Pacific Oak Strategic Opportunity REIT Files Q1 2024 Report

TL;DR

**Pacific Oak REIT files Q1 2024 10-Q, confirms compliance.**

AI Summary

Pacific Oak Strategic Opportunity REIT, Inc. filed its quarterly report for the period ended March 31, 2024. The company, incorporated in Maryland with its principal executive offices in Los Angeles, California, confirmed it has filed all required reports for the preceding 12 months and has been subject to filing requirements for the past 90 days. It also confirmed submission of all Interactive Data Files.

Why It Matters

This filing provides investors with an update on the company's financial status and compliance with SEC regulations for the first quarter of 2024.

Risk Assessment

Risk Level: low — The filing is a routine quarterly report confirming compliance with SEC filing requirements, with no immediate red flags.

Key Numbers

• 26-3842535 — I.R.S. Employer Identification No. (Company's tax identification number)

Key Players & Entities

• Pacific Oak Strategic Opportunity REIT, Inc. (company) — Registrant
• March 31, 2024 (date) — Quarterly period end date
• Maryland (jurisdiction) — State of incorporation
• Los Angeles, California (location) — Principal executive offices
• 000-54382 (commission_file_number) — SEC Commission file number

FAQ

Filing Documents

• pacoaksor-20240331.htm (10-Q) — 1031KB
• tulespringsvillage2kb_tp.htm (EX-10.2) — 258KB
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• 0001452936-24-000066.txt ( ) — 34078KB
• pacoaksor-20240331.xsd (EX-101.SCH) — 47KB
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FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION 2

Financial Statements

Item 1. Financial Statements 2 Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023 2 Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2024 and 2023 3 Consolidated Statements of Equity (unaudited) for the Three Months Ended March 31, 2024 and 2023 4 Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2024 and 2023 5 Condensed Notes to Consolidated Financial Statements as of March 31, 2024 (unaudited) 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19

Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk 27

Controls and Procedures

Item 4. Controls and Procedures 28

OTHER INFORMATION

PART II. OTHER INFORMATION 30

Legal Proceedings

Item 1. Legal Proceedings 30

Risk Factors

Item 1A. Risk Factors 30

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31

Defaults upon Senior Securities

Item 3. Defaults upon Senior Securities 32

Mine Safety Disclosures

Item 4. Mine Safety Disclosures 32

Other Information

Item 5. Other Information 32

Exhibits

Item 6. Exhibits 33

SIGNATURES

SIGNATURES 34 1 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) March 31, 2024 December 31, 2023 (unaudited) Assets Real estate held for investment, net $ 1,053,876 $ 1,093,343 Real estate held for sale, net — 1,411 Real estate equity securities 11,950 41,609 Total real estate and real estate-related investments, net 1,065,826 1,136,363 Cash and cash equivalents 19,820 99,160 Restricted cash 27,872 56,049 Investments in unconsolidated entities 53,345 45,901 Rents and other receivables, net 22,109 22,500 Prepaid expenses and other assets 25,661 28,170 Total assets $ 1,214,633 $ 1,388,143 Liabilities and equity Notes and bonds payable related to real estate held for investment, net $ 935,212 $ 1,027,935 Notes payable related to real estate held for sale, net — 748 Notes and bonds payable, net $ 935,212 $ 1,028,683 Accounts payable and accrued liabilities 27,138 30,409 Due to affiliates 10,741 7,902 Other liabilities 53,364 55,571 Redeemable common stock payable 1,458 2,214 Total liabilities 1,027,913 1,124,779 Commitments and contingencies (Note 9) Equity Stockholders' equity Preferred stock, $ .01 par value; 10,000,000 shares authorized, no shares issued and outstanding — — Common stock, $ .01 par value; 1,000,000,000 shares authorized, 103,214,807 and 103,310,648 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 1,032 1,033 Additional paid-in capital 901,050 901,049 Cumulative distributions and net loss ( 716,406 ) ( 639,933 ) Total stockholders' equity 185,676 262,149 Noncontrolling interests 1,044 1,215 Total equity 186,720 263,364 Total liabilities and equity $ 1,214,633 $ 1,388,143 See accompanying condensed notes to consolidated financial statements. 2 Table of Contents

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts) Three Months Ended March 31, 2024 2023 Revenues: Rental income $ 31,210 $ 32,077 Hotel revenues 2,804 2,913 Other operating income 909 1,139 Dividend income from real estate equity securities 78 1,998 Total revenues 35,001 38,127 Expenses: Operating, maintenance, and management 10,903 11,168 Real estate taxes and insurance 6,477 6,416 Hotel expenses 1,867 1,962 Asset management fees to affiliates 4,102 3,973 General and administrative expenses 3,252 3,001 Foreign currency transaction gain, net ( 3,913 ) ( 2,719 ) Depreciation and amortization 10,749 12,048 Interest expense, net 16,773 16,031 Impairment charges on real estate and related intangibles 39,265 17,663 Total expenses 89,475 69,543 Other (loss) income: Loss from unconsolidated entities, net ( 8,077 ) ( 2,332 ) Other interest income 455 204 Loss on real estate equity securities, net ( 15,350 ) ( 12,033 ) Gain on sale of real estate 452 29,469 Total other (loss) income, net ( 22,520 ) 15,308 Net loss before income taxes ( 76,994 ) ( 16,108 ) Income tax provision — ( 3,662 ) Net loss ( 76,994 ) ( 19,770 ) Net loss attributable to noncontrolling interests 521 189 Net loss attributable to common stockholders $ ( 76,473 ) $ ( 19,581 ) Net loss per common share, basic and diluted $ ( 0.74 ) $ ( 0.19 ) Weighted-average number of common shares outstanding, basic and diluted 103,283,507 103,872,363 See accompanying condensed notes to consolidated financial statements. 3 Table of Contents

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF EQUITY (unaudited) (in thousands, except share amounts) Common Stock Additional Paid-in Capital Cumulative Distributions and Net Loss Total Stockholders' Equity Noncontrolling Interests Total Equity Shares Amounts Balance, December 31, 2023 103,310,648 $ 1,033 $ 901,049 $ ( 639,933 ) $ 262,149 $ 1,215 $ 263,364 Net loss — — — ( 76,473 ) ( 76,473 ) ( 521 ) ( 76,994 ) Transfers from redeemable common stock payable — — 756 — 756 — 756 Noncontrolling interests' contributions — — — — — 350 350 Redemptions of common stock ( 95,841 ) ( 1 ) ( 755 ) — ( 756 ) — ( 756 ) Balance, March 31, 2024 103,214,807 $ 1,032 $ 901,050 $ ( 716,406 ) $ 185,676 $ 1,044 $ 186,720 Common Stock Additional Paid-in Capital Cumulative Distributions and Net Loss Total Stockholders' Equity Noncontrolling Interests Total Equity Shares Amounts Balance, December 31, 2022 103,932,083 $ 1,039 $ 907,044 $ ( 495,782 ) $ 412,301 $ 4,092 $ 416,393 Net loss — — — ( 19,581 ) ( 19,581 ) ( 189 ) ( 19,770 ) Transfers from redeemable common stock payable — — 1,510 — 1,510 — 1,510 Redemptions of common stock ( 143,785 ) ( 1 ) ( 1,509 ) — ( 1,510 ) — ( 1,510 ) Balance, March 31, 2023 103,788,298 $ 1,038 $ 907,045 $ ( 515,363 ) $ 392,720 $ 3,903 $ 396,623 See accompanying condensed notes to consolidated financial statements. 4 Table of Contents

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2024 2023 Cash Flows from Operating Activities: Net loss $ ( 76,994 ) $ ( 19,770 ) Adjustments to reconcile net loss to net cash used in operating activities: Impairment charges on real estate and related intangibles 39,265 17,663 Loss from unconsolidated entities, net 8,077 2,332 Depreciation and amortization 10,749 12,048 Loss on real estate equity securities 15,350 12,033 Gain on sale of real estate ( 452 ) ( 29,469 ) Deferred rent ( 35 ) ( 850 ) Amortization of above- and below-market leases, net ( 339 ) ( 175 ) Amortization of deferred financing costs and debt discount and premium, net 2,341 2,426 Foreign currency transaction gain, net ( 3,913 ) ( 2,719 ) Changes in assets and liabilities: Rents and other receivables, net 453 ( 402 ) Prepaid expenses and other assets 1,286 ( 2,931 ) Accounts payable and accrued liabilities ( 3,201 ) ( 5,977 ) Due to affiliates 2,839 592 Other liabilities ( 2,824 ) 4,973 Net cash used in operating activities ( 7,398 ) ( 10,226 ) Cash Flows from Investing Activities: Improvements to real estate ( 9,862 ) ( 6,764 ) Proceed from sales of real estate, net 1,498 34,479 Purchase of interest rate caps ( 941 ) — Proceeds from interest rate caps 1,478 — Contributions to an unconsolidated entity ( 15,634 ) — Distribution of capital from an unconsolidated entity — 1,144 Payments on foreign currency derivatives, net ( 478 ) ( 6,250 ) Proceeds from the sale of real estate equity securities 14,309 — Proceeds for development obligations 4 1,296 Funding for development obligations ( 2,250 ) — Net cash (used in) provided by investing activities ( 11,876 ) 23,905 Cash Flows from Financing Activities: Proceeds from notes payable 21,562 980 Principal payments on notes and bonds payable ( 108,996 ) ( 2,841 ) Payments of defe

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (unaudited) (in thousands) Three Months Ended March 31, 2024 2023 Supplemental Disclosure of Cash Flow Information: Interest paid, net of capitalized interest of $ 1,062 and $ 850 for the three months ended March 31, 2024 and 2023, respectively $ 16,095 $ 16,458 Supplemental Disclosure of Significant Noncash Transaction: Accrued improvements to real estate 4,736 2,554 Accrued development obligations 8,967 9,813 See accompanying condensed notes to consolidated financial statements. 6 Table of Contents

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (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"). 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, 2023. 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, 2023, 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

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) March 31, 2024 (unaudited) Company may utilize such option if necessary. Based upon these plans, and the plans described above, 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. 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: strategic opportunistic real estate and real estate-related investments ("strategic opportunistic properties"), residential homes, and hotel, which is how the Company's management manages the business. In general, the Company intends to hold its investments in strategic opportunistic properties for capital appreciation. Traditional performance metrics of strategic opportunistic properties 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 strategic opportunistic properties as similar investments and aggregates them into one reportable business segment. The Company owns 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 hav

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) March 31, 2024 (unaudited) 3. REAL ESTATE HELD FOR INVESTMENT As of March 31, 2024, the Company consolidated nine office complexes, encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were 67 % occupied. In addition, the Company owned one residential home portfolio consisting of 2,168 residential homes, and two apartment properties containing 609 units, which were 94 % and 95 % occupied, respectively. The Company also owned one hotel property with 196 rooms, four investments in undeveloped land with approximately 581 developable acres, and one office/retail development property. The following table summarizes the Company's real estate held for investment as of March 31, 2024, and December 31, 2023, respectively (in thousands): March 31, 2024 December 31, 2023 Land $ 249,193 $ 253,075 Buildings and improvements 942,688 990,345 Tenant origination and absorption costs 14,045 17,080 Total real estate, cost 1,205,926 1,260,500 Accumulated depreciation and amortization ( 152,050 ) ( 167,157 ) Total real estate held for investment, net $ 1,053,876 $ 1,093,343 Operating Leases Certain of the Company's real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2024, 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 16.4 years with a weighted-average remaining term of 3.3 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. Genera

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) March 31, 2024 (unaudited) As of March 31, 2024, the future minimum rental income from the Company's office complexes, under non-cancelable operating leases was as follows (in thousands): April 1, 2024 through December 31, 2024 $ 43,817 2025 52,655 2026 39,732 2027 32,078 2028 25,268 Thereafter 52,730 $ 246,280 Geographic Concentration Risk As of March 31, 2024, the Company's real estate investments in California and Georgia represented 21.1 % and 12.1 %, 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 Property The following table provides detailed information regarding the Company's hotel revenues for its hotel property during the three months ended March 31, 2024 and 2023 (in thousands): Three Months Ended March 31, 2024 2023 Hotel revenues: Room $ 2,465 $ 2,565 Other 339 348 Hotel revenues $ 2,804 $ 2,913 Contract Liabilities The following table summarizes the Company's contract liabilities, which are comprised of: hotel advanced deposits, deferred proceeds received from the buyers of the Park Highlands land sales, and value of Park Highlands land that was contributed to a master association. As of March 31, 2024 and December 31, 2023, contract liabilities were $ 21.3 million and $ 23.8 million, respectively, which a

FINANCIAL INFORMATION (CONTINUED)

PART I. FINANCIAL INFORMATION (CONTINUED)

Financial Statements (continued)

Item 1. Financial Statements (continued) PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) March 31, 2024 (unaudited) Pending Real Estate Sales In March 2024, the Company, through indirect wholly owned subsidiaries, entered into a purchase and sale agreement for the sale of approximately 454 developable acres of Park Highlands undeveloped land, from the Company's strategic opportunistic properties segment for gross sale proceeds of approximately $ 195.0 million, before net closing costs, credits and taxes. The sale is expected to be completed in two phases with planned closing dates of July 31, 2024 and 2025. In Phase 1, 212.14 gross acres are anticipated to be sold to the buyer for approximately $ 91.0 million by the Phase 1 planned closing date of July 31, 2024. In Phase 2, 242.17 gross acres are anticipated to be sold to the buyer for approximately $ 104.0 million by the Phase 2 planned closing date of July 31, 2025. Note that each of the foregoing anticipated closing dates may be extended in certain circumstances. A portion of the acres to be sold are pledged as collateral for an offering of Series C bonds (the "Series C Bonds"). There can be no assurance that the Company will complete the sale. The purchaser is not affiliated with the Company or with the Company's external advisor, Pacific Oak Capital Advisors, LLC ("Pacific

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