,367		6,130
Depreciation and amortization	Depreciation and amortization	24,158		26,662		Depreciation and amortization	36,556		39,379
Loss on real estate equity securities, net	Loss on real estate equity securities, net	16,122		27,591		Loss on real estate equity securities, net	19,453		48,312
Gain on sale of real estate	Gain on sale of real estate	(32,761)		(3,348)		Gain on sale of real estate	(32,541)		(3,273)
Gain from consolidation of previously unconsolidated entity						Gain from consolidation of previously unconsolidated entity	—		(18,742)
Unrealized gain on interest rate caps	Unrealized gain on interest rate caps	(328)		(270)		Unrealized gain on interest rate caps	(378)		(1,103)
Deferred rent	Deferred rent	(1,508)		(1,427)		Deferred rent	(539)		(1,966)
Gain on extinguishment of debt	Gain on extinguishment of debt	—		(2,367)		Gain on extinguishment of debt	—		(2,367)
Amortization of above- and below-market leases, net	Amortization of above- and below-market leases, net	(151)		(508)		Amortization of above- and below-market leases, net	(306)		(762)
Amortization of deferred financing costs and debt discount and premium, net	Amortization of deferred financing costs and debt discount and premium, net	4,567		3,844		Amortization of deferred financing costs and debt discount and premium, net	7,079		5,953

Foreign currency transaction loss (gain), net	Foreign currency transaction loss (gain), net	3,553		(31,098)		Foreign currency transaction loss (gain), net	4,675		(37,100)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Rents and other receivables, net	Rents and other receivables, net	(409)		(175)		Rents and other receivables, net	(104)		2,403
Prepaid expenses and other assets	Prepaid expenses and other assets	(3,120)		(1,150)		Prepaid expenses and other assets	(3,232)		(3,010)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(3,068)		502		Accounts payable and accrued liabilities	(983)		(955)
Due to affiliates	Due to affiliates	3,884		3,753		Due to affiliates	3,555		1,201
Other liabilities	Other liabilities	3,355		668		Other liabilities	3,894		(1,379)
Net cash (used in) provided by operating activities	Net cash (used in) provided by operating activities	(9,406)		12,331		Net cash (used in) provided by operating activities	(10,449)		8,660
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:					Cash Flows from Investing Activities:
Acquisitions of real estate						Acquisitions of real estate	—		(6,689)
Improvements to real estate	Improvements to real estate	(10,349)		(10,110)		Improvements to real estate	(16,394)		(16,515)
Proceed from sales of real estate, net	Proceed from sales of real estate, net	40,795		357		Proceed from sales of real estate, net	40,867		97,933

Contribution to unconsolidated entity		—		(22,500)
Cash and restricted cash received upon consolidation of previously unconsolidated entity						Cash and restricted cash received upon consolidation of previously unconsolidated entity	—		1,834
Contributions to unconsolidated entities						Contributions to unconsolidated entities	(28,388)		(23,887)
Distribution of capital from unconsolidated entity	Distribution of capital from unconsolidated entity	1,144		569		Distribution of capital from unconsolidated entity	1,144		569
Purchase of interest rate caps	Purchase of interest rate caps	(347)		(506)		Purchase of interest rate caps	(1,236)		(566)

Advance to affiliate	Advance to affiliate	—		(1,201)		Advance to affiliate	—		(1,201)
Purchase of foreign currency derivatives	Purchase of foreign currency derivatives	(67,140)		—		Purchase of foreign currency derivatives	(100,327)		—
Proceeds from disposition of foreign currency derivatives	Proceeds from disposition of foreign currency derivatives	49,176		—		Proceeds from disposition of foreign currency derivatives	71,027		—
Proceeds from advances due from affiliates	Proceeds from advances due from affiliates	—		6,448		Proceeds from advances due from affiliates	—		8,227
Proceeds from the sale of real estate equity securities	Proceeds from the sale of real estate equity securities	13,557		—		Proceeds from the sale of real estate equity securities	13,791		—
Escrow deposit for future real estate sale	Escrow deposit for future real estate sale	—		17,000		Escrow deposit for future real estate sale	—		17,000
Proceeds for development obligations	Proceeds for development obligations	1,855		—		Proceeds for development obligations	1,855		—
Funding for development obligations	Funding for development obligations	(1,421)		(4,025)		Funding for development obligations	(1,825)		(6,407)
Net cash provided by (used in) investing activities		27,270		(13,968)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(19,486)		70,298
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:					Cash Flows from Financing Activities:
Proceeds from notes payable		980		145,104
Principal payments on notes payable		(56,922)		(61,613)
Proceeds from notes and bonds payable						Proceeds from notes and bonds payable	93,117		191,667
Principal payments on notes and bonds payable						Principal payments on notes and bonds payable	(77,673)		(190,515)
Payments of deferred financing costs	Payments of deferred financing costs	(409)		(2,829)		Payments of deferred financing costs	(5,028)		(4,686)
Payments to redeem common stock	Payments to redeem common stock	(3,214)		(2,274)		Payments to redeem common stock	(5,171)		(4,587)
Payments to redeem noncontrolling interests						Payments to redeem noncontrolling interests	—		(6,687)
Distributions paid	Distributions paid	—		(11,016)		Distributions paid	—		(11,016)
Preferred dividends paid	Preferred dividends paid	—		(718)		Preferred dividends paid	—		(1,091)
Noncontrolling interests distribution		(613)		(34)

Net cash (used in) provided by financing activities		(60,178)		66,620
Noncontrolling interests distributions						Noncontrolling interests distributions	(1,094)		(10,663)
Noncontrolling interest contribution						Noncontrolling interest contribution	450		300
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	4,601		(37,278)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,225)		(3,619)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(4,153)		(4,418)
Net (decrease) increase in cash, cash equivalents and restricted cash	Net (decrease) increase in cash, cash equivalents and restricted cash	(43,539)		61,364		Net (decrease) increase in cash, cash equivalents and restricted cash	(29,487)		37,262
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	159,044		105,431		Cash, cash equivalents and restricted cash, beginning of period	159,044		105,431
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	115,505	$	166,795	Cash, cash equivalents and restricted cash, end of period	$	129,557	$	142,693

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 (CONTINUED)

(unaudited)

(in thousands)


		Six Months Ended June 30,
		2023	2022		Nine Months Ended September 30,
					2023	2022
Supplemental Disclosure of Cash Flow Information:	Supplemental Disclosure of Cash Flow Information:			Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,743 and $1,026 for the six months ended June 30, 2023 and 2022, respectively		27,379	15,446
Interest paid, net of capitalized interest of $2,729 and $1,703 for the nine months ended September 30, 2023 and 2022, respectively				Interest paid, net of capitalized interest of $2,729 and $1,703 for the nine months ended September 30, 2023 and 2022, respectively	44,488	29,839
Supplemental Disclosure of Significant Noncash Transaction:	Supplemental Disclosure of Significant Noncash Transaction:			Supplemental Disclosure of Significant Noncash Transaction:
Accrued improvements to real estate	Accrued improvements to real estate	1,915	3,262	Accrued improvements to real estate	1,565	6,389

Redeemable common stock payable	Redeemable common stock payable	1,426	1,379	Redeemable common stock payable	3,469	1,567
Assets acquired in the consolidation of previously unconsolidated entity				Assets acquired in the consolidation of previously unconsolidated entity	—	137,569
Liabilities assumed in the consolidation of previously unconsolidated entity				Liabilities assumed in the consolidation of previously unconsolidated entity	—	85,096
Distributions paid to common stockholders through common stock issuances	Distributions paid to common stockholders through common stock issuances	—	99,094	Distributions paid to common stockholders through common stock issuances	—	99,094
Accrued preferred dividends				Accrued preferred dividends	—	225
PPP notes forgiveness	PPP notes forgiveness	—	2,367	PPP notes forgiveness	—	2,367

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

~~June~~September 30, 2023

(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, 2022. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board 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~~nine months ended ~~June~~September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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, and joint ventures in which the Company has a controlling interest and ~~VIEs~~variable interest entities (“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)

~~June~~September 30, 2023

(unaudited)

Liquidity

The Company generally finances its real estate investments using notes payable that are typically structured as non-recourse secured mortgages with maturities of approximately three to five years, with short term extension options available upon the Company meeting certain debt covenants. Each reporting period, management evaluates the Company’s ability to continue as a going concern by evaluating conditions and events, including assessing the liquidity needs to satisfy upcoming debt obligations and the ability to satisfy debt covenant requirements. Through the normal course of operations, ~~as of July 1, 2023,~~ the Company has ~~$460.1~~$288.4 million of debt obligations scheduled to mature ~~within~~over the period from October 1, 2023 through 12 months from the date of ~~that date.~~issuance of these financial statements. In order to satisfy obligations as they mature, management will evaluate its options and may seek to utilize extension options available in the respective loan agreements, may make partial loan paydowns to meet debt covenant requirements, may seek to refinance certain debt instruments, may sell real estate equity securities to convert to cash to make principal payments, may market one or more properties for sale or may negotiate a turnover of one or more secured properties back to the related mortgage lender and remit payment for any associated loan guarantee. Historically, the Company has successfully refinanced debt instruments or utilized extension options in order to satisfy debt obligations as they come due and has not negotiated a turnover of a secured property back to a lender, though the Company may utilize such option if necessary. Based upon these plans, management believes it will have sufficient liquidity to satisfy its obligations as they come due and to continue as a going concern. There can be no assurance as to the certainty or timing of any of management’s plans. Refer to Note 5 for further discussion.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Segments

The Company operates in three reportable business segments: opportunistic real estate and real estate-related investments, residential homes, and hotel, which is how the Company’s management manages the business. In general, the Company intends to hold its investments in opportunistic real estate and real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and 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 real estate-related assets as similar investments and aggregates them into one reportable business segment. The Company owned residential homes in 18 markets, which are all aggregated into one reportable business segment due to the homes being stabilized, having high occupancy rates and having similar economic characteristics. Additionally, as of ~~June~~September 30, 2023, the Company owned one hotel, which is a separate reportable business segment due to the nature of the hotel business with short-term stays.

Square Footage, Occupancy and Other Measures

Any references to square footage, acreage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Updates

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the ~~three and six~~nine months ended ~~June~~September 30, 2023 that are of significance or potential significance to the Company.

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~~September 30, 2023

(unaudited)

3. REAL ESTATE HELD FOR INVESTMENT

As of ~~June~~September 30, 2023, the Company owned ~~eight~~ten office properties, ~~one office portfolio consisting of two office buildings and 25 acres of undeveloped land,~~ encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were ~~69%~~70% occupied. In addition, the Company owned one residential home portfolio consisting of ~~2,453~~2,449 residential homes and encompassing approximately 3.5 million rental square feet and two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 95% and ~~93%~~92% occupied, respectively. The Company also owned one hotel property with 196 rooms, ~~two~~four investments in undeveloped land with approximately ~~671~~696 developable acres and one office/retail development property. The following table summarizes the Company’s real estate held for investment as of ~~June~~September 30, 2023 and December 31, 2022, respectively (in thousands):


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Land	Land	$	258,570	$	267,634	Land	$	256,796	$	267,634
Buildings and improvements	Buildings and improvements	1,035,684		1,062,822		Buildings and improvements	1,013,444		1,062,822
Tenant origination and absorption costs	Tenant origination and absorption costs	20,937		27,996		Tenant origination and absorption costs	18,157		27,996
Total real estate, cost	Total real estate, cost	1,315,191		1,358,452		Total real estate, cost	1,288,397		1,358,452
Accumulated depreciation and amortization	Accumulated depreciation and amortization	(153,073)		(141,554)		Accumulated depreciation and amortization	(161,599)		(141,554)
Total real estate held for investment, net	Total real estate held for investment, net	$	1,162,118	$	1,216,898	Total real estate held for investment, net	$	1,126,798	$	1,216,898

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 ~~June~~September 30, 2023, the leases, excluding options to extend, apartment leases and residential home leases, which have terms that are generally one year or less, had remaining terms of up to ~~12.1~~11.8 years with a weighted-average remaining term of ~~3.7~~3.0 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 ~~$5.5~~$5.9 million and $6.5 million as of ~~June~~September 30, 2023 and December 31, 2022, respectively.

During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recognized deferred rent ~~from tenants~~expense of ~~$0.7~~$1.0 million and ~~$1.5~~deferred rent income of $0.5 million, both net of lease incentive amortization, respectively. As of ~~June~~September 30, 2023 and December 31, 2022, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was ~~$20.2~~$19.2 million and $18.3 million, respectively, and is included in rents and other receivables on the accompanying consolidated balance sheets. The cumulative deferred rent balance included ~~$2.9~~$2.3 million and $2.8 million of unamortized lease incentives as of ~~June~~September 30, 2023 and December 31, 2022, 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~~September 30, 2023

(unaudited)

As of ~~June~~September 30, 2023, the future minimum rental income from the Company’s properties, excluding apartment and residential home leases, which generally have initial terms of 12 months or less, under non-cancelable operating leases was as follows (in thousands):


July 1, 2023 through December 31, 2023		$	31,253
October 1, 2023 through December 31, 2023				October 1, 2023 through December 31, 2023	$	15,632
2024	2024	58,854		2024	58,322
2025	2025	48,673		2025	49,012
2026	2026	34,938		2026	36,116
2027	2027	26,894		2027	28,563
Thereafter	Thereafter	60,377		Thereafter	62,502
		$	260,989		$	250,147

As of ~~June~~September 30, 2023, 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	38	$	6,932	11.3	%
Public Administration	Public Administration	15	$	7,221	11.6	%	Public Administration	14	6,831		11.2	%
Professional, Scientific, and Technical Services		38	7,133		11.5	%
Computer Systems Design and Related Services	Computer Systems Design and Related Services	29	6,865		11.1	%	Computer Systems Design and Related Services	29	6,830		11.2	%
			$	21,219	34.2	%			$	20,593	33.7	%

_____________________

(1) Annualized base rent represents annualized contractual base rental income as of ~~June~~September 30, 2023, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Geographic Concentration Risk

As of ~~June~~September 30, 2023, the Company’s real estate investments in California and Georgia represented ~~20.4%~~19.1% and ~~10.8%~~11.0%, 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.

Hotel Properties

The following table provides detailed information regarding the Company’s hotel revenues for its hotel property (the Springmaid Beach Resort was sold on September 1, 2022) during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Hotel revenues:	Hotel revenues:									Hotel revenues:
Room	Room	$	2,240	$	9,905	$	4,805	$	14,200	Room	$	988	$	7,223	$	5,794	$	21,423
Food, beverage and convention services	Food, beverage and convention services	214		309		445		589		Food, beverage and convention services	123		217		568		807
Campground	Campground	—		1,603		—		2,395		Campground	—		984		—		3,379
Other	Other	111		1,037		228		1,587		Other	84		758		311		2,343
Hotel revenues	Hotel revenues	$	2,565	$	12,854	$	5,478	$	18,771	Hotel revenues	$	1,195	$	9,182	$	6,673	$	27,952

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~~September 30, 2023

(unaudited)

Contract Liabilities

The following table summarizes the Company’s contract liabilities, which are comprised ofof: hotel advanced deposits, ~~and~~ deferred proceeds received from the buyers of the Park Highlands land sales, ~~(referenced below)~~ and ~~another developer for the~~ value of Park Highlands 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~~September 30, 2023 and December 31, 2022 (in thousands):


		June 30, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Contract liabilities	Contract liabilities	$	27,137	$	23,904	Contract liabilities	$	27,526	$	23,904
Revenue recognized in the period from:	Revenue recognized in the period from:					Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	Amounts included in contract liabilities at the beginning of the period	$	1,547	$	9,215	Amounts included in contract liabilities at the beginning of the period	$	1,032	$	9,215

Real Estate ~~Sale~~Sales

In May 2023, the Company sold a vacant building within the Madison Square property in Phoenix, Arizona (“Madison Square School”) for proceeds of $6.4 million, before closing costs and credits. The Company recognized a gain on sale of $3.3 million related to the disposition of the Madison Square School, net of closing costs and adjustments. The purchaser is not affiliated with the Company nor the Advisor. As a result of the sale of the Madison Square School, certain assets were reclassified to held for sale on the consolidated balance sheets as of December 31, 2022. ~~As of June 30, 2023,~~Subsequent to the sale, the Madison Square property had three office buildings remaining.

In February 2023, the Company sold approximately 71 developable acres of undeveloped land in North Las Vegas, Nevada (“Park Highlands”) for proceeds of $34.5 million, net of closing costs and credits of $1.9 million for future development obligations. The Company recognized a pre-tax gain on sale of real estate of $29.5 million related to the disposition within the consolidated statements of operations. The purchaser is not affiliated with the Company ~~nor~~or the Advisor.

In addition, the land parcels were held and sold through one of the Company’s taxable REIT subsidiaries (“TRS”) for certain tax planning purposes and to ensure preservation of the Company’s REIT status. For purposes of the determination of U.S. federal and state income taxes, the Company’s TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP. In connection with the Park Highlands sales, the Company recorded an income tax provision of $3.7 million at the TRS level. There were no state taxes related to this disposition. The U.S. federal statutory and effective income tax rate for the transaction’s taxable gain is 21%.

Impairment of Real Estate

The evolving office rental business environment and slowdown in economic growth due to rising interest rates led the Company to reassess its real estate and related intangibles. During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company recorded impairment charges on real estate and related intangibles in the amounts of ~~$18.9~~$28.3 million and ~~$36.6~~$64.8 million, respectively, to write down the carrying value of ~~two~~three strategic opportunistic properties to their estimated fair values due to increases in the discount and terminal cap rate assumptions, ~~and~~ decreases in projected cash ~~flows. There were no impairment charges during~~flows, and changes in sales comparisons. During the three and ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2022, the Company recorded impairment charges on real estate and related intangibles in the amount of $11.9 million, to write down the carrying value of three strategic opportunistic properties to their estimated fair value due to a change in the projected hold period and related decrease in projected cash flows and sales price.

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~~September 30, 2023

(unaudited)

4. REAL ESTATE EQUITY SECURITIES

The following summarizes the portion of loss for the period related to real estate equity securities held during the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands):


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Loss on real estate equity securities, net	Loss on real estate equity securities, net	$	(4,089)	$	(20,070)	$	(16,122)	$	(27,591)	Loss on real estate equity securities, net	$	(3,331)	$	(20,722)	$	(19,453)	$	(48,312)
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	5,809		—		5,809		—		Less net gain recognized during the period on real estate equity securities sold during the period	93		—		5,901		—
Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period	Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period	$	(9,898)	$	(20,070)	$	(21,931)	$	(27,591)	Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period	$	(3,424)	$	(20,722)	$	(25,354)	$	(48,312)

~~5. NOTES AND BONDS PAYABLE~~

~~As of June 30, 2023 and December 31, 2022, the Company’s notes and bonds payable consisted of the following (dollars in thousands):~~

Book Value as of
June 30, 2023
Book Value as of
December 31, 2022
Contractual Interest Rate as of
June 30, 2023
Effective Interest Rate at
June 30, 2023 (1)
Payment Type (2)
Maturity Date (3)
Richardson Portfolio Mortgage Loan $ 18,675 $ 18,844 SOFR + 2.50% 7.57% Principal & Interest 11/01/2023
Park Centre Mortgage Loan 26,072 26,233 BSBY + 4.75% 9.92% Principal & Interest
06/27/2023 (4)
1180 Raymond Mortgage Loan (5)
31,070 31,070 BSBY + 2.25% 7.42% Interest Only 12/01/2023
Pacific Oak SOR BVI Series B
Debentures (6)
314,130 331,213 3.93% 3.93% (6) 01/31/2026
Crown Pointe Mortgage Loan 54,738 53,758 SOFR + 2.30% 7.37% Interest Only 04/01/2025
The Marq Mortgage Loan 60,460 60,796 BSBY + 4.55% 9.72% Principal & Interest
06/06/2023 (4)
Eight & Nine Corporate Centre Mortgage Loan (7)
— 47,945 (7) (7) (7) (7)
Georgia 400 Center Mortgage Loan 40,432 44,129 SOFR + 1.55% 6.62% Interest Only 05/22/2024
PORT Mortgage Loan 1 51,304 51,302 4.74% 4.74% Interest Only 10/01/2025
PORT Mortgage Loan 2 10,523 10,523 4.72% 4.72% Interest Only 03/01/2026
PORT MetLife Loan 60,000 60,000 3.90% 3.90% Interest Only 04/10/2026
PORT II Metlife Loan (8)
93,701 93,701 3.99% 3.99% Interest Only 04/10/2026
Q&C Hotel Mortgage Loan 24,671 24,784 SOFR + 3.50% 8.57% Principal & Interest 01/31/2024
Lincoln Court Mortgage Loan (5)
35,314 35,314 SOFR + 3.25% 8.32% Interest Only 08/07/2025
Lofts at NoHo Commons Mortgage Loan 71,536 71,536
SOFR + 2.18% (9)
7.25% Interest Only 09/09/2023
Oakland City Center Mortgage Loan (5)
82,500 87,000 BSBY + 3.00% 8.17% Principal & Interest 09/01/2023
Madison Square Mortgage Loan 17,961 17,964 4.63% 4.63% Interest Only 10/07/2024
Total Notes and Bonds Payable principal outstanding 993,087 1,066,112
Deferred financing costs and debt discount and premium, net (10)
(17,245) (21,403)
Total Notes and Bonds Payable, net 975,842 1,044,709

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~~September 30, 2023

(unaudited)

5. NOTES AND BONDS PAYABLE

As of September 30, 2023 and December 31, 2022, the Company’s notes and bonds payable consisted of the following (dollars in thousands):


	Book Value as of September 30, 2023		Book Value as of December 31, 2022		Contractual Interest Rate as of September 30, 2023 (1)	Effective Interest Rate at September 30, 2023 (1)	Payment Type (2)	Maturity Date (3)
Richardson Portfolio Mortgage Loan	$	16,199	$	18,844	SOFR + 2.50%	7.82%	Principal & Interest	11/1/2023 (4)
Park Centre Mortgage Loan (5)	—		26,233		(5)	(5)	(5)	(5)
1180 Raymond Mortgage Loan (5)	—		31,070		(5)	(5)	(5)	(5)
Pacific Oak SOR BVI Series B Debentures (6)	305,253		331,213		3.93%	3.93%	(6)	01/31/2026
Pacific Oak SOR BVI Series C Bonds (6)	89,211		—		9.00%	9.00%	(6)	06/30/2026
Crown Pointe Mortgage Loan	54,738		53,758		SOFR + 2.30%	7.62%	Interest Only	04/01/2025
The Marq Mortgage Loan (5)	—		60,796		(5)	(5)	(5)	(5)
Eight & Nine Corporate Centre Mortgage Loan (7)	—		47,945		(7)	(7)	(7)	(7)
Georgia 400 Center Mortgage Loan	40,313		44,129		SOFR + 1.55%	6.87%	Interest Only	05/22/2024
PORT Mortgage Loan 1	51,304		51,302		4.74%	4.74%	Interest Only	10/01/2025
PORT Mortgage Loan 2	10,523		10,523		4.72%	4.72%	Interest Only	03/01/2026
PORT MetLife Loan	60,000		60,000		3.90%	3.90%	Interest Only	04/10/2026
PORT II Metlife Loan	93,443		93,701		3.99%	3.99%	Interest Only	04/10/2026
Q&C Hotel Mortgage Loan	24,628		24,784		SOFR + 3.50%	8.82%	Principal & Interest	01/31/2024
Lincoln Court Mortgage Loan (8)	33,310		35,314		SOFR + 3.25%	8.57%	Interest Only	08/07/2025
Lofts at NoHo Commons Mortgage Loan	68,451		71,536		SOFR + 2.18% (8)	7.50%	Interest Only	09/09/2024
Oakland City Center Mortgage Loan (5)	—		87,000		(5)	(5)	(5)	(5)
Madison Square Mortgage Loan	17,962		17,964		4.63%	4.63%	Interest Only	10/07/2024
Four Pack Mortgage Loan (5)(8)	187,336		—		BSBY + 2.75%	8.18%	Principal & Interest	09/01/2026
Total Notes and Bonds Payable principal outstanding	1,052,671		1,066,112
Deferred financing costs and debt discount and premium, net (10)	(19,353)		(21,403)
Total Notes and Bonds Payable, net	$	1,033,318	$	1,044,709

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of ~~June~~September 30, 2023. The effective interest rate is calculated as the actual interest rate in effect as of ~~June~~September 30, 2023 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at ~~June~~September 30, 2023, where applicable.

(2) Represents the payment type required under the loan as of ~~June~~September 30, 2023. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bonds payable, see five-year maturity table below.

(3) Represents the initial maturity date or the maturity date as extended as of ~~June~~September 30, 2023; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(4) ~~As filing~~Subsequent to September 30, 2023, the Company extended the maturity date of this ~~Quarterly Report on Form 10-Q,~~loan to November 1, 2024.

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)

September 30, 2023

(unaudited)

(5) The Company refinanced and consolidated four of its mortgage loans to one loan with an outstanding principal balance of $188.0 million (the “Four Pack Mortgage Loan”) and is cross-collateralized by the ~~Company was in refinancing negotiations~~associated properties: Park Centre, 1180 Raymond, The Marq, and Oakland City Center. The Four Pack Mortgage Loan has an initial maturity of September 1, 2026 with ~~the lender for loans that have matured, see below for further discussion.~~two 1-year extension options, monthly amortization payments of $0.7 million, and two $10.0 million paydowns due December 1, 2023 and 2024.

~~(5)~~(6) See “Israeli Financing” below.

(7) This loan was paid off during the nine months ended September 30, 2023.

(8) The Company’s notes and bonds 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 ~~June~~September 30, 2023, the guaranteed amount in the aggregate was ~~$37.2~~$18.8 million.

~~(6)~~ ~~See “Israeli Bond Financing” below.~~

~~(7)~~ ~~This loan was paid off during the six months ended June 30, 2023.~~

~~(8)~~ As of June 30, 2023, $93.7 million had been disbursed to the Company and up to $6.3 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents.

(9) The variable rate is at the higher of one-month SOFR or 1.75%, plus 2.18%.

(10) Represents the unamortized ~~premium/discount~~financing costs and discount/premium on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The financing costs and discount/premium is amortized over the remaining life of the notes and bonds payable.

During the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company incurred ~~$15.8~~$17.9 million and ~~$31.8~~$49.7 million, respectively, of interest expense. Included in interest expense during the three and ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$1.1~~$2.5 million and ~~$2.4~~$7.1 million, respectively, of amortization of deferred financing costs and debt discount and premium, net. ~~Included in interest expense for the three and six months ended June 30, 2023 was $1.1 million and $2.2 million, respectively, of amortization on discount on notes and bonds payable, net.~~ Additionally, during the three and ~~six~~nine months ended ~~June~~September 30, 2023, the Company capitalized ~~$0.9~~$1.0 million and ~~$1.7~~$2.7 million, respectively, of interest related to its investments in undeveloped land.

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company incurred ~~$10.8~~$13.0 million and ~~$20.3~~$33.3 million, respectively, of interest expense. Included in interest expense for the three and ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$0.8~~$2.0 million and ~~$1.6~~$3.9 million, respectively, of amortization of deferred financing ~~costs. Included in interest expense for the three~~costs and ~~six months ended June 30, 2022 was $1.2 million~~debt discount and ~~$2.3 million, respectively, of amortization on discount on notes and bonds payable,~~premium, net. Additionally, during the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company capitalized ~~$0.5~~$0.7 million and ~~$1.0~~$1.7 million, respectively, of interest related to its investments in undeveloped land.

As of ~~June~~September 30, 2023 and December 31, 2022, the Company’s interest payable was ~~$9.3~~$7.6 million and $9.1 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of ~~June~~September 30, 2023 (in thousands):


July 1, 2023 through December 31, 2023		$	264,241
October 1, 2023 through December 31, 2023				October 1, 2023 through December 31, 2023	$	28,471
2024	2024	213,847		2024	271,333
2025	2025	246,066		2025	249,503
2026	2026	268,933		2026	503,364
2027	2027	—		2027	—
Thereafter	Thereafter	—		Thereafter	—
		$	993,087		$	1,052,671

~~Table of Contents~~

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

~~Item 1. Financial Statements (continued)~~

~~PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~June 30, 2023~~

~~(unaudited)~~

The Company has extension options with respect to $70.3 million of the debt obligations outstanding that are scheduled to mature over the next 12 months; however, the Company cannot exercise these options if not then in compliance with certain financial covenants in the loans without making a cash payment and there is no assurance that the Company will be able to meet these requirements. All the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, as outlined in the table above, except for the Company’s Series B ~~Debentures.~~Debentures and Series C Bonds. The Company plans to utilize available extension options or refinance the notes payable. The Company may also choose to market the properties for sale or may negotiate a turnover of the secured properties back to the related mortgage lender.

The Company’s notes payable contains financial debt covenants, including minimum equity requirements and liquidity ratios. As of ~~June~~September 30, 2023, the Company was in compliance with all of these debt covenants with the exception that the ~~Park Centre~~Richardson Portfolio Mortgage Loan, ~~Lofts at NoHo Commons Mortgage Loan, Richardson Portfolio~~Q&C Hotel Mortgage Loan and Lincoln Court Mortgage Loan were not in compliance with the debt service coverage requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for the Lincoln Court Mortgage Loan, and the remaining loans are at-risk of cash sweeps and/or principal pay downs if in consecutive non-compliance.

~~The Company is in discussion with the lender regarding refinancing loans that have matured. As~~

Table of the filing date of this Quarterly Report on Form 10-Q, the Company did not fulfill the obligation to repay $86.5 million, the outstanding principal amount, of the two mortgage loans by the maturity dates, resulting in the accrual of penalty interest. The two mortgage loans are non-recourse to the Company. There are several potential outcomes, including negotiating a modification to the loans, refinancing the loans, or consensual short sales. However, there is no assurance that the Company will be successful in achieving any of these potential outcomes. If unsuccessful, the lenders would retain their right to exercise the remedies under the loans including, but not limited to, declaring the debt to be immediately payable and foreclosing on the assets.Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2023

(unaudited)

Israeli ~~Bond~~ Financing

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 (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. ~~The Series B Debentures bear interest at the rate of 3.93% per year.~~ The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. Pacific Oak SOR BVI issued additional Series B Debentures subsequent to the initial issuance and as of ~~June~~September 30, 2023, 1.2 billion Israeli new Shekels (approximately ~~$314.1~~$305.3 million as of ~~June~~September 30, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures without any right of precedence or preference between any of them.

~~The deed of trust that governs the terms of the Series B Debentures contains various financial covenants. As of June 30, 2023, the Company was in compliance with these financial covenants.~~

OnIn July 6, 2023, Pacific Oak SOR BVI issued ~~319.6~~340.3 million Israeli new Shekels (approximately ~~$86.4 million)~~$89.2 million as of September 30, 2023) of Series C bonds (the “Series C Bonds”) to Israeli investors pursuant to ~~a public offering~~offerings registered with the Israeli Securities Authority. ~~Additionally, on July 17, 2023, Pacific Oak SOR BVI issued an additional 20.7~~Of the proceeds, 61.8 million Israeli new Shekels (approximately ~~$5.6 million)~~$16.2 million as of September 30, 2023) were held on deposit for obligations related to the Series ~~C bonds (the “Series C Expansion”).~~B Debentures. The Series C ~~Expansion has~~Bonds have an equal level of security, pari passu, amongst themselves and between them and the initial Series C Bonds without any right of precedence or preference between any of them. The ~~deed~~Series C Bonds are collateralized by real estate held for investment (specified lands in Park Highlands and Richardson).

The deeds of trust that ~~governs~~govern the terms of the Series ~~C Bonds~~B Debentures and Series C ~~Expansion contains~~Bonds contain various financial covenants. ~~Refer to Note 11 for further discussion.~~As of September 30, 2023, the Company was in compliance with these financial covenants.

~~Table of Contents~~

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

~~Item 1. Financial Statements (continued)~~

~~PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~June 30, 2023~~

~~(unaudited)~~

6. FAIR VALUE DISCLOSURES

The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of ~~June~~September 30, 2023 and December 31, 2022, which carrying amounts do not approximate the fair values (in thousands):


		June 30, 2023						December 31, 2022
		Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
															September 30, 2023						December 31, 2022
															Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities (Level 3):	Financial liabilities (Level 3):													Financial liabilities (Level 3):
Notes payable	Notes payable	$	678,957	$	660,208	$	660,879	$	734,899	$	728,433	$	716,813	Notes payable	$	658,207	$	653,313	$	686,606	$	734,899	$	728,433	$	716,813
Financial liabilities (Level 1):	Financial liabilities (Level 1):													Financial liabilities (Level 1):

Pacific Oak SOR BVI Series B Debentures	Pacific Oak SOR BVI Series B Debentures	$	314,130	$	315,634	$	296,389	$	331,213	$	316,276	$	304,758	Pacific Oak SOR BVI Series B Debentures	$	305,253	$	294,551	$	275,995	$	331,213	$	316,276	$	304,758
Pacific Oak SOR BVI Series C Bonds														Pacific Oak SOR BVI Series C Bonds	$	89,211	$	85,454	$	90,070	$	—	$	—	$	—

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)

September 30, 2023

(unaudited)

As of ~~June~~September 30, 2023, 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	$	30,474	$	30,474	$	—	$	—	Real estate equity securities	$	26,909	$	26,909	$	—	$	—
Asset derivative - interest rate caps (1)	Asset derivative - interest rate caps (1)	$	1,764	$	—	$	1,764	$	—	Asset derivative - interest rate caps (1)	$	2,268	$	—	$	2,268	$	—
Liability derivative - foreign currency collar (1)	Liability derivative - foreign currency collar (1)	$	4,437	$	—	$	4,437	$	—	Liability derivative - foreign currency collar (1)	$	3,119	$	—	$	3,119	$	—
Nonrecurring Basis:	Nonrecurring Basis:									Nonrecurring Basis:
Impaired real estate (2)		$	182,436	$	—	$	—	$	182,436
Impaired investment in unconsolidated entity (2)		$	26,290	$	—	$	—	$	26,290
Impaired real estate held for investment, net (2)										Impaired real estate held for investment, net (2)	$	193,529	$	—	$	—	$	193,529

_____________________

(1) Interest rate caps and foreign currency collars are included in prepaid expenses and other assets and other liabilities, respectively, on the consolidated balance sheets.

(2) Amounts represent the fair value for real estate assets ~~and investment in unconsolidated entity~~ impacted by impairment charges during the ~~six~~nine months ended ~~June~~September 30, 2023, as of the date that the fair value measurement was made. The carrying value for the real estate asset may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

~~As of June~~During the nine months ended September 30, 2023, ~~two~~three of the Company’s real estate properties were measured at the estimated fair values. ~~The two~~Two of the real estate properties were measured based on an income approach with the significant unobservable inputs used in evaluating the estimated fair value of these properties, ~~including~~which are discount rates between ~~7.5~~8.75% to 9.0% and terminal cap rates ~~of 7.0~~between 8.0% to 8.25%~~. One~~, and one real estate property was measured at its estimated value based on a sales comparison approach. Certain of the real estate properties were not measured as of September 30, 2023.

Additionally, during the nine months ended September 30, 2023, one investment in unconsolidated entity was measured at the estimated value of the Company’s ownership calculated based on a hypothetical liquidation of the net assets, discounted for lack of marketability and control. The Company used a discount rate of 8.75% and a cap rate of 7.0% to estimate the fair value of the real estate, an interest rate adjustment of 0.15% to estimate the fair value of the debt, a discount rate of 20% for lack of marketability, and a discount rate of 20% for lack of control. The one investment in unconsolidated entity was not measured as of September 30, 2023.

The fair value of the Company's real estate was measured using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 which included discounted cash flows, terminal capitalization rates, and discount rates.

As of December 31, 2022, the Company measured the following assets 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	$	60,153	$	60,153	$	—	$	—
Asset derivative - interest rate caps	$	2,267	$	—	$	2,267	$	—
Liability derivative - foreign currency collar	$	3,115	$	—	$	3,115	$	—
Nonrecurring Basis:
Impaired real estate	$	212,800	$	—	$	—	$	212,800
Impaired goodwill	$	5,436	$	—	$	—	$	5,436

1617

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~~September 30, 2023

(unaudited)

~~As of December 31, 2022, the Company measured the following assets 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 $ 60,153 $ 60,153 $ — $ —
Asset derivative - interest rate caps $ 2,267 $ — $ 2,267 $ —
Liability derivative - foreign currency collar $ 3,115 $ — $ 3,115 $ —
Nonrecurring Basis:
Impaired real estate $ 212,800 $ — $ — $ 212,800
Impaired goodwill $ 5,436 $ — $ — $ 5,436

7. RELATED PARTY TRANSACTIONS

Pacific Oak Capital Advisors, LLC

As described further below, the Company has entered into agreements with certain affiliates pursuant to which they provide services to the Company. Keith D. Hall and Peter McMillan III control and indirectly own Pacific Oak Holding Group, LLC (“Pacific Oak Holding”), the Company’s sponsor since November 1, 2019. Pacific Oak Holding is the sole owner of Pacific Oak Capital Advisors, LLC (the “Advisor”), the Company’s advisor since November 1, 2019. Messrs. Hall and McMillan are also two of the Company’s executive officers and directors.

Subject to certain restrictions and limitations, the business of the Company is externally managed by the Advisor pursuant to an advisory agreement (the “Advisory Agreement”). The Advisory Agreement ~~is currently~~was effective through November 1, 2023; however, the Company or the Advisor may terminate the Advisory Agreement without cause or penalty upon providing 60 days’ written notice. The Company is in the process of finalizing the extension of the Advisory Agreement with the Advisor. The Advisor conducts the Company’s operations and manages its portfolio of real estate and other real estate-related investments.

Pacific Oak Residential Advisors, LLC

Effective September 1, 2022, the Company’s wholly-owned subsidiary, Pacific Oak Residential Trust, Inc. (“PORT”), entered into an advisory agreement with Pacific Oak Residential Advisors, LLC (“PORA”) (the “PORT Advisory Agreement”) pursuant to which PORA will act as a product specialist with respect to the Company’s residential homes portfolio, held through PORT. The PORT Advisory Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Advisory Agreement, PORT will pay PORA: (1) an acquisition fee equal to 1.0% of the cost of each asset which consists of the price paid for the asset plus any amounts funded or budgeted at the time of acquisition for capital expenditures; and (2) a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of the Company’s residential homes portfolio assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter. In the case of investments made through a joint venture, the acquisition fee will be based on PORT’s proportionate share of the joint venture. For substantial assistance in connection with the sale of properties or other investments related to the Company’s residential homes portfolio, PORT also pays PORA or its affiliates 1.0% of the contract sales price with a limit to not exceed commission paid to unaffiliated third parties.

In connection with the PORT Advisory Agreement, the Company amended and restated its advisory agreement with the Advisor, also effective September 1, 2022, which was subsequently renewed as of November 1, 2022. Under the Advisory Agreement, the Company does not pay acquisition fees, asset management fees or disposition fees to the Advisor with respect to the Company’s residential homes portfolio. The Company’s residential homes portfolio will still be considered when computing any potential incentive fees due to the Advisor under the Advisory Agreement.

~~Table of Contents~~

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

~~Item 1. Financial Statements (continued)~~

~~PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~June 30, 2023~~

~~(unaudited)~~

DMH Realty, LLC

Effective September 1, 2022, PORT entered into a property management agreement with DMH Realty, LLC (“DMH Realty”), an affiliate of PORA and the Advisor (the “PORT Property Management Agreement”) for the Company’s residential homes portfolio. The PORT Property Management Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Property Management Agreement, PORT will pay DMH Realty a property management fee equal to the following: (a) 8% of Collected Rental Revenues, as defined below, up to $50.0 million per annum; (b) 7% of Collected Rental Revenues in excess of $50.0 million per annum, but less than or equal to $75.0 million per annum; and (c) 6% of Collected Rental Revenues in excess of $75.0 million per annum, “Collected Rental Revenues” means the amount of rental revenue actually collected for each property per the terms of the lease pertaining to each property (including lease breakage fees) or pursuant to any early termination buyouts, but excluding other income items, fees or revenue collected by DMH Realty, including but not limited to: application fees, insufficient funds fees, late fees, move-in fees, pet fees, and security deposits (except to the extent applied to rent per the terms of the lease pertaining to any property).

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)

September 30, 2023

(unaudited)

Pacific Oak Capital Markets, LLC

On September 9, 2022, PORT commenced a private offering of up to $500 million of common stock in a primary offering and up to $50 million of common stock under its distribution reinvestment plan (the “Private Offering”). PORT engaged Pacific Oak Capital Markets, LLC (“POCM”), an affiliate of the Advisor, PORA, and ~~DHM~~DMH Realty, to be the dealer manager for the Private Offering, pursuant to a dealer manager agreement effective as of September 9, 2022, which was subsequently amended and restated as of January 13, 2023 to reflect the creation of a $5 million escrow arrangement (the “PORT Dealer Manager Agreement”). Pursuant to the PORT Dealer Manager Agreement, with respect to Class A shares, PORT will generally pay POCM: (1) selling commissions equal to up to 6.0% of the net asset value (“NAV”) of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 1.5% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 1.5% of the NAV of each share sold in the primary offering. With respect to Class T shares, PORT will generally pay POCM: (1) selling commissions equal to up to 3.0% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 0.75% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 0.75% of the NAV of each share sold in the primary offering. PORT will not pay any selling commissions, dealer manager or placement agent fees in connection with the sale of shares under the distribution reinvestment plan. The Advisor is the sponsor for the Private Offering and as the sponsor, they will incur reimbursable organization and offering costs on behalf of PORT. PORT will ratably reimburse the Advisor over a 60-month period following the first anniversary of the commencement of the offering. PORT will incur an organization and offering expense fee equal to 0.5% of the NAV of each share sold in the Private Offering to help fund the reimbursement to the sponsor.

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022, respectively, and any related amounts payable as of ~~June~~September 30, 2023 and December 31, 2022 (in thousands):

Incurred during the three months ended June 30, Incurred during the six months ended June 30, Payable as of
Expensed 2023 2022 2023 2022 June 30, 2023 December 31, 2022
Asset management fees $ 3,710 $ 3,189 $ 7,684 $ 6,315 $ 5,491 $ 2,618
Property management fees (1)
859 133 1,523 258 298 181
Disposition fees 58 — 420 107 — —
Capitalized
Reimbursable offering costs (2)
894 — 894 — 894 —
$ 5,521 $ 3,322 $ 10,521 $ 6,680 $ 6,683 $ 2,799

~~Table of Contents~~

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

~~Item 1. Financial Statements (continued)~~

~~PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~June 30, 2023~~

~~(unaudited)~~



	Incurred during the three months ended September 30,				Incurred during the nine months ended September 30,				Payable as of
Expensed	2023		2022		2023		2022		September 30, 2023		December 31, 2022
Asset management fees	$	3,696	$	3,630	$	11,380	$	9,945	$	5,051	$	2,618
Property management fees (1)	700		294		2,223		552		409		181
Disposition fees	—		637		420		744		—		—
Capitalized
Reimbursable offering costs (2)	—		—		894		—		894		—
Acquisition fees on real estate	—		67		—		67		—		—
	$	4,396	$	4,628	$	14,917	$	11,308	$	6,354	$	2,799

_____________________

(1) Property management fees related to DMH Realty are recorded as operating, maintenance, and management expenses on the Company’s consolidated statements of operations.

(2) Reimbursable offering costs to the Advisor related to the Private Offering are capitalized and recorded as prepaid expenses and other assets on the Company’s consolidated balance sheet.

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)

September 30, 2023

(unaudited)

Pacific Oak Opportunity Zone Fund I

As of ~~June~~September 30, 2023, the Company’s investment balance in the Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”) is ~~$26.2~~$26.7 million, which is included in investments in unconsolidated entities on the consolidated balance sheets. The Advisor is entitled to certain fees in connection with the fund. Pacific Oak Opportunity Zone Fund I will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness incurred (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on the Company’s proportionate share of the investment. The Advisor is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s investment. In addition, side letter agreements between the Advisor and Pacific Oak Opportunity Zone Fund I were executed on February 28, 2020 and stipulate that any asset management fees allocable to the Company and waived by ~~Pacific Oak Capital Advisors~~the Advisor for Pacific Oak Opportunity Zone Fund I would be distributed to the Company.

110 William Joint Venture

In July 2023, the 110 William Joint Venture entered into debt and equity restructuring agreements (the “Restructuring Agreements”) and as a result, the Company committed to funding up to $105.0 million (“Capital Commitments”) to the 110 William Joint Venture in exchange for 77.5% of preferred interest. Additionally, Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company entered into various guarantee agreements as part of the Restructuring Agreements. Refer to Notes 8 and 10 for further discussion.

8. INVESTMENTS IN UNCONSOLIDATED ENTITIES

As of ~~June~~September 30, 2023 and December 31, 2022, the Company’s investments in unconsolidated entities were composed of the following (in thousands):


		Number of Properties as of June 30, 2023						Investment Balance as of									Number of Properties as of September 30, 2023						Investment Balance as of
Joint Venture	Joint Venture		Location		Ownership %		June 30, 2023			December 31, 2022		Joint Venture						Location		Ownership %		September 30, 2023			December 31, 2022
110 William Joint Venture	110 William Joint Venture		1		New York, New York		60% (1)			$	—	(2)		$	—	110 William Joint Venture		1		New York, New York		(1)			$	43,659	(1)		$	—
353 Sacramento Joint Venture	353 Sacramento Joint Venture	1		San Francisco, California		55.0%		26,290				45,173		353 Sacramento Joint Venture			1		San Francisco, California		55.0%		—		(2)		45,173
Pacific Oak Opportunity Zone Fund I (3)	Pacific Oak Opportunity Zone Fund I (3)	3		Various		46.0%		26,219				25,669		Pacific Oak Opportunity Zone Fund I (3)			3		Various		46.0%		26,720				25,669
								$	52,509			$	70,842										$	70,379			$	70,842

_____________________

(1) ~~On June 27, 2023, Pacific Oak SOR SREF III 110 William, LLC (the “110 William Joint Venture”) executed a lease for approximately 640,000 square feet of office space in~~The Company exercises significant influence over the ~~110 William Joint Venture’s property. Additionally, in July 2023,~~operations, financial policies and decision making with respect to the 110 William Joint Venture ~~completed a debt and equity restructuring. Refer to Note 11 for further discussion.~~

~~(2)~~ ~~As of June~~but significant decisions require approval from each member. During the nine months ended September 30, 2023, the ~~Company’s investment~~Company made capital contributions in the 110 William Joint Venture ~~was $0 due to historical distributions from~~of $28.4 million, of which $25.3 million funded the Capital Commitments. As part of the Restructuring Agreements, the Company resumed the equity method of accounting. The Company holds common and preferred interests in the 110 William Joint Venture ~~exceeding~~and is entitled to profit participation interests based on a tiered waterfall calculation which may not be reflective of the ~~Company’s book value and~~Company's economic interest in the entity.

(2) The Company suspended the equity method of ~~accounting.~~accounting and will not record the Company's share of losses and will not record the Company's share of any subsequent income for the 353 Sacramento Joint Venture until the Company’s share of net income once gain recorded exceeds Company’s share of the net losses not recognized during the period the equity method was suspended. Additionally, during the nine months ended September 30, 2023, the Company impaired the investment in the 353 Sacramento Joint Venture. See below and Note 6 for further discussion.

(3) The maximum exposure to loss as a result of the Company’s investment in the Pacific Oak Opportunity Zone Fund I is limited to the carrying amount of the investment.

1920

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~June~~September 30, 2023

(unaudited)

Summarized financial information for investments in unconsolidated entities (in thousands):


		June 30, 2023		December 31, 2022			September 30, 2023			December 31, 2022

Assets:	Assets:								Assets:
Real estate held for investment, net	Real estate held for investment, net	$	475,063	$	471,503	Real estate held for investment, net	$	425,312		$	471,503
Total assets	Total assets	541,670		546,142		Total assets	498,503			546,142
Liabilities:	Liabilities:					Liabilities:
Notes payable related to real estate held for investment, net	Notes payable related to real estate held for investment, net	498,579		490,302		Notes payable related to real estate held for investment, net	410,421			490,302
Total liabilities	Total liabilities	526,208		501,861		Total liabilities	427,807			501,861
Total equity	Total equity	$	15,462	$	44,281	Total equity	$	70,696		$	44,281


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Total revenues	Total revenues	$	10,673	$	12,461	$	21,793	$	24,570	Total revenues	$	9,793	$	11,154	$	31,257	$	35,724
Operating loss	Operating loss	(13,718)		(6,807)		(27,753)		(12,060)		Operating loss	(61,553)		(14,156)		(89,634)		(26,216)
Net loss		$	(13,771)	$	(6,795)	$	(27,719)	$	(12,036)
Net income (loss)										Net income (loss)	$	6,733	$	(14,141)	$	(21,248)	$	(26,177)

The Company’s investments in unconsolidated entities are reviewed for impairment annually or when conditions exist that may indicate that the decrease in the carrying amount of the investment has occurred and is other-than-temporary. Triggering events or impairment indicators for the Company’s investments in unconsolidated entities may include recurring operating losses, change in economic environment, and weakening of the general market condition of the geographic area. Upon determination that an other-than-temporary impairment has occurred, an impairment is recognized in loss from unconsolidated entities, net to reduce the carrying amount of the investment to its estimated fair value.

During the ~~three and six~~nine months ended ~~June~~September 30, 2023, the carrying amount of the Company’s investment in ~~a joint venture~~an unconsolidated entity was impaired by $14.8 million, primarily due to weakening market conditions of the geographic area. ~~During three and six months ended June 30, 2022,~~There were no ~~investments~~impairments in unconsolidated entities ~~were impaired.~~during the nine months ended September 30, 2022.

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~~September 30, 2023

(unaudited)

9. REPORTING SEGMENTS

The Company recognizes three reporting segments for the three and ~~six~~nine months ended ~~June~~September 30, 2023 and 2022: strategic opportunistic properties, residential 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~~nine months ended ~~June~~September 30, 2023 and 2022 are as follows (in thousands):


		Three Months Ended June 30, 2023									Three Months Ended September 30, 2023
		Strategic Opportunistic Properties		Residential Homes		Hotel		Total			Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	Total revenues	$	23,874	$	9,457	$	2,565	$	35,896	Total revenues	$	25,163	$	9,488	$	1,195	$	35,846
Total expenses	Total expenses	(64,298)		(11,403)		(3,261)		(78,962)		Total expenses	(71,131)		(11,570)		(2,370)		(85,071)
Total other (loss) income	Total other (loss) income	(14,482)		21		46		(14,415)		Total other (loss) income	(13,473)		121		34		(13,318)
Net (loss) before income taxes		$	(54,906)	$	(1,925)	$	(650)	$	(57,481)
Net loss before income taxes										Net loss before income taxes	$	(59,441)	$	(1,961)	$	(1,141)	$	(62,543)

		Six Months Ended June 30, 2023									Nine Months Ended September 30, 2023
		Strategic Opportunistic Properties		Residential Homes		Hotel		Total			Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	Total revenues	$	49,761	$	18,782	$	5,478	$	74,021	Total revenues	$	74,924	$	28,269	$	6,673	$	109,868
Total expenses	Total expenses	(119,673)		(22,668)		(6,162)		(148,503)		Total expenses	(190,773)		(34,239)		(8,564)		(233,576)
Total other income		797		21		75		893
Net (loss) income before income taxes		$	(69,115)	$	(3,865)	$	(609)	$	(73,589)
Total other (loss) income										Total other (loss) income	(12,673)		142		107		(12,424)
Net loss before income taxes										Net loss before income taxes	$	(128,522)	$	(5,828)	$	(1,784)	$	(136,132)


		Three Months Ended June 30, 2022									Three Months Ended September 30, 2022
		Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total			Strategic Opportunistic Properties		Residential Homes		Hotels		Total
Total revenues	Total revenues	$	24,884	$	5,801	$	12,854	$	43,539	Total revenues	$	25,847	$	8,576	$	9,182	$	43,605
Total expenses	Total expenses	(13,699)		(6,505)		(9,432)		(29,636)		Total expenses	(46,453)		(10,726)		(12,056)		(69,235)
Total other (loss) income	Total other (loss) income	(21,797)		(479)		4		(22,272)		Total other (loss) income	(24,052)		18,671		11		(5,370)
Net (loss) income before income taxes	Net (loss) income before income taxes	$	(10,612)	$	(1,183)	$	3,426	$	(8,369)	Net (loss) income before income taxes	$	(44,658)	$	16,521	$	(2,863)	$	(31,000)

		Six Months Ended June 30, 2022									Nine Months Ended September 30, 2022
		Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total			Strategic Opportunistic Properties		Residential Homes		Hotels		Total
Total revenues	Total revenues	$	51,750	$	11,544	$	18,771	$	82,065	Total revenues	$	77,599	$	20,120	$	27,952	$	125,671
Total expenses	Total expenses	(40,776)		(13,009)		(16,844)		(70,629)		Total expenses	(87,232)		(23,735)		(28,900)		(139,867)
Total other (loss) income	Total other (loss) income	(26,387)		(521)		2,372		(24,536)		Total other (loss) income	(50,436)		18,149		2,382		(29,905)
Net (loss) income before income taxes	Net (loss) income before income taxes	$	(15,413)	$	(1,986)	$	4,299	$	(13,100)	Net (loss) income before income taxes	$	(60,069)	$	14,534	$	1,434	$	(44,101)

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~June~~September 30, 2023

(unaudited)

Total assets and goodwill related to the reporting segments as of ~~June~~September 30, 2023 and December 31, 2022 are as follows (in thousands):


		June 30, 2023									September 30, 2023
		Strategic Opportunistic Properties		Residential Homes		Hotel		Total			Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total assets	Total assets	$	1,029,968	$	333,241	$	51,367	$	1,414,576	Total assets	$	1,026,936	$	330,659	$	48,796	$	1,406,391
Goodwill	Goodwill	4,220		—		1,216		5,436		Goodwill	4,220		—		1,216		5,436

		December 31, 2022									December 31, 2022
		Strategic Opportunistic Properties		Residential Homes		Hotel		Total			Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total assets	Total assets	$	1,173,481	$	333,128	$	52,636	$	1,559,245	Total assets	$	1,173,481	$	333,128	$	52,636	$	1,559,245
Goodwill	Goodwill	4,220		—		1,216		5,436		Goodwill	4,220		—		1,216		5,436

10. COMMITMENTS AND CONTINGENCIES

Lease Obligations

As of ~~June~~September 30, 2023, the Company’s lease and rights to a leasehold interest with respect to 210 West 31st, which was accounted for as a finance lease, are included in the consolidated balance sheets as follows:



Right-of-use asset (included in real estate held for investment, net, in thousands)	$	~~7,281~~6,391
Lease obligation (included in other liabilities, in thousands)	~~9,491~~9,514

Remaining lease term	~~90.4~~90.2
Discount rate	4.8		%

The components of lease expense were as follows:
Interest on lease obligation for the three months ended ~~June~~September 30, 2023 (in thousands)	$	113
Interest on lease obligation for the ~~six~~nine months ended ~~June~~September 30, 2023 (in thousands)	~~225~~338

As of ~~June~~September 30, 2023, the Company had a leasehold interest expiring in 2114. Future minimum lease payments owed by the Company under the finance lease as of ~~June~~September 30, 2023 are as follows (in thousands):


July 1, 2023 through December 31, 2023		$	180
October 1, 2023 through December 31, 2023				October 1, 2023 through December 31, 2023	$	90
2024	2024	360		2024	360
2025	2025	393		2025	393
2026	2026	396		2026	396
2027	2027	396		2027	396
Thereafter	Thereafter	51,771		Thereafter	51,771
Total expected minimum lease obligations	Total expected minimum lease obligations	53,496		Total expected minimum lease obligations	53,406
Less: Amount representing interest (1)	Less: Amount representing interest (1)	(44,005)		Less: Amount representing interest (1)	(43,892)
Present value of net minimum lease payments (2)	Present value of net minimum lease payments (2)	$	9,491	Present value of net minimum lease payments (2)	$	9,514

_____________________

(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.

2223

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~~September 30, 2023

(unaudited)

Capital Commitments

As of September 30, 2023 and as part of the Restructuring Agreements, the Company had a future funding commitment of $79.7 million related to the Capital Commitments. Such amounts are payable as incurred and therefore, no accrual is recognized as of September 30, 2023. Refer to Note 7 for further discussion.

Guarantee Agreements

As of September 30, 2023 and as part of the Restructuring Agreements, Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company, became the guarantor for certain guarantees related to the 110 William Joint Venture, including guaranteeing: all debt servicing costs and timely debt payments, completion for the construction and development of tenant improvement work, funding related to the Capital Commitments, and recourse obligations. The related debt has an initial maturity of July 5, 2026 and guarantee amounts are due upon occurrence of any one triggering event.

As of September 30, 2023 and as part of the Four Pack Mortgage Loan, Pacific Oak SOR Properties, LLC, an indirect subsidiary of the Company, guarantees the $10.0 million paydown on December 1, 2023. Further, each property in the Four Pack Mortgage Loan is cross-collateralized with the other properties.

Economic Dependency

The Company is dependent on the Advisor, PORA, and DMH Realty for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor, PORA, and DMH Realty are unable to provide these services, the Company will be required to obtain such services from other sources.

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of ~~June~~September 30, 2023. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

Legal Matters

From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

11. SUBSEQUENT EVENTS

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

~~110 William Joint Venture~~Park Highlands Land

On ~~July 5,~~October 3, 2023, ~~in exchange for the Company’s 77.5% preferred interest ownership percentage in the 110 William Joint Venture,~~ the Company, ~~agreed to make future capital contributions~~through an indirect wholly owned subsidiary, sold approximately 115 developable acres of ~~up to $105.0 million to fund expenditures and improvements (the “Capital Contributions”~~undeveloped land located in North Las Vegas, Nevada (“Park Highlands”)~~. The 110 William Joint Venture also exchanged a mezzanine loan encumbering the property~~ for gross sale proceeds of approximately ~~$85.7~~$57.4 million, ~~between 110 William Mezz III, LLC, an indirect subsidiary of 110 William Joint Venture,~~before net closing costs and credits. The unencumbered land was not used as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchangecollateral for contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for previously contributed capital.

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

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

~~Item 1. Financial Statements (continued)~~

~~PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~June 30, 2023~~

~~(unaudited)~~

~~Series C Bonds~~

~~On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in~~Company or the amount of 20.7 million Israeli new Shekels. The Series C Expansion was issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the initial Series C Bonds, without any right of precedence or preference between any of them.Advisor.

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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.

•We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.

•Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in some other types of real estate and real estate-related investments.

•Inflation and increased interest rates may adversely affect our financial condition and results of operations, including with respect to our ability to refinance maturing debt.

•We have paid distributions from financings and in the future, we may not pay distributions solely from our cash flow from operations or gains from asset sales. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have less funds available for investment in loans, properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

•All of our executive officers and some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other 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.

•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, 2022, ~~and~~ in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2023, each as filed with the Securities and Exchange Commission (the “SEC”).

, and the risks identified in Part II, Item 1A herein.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Overview

We were formed on October 8, 2008 as a Maryland corporation, elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010 and intend to operate in such manner. 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, except for our residential homes portfolio. Our residential homes portfolio, held through our subsidiary Pacific Oak Residential Trust, Inc. (“PORT”), is managed by Pacific Oak Residential Advisors, LLC (“PORA”), an affiliate of Pacific Oak Capital Advisors. The advisory duties are subject to the limitations in our charter and the direction and oversight of our board of directors. 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, real estate equity 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 payments under debt and funding obligations, including principal repayments, the acquisition of real estate and real estate-related investments, payment of operating expenses, capital expenditures and general and administrative expenses, ~~payments under debt and funding obligations,~~ redemptions and purchases of our common stock and payments of distributions to stockholders. To date, we have had ~~six~~five 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~~Debt financing, including bond ~~offering~~offerings in Israel;

•~~Debt financing;~~

•Proceeds from the sale of real estate and the repayment of real estate-related investments; and

•Cash flow generated by our real estate and real estate-related investments.

We sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $561.7 million. As of ~~June~~September 30, 2023, we had sold 6,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $76.5 million. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and suspended offering shares under its dividend reinvestment plan as of March 28, 2023. To date, we have invested all of the net proceeds from our initial public offering in real estate and real estate-related investments. We intend to use our cash on hand, proceeds from asset sales, proceeds from debt financing and, cash flow generated by our real estate operations and real estate-related investments as our primary sources of immediate and long-term liquidity.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, debt service payments 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 collectability of rent and operating recoveries from our tenants and how well we manage our expenditures. As of ~~June~~September 30, 2023, our office properties were collectively ~~68%~~70% occupied, our residential home portfolio was 95% occupied and our apartment properties were ~~93%~~92% occupied.

Our investment in the hotel property generates 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 property is primarily dependent upon the occupancy levels of our hotel, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel property for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022:


			Percentage Occupied for the Six Months Ended June 30,		Average Daily Rate for the Six Months Ended June 30,		Average Revenue per Available Room for the Six Months Ended June 30,				Percentage Occupied for the Nine Months Ended September 30,		Average Daily Rate for the Nine Months Ended September 30,		Average Revenue per Available Room for the Nine Months Ended September 30,
Property	Property	Number of Rooms	2023	2022	2023	2022	2023	2022	Property	Number of Rooms	2023	2022	2023	2022	2023	2022
Q&C Hotel	Q&C Hotel	196	71.0%	66.3%	$190.77	$207.64	$135.45	$137.63	Q&C Hotel	196	60.9%	59.3%	$177.90	$192.73	$108.27	$114.30

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of ~~June~~September 30, 2023, we had ~~three~~two investments in real estate equity securities outstanding with a total carrying value of ~~$30.5~~$26.9 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 ~~June~~September 30, 2023 did not exceed the charter-imposed limitation.

For the ~~six~~nine months ended ~~June~~September 30, 2023, our cash needs for capital expenditures, redemptions of common stock funding commitment, and debt requirements were met with proceeds from dispositions of real estate, proceeds from debt financing and cash on hand, except where otherwise noted. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand.

As of ~~June~~September 30, 2023, we had outstanding debt obligations in the aggregate principal amount of ~~$993.1 million,~~$1.1 billion, with a weighted-average remaining term of ~~1.7~~2.2 years. ~~As of June 30, 2023, we had a total of $460.1~~We have $269.7 million of debt obligations scheduled to mature ~~within 12 months~~over the period from September 30, 2023 through September 30, 2024. None of ~~that date.~~these debt obligations have extension options, although we have extension options available for some of our longer term debt maturities. We plan to ~~exercise our extension options available under our loan agreements~~meet these obligations primarily through a combination of one or ~~pay down~~more of cash on hand, asset sales, refinancings (whether with the same lender or ~~refinance the related notes payable prior to their maturity dates. We have also agreed to fund expenditures~~different lenders) and improvements in our 110 William Joint Venture of up to $105.0 million. We have begun conversations with our lenders about refinancing options upon maturity and we believe it is possible that we will be successful in refinancing the amounts outstanding. There can be no assurance that the refinancing will occur or on the terms currently contemplated. If sufficient refinancing cannot be arranged to satisfy our upcoming obligations, we believe we have other options to meet our obligations. These other options include but are not limited to, refinancing with other lending institutions, issuing additional ~~debt, and selling properties and using net sales proceeds to satisfy the obligations.~~debt. We believe that with these options we have sufficient cash on hand and availability to address our debt maturities and capital needs scheduled to mature ~~within 12 months~~over the period September 30, 2023 through September 30, 2024. However, tighter financial conditions, higher interest rates and lower asset values may make it more difficult to refinance our loans or to sell assets on favorable terms. In recent years, we have accessed debt capital through the Israeli capital markets, but that source of ~~June~~debt capital may be unavailable now, primarily because of the recently escalated conflict between Israel and Hamas. Our mortgage loans are primarily non-recourse to us, meaning the lender’s recourse is to take possession of the underlying property. It is possible we may choose not to repay or refinance some of the maturing loans, which would ultimately result in losing possession of the underlying property.

We have also agreed to fund expenditures and improvements to the 110 William Joint Venture of $105.0 million. As of September 30, ~~2023.~~2023, the outstanding amount to be paid under this commitment is approximately $79.7 million. We plan to fund this obligation primarily through the combination of one or more cash on hand, asset sales, refinancings and issuing additional debt.

We have elected to be taxed as a REIT and intend to operate as a REIT. To maintain our qualification as a REIT, we are required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We have not established a minimum distribution level.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Guarantee Agreements

As of September 30, 2023 and as part of the 110 William Joint Venture debt and equity restructuring (the “Restructuring Agreements”), we, through an indirect subsidiary of ours, became the guarantor for certain guarantees related to the 110 William Joint Venture, including guaranteeing: all debt servicing costs and timely debt payments, completion for the construction and development of tenant improvement work, funding related to the Capital Commitments, and recourse obligations. The related debt has an initial maturity of July 5, 2026 and guarantee amounts are due upon occurrence of any one triggering event.

As of September 30, 2023 and as part of a refinancing and consolidation of four mortgage loans, we, through an indirect subsidiary of ours, became a guarantor for the refinanced loan and guarantees the $10.0 million paydown on December 1, 2023.

Cash Flows from Operating Activities

As of ~~June~~September 30, 2023, we consolidated ~~eight~~ten office properties,, ~~one office portfolio consisting of two office buildings and 25 acres of undeveloped land,~~ two apartment properties, one hotel property, one residential home portfolio consisting of ~~2,453~~2,449 residential homes, ~~two~~four investments in undeveloped land with approximately ~~671~~696 developable acres, one office/retail development property and owned three investments in unconsolidated entities and ~~three~~two investments in real estate equity securities. During the ~~six~~nine months ended ~~June~~September 30, 2023, net cash used in operating activities was ~~$9.4~~$10.4 million. We expect that our cash flows from operating activities will increase in future periods as a result of leasing additional space that is currently unoccupied and anticipated future acquisitions of real estate and real estate-related investments. However, our cash flows from operating activities may decrease to the extent that we dispose of additional assets.

Cash Flows from Investing Activities

Net cash ~~provided by~~used in investing activities was ~~$27.3~~$19.5 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and primarily consisted of the following:

•Proceeds from sales of real estate of ~~$40.8~~$40.9 million;

•Net cash paid on foreign currency derivative settlements of ~~$18.0~~$29.3 million, as a result of purchase of foreign currency derivatives of ~~$67.1~~$100.3 million and proceeds from disposition of foreign currency derivatives of ~~$49.2~~$71.0 million;

•Contribution to an unconsolidated entity of $28.4 million;

•Improvements to real estate of $16.4 million; and

•Proceeds from the sale of real estate equity securities of ~~$13.6 million; and~~

•~~Improvements to real estate of $10.3~~$13.8 million.

Cash Flows from Financing Activities

Net cash ~~used in~~provided by financing activities was ~~$60.2~~$4.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and primarily consisted of the following:

•$~~56.3~~10.4 million of net cash ~~used in~~provided by debt and other financings as a result of proceeds from notes payable of $93.1 million and partially offset by principal payments on notes payable of ~~$56.9~~$77.7 million and payments of deferred financing costs of ~~$0.4 million and partially offset by proceeds from notes payable of $1.0~~$5.0 million; and

•$~~3.2~~5.2 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 ~~June~~September 30, 2023, our borrowings and other liabilities were approximately ~~64%~~66% of the cost of our tangible assets.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

On February 16, 2020, Pacific Oak ~~Strategic Opportunity BVI~~SOR (BVI) Holdings, Ltd. (“Pacific Oak SOR BVI”) issued 254.1 million Israeli new Shekels ~~(approximately $74.1 million as of February 16, 2020)~~ of Series B debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. ~~The Series B Debentures bear interest at the rate of 3.93% per year.~~ The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. Pacific Oak ~~Strategic Opportunity~~SOR BVI issued additional Series B Debentures subsequent to the initial issuance and as of ~~June~~September 30, 2023, 1.2 billion Israeli new Shekels (approximately ~~$314.1~~$305.3 million as of ~~June~~September 30, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, without any right of precedence or preference between any of them.

OnIn July 6, 2023, Pacific Oak Strategic Opportunity BVI completed a public offering to Israeli investors 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. Additionally, on July 17, 2023, Pacific Oak SOR BVI issued ~~an additional 20.7~~340.3 million Israeli new Shekels (approximately ~~$5.6 million)~~$89.2 million as of September 30, 2023) of Series C ~~Expansion. Refer~~bonds (the “Series C Bonds”) to Israeli investors pursuant to offerings registered with the Israeli Securities Authority and of the proceeds, 61.8 million Israeli new Shekels (approximately $16.2 million as of September 30, 2023) were held on deposit for obligations related to the ~~Subsequent Events section~~Series B Debentures. The Series C Bonds have an equal level of security, pari passu, amongst themselves and between them and the initial Series C Bonds without any right of precedence or preference between any of them. The Series C Bonds are collateralized by real estate held for ~~further discussion.~~

~~Table of Contents~~

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

~~Item 2. Management's Discussion~~investment (specified lands in Park Highlands and ~~Analysis of Financial Condition and Results of Operations (continued)~~

Richardson).

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. Investments made in or through PORT are excluded from the calculation of the asset management fee we pay to our advisor. In addition to other fees described in the advisory agreement between PORT and PORA, PORT pays PORA a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of PORT’s assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter.

Contractual Commitments and Contingencies

The following is a summary of our contractual obligations as of ~~June~~September 30, 2023 (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 2023		2024-2025		2026-2027		Thereafter		Contractual Obligations	Total		Remainder of 2023		2024-2025		2026-2027		Thereafter
Outstanding debt obligations (1)	Outstanding debt obligations (1)	$	993,087	$	264,241	$	459,913	$	268,933	$	—	Outstanding debt obligations (1)	$	1,052,671	$	28,471	$	520,836	$	503,364	$	—
Interest payments on outstanding debt obligations (2)	Interest payments on outstanding debt obligations (2)	68,174		23,098		42,624		2,452		—		Interest payments on outstanding debt obligations (2)	115,084		15,713		86,121		13,250		—
Finance lease obligation	Finance lease obligation	53,496		180		753		792		51,771		Finance lease obligation	53,406		90		753		792		51,771
Funding commitment (3)												Funding commitment (3)	79,693		3,200		76,493		—		—

_____________________

(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 ~~June~~September 30, 2023.

(3)

In July 2023, as part of the Restructuring Agreements, the Company committed to funding up to $105.0 million to the 110 William Joint Venture in exchange for 77.5% of preferred interest in the joint venture.

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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 ~~June~~September 30, 2023, we consolidated ~~eight~~ten office properties, ~~one office portfolio consisting of two office buildings and 25 acres of undeveloped land,~~ two apartment properties, one hotel property, one residential home portfolio consisting of ~~2,453~~2,449 residential homes, ~~two~~four investments in undeveloped land with approximately ~~671~~696 developable acres, one office/retail development property and owned three investments in unconsolidated entities and ~~three~~two investments in real estate equity securities. Our results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2023 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our office properties has not been stabilized. As of ~~June~~September 30, 2023, our office properties were collectively ~~69%~~70% occupied, our residential home portfolio was 95% occupied and our apartment properties was ~~93%~~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 the occupancy 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~~September 30, 2023 versus the three months ended ~~June~~September 30, 2022

The following table provides summary information about our results of operations for the three months ended ~~June~~September 30, 2023 and 2022 (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)				Three Months Ended September 30,						Increase (Decrease)				Percentage Change				$ Change Due to Acquisitions/Dispositions (1)				$ Change Due to Investments Held Throughout Both Periods (2)
		2023		2022									2023					2022
Rental income	Rental income	$	32,152	$	28,979		$	3,173				11		%		$	3,611		$	(438)	Rental income		$	31,872			$	31,445			$	427			1	%			$	—	$	427
Hotel revenues	Hotel revenues	2,565		12,854		(10,289)			(80)	%	(9,755)				(534)		Hotel revenues		1,195			9,182				(7,987)				(87)		%		(7,707)				(280)
Other operating income	Other operating income	1,066		887		179			20	%	—				179		Other operating income		1,094			830			264				32		%		—				264
Dividend income from real estate equity securities	Dividend income from real estate equity securities	113		819		(706)			(86)	%	—				(706)		Dividend income from real estate equity securities		1,685			2,148			(463)				(22)		%		—				(463)
Operating, maintenance, and management	Operating, maintenance, and management	11,107		10,342		765			7	%	883				(118)		Operating, maintenance, and management		12,102			12,342			(240)				(2)		%		(287)				47
Real estate taxes and insurance	Real estate taxes and insurance	5,843		5,079		764			15	%	845				(81)		Real estate taxes and insurance		6,281			5,650			631				11		%		—				631
Hotel expenses	Hotel expenses	1,984		6,998		(5,014)			(72)	%	(5,187)				173		Hotel expenses		1,330			5,377			(4,047)				(75)		%		(4,070)				23
Asset management fees to affiliates	Asset management fees to affiliates	3,710		3,189		521			16	%	606				(85)		Asset management fees to affiliates		3,696			3,630			66				2		%		(107)				173
General and administrative expenses	General and administrative expenses	3,222		2,983		239			8	%	n/a				n/a		General and administrative expenses		1,952			2,504			(552)				(22)		%		n/a				n/a
Foreign currency transaction loss (gain), net	Foreign currency transaction loss (gain), net	6,272		(23,833)		30,105			(126)	%	n/a				n/a		Foreign currency transaction loss (gain), net		1,123			(6,001)			7,124				(119)		%		n/a				n/a
Depreciation and amortization	Depreciation and amortization	12,110		14,098		(1,988)			(14)	%	750				(2,738)		Depreciation and amortization		12,399			12,717			(318)				(3)		%		—				(318)
Interest expense	Interest expense	15,788		10,780		5,008			46	%	(5)				5,013		Interest expense		17,928			12,976			4,952				38		%		(740)				5,692
Impairment charges on real estate and related intangibles	Impairment charges on real estate and related intangibles	18,926		—		18,926			100	%	n/a				n/a		Impairment charges on real estate and related intangibles		28,260			11,942			16,318				137		%		n/a				n/a
Impairment charges on goodwill																	Impairment charges on goodwill		—			8,098			(8,098)				(100)		%		n/a				n/a
Loss from unconsolidated entities, net	Loss from unconsolidated entities, net	(14,630)		(2,075)		(12,555)			605	%	355				(12,910)		Loss from unconsolidated entities, net		(10,405)			(3,376)			(7,029)				208		%		—				(7,029)
Other interest income	Other interest income	1,012		48		964			2,008	%	n/a				n/a		Other interest income		639			61			578				948		%		n/a				n/a
Loss on real estate equity securities, net	Loss on real estate equity securities, net	(4,089)		(20,070)		15,981			(80)	%	—				15,981		Loss on real estate equity securities, net		(3,331)			(20,722)			17,391				(84)		%		n/a				n/a
Gain (loss) on sale of real estate		3,292		(175)		3,467			(1,981)	%	3,467				—
Loss on sale of real estate																	Loss on sale of real estate		(221)			(75)			(146)				195		%		(146)				—
Gain from consolidation of previously unconsolidated entity																	Gain from consolidation of previously unconsolidated entity		—			18,742			(18,742)				(100)		%		(18,742)				—

_____________________

(1) Represents the dollar amount increase (decrease) for the three months ended ~~June~~September 30, 2023 compared to the three months ended ~~June~~September 30, 2022 related to real estate and real estate-related investments acquired or disposed on or after ~~July~~October 1, 2022.

(2) Represents the dollar amount increase (decrease) for the three months ended ~~June~~September 30, 2023 compared to the three months ended ~~June~~September 30, 2022 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)

Rental income slightly increased to ~~$32.2~~$31.9 million for the three months ended ~~June~~September 30, 2023 from ~~$29.0~~$31.4 million for the three months ended ~~June~~September 30, 2022, primarily as a result of the consolidation of Pacific Oak Residential Trust II, Inc. (“PORT II”) in July 2022, which accounted for approximately $3.7 million of rental income during the three months ended June 30, 2023.2022. 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 decreased to ~~$2.6~~$1.2 million for the three months ended ~~June~~September 30, 2023 from ~~$12.9~~$9.2 million for the three months ended ~~June~~September 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately ~~$9.4~~$7.7 million of hotel revenues during the three months ended ~~June~~September 30, 2022.

Operating, maintenance, and management costs, and real estate taxes and insurance increased to $11.1 million and $5.8 million, respectively, for the three months ended June 30, 2023 from $10.3 million and $5.1 million, respectively for the three months ended June 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $0.9 million and $0.8 million of operating, maintenance, and management costs, and real estate taxes and insurance, respectively, during the three months ended June 30, 2023. We expect operating, maintenance, and management 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 decreased to ~~$2.0~~$1.3 million for the three months ended ~~June~~September 30, 2023 from ~~$7.0~~$5.4 million for the three months ended ~~June~~September 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort during 2022, which accounted for approximately ~~$4.6~~$4.1 million of hotel expenses during the three months ended ~~June~~September 30, ~~2022~~2022.

Asset management fees to affiliates slightly increased to $3.7 million for the three months ended ~~June~~September 30, 2023 from ~~$3.2~~$3.6 million for the three months ended ~~June~~September 30, ~~2022, primarily due to the consolidation of PORT II, which accounted for approximately $0.8 million increase during the three months ended June 30, 2023.~~2022. 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.

~~We recognized a $6.3 million foreign~~Foreign currency transaction loss, net was $1.1 million for the three months ended ~~June~~September 30, 2023 and ~~$23.8~~a $6.0 million of foreign currency transaction gain, net for the three months ended ~~June~~September 30, 2022, related to the ~~debentures in Israel.~~Series B Debentures and Series C Bonds. These ~~debentures~~bonds are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates and partially offset by results of foreign currency collars.

~~Depreciation and amortization decreased~~Interest expense increased to ~~$12.1~~$17.9 million for the three months ended ~~June~~September 30, 2023 from ~~$14.1~~$13.0 million for the three months ended June 30, 2022, primarily due to the disposition of the Springmaid Beach Resort, which accounted for approximately $0.5 million of depreciation and amortization during the three months ended June 30, 2022 and lease intangibles that were fully amortized during the three months ended June 30, 2022 and partially offset by the consolidation of PORT II, which accounted for $1.3 million of depreciation and amortization during the three months ended June 30, 2023. We expect depreciation and amortization to increase in future periods to the extent we acquire additional properties, but to decrease as a result of amortization of lease intangibles related to lease expirations and disposition of properties.

~~Interest expense increased to $15.8 million for the three months ended June 30, 2023 from $10.8 million for the three months ended June~~September 30, 2022, primarily due to increased one-month floating rates, increased debt from the issuance of Series C Bonds, and increased interest terms due to the Four Pack Mortgage Loan during the three months ended ~~June~~September 30, 2023 and was partially offset by a decrease in the outstanding debt balance during three months ended ~~June~~September 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and pay down debt, including annual principal installment payments on the debentures.

~~During~~Impairment charges on real estate and related intangibles increased to $28.3 million for the three months ended ~~June~~September 30, 2023 ~~we recognized impairment charges of $18.9~~from $11.9 million for ~~our two real estate properties. There were no impairments recognized during~~ the three months ended ~~June~~September 30, ~~2022.~~2022, primarily due to a slowdown in economic growth and increasing interest rates affecting real estate values.

There were no impairment charges on goodwill for the three months ended September 30, 2023. Impairment charges on goodwill for the three months ended September 30, 2022 were $8.1 million and were related to the impairment of goodwill of one office property and one hotel.

Loss from unconsolidated entities, net increased to ~~$14.6~~$10.4 million for the three months ended ~~June~~September 30, 2023 from ~~$2.1~~$3.4 million for the three months ended ~~June~~September 30, 2022, primarily related to our share of losses related to the ~~impairment~~353 Sacramento Joint Venture of ~~an unconsolidated joint venture of $14.8~~$26.3 million and partially offset by ~~income recognized from an unconsolidated joint venture, which accounted for $1.1 million~~our share of income ~~from unconsolidated entities~~related to the 110 William Joint Venture of $14.7 million.

Loss on real estate equity securities, net decreased to $3.3 million for the three months ended ~~June~~September 30, ~~2023.~~2023 from $20.7 million for the three months ended September 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Loss on real estate equity securities, net decreased to $4.1 million for the three months ended June 30, 2023 from $20.1 million for the three months ended June 30, 2022, which was composed of $9.9 million unrealized loss on real estate equity securities held at June 30, 2023 and $5.8 million realized gain on real estate equity securities sold during the three months ended June 30, 2023. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in share prices of our investments in real estate equity securities.

During the three months ended June 30, 2023, we sold a vacant building related to the Madison Square property in Phoenix, Arizona (“Madison Square School”) that resulted in a gain on sale of real estate of $3.3 million. There were no material dispositions during the three months ended June 30, 2022.

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2023 versus the ~~six~~nine months ended ~~June~~September 30, 2022

The following table provides summary information about our results of operations for the ~~six~~nine months ended ~~June~~September 30, 2023 and 2022 (dollar amounts in thousands):


		Months Ended June 30,				Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions (1)				$ Change Due to Investments Held Throughout Both Periods (2)				Nine Months Ended September 30,						Increase (Decrease)				Percentage Change				$ Change Due to Acquisitions/ Dispositions (1)				$ Change Due to Investments Held Throughout Both Periods (2)
		2023		2022									2023					2022
Rental income	Rental income	$	64,229	$	58,360		$	5,869				10		%		$	7,138		$	(1,269)	Rental income		$	96,101			$	89,806			$	6,295			7	%			$	8,044	$	(1,749)
Hotel revenues	Hotel revenues	5,478		18,771		(13,293)			(71)	%	(13,269)				(24)		Hotel revenues		6,673			27,952				(21,279)				(76)		%		(20,976)				(303)
Other operating income	Other operating income	2,204		1,728		476			28	%	(15)				491		Other operating income		3,299			2,559			740				29		%		(15)				755
Dividend income from real estate equity securities	Dividend income from real estate equity securities	2,110		3,206		(1,096)			(34)	%	—				(1,096)		Dividend income from real estate equity securities		3,795			5,354			(1,559)				(29)		%		—				(1,559)
Operating, maintenance, and management	Operating, maintenance, and management	22,275		20,218		2,057			10	%	1,651				406		Operating, maintenance, and management		34,377			32,560			1,817				6		%		1,363				454
Real estate taxes and insurance	Real estate taxes and insurance	12,260		10,103		2,157			21	%	689				1,468		Real estate taxes and insurance		18,541			15,753			2,788				18		%		776				2,012
Hotel expenses	Hotel expenses	3,945		12,109		(8,164)			(67)	%	(8,693)				529		Hotel expenses		5,275			17,485			(12,210)				(70)		%		(12,763)				553
Asset management fees to affiliates	Asset management fees to affiliates	7,684		6,315		1,369			22	%	1,166				203		Asset management fees to affiliates		11,380			9,945			1,435				14		%		1,426				9
General and administrative expenses	General and administrative expenses	6,220		5,977		243			4	%	n/a				n/a		General and administrative expenses		8,176			8,486			(310)				(4)		%		n/a				n/a
Foreign currency transaction loss (gain), net	Foreign currency transaction loss (gain), net	3,553		(31,098)		34,651			(111)	%	n/a				n/a		Foreign currency transaction loss (gain), net		4,675			(37,100)			41,775				(113)		%		n/a				n/a
Depreciation and amortization	Depreciation and amortization	24,158		26,662		(2,504)			(9)	%	1,170				(3,674)		Depreciation and amortization		36,556			39,379			(2,823)				(7)		%		1,105				(3,928)
Interest expense	Interest expense	31,819		20,343		11,476			56	%	(447)				11,923		Interest expense		49,747			33,319			16,428				49		%		(1,240)				17,668
Impairment charges on real estate and related intangibles	Impairment charges on real estate and related intangibles	36,589		—		36,589			100	%	n/a				n/a		Impairment charges on real estate and related intangibles		64,849			11,942			52,907				443		%		n/a				n/a
Impairment charges on goodwill																	Impairment charges on goodwill		—			8,098			(8,098)				(100)		%		n/a				n/a
Loss from unconsolidated entities, net	Loss from unconsolidated entities, net	(16,962)		(2,754)		(14,208)			516	%	451				(14,659)		Loss from unconsolidated entities, net		(27,367)			(6,130)			(21,237)				346		%		451				(21,688)
Other interest income	Other interest income	1,216		94		1,122			1,194	%	n/a				n/a		Other interest income		1,855			155			1,700				1,097		%		n/a				n/a
Loss on real estate equity securities, net	Loss on real estate equity securities, net	(16,122)		(27,591)		11,469			(42)	%	—				11,469		Loss on real estate equity securities, net		(19,453)			(48,312)			28,859				(60)		%		n/a				n/a

Gain on sale of real estate	Gain on sale of real estate	32,761		3,348		29,413			879	%	29,413				—		Gain on sale of real estate		32,541			3,273			29,268				894		%		29,268				—
Gain on extinguishment of debt	Gain on extinguishment of debt	—		2,367		(2,367)			(100)	%	n/a				n/a		Gain on extinguishment of debt		—			2,367			(2,367)				(100)		%		n/a				n/a
Income tax provision	Income tax provision	(3,662)		—		(3,662)			100	%	(3,662)				—		Income tax provision		(3,662)			—			(3,662)				100		%		(3,662)				—
Gain from consolidation of previously unconsolidated entity																	Gain from consolidation of previously unconsolidated entity		—			18,742			(18,742)				(100)		%		(18,742)				—

_____________________

(1) Represents the dollar amount increase (decrease) for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022 related to real estate and real estate-related investments acquired or disposed on or after ~~July~~October 1, 2022.

(2) Represents the dollar amount increase (decrease) for the ~~six~~nine months ended ~~June~~September 30, 2023 compared to the ~~six~~nine months ended ~~June~~September 30, 2022 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income increased to ~~$64.2~~$96.1 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$58.4~~$89.8 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily as a result of the consolidation of PORT II in July 2022, which accounted for approximately $7.3 million of rental income during the ~~six~~nine months ended ~~June~~September 30, 2023. 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 decreased to ~~$5.5~~$6.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$18.8~~$28.0 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately ~~$12.7~~$20.1 million of hotel revenues during the ~~six~~nine months ended ~~June~~September 30, 2022.

Hotel expenses decreased to $5.3 million for the nine months ended September 30, 2023 from $17.5 million for the nine months ended September 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately $12.8 million of hotel expenses during the nine months ended September 30, 2022.

Asset management fees to affiliates increased to $11.4 million for the nine months ended September 30, 2023 from $9.9 million for the nine months ended September 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $1.5 million increase during the nine months ended September 30, 2023. 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Operating, maintenance, and management costs, and real estate taxes and insurance increased to $22.3 million and $12.3 million, respectively, for the six months ended June 30, 2023 from $20.2 million and $10.1 million, respectively for the six months ended June 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $1.7 million and $1.7 million of operating, maintenance, and management costs, and real estate taxes and insurance, respectively, during the six months ended June 30, 2023. We expect operating, maintenance, and management 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 decreased to $3.9 million for the six months ended June 30, 2023 from $12.1 million for the six months ended June 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort in September 2022, which accounted for approximately $8.1 million of hotel expenses during the six months ended June 30, 2022.

Asset management fees increased to $7.7 million for the six months ended June 30, 2023 from $6.3 million for the six months ended June 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $1.5 million increase during the six months ended June 30, 2023. We expect asset management fees to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

~~We recognized a $3.6 million foreign~~Foreign currency transaction loss, net was $4.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023 and a ~~$31.1~~$37.1 million foreign currency transaction gain, net for the ~~six~~nine months ended ~~June~~September 30, ~~2022, related~~2023, primarily due to the ~~debentures in Israel.~~Series B Debentures and Series C Bonds. These ~~debentures~~bonds are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates and partially offset by results of foreign currency collars.

Depreciation and amortization decreased to ~~$24.2~~$36.6 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$26.7~~$39.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to the disposition of the Springmaid Beach Resort, which accounted for approximately $1.0 million of depreciation and amortization during the ~~six~~nine months ended ~~June~~September 30, 2022 and lease intangibles that were fully amortized during the ~~six~~nine months ended ~~June~~September 30, 2022 and partially offset by the consolidation of PORT II, which accounted for ~~$2.2~~approximately $2.1 million of depreciation and amortization during the ~~six~~nine months ended ~~June~~September 30, 2023. 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 related to lease expirations and disposition of properties.

Interest expense increased to ~~$31.8~~$49.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$20.3~~$33.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily due to increased one-month floating rates, increased debt from the issuance of Series C Bonds, and increased interest terms due to the Four Pack Mortgage Loan during the ~~six~~nine months ended ~~June 30, 2023 and partially offset by a decrease in the outstanding debt balance during the six months ended June~~September 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and pay down debt, including annual principal installment payments on the debentures.

~~During~~Impairment charges on real estate and related intangibles increased to $64.8 million for the ~~six~~nine months ended ~~June~~September 30, 2023 ~~we recognized impairment charges of $36.6~~from $11.9 million for ~~our two~~the nine months ended September 30, 2022, primarily due to a slowdown in economic growth and increasing interest rates affecting real estate ~~properties.~~ values.

There were no ~~impairments recognized during~~impairment charges on goodwill for the ~~six~~nine months ended ~~June~~September 30, ~~2022.~~2023. Impairment charges on goodwill for the nine months ended September 30, 2022 were $8.1 million and were related to the impairment of goodwill of one office property and one hotel.

Loss from unconsolidated entities, net increased to ~~$17.0~~$27.4 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$2.8~~$6.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022, primarily related to the impairment of ~~an unconsolidated joint venture~~the 353 Sacramento Joint Venture of $14.8 million, our share of losses related to the 353 Sacramento Joint Venture of $29.3 million, and partially offset by ~~income recognized from an unconsolidated joint venture, which accounted for $0.5 million~~our share of income ~~from unconsolidated entities~~related to the 110 William Joint Venture of $14.7 million for the ~~six~~nine months ended ~~June~~September 30, 2023.

Loss on real estate equity securities, net decreased to ~~$16.1~~$19.5 million for the ~~six~~nine months ended ~~June~~September 30, 2023 from ~~$27.6~~$48.3 million for the ~~six~~nine months ended ~~June~~September 30, 2022, which was composed of ~~$21.9~~$25.4 million unrealized loss on real estate equity securities held at ~~June~~September 30, 2023 and ~~$5.8~~$5.9 million realized gain on real estate equity securities sold during the ~~six~~nine months ended ~~June~~September 30, 2023. 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~~Gain on sale of real estate increased to $32.5 million for the ~~six~~nine months ended ~~June~~September 30, 2023 ~~we sold approximately~~from $3.3 million for the nine months ended September 30, 2022, primarily due to the sale of 71 acres of developable land and the Madison Square School, ~~and recognized~~which attributed to a gain on sale of real estate of $29.5 million ~~and $3.3 million, respectively. During~~during the ~~six~~nine months ended ~~June~~September 30, ~~2022, we sold two office buildings related to the Richardson Portfolio and recognized a gain on sale of $3.6 million.~~2023.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of 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 entities. In addition, we elected the option to exclude mark-to-market changes in value recognized on equity securities in the calculation of FFO. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses modified funds from operations (“MFFO”) as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above- and below-market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the 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, amortization of premium or discount on bond and notes payable, 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;

•Amortization of premium or discount on bond and notes payable. These are adjustments to interest expense as required by GAAP to recognize bond and notes payable discount and premiums on a straight-line basis over the life of the respective bond or notes payable. We have excluded these adjustments in our calculation of MFFO to appropriately reflect the current economic impact of our bond and notes payable and related interest expense;

•~~Loss~~Gain or ~~gain~~loss 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;

•Unrealized gain or loss from interest rate caps. These adjustments include unrealized gains from mark-to-market adjustments on interest rate caps. The change in fair value of interest rate caps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate cap agreements;

• Gain from consolidation of previously unconsolidated entity. The gain is recognized as part of a consolidation process of a previously unconsolidated entity, where we became the primary beneficiary. We exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis; and

•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.

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 income tax provision. 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~~nine months ended ~~June~~September 30, 2023 and 2022 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2023		2022		2023		2022			2023		2022		2023		2022
Net loss attributable to common stockholders	Net loss attributable to common stockholders	$	(57,475)	$	(9,019)	$	(77,056)	$	(13,775)	Net loss attributable to common stockholders	$	(60,232)	$	(30,492)	$	(137,288)	$	(44,267)
Depreciation of real estate assets	Depreciation of real estate assets	9,615		8,368		19,001		16,662		Depreciation of real estate assets	8,864		8,882		27,865		25,544
Impairment charges on real estate and related intangibles	Impairment charges on real estate and related intangibles	18,926		—		36,589		—		Impairment charges on real estate and related intangibles	28,260		11,942		64,849		11,942
Amortization of lease-related costs	Amortization of lease-related costs	2,495		5,730		5,157		10,000		Amortization of lease-related costs	3,535		3,835		8,692		13,835
(Gain) loss on sale of real estate (1)		(3,292)		175		(32,761)		(3,348)
Loss (gain) on sale of real estate (1)										Loss (gain) on sale of real estate (1)	221		2,621		(32,541)		(727)
Loss on real estate equity securities, net	Loss on real estate equity securities, net	4,089		20,070		16,122		27,591		Loss on real estate equity securities, net	3,331		20,722		19,453		48,312
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	112		(287)		(70)		(584)		Adjustments for noncontrolling interests - consolidated entities (2)	(1,162)		(1,724)		(1,231)		(2,308)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	10,872		2,021		7,368		2,933		Adjustments for investments in unconsolidated entities (3)	27,355		(4,716)		34,723		(1,783)
FFO attributable to common stockholders	FFO attributable to common stockholders	(14,658)		27,058		(25,650)		39,479		FFO attributable to common stockholders	10,172		11,070		(15,478)		50,548
Straight-line rent and amortization of above- and below-market leases	Straight-line rent and amortization of above- and below-market leases	(814)		(621)		(1,841)		(1,935)		Straight-line rent and amortization of above- and below-market leases	827		(791)		(1,014)		(2,729)
Amortization of net premium/discount on bond and notes payable	Amortization of net premium/discount on bond and notes payable	1,082		1,477		2,185		2,255		Amortization of net premium/discount on bond and notes payable	1,082		1,117		3,267		3,372
Gain on extinguishment of debt	Gain on extinguishment of debt	—		—		—		(2,367)		Gain on extinguishment of debt	—		—		—		(2,367)
Unrealized gain on interest rate caps	Unrealized gain on interest rate caps	(364)		(215)		(328)		(270)		Unrealized gain on interest rate caps	(51)		(834)		(378)		(1,103)
Gain from consolidation of previously unconsolidated entity										Gain from consolidation of previously unconsolidated entity	—		(18,742)		—		(18,742)
Foreign currency transaction loss (gain), net	Foreign currency transaction loss (gain), net	6,272		(23,833)		3,553		(31,098)		Foreign currency transaction loss (gain), net	1,123		(6,001)		4,675		(37,100)
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	(3)		(42)		(7)		(82)		Adjustments for noncontrolling interests - consolidated entities (2)	(4)		(21)		(10)		(100)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	384		3,166		811		2,901		Adjustments for investments in unconsolidated entities (3)	441		98		1,252		2,999
MFFO attributable to common stockholders	MFFO attributable to common stockholders	(8,101)		6,990		(21,277)		8,883		MFFO attributable to common stockholders	13,590		(14,104)		(7,686)		(5,222)
Other capitalized operating expenses (4)	Other capitalized operating expenses (4)	(2,002)		(638)		(2,002)		(1,211)		Other capitalized operating expenses (4)	(1,227)		(801)		(3,229)		(2,012)
Income tax provision	Income tax provision	—		—		3,662		—		Income tax provision	—		—		3,662		—
Adjusted MFFO attributable to common stockholders	Adjusted MFFO attributable to common stockholders	$	(10,103)	$	6,352	$	(19,617)	$	7,672	Adjusted MFFO attributable to common stockholders	$	12,363	$	(14,905)	$	(7,253)	$	(7,234)

_____________________

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

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

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

(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 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.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Distributions

There were no distributions declared for the ~~six~~nine months ended ~~June~~September 30, 2023. Our net loss attributable to common stockholders for the ~~six~~nine months ended ~~June~~September 30, 2023 was ~~$77.1~~$137.3 million and our cash flows used in operations were ~~$9.4~~$10.4 million. Our cumulative distributions ~~paid~~ and net loss attributable to common stockholders from inception through ~~June~~September 30, 2023 were ~~$572.8~~$633.1 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, requires estimates about matters that are inherently uncertain and which are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities 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, 2022 filed with the SEC. There have been no significant changes to our policies during 2023.

Subsequent Events

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

~~110 William~~Park Highlands Land

On ~~July 5,~~October 3, 2023, we, through an indirect wholly owned subsidiary, sold approximately 115 developable acres of undeveloped land located in ~~exchange~~North Las Vegas, Nevada (“Park Highlands”) for the Company’s 77.5% preferred interest ownership percentage in 110 William Joint Venture, the Company agreed to make future capital contributions of up to $105.0 million to fund expenditures and improvements (the “Capital Contributions”). The 110 William Joint Venture also converted a mezzanine loan encumbering the propertygross sale proceeds of approximately ~~$85.7~~$57.4 million, ~~between 110 William Mezz III, LLC, an indirect subsidiary of 110 Williams Joint Venture,~~before net closing costs and credits. The unencumbered land was not used as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchangecollateral for ~~contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for contributed capital.~~

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

~~Series C Bonds~~

On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to Israeli investors, of 319.6 million Israeli new Shekels (approximately $86.4 million) of Series C bonds (the “Series C Bonds”). The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange on July 9, 2023. The terms of the Series C Bonds are governed by a deed of trust, containing various financial covenants, among Pacific Oak SOR BVI and Reznik Paz Nevo Trusts Ltd., as trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by real estate held for investment.

On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the amount of 20.7 million Israeli new Shekels par value (the “Series C Expansion”). The Series C Expansion was issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the Series C Bonds, without any right of precedence or preference between any of them. The deed of trust that governs the terms of the Series C Bonds and ~~Series C Expansion contains various financial covenants.~~$7.5 million of a $17.0 million earnest money deposit was applied to this sale. The purchaser is not affiliated with us or our advisor.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency and Interest Rate Risk

Certain transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposure is Israeli New Shekel; in particular, we are exposed to the effects of foreign currency changes in Israel with respect to the Series B Debentures and the Series C Bonds ~~and Series C Expansion~~ issued to investors in Israel.

In addition, we are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. 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 ~~June~~September 30, 2023, we held ~~39.8~~124.0 million Israeli new Shekels and ~~24.7~~90.8 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of ~~June~~September 30, 2023, we had debentures and bonds outstanding and the related interest payable in the amounts of ~~1.2~~1.5 billion Israeli new Shekels and ~~19.1~~14.8 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 ~~six~~nine months ended ~~June~~September 30, 2023, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$23.5~~$31.1 million and ~~$37.5~~$36.0 million, respectively, for the same period.

We borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of ~~June~~September 30, 2023, the fair value of our Series B Debentures was ~~$296.4~~$276.0 million and the outstanding principal balance was ~~$314.1~~$305.3 million. The fair value estimate of the Series B Debentures and Series C Bonds were calculated using the quoted bond price as of September 30, 2023 on the Tel Aviv Stock Exchange of 91.07 and 103.08 Israeli new Shekels, respectively. As of September 30, 2023, the fair value of our Series C Bonds was $90.1 million and the outstanding principal balance was $89.2 million. As of ~~June~~September 30, 2023, excluding the Series B Debentures and Series C Bonds, the fair value of our fixed rate debt was ~~$219.7~~$306.4 million and the outstanding principal balance of our fixed rate debt was ~~$233.5~~$233.2 million. ~~The fair value estimate of the Series B Debentures was calculated using the quoted bond price as of June 30, 2023 on the Tel Aviv Stock Exchange of 95.99 Israeli new Shekels, respectively.~~ The fair value estimate of our fixed rate debt, excluding the Series B Debentures and Series C Bonds, 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 ~~June~~September 30, 2023. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting changes in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of ~~June~~September 30, 2023, we had entered into three separate interest rate caps with an aggregate notional of ~~$156.6~~$153.5 million which effectively limits our exposure to increases in one-month SOFR above certain thresholds. Based on interest rates as of ~~June~~September 30, 2023, if interest rates were 100 basis points higher or lower during the 12 months ending ~~June~~September 30, 2022, interest expense on our variable rate debt would increase or decrease by ~~$2.8~~$2.7 million and ~~$5.3~~$4.3 million, respectively.

The weighted-average interest rates of our fixed rate debt and variable rate debt as of June 30, 2023 were 4.1% and 7.5%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of June 30, 2023 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of June 30, 2023 where applicable.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

The weighted-average interest rates of our fixed rate debt and variable rate debt as of September 30, 2023 were 4.8% and 7.9%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of September 30, 2023 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of September 30, 2023 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 ~~June~~September 30, 2023, we owned real estate equity securities with a book value of ~~$30.5~~$26.9 million. Based solely on the prices of real estate equity securities as of ~~June~~September 30, 2023, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$3.1~~$2.7 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.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

In addition to the risk ~~factor~~factors discussed below, please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, ~~and~~ in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended June 30, 2023, each as filed with the SEC.

We have limited liquidity relative to our needs, which may limit our ability to retain certain investments and to make new investments.

We have $269.7 million of debt obligations scheduled to mature over the period from September 30, 2023 through September 30, 2024. None of these debt obligations have extension options, although we have extension options available for some of our longer term debt maturities. We plan to meet these obligations primarily through a combination of one or more of cash on hand, asset sales, refinancings (whether with the same lender or different lenders) and issuing additional debt. We believe that with these options we have sufficient cash on hand and availability to address our debt maturities and capital needs scheduled to mature over the period September 30, 2023 through September 30, 2024. However, tighter financial conditions, higher interest rates and lower asset values may make it more difficult to refinance our loans or to sell assets on favorable terms. In ~~certain cases, financings for our investments~~recent years, we have accessed debt capital through the Israeli capital markets, but that source of debt capital may be ~~recourse to us.~~

Generally, commercial real estate financings are structured as nonrecourse to the borrower. However, lenders customarily will require that a creditworthy parent entity enter so-called “recourse carveout” guarantees. For example, a lender might require guarantees from the guarantors for the completion of tenant improvements, paymentunavailable now, primarily because of the ~~guarantor’s obligation,~~recently escalated conflict between Israel and Hamas. We will decide on a case by case basis whether to repay or ~~against certain bad acts. In addition, certain guarantees typically provide that~~refinance each of these loans, based on factors such as our available liquidity and when the loan ~~will be a full personal recourse obligation of~~is due, the ~~guarantor,~~terms offered, if any, for ~~certain actions.~~

~~The change in~~refinancing, and the value of ~~Israeli currency~~our equity in the property relative to the outstanding debt balance. It is possible we may ~~materially and adversely affect our results of operations and financial condition.~~

~~On February 16, 2020, Pacific Oak Strategic Opportunity BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B Debentures~~choose not to Israeli investors pursuant to a public offering, which bonds are denominated in Israeli new Shekels. The Series B Debentures bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33%repay or refinance some of the ~~face amount~~maturing loans, which would ultimately result in losing possession of the ~~Series B Debentures~~underlying property. Because of our limited liquidity relative to our needs, we may be limited in our ability to retain certain investments and to make new investments, which may have an adverse impact on ~~January 31st of each year from 2024~~our financial performance, our ability to ~~2026. Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures subsequent to the initial issuance~~make distributions and ~~as of June 30, 2023, 1.2 billion Israeli new Shekels (approximately $314.1 million as June 30, 2023) were outstanding.~~

On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to Israeli investors, of 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. The Series C Bonds were issued and registered with the Tel Aviv Stock Exchange on July 9, 2023. The terms of the Series C Bonds are governed by a deed of trust, among Pacific Oak SOR BVI and Reznik Paz Nevo Trusts Ltd., as trustee. The notes will bear interest at the rate of 9% per year. The Series C Bonds mature on June 30, 2026 and are collateralized by land. On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the amount of 20.7 million Israeli new Shekels par value. The Series C Bonds were issued at a 1.0% discount, resulting in a total consideration of 20.5 million Israeli new Shekels (approximately $5.6 million). The additional Series C Expansion has an equal level of security, pari passu, amongst themselves and between them and the Series C Bonds, without any right of precedence or preference between any of them. The deed of trust that governs the terms of the Series C Bonds and Series C Expansion contains various financial covenants.

~~As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between Israeli new Shekels and U.S. Dollars. More specifically, a significant change in~~ the value of our shares of common stock. We may be forced to sell an asset on unfavorable terms to improve our liquidity situation and meet our future liquidity needs.

Elevated market and economic volatility due to adverse economic and geopolitical conditions (such as the ~~Israeli new Shekels may~~crisis in Israel) and dislocations in the credit markets could have ana material adverse effect on our results of operations, financial condition and ~~financial condition. We have attempted~~ability to ~~mitigate this foreign currency risk~~borrow on terms and conditions that we find acceptable.

Our business may be adversely affected by ~~using derivative contracts. However, there can be no assurance that those attempts to mitigate foreign currency risk will ultimately be successful.~~

~~Uncertain~~ market ~~conditions could cause us to sell our real estate investments~~ and economic volatility experienced by the U.S. and global economies, the U.S. office market as a whole and/or ~~investments in unconsolidated entities at a loss~~the local economies in the ~~future.~~

~~We intend~~markets in which our properties are located. Such adverse economic and geopolitical conditions may be due to, ~~hold our real estate investments~~among other issues, increased labor market challenges impacting the recruitment and ~~investments in unconsolidated entities~~ ~~until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. We may exercise discretion as to whether~~retention of employees, rising inflation and when to sell an investment, and we will have no obligation to sell at any particular time. We generally intend to hold our investments for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular timeinterest rates, volatility in the ~~future. Because of~~public equity and debt markets, and international economic and other conditions, including geopolitical instability (such as the ~~uncertainty of market~~crisis in Israel), sanctions and other conditions ~~that may affect the future disposition of~~beyond our ~~investments, we may not be able to sell our investments at a profit~~control. These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, financial condition and ability to pay dividends and/or ~~at all. In addition, if we are unable~~distributions as a result of one or more of the following, among other potential consequences:

•the financial condition of our tenants may be adversely affected, which may result in tenant defaults under leases due to ~~access~~bankruptcy, lack of liquidity, lack of funding, operational failures or for other reasons;

•potential changes in customer behavior, such as the ~~capital markets for financing in~~continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, which could materially and negatively impact the future ~~we may need~~demand for office space, resulting in slower overall leasing and an adverse impact to ~~sell some~~our operations and the valuation of our ~~investments~~investments;

•significant job losses may occur, which may decrease demand for our office space, causing market rental rates and property values to ~~raise capital. We may incur prepayment penalties in the event that we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, we could~~ be ~~forced to sell our investments at inopportune times which could result in us selling the affected investment at a substantial loss. Any inability to sell a property could adversely impact~~ negatively impacted;

•our ability to ~~make~~borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to refinance existing debt ~~payments~~and increase our future interest expense;

•reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;

•the value and liquidity of our short-term investments and cash deposits could be reduced as ~~they come due.~~a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, a dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors; and

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 1A. Risk Factors (Continued)

•to the extent we enter into derivative financial instruments, one or more counterparties to our derivative financial instruments could default on their obligations to us, or could fail, increasing the risk that we may not realize the benefits of these instruments.

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 our dividend reinvestment plan during the prior calendar year; provided, however, that this limit may be increased or decreased by us upon ten business days’ notice to our stockholders. To the extent that we redeem less than the number of shares that we can purchase in any calendar year with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year plus any additional funds approved by us, such excess capacity to redeem shares during any calendar year shall be added to our capacity to otherwise redeem shares during the subsequent calendar year. We indefinitely suspended the dividend reinvestment plan as of March 28, 2023. Furthermore, during any calendar year, once we have received requests for redemptions, whether in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $1.0 million or less, the last $1.0 million of available funds shall be reserved exclusively for shares being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence.” To the extent that, in the last month of any calendar year, the amount of redemption requests in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” is less than the amount of available funds reserved for such redemptions in accordance with the previous sentence, any excess funds may be used to redeem shares not in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” during such month.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 22. 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.

•During the ~~six~~nine months ended ~~June~~September 30, 2023, we fulfilled redemption requests eligible for redemption under our share redemption program and received in good order and funded redemptions under our share redemption program with 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 2023	January 2023	75,025	$	10.50	(2)	January 2023	75,025	$	10.50	(2)
February 2023	February 2023	25,954	$	10.50	(2)	February 2023	25,954	$	10.50	(2)
March 2023	March 2023	42,806	$	10.50	(2)	March 2023	42,806	$	10.50	(2)
April 2023	April 2023	47,885	$	10.50	(2)	April 2023	47,885	$	10.50	(2)
May 2023	May 2023	47,410	$	10.50	(2)	May 2023	47,410	$	10.50	(2)
June 2023	June 2023	66,907	$	10.50	(2)	June 2023	66,907	$	10.50	(2)
July 2023						July 2023	15,552	$	10.50	(2)
August 2023						August 2023	120,188	$	10.50	(2)
September 2023						September 2023	50,658	$	10.50	(2)
Total	Total	305,987				Total	492,385

_____________________

(1) On December 2, 2022, our board of directors approved an estimated value per share of our common stock of $10.50. The change in the redemption price became effective for the January 2023 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 2023.

(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the ~~six~~nine months ended ~~June~~September 2023, we redeemed ~~$3.2~~$4.9 million of common stock under the program, which represented all redemption requests received in good order and eligible for redemption through the ~~June~~September 2023 redemption date, except for the ~~$146.8~~$141.7 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 ~~$1.4~~$3.9 million available for redemptions in the remainder of 2023, as of ~~June~~September 30, 2023, and on May 11, 2023 and August 10, 2023, our board of directors approved additional $2.0 million and 4.0 million, respectively, all of which are in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations described above.

~~Table of Contents~~

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

Item 3. Defaults upon Senior Securities

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

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

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

Fourth Amended and Restated Bylaws, incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K filed March 30, 2023

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

~~10.1~~

Agreement of Lease between the City of New York Department of Citywide Administrative Services, 1 Center Street, 20th Floor North, New York, New York 10007 & 110 William Property Investors III, LLC c/o Savanna, 430 Park Avenue, 12th Floor, New York, NY 10022, dated June 27, 2023

~~10.2~~

Supplemental Building Loan Agreement between 110 William Property Investors III, LLC, as Borrower, Lenders Signatory Hereto from Time to Time, as Lenders, and Deutsche Pfandbriefbank AG as Administrative Agent and Lender, dated July 5, 2023

~~10.3~~10.1

Amended and Restated ~~Limited Liability Company~~Guaranty Agreement ~~of Pacific Oak SOR SREF III 110 William, LLC (f/k/a KBS SOR SREF III 110 William, LLC) effective~~ as of ~~July 5, 2023~~

~~10.4~~

Amended and Restated Senior Loan Agreement dated as of July 5, 2023, between 110 William Property Investors III, LLC, as Borrower, Lenders Signatory Hereto from Time to Time, as Lenders, and Deutsche Pfandbriefbank AG, as Administrative Agent and Lender

~~10.5~~

~~Guaranty of Interest and Carry Costs as of July 5,~~August 28, 2023 by Pacific Oak SOR Properties, LLC

~~10.6~~10.2

~~Completion Guaranty as of July 5, 2023~~Amended and Restated Loan Agreement by and among 1180 Raymond Urban Renewal, LLC, Pacific Oak SOR ~~Properties,~~Austin Suburban Portfolio, LLC,

~~10.7~~

~~Funding Guaranty as of July 5, 2023 by~~ Pacific Oak SOR ~~Properties,~~II Oakland City Center, LLC,

~~10.8~~

~~Guaranty of Recourse Obligations as of July 5, 2023 by~~ Pacific Oak SOR ~~Properties,~~Marquette Plaza, LLC,

~~10.9~~

~~Membership Interest Purchase Agreement~~ as Borrower, Bank of ~~July 5,~~America, N.A., as Administrative Agent, and the Other Financial Institutions Party Hereto, dated August 28, 2023 by and between Pacific Oak SOR 110 William JV, LLC (f/k/a KBS SOR 110 William JV, LLC), SREF III 110 William JV, LLC, and Pacific Oak SOR SREF III 110 William, LLC (f/k/a KBS SOR SREF III 110 William, LLC)

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

~~Table of Contents~~

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

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).

4443

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:	~~August 11,~~November 14, 2023	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Date:	~~August 11,~~November 14, 2023	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			Chief Financial Officer
			(principal financial officer)

4544


	Book Value as of June 30, 2023		Book Value as of December 31, 2022		Contractual Interest Rate as of June 30, 2023	Effective Interest Rate at June 30, 2023 (1)	Payment Type (2)	Maturity Date (3)
Richardson Portfolio Mortgage Loan	$	18,675	$	18,844	SOFR + 2.50%	7.57%	Principal & Interest	11/01/2023
Park Centre Mortgage Loan	26,072		26,233		BSBY + 4.75%	9.92%	Principal & Interest	06/27/2023 (4)
1180 Raymond Mortgage Loan (5)	31,070		31,070		BSBY + 2.25%	7.42%	Interest Only	12/01/2023
Pacific Oak SOR BVI Series B Debentures (6)	314,130		331,213		3.93%	3.93%	(6)	01/31/2026
Crown Pointe Mortgage Loan	54,738		53,758		SOFR + 2.30%	7.37%	Interest Only	04/01/2025
The Marq Mortgage Loan	60,460		60,796		BSBY + 4.55%	9.72%	Principal & Interest	06/06/2023 (4)
Eight & Nine Corporate Centre Mortgage Loan (7)	—		47,945		(7)	(7)	(7)	(7)
Georgia 400 Center Mortgage Loan	40,432		44,129		SOFR + 1.55%	6.62%	Interest Only	05/22/2024
PORT Mortgage Loan 1	51,304		51,302		4.74%	4.74%	Interest Only	10/01/2025
PORT Mortgage Loan 2	10,523		10,523		4.72%	4.72%	Interest Only	03/01/2026
PORT MetLife Loan	60,000		60,000		3.90%	3.90%	Interest Only	04/10/2026
PORT II Metlife Loan (8)	93,701		93,701		3.99%	3.99%	Interest Only	04/10/2026
Q&C Hotel Mortgage Loan	24,671		24,784		SOFR + 3.50%	8.57%	Principal & Interest	01/31/2024
Lincoln Court Mortgage Loan (5)	35,314		35,314		SOFR + 3.25%	8.32%	Interest Only	08/07/2025
Lofts at NoHo Commons Mortgage Loan	71,536		71,536		SOFR + 2.18% (9)	7.25%	Interest Only	09/09/2023
Oakland City Center Mortgage Loan (5)	82,500		87,000		BSBY + 3.00%	8.17%	Principal & Interest	09/01/2023
Madison Square Mortgage Loan	17,961		17,964		4.63%	4.63%	Interest Only	10/07/2024
Total Notes and Bonds Payable principal outstanding	993,087		1,066,112
Deferred financing costs and debt discount and premium, net (10)	(17,245)		(21,403)
Total Notes and Bonds Payable, net	975,842		1,044,709



	Incurred during the three months ended June 30,				Incurred during the six months ended June 30,				Payable as of
Expensed	2023		2022		2023		2022		June 30, 2023		December 31, 2022
Asset management fees	$	3,710	$	3,189	$	7,684	$	6,315	$	5,491	$	2,618
Property management fees (1)	859		133		1,523		258		298		181
Disposition fees	58		—		420		107		—		—
Capitalized
Reimbursable offering costs (2)	894		—		894		—		894		—
	$	5,521	$	3,322	$	10,521	$	6,680	$	6,683	$	2,799