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 ~~September~~June 30, ~~2022~~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 ~~November 11, 2022,~~August 9, 2023, there were ~~104,041,817~~103,610,544 outstanding shares of common stock of Pacific Oak Strategic Opportunity REIT, Inc.

Table of Contents

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

FORM 10-Q

~~September~~June 30, ~~2022~~2023

INDEX


PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	2
		Consolidated Statements of Operations (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	3
		Consolidated Statements of Equity (unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	4
		Consolidated Statements of Cash Flows (unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	6
		Condensed Notes to Consolidated Financial Statements as of ~~September~~June 30, ~~2022~~2023 (unaudited)	78
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2725
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4037
	Item 4.	Controls and Procedures	4239
PART II.	OTHER INFORMATION		4340
	Item 1.	Legal Proceedings	4340
	Item 1A.	Risk Factors	4340
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4341
	Item 3.	Defaults upon Senior Securities	4443
	Item 4.	Mine Safety Disclosures	4443
	Item 5.	Other Information	4443
	Item 6.	Exhibits	4543
SIGNATURES			4645

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)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(unaudited)					(unaudited)
Assets	Assets					Assets
Real estate held for investment, net	Real estate held for investment, net	$	1,234,197	$	1,118,550	Real estate held for investment, net	$	1,162,118	$	1,216,898

Real estate held for sale, net	Real estate held for sale, net	—		96,249		Real estate held for sale, net	—		2,506
Real estate equity securities	Real estate equity securities	63,784		112,096		Real estate equity securities	30,474		60,153

Total real estate and real estate-related investments, net	Total real estate and real estate-related investments, net	1,297,981		1,326,895		Total real estate and real estate-related investments, net	1,192,592		1,279,557
Cash and cash equivalents	Cash and cash equivalents	85,368		84,172		Cash and cash equivalents	69,521		97,931
Restricted cash	Restricted cash	57,325		21,259		Restricted cash	45,984		61,113
Investments in unconsolidated entities	Investments in unconsolidated entities	72,838		88,256		Investments in unconsolidated entities	52,509		70,842
Rents and other receivables, net	Rents and other receivables, net	21,140		21,795		Rents and other receivables, net	23,323		21,518
Above-market leases, net		2,364		2,642
Due from affiliate		13		7,039

Prepaid expenses and other assets	Prepaid expenses and other assets	21,902		18,108		Prepaid expenses and other assets	25,211		22,848
Goodwill	Goodwill	5,436		13,534		Goodwill	5,436		5,436
Assets related to real estate held for sale, net		—		919
Total assets	Total assets	$	1,564,367	$	1,584,619	Total assets	$	1,414,576	$	1,559,245
Liabilities, mezzanine equity and equity
Liabilities and equity						Liabilities and equity

Notes and bonds payable related to real estate held for investment, net		$	1,042,860	$	935,073
Note payable related to real estate held for sale, net		—		63,876
Notes and bonds payable, net	Notes and bonds payable, net	1,042,860		998,949		Notes and bonds payable, net	$	975,842	$	1,044,709
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	27,236		23,852		Accounts payable and accrued liabilities	22,203		25,231
Due to affiliates	Due to affiliates	3,252		1,903		Due to affiliates	6,683		2,799
Below-market leases, net		2,986		4,080

Other liabilities	Other liabilities	52,431		42,851		Other liabilities	71,386		66,967
Redeemable common stock payable	Redeemable common stock payable	1,567		684		Redeemable common stock payable	1,426		2,638
Restricted stock payable	Restricted stock payable	508		508		Restricted stock payable	508		508
Dividends payable		—		11,016
Liabilities related to real estate held for sale, net		—		662

Total liabilities	Total liabilities	1,130,840		1,084,505		Total liabilities	1,078,048		1,142,852
Commitments and contingencies
Mezzanine equity

Noncontrolling cumulative convertible redeemable preferred stock		15,233		15,233
Redeemable noncontrolling interest		—		2,822
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, 104,076,881 and 94,141,251 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		1,041		941
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						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
Additional paid-in capital	Additional paid-in capital	909,533		818,440		Additional paid-in capital	905,046		907,044
Cumulative distributions and net loss	Cumulative distributions and net loss	(494,998)		(347,691)		Cumulative distributions and net loss	(572,838)		(495,782)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	415,576		471,690		Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity	333,244		412,301
Noncontrolling interests	Noncontrolling interests	2,718		10,369		Noncontrolling interests	3,284		4,092
Total equity	Total equity	418,294		482,059		Total equity	336,528		416,393
Total liabilities, mezzanine equity and equity		$	1,564,367	$	1,584,619
Total liabilities and equity						Total liabilities and equity	$	1,414,576	$	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 September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Revenues:	Revenues:									Revenues:
Rental income	Rental income	$	31,445	$	29,504	$	89,806	$	94,812	Rental income	$	32,152	$	28,979	$	64,229	$	58,360
Hotel revenues	Hotel revenues	9,182		12,153		27,952		24,578		Hotel revenues	2,565		12,854		5,478		18,771
Other operating income	Other operating income	830		923		2,559		3,118		Other operating income	1,066		887		2,204		1,728
Dividend income from real estate equity securities	Dividend income from real estate equity securities	2,148		3,189		5,354		6,693		Dividend income from real estate equity securities	113		819		2,110		3,206
Total revenues	Total revenues	43,605		45,769		125,671		129,201		Total revenues	35,896		43,539		74,021		82,065
Expenses:	Expenses:									Expenses:
Operating, maintenance, and management	Operating, maintenance, and management	12,342		10,668		32,560		31,444		Operating, maintenance, and management	11,107		10,342		22,275		20,218
Real estate taxes and insurance	Real estate taxes and insurance	5,650		5,262		15,753		15,949		Real estate taxes and insurance	5,843		5,079		12,260		10,103
Hotel expenses	Hotel expenses	5,377		6,483		17,485		15,715		Hotel expenses	1,984		6,998		3,945		12,109
Asset management fees to affiliate		3,630		3,422		9,945		10,802
Asset management fees to affiliates										Asset management fees to affiliates	3,710		3,189		7,684		6,315
General and administrative expenses	General and administrative expenses	2,504		2,365		8,486		7,120		General and administrative expenses	3,222		2,983		6,220		5,977
Foreign currency transaction (gain) loss, net		(6,001)		2,271		(37,100)		(568)
Foreign currency transaction loss (gain), net										Foreign currency transaction loss (gain), net	6,272		(23,833)		3,553		(31,098)
Depreciation and amortization	Depreciation and amortization	12,717		13,895		39,379		45,969		Depreciation and amortization	12,110		14,098		24,158		26,662
Interest expense	Interest expense	12,976		10,092		33,319		30,713		Interest expense	15,788		10,780		31,819		20,343
Impairment charges on real estate		11,942		10,971		11,942		10,971
Impairment charges on goodwill		8,098		2,808		8,098		2,808
Impairment charges on real estate and related intangibles										Impairment charges on real estate and related intangibles	18,926		—		36,589		—
Total expenses	Total expenses	69,235		68,237		139,867		170,923		Total expenses	78,962		29,636		148,503		70,629
Other (loss) income:	Other (loss) income:									Other (loss) income:
Equity in loss of unconsolidated entities		(3,376)		(569)		(6,130)		(144)
Casualty-related gain		—		27		—		27
Loss from unconsolidated entities, net										Loss from unconsolidated entities, net	(14,630)		(2,075)		(16,962)		(2,754)

Other interest income	Other interest income	61		55		155		148		Other interest income	1,012		48		1,216		94
(Loss) gain on real estate equity securities		(20,722)		(2,614)		(48,312)		12,939
Change in subordinated performance fee due upon termination to affiliate		—		(1,545)		—		(1,745)
(Loss) gain on sale of real estate		(75)		216		3,273		31,385
Loss on real estate equity securities, net										Loss on real estate equity securities, net	(4,089)		(20,070)		(16,122)		(27,591)
Gain (loss) on sale of real estate										Gain (loss) on sale of real estate	3,292		(175)		32,761		3,348
Gain on extinguishment of debt	Gain on extinguishment of debt	—		1,352		2,367		1,365		Gain on extinguishment of debt	—		—		—		2,367
Gain from consolidation of previously unconsolidated entity		18,742		—		18,742		—
Total other (loss) income, net	Total other (loss) income, net	(5,370)		(3,078)		(29,905)		43,975		Total other (loss) income, net	(14,415)		(22,272)		893		(24,536)
Net (loss) income		(31,000)		(25,546)		(44,101)		2,253
Net loss attributable to noncontrolling interests		881		1,188		844		1,949
Net loss before income taxes										Net loss before income taxes	(57,481)		(8,369)		(73,589)		(13,100)
Income tax provision										Income tax provision	—		—		(3,662)		—
Net loss										Net loss	(57,481)		(8,369)		(77,251)		(13,100)
Net loss (income) loss attributable to noncontrolling interests										Net loss (income) loss attributable to noncontrolling interests	6		(156)		195		(38)
Net loss attributable to redeemable noncontrolling interest	Net loss attributable to redeemable noncontrolling interest	—		33		81		113		Net loss attributable to redeemable noncontrolling interest	—		34		—		81
Preferred stock dividends	Preferred stock dividends	(373)		(191)		(1,091)		(644)		Preferred stock dividends	—		(528)		—		(718)
Net (loss) income attributable to common stockholders		$	(30,492)	$	(24,516)	$	(44,267)	$	3,671
Net (loss) income per common share, basic and diluted		$	(0.29)	$	(0.25)	$	(0.43)	$	0.04
Net loss attributable to common stockholders										Net loss attributable to common stockholders	$	(57,475)	$	(9,019)	$	(77,056)	$	(13,775)
Net loss per common share, basic and diluted										Net loss per common share, basic and diluted	$	(0.55)	$	(0.09)	$	(0.74)	$	(0.13)
Weighted-average number of common shares outstanding, basic and diluted	Weighted-average number of common shares outstanding, basic and diluted	104,180,800		97,659,731		103,351,040		97,879,983		Weighted-average number of common shares outstanding, basic and diluted	103,737,734		104,422,035		103,804,676		102,929,284

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 ~~September~~June 30, ~~2022~~2023 and ~~2021~~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
Shares Amounts
Balance, June 30, 2022 104,319,092 $ 1,043 $ 914,463 $ (464,506) $ 451,000 $ 10,373 $ 461,373
Net loss — — — (30,492) (30,492) (881) (31,373)
Transfers to redeemable common stock payable, net — — (188) — (188) — (188)
Redemptions of common stock (243,135) (2) (2,311) — (2,313) — (2,313)
Stock distribution issued 924 — — — — — —
Acquisition of noncontrolling interest — — — — — 1,125 1,125
Noncontrolling interests distributions — — (2,431) — (2,431) (8,199) (10,630)
Noncontrolling interest contribution — — — — — 300 300
Balance, September 30, 2022 104,076,881 $ 1,041 $ 909,533 $ (494,998) $ 415,576 $ 2,718 $ 418,294
Common Stock Additional
Paid-in Capital Cumulative Distributions and Net Loss Total Stockholders' Equity Noncontrolling Interests Total Equity
Shares Amounts
Balance, June 30, 2021 97,906,268 $ 979 $ 829,294 $ (297,533) $ 532,740 $ 12,560 $ 545,300
Net loss — — — (24,516) (24,516) (1,188) (25,704)
Transfers to redeemable common stock payable, net — — (1,955) — (1,955) — (1,955)
Redemptions of common stock (3,641,866) (37) (28,080) — (28,117) — (28,117)
Change in classification of restricted stock — — 21,123 — 21,123 — 21,123
Noncontrolling interest contribution — — — — — 20 20
Balance, September 30, 2021 94,264,402 $ 942 $ 820,382 $ (322,049) $ 499,275 $ 11,392 $ 510,667


	Common Stock			Additional Paid-in Capital		Cumulative Distributions and Net Loss		Total Stockholders' Equity		Noncontrolling Interests		Total Equity
	Shares	Amounts
Balance, March 31, 2023	103,788,298	$	1,038	$	907,045	$	(515,363)	$	392,720	$	3,903	$	396,623
Net loss	—	—		—		(57,475)		(57,475)		(6)		(57,481)

Transfers to redeemable common stock, net	—	—		(297)		—		(297)		—		(297)
Redemptions of common stock	(162,202)	(2)		(1,702)		—		(1,704)		—		(1,704)



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

Balance, June 30, 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
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)



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

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 ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~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
Shares Amounts
Balance, December 31, 2021 94,141,251 $ 941 $ 818,440 $ (347,691) $ 471,690 $ 10,369 $ 482,059
Net loss — — — (44,267) (44,267) (844) (45,111)
Transfers to redeemable common stock payable, net — — (883) — (883) — (883)
Redemptions of common stock (485,471) (4) (4,583) — (4,587) — (4,587)
Adjustment to value of redeemable noncontrolling interest — — — (3,946) (3,946) — (3,946)
Stock distribution issued 10,421,101 104 98,990 (99,094) — — —
Acquisition of noncontrolling interest — — — — — 1,125 1,125
Noncontrolling interests distributions — — (2,431) — (2,431) (8,232) (10,663)
Noncontrolling interest contribution — — — — — 300 300
Balance, September 30, 2022 104,076,881 $ 1,041 $ 909,533 $ (494,998) $ 415,576 $ 2,718 $ 418,294
Common Stock Additional
Paid-in Capital Cumulative Distributions and Net Loss Total Stockholders' Equity Noncontrolling Interests Total Equity
Shares Amounts
Balance, December 31, 2020 98,054,582 $ 979 $ 831,295 $ (325,720) $ 506,554 $ 13,158 $ 519,712
Net income (loss) — — — 3,671 3,671 (1,949) 1,722
Transfers to redeemable common stock payable, net — — (2,521) — (2,521) — (2,521)
Redemptions of common stock (3,790,180) (37) (29,515) — (29,552) — (29,552)
Change in classification of restricted stock — — 21,123 — 21,123 — 21,123
Noncontrolling interests contributions — — — — 183 183
Balance, September 30, 2021 94,264,402 $ 942 $ 820,382 $ (322,049) $ 499,275 $ 11,392 $ 510,667


	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	—	—		—		(77,056)		(77,056)		(195)		(77,251)

Transfers to redeemable common stock, net	—	—		1,213		—		1,213		—		1,213
Redemptions of common stock	(305,987)	(3)		(3,211)		—		(3,214)		—		(3,214)



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

Balance, June 30, 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
Balance, December 31, 2021	94,141,251	$	941	$	818,440	$	(347,691)	$	471,690	$	10,369	$	482,059
Net loss	—	—		—		(13,775)		(13,775)		38		(13,737)
Transfers to redeemable common stock	—	—		(695)		—		(695)		—		(695)
Redemptions of common stock	(242,336)	(2)		(2,272)		—		(2,274)		—		(2,274)
Adjustment to value of redeemable noncontrolling interest	—	—		—		(3,946)		(3,946)		—		(3,946)
Stock distribution issued	10,420,177	104		98,990		(99,094)		—		—		—
Noncontrolling interests contributions	—	—		—		—		—		(34)		(34)
Balance, June 30, 2022	104,319,092	$	1,043	$	914,463	$	(464,506)	$	451,000	$	10,373	$	461,373

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)
Nine Months Ended September 30,
2022 2021
Cash Flows from Operating Activities:
Net (loss) income $ (44,101) $ 2,253
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Change in subordinated performance fee due upon termination to affiliate — 1,745
Impairment charges on real estate 11,942 10,971
Impairment charges on goodwill 8,098 2,808
Equity in loss of unconsolidated entities 6,130 144
Depreciation and amortization 39,379 45,969
Loss (gain) on real estate equity securities 48,312 (12,939)
Loss (gain) on sale of real estate (3,273) (31,385)
Gain from consolidation of previously unconsolidated entity (18,742) —
Unrealized (gain) loss on interest rate caps (1,103) 17
Deferred rent (1,966) (1,529)
Gain on extinguishment of debt (2,367) (1,365)
Amortization of above- and below-market leases, net (762) (1,015)
Amortization of deferred financing costs and discount on bonds and notes payable 5,953 4,376
Foreign currency transaction gain, net (37,100) (568)
Changes in assets and liabilities:
Rents and other receivables 2,403 (1,898)
Prepaid expenses and other assets (3,010) (4,371)
Accounts payable and accrued liabilities (955) (984)
Due to affiliates 1,201 (726)
Other liabilities (1,379) (190)
Net cash provided by operating activities 8,660 11,313
Cash Flows from Investing Activities:
Acquisitions of real estate (6,689) (4,107)
Improvements to real estate (16,515) (12,923)
Proceeds from sales of real estate, net 97,933 194,528
Cash and restricted cash received upon consolidation of previously unconsolidated entity 1,834 —
Contributions to unconsolidated entities (23,887) (4,769)
Distributions of capital from unconsolidated entities 569 —
Purchase of interest rate cap (566) (18)
Proceeds from the sale of real estate equity securities — 14,439
Advance to affiliate (1,201) —
Proceeds from advances due from affiliates 8,227 —
Escrow deposits for future real estate sales 17,000 —
Proceeds for future development obligations — 6,203
Funding for development obligations (6,407) —
Net cash provided by investing activities 70,298 193,353
Cash Flows from Financing Activities:
Proceeds from notes and bonds payable 191,667 157,246
Principal payments on notes and bonds payable (190,515) (233,964)
Payments of deferred financing costs (4,686) (2,745)
Payments to redeem common stock (4,587) (29,552)
Payment to redeem restricted stock — (5,656)
Payment of prepaid other offering costs — (164)
Payment to redeem noncontrolling interests (6,687) —
Distributions paid (11,016) —
Preferred dividends paid (1,091) (644)
Noncontrolling interests distributions (10,663) —��
Noncontrolling interest contribution 300 183
Other financing proceeds — 2,367
Net cash used in financing activities (37,278) (112,929)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (4,418) 182
Net increase in cash, cash equivalents and restricted cash 37,262 91,919
Cash, cash equivalents and restricted cash, beginning of period 105,431 74,319
Cash, cash equivalents and restricted cash, end of period $ 142,693 $ 166,238


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

Impairment charges on real estate and related intangibles	36,589		—
Loss from unconsolidated entities, net	16,962		2,754
Depreciation and amortization	24,158		26,662
Loss on real estate equity securities, net	16,122		27,591
Gain on sale of real estate	(32,761)		(3,348)
Unrealized gain on interest rate caps	(328)		(270)
Deferred rent	(1,508)		(1,427)
Gain on extinguishment of debt	—		(2,367)
Amortization of above- and below-market leases, net	(151)		(508)
Amortization of deferred financing costs and debt discount and premium, net	4,567		3,844


Foreign currency transaction loss (gain), net	3,553		(31,098)
Changes in assets and liabilities:
Rents and other receivables, net	(409)		(175)
Prepaid expenses and other assets	(3,120)		(1,150)
Accounts payable and accrued liabilities	(3,068)		502
Due to affiliates	3,884		3,753
Other liabilities	3,355		668
Net cash (used in) provided by operating activities	(9,406)		12,331
Cash Flows from Investing Activities:
Improvements to real estate	(10,349)		(10,110)
Proceed from sales of real estate, net	40,795		357

Contribution to unconsolidated entity	—		(22,500)
Distribution of capital from unconsolidated entity	1,144		569
Purchase of interest rate caps	(347)		(506)



Advance to affiliate	—		(1,201)
Purchase of foreign currency derivatives	(67,140)		—
Proceeds from disposition of foreign currency derivatives	49,176		—
Proceeds from advances due from affiliates	—		6,448
Proceeds from the sale of real estate equity securities	13,557		—
Escrow deposit for future real estate sale	—		17,000
Proceeds for development obligations	1,855		—
Funding for development obligations	(1,421)		(4,025)
Net cash provided by (used in) investing activities	27,270		(13,968)
Cash Flows from Financing Activities:
Proceeds from notes payable	980		145,104
Principal payments on notes payable	(56,922)		(61,613)
Payments of deferred financing costs	(409)		(2,829)
Payments to redeem common stock	(3,214)		(2,274)
Distributions paid	—		(11,016)
Preferred dividends paid	—		(718)
Noncontrolling interests distribution	(613)		(34)


Net cash (used in) provided by financing activities	(60,178)		66,620
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,225)		(3,619)
Net (decrease) increase in cash, cash equivalents and restricted cash	(43,539)		61,364
Cash, cash equivalents and restricted cash, beginning of period	159,044		105,431
Cash, cash equivalents and restricted cash, end of period	$	115,505	$	166,795

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

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
Supplemental Disclosure of Significant Noncash Transaction:
Accrued improvements to real estate	1,915	3,262

Redeemable common stock payable	1,426	1,379
Distributions paid to common stockholders through common stock issuances	—	99,094
PPP notes forgiveness	—	2,367

See accompanying condensed notes to consolidated financial statements.

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

~~September~~June 30, ~~2022~~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, ~~2021.~~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, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K filed with the ~~SEC.~~Securities and Exchange Commission (“SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the ~~FASB~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~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 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)

~~September~~June 30, ~~2022~~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, ~~and~~ as ~~further discussed in Note 5,~~of July 1, 2023, the Company has ~~$383.0~~$460.1 million of debt obligations ~~coming due over the next 12-month period.~~scheduled to mature within 12 months of that date. In order to satisfy obligations as they mature, management will evaluate its options and may seek to utilize extension options available in the respective loan agreements, may make partial loan ~~pay downs~~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. ~~See~~Refer to Note 5 for further ~~details.~~discussion.

~~Reclassifications~~

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

Use of Estimates

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

~~Restricted Cash~~

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

Segments

The Company operates in three 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 ~~aggregated~~aggregates them into one reportable business segment. The Company ~~owns~~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 ~~have~~having similar economic characteristics. Additionally, as of ~~September~~June 30, ~~2022,~~2023 the Company ~~owns~~owned one hotel, which is ~~aggregated into one~~a separate reportable business segment due to the nature of the hotel business with short-term stays. ~~See Note 10 for further details.~~

~~Table of Contents~~

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

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

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

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

~~September 30, 2022~~

~~(unaudited)~~

~~Per Share Data~~

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

Square Footage, Occupancy and Other Measures

Any references to square footage, 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 ~~Adopted~~Issued Accounting ~~Pronouncements~~

~~Reference Rate Reform — In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (ASC Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, which provides optional relief to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Additionally, in January 2021, the FASB issued ASU No. 2021-01, ~~Reference Rate Reform (ASC Topic 848)~~, which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Company adopted ASC Topic 848 on September 30, 2022 and the related prospective optional expedients for its variable rate debt and related derivatives is not expected to have a material impact to the Company.Standards Updates

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 that are of significance or potential significance to the Company.

~~3. REAL ESTATE HELD FOR INVESTMENT~~

As of September 30, 2022, the Company owned eight office properties, one office portfolio consisting of two office buildings and 14 acres of undeveloped land, encompassing, in the aggregate, approximately 3.2 million rentable square feet. As of September 30, 2022, these properties were 70% occupied. As of September 30, 2022, the Company owned one residential home portfolio consisting of 2,458 residential homes and encompassing approximately 3.5 million rental square feet. In addition, the Company owned two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 96% and 95% occupied, respectively, as of September 30, 2022. As of September 30, 2022, the Company also owned one hotel property with 196 rooms and three investments in undeveloped land with approximately 800 developable acres and one office/retail development property. The following table summarizes the Company’s real estate held for investment as of September 30, 2022 and December 31, 2021, respectively (in thousands):

September 30, 2022 December 31, 2021
Land $ 275,715 $ 245,200
Buildings and improvements 1,062,342 954,851
Tenant origination and absorption costs 30,785 43,375
Total real estate, cost 1,368,842 1,243,426
Accumulated depreciation and amortization (134,645) (124,876)
Total real estate held for investment, net $ 1,234,197 $ 1,118,550

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~~June 30, ~~2022~~2023

(unaudited)

3. REAL ESTATE HELD FOR INVESTMENT

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


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

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 ~~September~~June 30, ~~2022,~~2023, the leases, excluding options to extend, apartment leases and residential ~~homes,~~home leases, which have terms that are generally one year or less, had remaining terms of up to ~~12.9~~12.1 years with a weighted-average remaining term of 3.7 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets totaled ~~$6.0~~$5.5 million and $6.5 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized deferred rent from tenants of ~~$0.5~~$0.7 million and ~~$2.0~~$1.5 million, ~~respectively,~~ net of lease incentive amortization. During the three and nine months ended September 30, 2021, the Company recognized deferred rent from tenants of $0.4 million and $1.5 million, respectively, net of lease incentive amortization.amortization, respectively. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was ~~$17.8~~$20.2 million and ~~$16.3~~$18.3 million, respectively, and is included in rents and other receivables on the accompanying consolidated balance sheets. The cumulative deferred rent balance included ~~$3.0~~$2.9 million and ~~$3.3~~$2.8 million of unamortized lease incentives as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

As of September 30, 2022, the future minimum rental income from the Company’s properties, excluding apartment leases and residential homes, under non-cancelable operating leases was as follows (in thousands):
October 1, 2022 through December 31, 2022 $ 15,105
2023 59,457
2024 54,145
2025 43,184
2026 30,074
Thereafter 72,929
$ 274,894

As of September 30, 2022, the Company’s commercial real estate properties were leased to approximately 300 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:

Industry Number of Tenants
Annualized Base Rent (1)
(in thousands)
Percentage of
Annualized Base Rent
Public Administration 14 $ 7,762 12.6 %
Professional, Scientific, and Technical Services 38 7,346 11.9 %
Computer Systems Design and Related Services 30 7,037 11.4 %
$ 22,145 35.9 %

~~_____________________~~

~~(1)~~

Annualized base rent represents annualized contractual base rental income as of September 30, 2022, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~September~~June 30, ~~2022~~2023

(unaudited)

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



July 1, 2023 through December 31, 2023	$	31,253
2024	58,854
2025	48,673
2026	34,938
2027	26,894
Thereafter	60,377
	$	260,989

As of June 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	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Public Administration	15	$	7,221	11.6	%
Professional, Scientific, and Technical Services	38	7,133		11.5	%
Computer Systems Design and Related Services	29	6,865		11.1	%
		$	21,219	34.2	%

_____________________

(1) Annualized base rent represents annualized contractual base rental income as of June 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 ~~September~~June 30, ~~2022,~~2023, the Company’s real estate investments in California and Georgia represented ~~21.9%~~20.4% and ~~10.3%~~10.8%, respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the 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 ~~Revenues~~Properties

The following table provides detailed information regarding the Company’s hotel revenues for its ~~two~~ hotel ~~properties~~property (the Springmaid Beach Resort was sold on September 1, 2022) during the three and ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Hotel revenues:
Room $ 7,223 $ 9,396 $ 21,423 $ 18,508
Food, beverage and convention services 217 1,452 807 2,830
Campground 984 280 3,379 792
Other 757 1,025 2,343 2,448
Hotel revenues $ 9,181 $ 12,153 $ 27,952 $ 24,578

~~Contract Liabilities~~

The following table summarizes the Company’s contract liabilities, which are comprised of hotel advanced deposits and deferred proceeds from historical and future land sales received from the buyers of the Park Highlands land sales (discussed below) and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which are included in other liabilities in the accompanying consolidated balance sheets, as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022 December 31, 2021
Contract liability $ 23,115 $ 7,313
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period $ 449 $ 159

~~Recent Real Estate Sales~~

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Hotel revenues:
Room	$	2,240	$	9,905	$	4,805	$	14,200
Food, beverage and convention services	214		309		445		589
Campground	—		1,603		—		2,395
Other	111		1,037		228		1,587
Hotel revenues	$	2,565	$	12,854	$	5,478	$	18,771

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~~June 30, ~~2022~~2023

(unaudited)

~~On September 1, 2022,~~Contract Liabilities

The following table summarizes the Company’s contract liabilities, which are comprised of hotel advanced deposits and deferred proceeds received from the buyers of the Park Highlands land sales (referenced below) and another developer for the value of land that was contributed to a master association that is consolidated by the Company, ~~through an indirect wholly owned subsidiary, sold~~which are included in other liabilities in the ~~Springmaid Beach Resort to a purchaser unaffiliated with~~accompanying consolidated balance sheets, as of June 30, 2023 and December 31, 2022 (in thousands):


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

Real Estate Sale

In May 2023, the Company orsold a vacant building within the ~~Advisor~~Madison Square property in Phoenix, Arizona (“Madison Square School”) for ~~$91.0~~proceeds of $6.4 million, before closing costs and credits. The carrying value of the Springmaid Beach Resort as of the disposition date was $87.2 million, which was net of $3.4 million of accumulated depreciation and amortization and $2.5 million of impairment charges. In connection with theCompany recognized a gain on sale of ~~the Springmaid Beach Resort, the Company repaid $52.0~~$3.3 million ~~of the outstanding principal balance due under the mortgage loan secured by the Springmaid Beach Resort and $1.3 million of the proceeds were held for contingent repairs~~ related to the ~~property.~~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 ~~Springmaid Beach Resort,~~Madison Square School, certain assets ~~and liabilities~~ were reclassified to held for sale on the consolidated balance sheets as of December 31, ~~2021.~~2022. As of June 30, 2023, the Madison Square property had three office buildings remaining.

~~Park Highlands Land Purchase and Sale Contracts~~

~~The Company enters into land purchase and sale contracts to dispose of Park Highlands developed and undeveloped land. Under these contracts,~~In February 2023, the Company will receive a stated deposit from the buyer, held in escrow, in consideration for the right, but not the obligation, to purchase the land at a future point in time with predetermined terms. After a contractually specified date, the deposits are not refundable even in the event the contract terminates, at which point the Company records restricted cash and other liabilities on the consolidated balance sheets.

~~On November 11, 2021, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, as amended, to sell 234~~sold approximately 71 developable acres of undeveloped land ~~located~~ in North Las Vegas, Nevada (“Park Highlands”) for ~~gross sales~~ proceeds of ~~approximately $121.4~~$34.5 million, ~~before~~net of closing costs and ~~credits.~~credits of $1.9 million for future development obligations. The ~~due diligence period expired~~Company recognized a pre-tax gain on ~~February 23, 2022 and~~sale of real estate of $29.5 million related to the ~~buyer’s deposit of $13.5 million is no longer refundable and is recognized as restricted cash on~~disposition within the consolidated ~~balance sheets. This deposit~~statements of operations. The purchaser is ~~held in an escrow account and will become available once the sale is completed. Actions are required by~~not affiliated with the Company nor 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 ~~complete~~ensure preservation of the ~~planned sale.~~

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

On June 22, 2022, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement, to sell 67 developable acres of Park Highlands for gross sales proceeds of approximately $55.0 million, before closing costs and credits. The due diligence period expired on October 20, 2022, after which the buyer’s deposit of $3.0 million is no longer be refundable and is recognized as restricted cash on the consolidated balance sheets. This deposit is held in an escrow account and will become available once the sale is completed. Actions are required by the Company to complete the planned sale.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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recorded impairment charges on real estate and related intangibles in the ~~aggregate~~amounts of ~~$11.9~~$18.9 million and $36.6 million, respectively, to write down the carrying value of 210 West 31st Street by $4.4 million, a development property located in New York, New York (“210 West 31st Street”) and Oakland City Center by $5.0 million, an office property located in Oakland, California,two strategic opportunistic properties to their estimated fair ~~value~~values due to ~~a change~~increases in the ~~projected hold period~~discount and ~~related decrease~~cap rate assumptions and decreases in projected cash flows. Additionally, the Company determined that based on the amended sale price of the Springmaid Beach Resort, the book value was not recoverable and the Company wrote down the carrying value of Springmaid Beach Resort by $2.5 million.

~~During~~There were no impairment charges during the three and ~~nine~~six months ended ~~September~~June 30, 2021, the Company recorded impairment charges on real estate in the aggregate of $11.0 million, to write down the carrying value of 210 West 31st Street by $6.6 million and Lincoln Court by $4.4 million, an office property located in Campbell, California, to their estimated fair value due to a change in the projected hold period and related decrease in projected cash flows.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)

~~September~~June 30, ~~2022~~2023

(unaudited)

~~PORT II Consolidation~~

On July 1, 2022, the Company became the primary beneficiary of Pacific Oak Residential Trust II, Inc. (“PORT II”), a related party and consolidated PORT II into the Company's financial statements. As of July 1, 2022, PORT II had 588 residential homes. Refer to Note 8 for additional details on PORT II and the consolidation. The following table summarizes the components of the PORT II and the gain recognized by the Company (in thousands):


~~PORT II's assets and liabilities, based upon fair values as determined by the Company, as follows:~~
~~Assets:~~



~~Real estate held for investment, net~~	$	~~135,096~~
~~Cash and cash equivalents~~	~~1,473~~
~~Restricted cash~~	~~361~~
~~Prepaid expenses and other assets~~	~~639~~
~~Total Assets~~	~~137,569~~
~~Liabilities:~~
~~Notes payable, net~~	~~(82,646)~~
~~Accounts payable and accrued liabilities~~	~~(804)~~
~~Due to affiliates~~	~~(147)~~
~~Other liabilities~~	~~(1,499)~~
~~Total Liabilities~~	~~(85,096)~~
~~Noncontrolling interest~~	~~(1,125)~~
~~Elimination of the Company’s investment in PORT II~~	~~(32,606)~~
~~Gain from consolidation of previously unconsolidated entity~~	$	~~18,742~~

4. REAL ESTATE EQUITY SECURITIES

The following summarizes the portion of ~~gain and~~ loss for the period related to real estate equity securities held during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net (loss) gain recognized during the period on real estate equity securities $ (20,722) $ (2,614) $ (48,312) $ 12,939
Less net gain recognized during the period on real estate equity securities sold during the period — — — (225)
Unrealized (loss) gain recognized during the reporting period on real estate equity securities held at the end of the period $ (20,722) $ (2,614) $ (48,312) $ 12,714


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Loss on real estate equity securities, net	$	(4,089)	$	(20,070)	$	(16,122)	$	(27,591)
Less net gain recognized during the period on real estate equity securities sold during the period	5,809		—		5,809		—
Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period	$	(9,898)	$	(20,070)	$	(21,931)	$	(27,591)

5. NOTES AND BONDS PAYABLE

As of June 30, 2023 and December 31, 2022, the Company’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)

~~September~~June 30, ~~2022~~2023

(unaudited)

~~5. NOTES AND BONDS PAYABLE~~

As of September 30, 2022 and December 31, 2021, the Company’s notes and bonds payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):

Book Value as of
September 30, 2022
Book Value as of
December 31, 2021
Contractual Interest Rate as of
September 30, 2022
Effective Interest Rate at
September 30, 2022 (1)
Payment Type (2)
Maturity Date (3)
Richardson Portfolio Mortgage Loan $ 18,944 $ 28,470 LIBOR + 2.50% 5.64% Principal & Interest
11/1/2022 (4)
Park Centre Mortgage Loan 26,104 26,185 BSBY + 1.75% 4.88% Principal & Interest 06/27/2023
1180 Raymond Mortgage Loan (5)
31,070 31,070 BSBY + 2.25% 5.38% Interest Only 12/01/2023
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (6)
326,523 271,978 3.93% 3.93% (6) 01/31/2026
Crown Pointe Mortgage Loan 53,758 52,315 SOFR + 2.30% 4.77% Interest Only 04/01/2025
The Marq Mortgage Loan 60,998 61,874 BSBY + 1.55% 4.68% Principal & Interest 06/06/2023
Eight & Nine Corporate Centre Mortgage Loan 48,095 48,545 BSBY + 1.60% 4.73% Principal & Interest 06/08/2023
Georgia 400 Center Mortgage Loan 44,129 61,154 LIBOR + 1.55% 4.69% Interest Only 05/22/2023
PORT Mortgage Loan 1 51,303 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 Loans 153,703 60,000 3.90% 3.90% Interest Only 04/10/2026
Springmaid Beach Resort Mortgage Loan (7) 55,491 (7) (7) (7) (7)
Q&C Hotel Mortgage Loan 24,815 25,000
LIBOR + 2.50% (8)
5.64% Principal & Interest 12/23/2022
Lincoln Court Mortgage Loan (5)
35,314 34,623 SOFR + 3.25% 5.72% Interest Only 08/07/2025
Lofts at NoHo Commons Mortgage Loan 71,536 74,536
SOFR + 2.18% (9)
4.65% Interest Only 09/09/2023
210 West 31st Street Mortgage Loan (5)
3,000 8,850 BSBY + 3.00% 6.13% Principal & Interest 12/16/2022
Oakland City Center Mortgage Loan (5)
89,250 96,075 BSBY + 3.00% 6.13% Principal & Interest 09/01/2023
Madison Square Mortgage Loan 17,671 17,500 4.63% 4.63% Interest Only 10/07/2024
Total Notes and Bonds Payable principal outstanding 1,066,736 1,015,491
Discount on Notes and Bonds Payable, net (10)
(13,376) (8,146)
Deferred financing costs, net (10,500) (8,396)
Total Notes and Bonds Payable, net $ 1,042,860 $ 998,949

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of ~~September~~June 30, ~~2022. Effective~~2023. The interest rate is calculated as the actual interest rate in effect as of ~~September~~June 30, ~~2022~~2023 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at ~~September~~June 30, ~~2022,~~2023, where applicable.

(2) Represents the payment type required under the loan as of ~~September~~June 30, ~~2022.~~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 ~~September~~June 30, ~~2022;~~2023; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

(4) ~~Subsequent to September 30, 2022,~~As filing date of this Quarterly Report on Form 10-Q, the Company ~~extended~~was in refinancing negotiations with the ~~Richardson Portfolio Mortgage Loan to October 10, 2022.~~lender for loans that have matured, see below for further discussion.

~~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, 2022~~

~~(unaudited)~~

(5) The Company’s notes and ~~bond’s~~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 ~~September~~June 30, ~~2022,~~2023, the guaranteed amount in the aggregate was ~~$41.9~~$37.2 million.

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

(7) ~~The Springmaid Beach Resort Mortgage Loan~~This loan was paid off ~~in conjunction with~~during the ~~sale of the Springmaid Beach Resort. See Note 3 for further details.~~six months ended June 30, 2023.

(8) ~~The interest rate is variable at~~As of June 30, 2023, $93.7 million had been disbursed to the ~~higher of one-month LIBOR + 2.5% or 4.5%.~~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 on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bonds payable.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company incurred ~~$13.0~~$15.8 million and ~~$33.3~~$31.8 million, respectively, of interest expense. Included in interest expense ~~for~~during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$1.0~~$1.1 million and ~~$2.6~~$2.4 million, respectively, ~~of amortization of~~ deferred financing ~~costs.~~costs and debt discount and premium, net. Included in interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was $1.1 million and ~~$3.4~~$2.2 million, respectively, of amortization on discount on notes and bonds payable, net. Additionally, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company capitalized ~~$0.7~~$0.9 million and $1.7 million, respectively, of interest related to its investments in undeveloped land.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company incurred ~~$10.1~~$10.8 million and ~~$30.7~~$20.3 million, respectively, of interest expense. Included in interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was $0.8 million and ~~$2.5~~$1.6 million, respectively, of amortization of deferred financing costs. Included in interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$0.5~~$1.2 million and ~~$1.9~~$2.3 million, respectively, of amortization on discount on notes and bonds payable, net. Additionally, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company capitalized $0.5 million and ~~$1.6~~$1.0 million, respectively, of interest related to its investments in undeveloped land.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s interest payable was ~~$5.2~~$9.3 million and ~~$6.6~~$9.1 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of ~~September~~June 30, ~~2022~~2023 (in thousands):


October 1, 2022 through December 31, 2022		$	49,443
2023		368,500
July 1, 2023 through December 31, 2023				July 1, 2023 through December 31, 2023	$	264,241
2024	2024	126,512		2024	213,847
2025	2025	249,216		2025	246,066
2026	2026	273,065		2026	268,933
2027				2027	—
Thereafter	Thereafter	—		Thereafter	—
		$	1,066,736		$	993,087

Table of ~~November 14, 2022, the Company had a total of $383.0 million of debt obligations scheduled to mature over the next 12 months.~~ 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 ~~$185.4~~$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 of the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, as outlined in the table above, except for the Company’s Series B Debentures. The Company plans to utilize available extension options or refinance the notes payable. The Company may also choose to market the properties for sale or may negotiate a turnover of the secured properties back to the related mortgage lender.

~~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, 2022~~

~~(unaudited)~~

The Company’s notes payable ~~contain~~contains financial debt covenants, including minimum equity requirements and liquidity ratios. As of ~~September~~June 30, ~~2022,~~2023, the Company was in compliance with all of these debt covenants with the exception that the ~~Oakland City Center~~Park Centre Mortgage Loan, Lofts at NoHo Commons Mortgage Loan, Richardson Portfolio Mortgage Loan, and ~~Georgia 400 Center~~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 ~~Georgia 400 Center~~Lincoln Court Mortgage ~~Loan. Additionally,~~Loan, and the remaining loans are at-risk of cash sweeps and/or principal pay downs if in consecutive non-compliance.

The Company is in discussion with the lender regarding refinancing loans that have matured. As of the filing date of this Quarterly Report on Form 10-Q, the Company ~~may~~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 ~~required~~successful in achieving any of these potential outcomes. If unsuccessful, the lenders would retain their right to ~~partially pay down~~exercise the ~~Oakland City Center Mortgage Loan if~~remedies under the ~~non-compliance continues through September 2023.~~loans including, but not limited to, declaring the debt to be immediately payable and foreclosing on the assets.

Israeli Bond ~~Financings~~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~~debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures ~~will~~ bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. ~~On November 1, 2021,~~ Pacific Oak SOR BVI issued additional Series B Debentures insubsequent to the ~~amount~~initial issuance and as of ~~536.4 million~~June 30, 2023, 1.2 billion Israeli new Shekels ~~par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8~~(approximately $314.1 million as of November 1, 2021). On November 8, 2021, Pacific Oak SOR BVI also issued Series B Debentures in the amount of 53.6 million Israeli new Shekels par value through a private offering. The private offering Series B DebenturesJune 30, 2023) were ~~issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.7 million as of November 8, 2021).~~

Additionally, on May 2, 2022, Pacific Oak SOR BVI issued Series B Debentures in the amount of 320.4 million Israeli new Shekels par value through a private offering. The private offering Series B Debentures were issued at a 4.0% discount, resulting in a total consideration of 307.6 million Israeli new Shekels ($95.3 million as of May 2, 2022).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 ~~contain~~contains various financial covenants. As of ~~September~~June 30, ~~2022,~~2023, the Company was in compliance with ~~all of~~ these financial ~~debt~~ covenants.

On July 6, 2023, Pacific Oak SOR BVI issued 319.6 million Israeli new Shekels (approximately $86.4 million) of Series C bonds (the “Series C Bonds”) to Israeli investors pursuant to a public offering registered with the Israeli Securities Authority. Additionally, on July 17, 2023, Pacific Oak SOR BVI issued an additional 20.7 million Israeli new Shekels (approximately $5.6 million) of Series C bonds (the “Series C Expansion”). The 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. Refer to Note 11 for further discussion.

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 ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, which carrying amounts do not approximate the fair values (in thousands):
September 30, 2022 December 31, 2021
Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value
Financial liabilities (Level 3):
Notes and bond payable $ 740,213 $ 732,676 $ 720,286 $ 743,513 $ 740,176 $ 740,347
Financial liabilities (Level 1):
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures $ 326,523 $ 310,184 $ 306,099 $ 271,978 $ 258,773 $ 274,697


	June 30, 2023						December 31, 2022
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value


Financial liabilities (Level 3):
Notes payable	$	678,957	$	660,208	$	660,879	$	734,899	$	728,433	$	716,813
Financial liabilities (Level 1):

Pacific Oak SOR BVI Series B Debentures	$	314,130	$	315,634	$	296,389	$	331,213	$	316,276	$	304,758

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.

As of June 30, 2023, 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	$	30,474	$	30,474	$	—	$	—
Asset derivative - interest rate caps (1)	$	1,764	$	—	$	1,764	$	—
Liability derivative - foreign currency collar (1)	$	4,437	$	—	$	4,437	$	—
Nonrecurring Basis:
Impaired real estate (2)	$	182,436	$	—	$	—	$	182,436
Impaired investment in unconsolidated entity (2)	$	26,290	$	—	$	—	$	26,290

_____________________

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

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

As of June 30, 2023, two of the Company’s real estate properties were measured at the estimated fair values. The two real estate properties were measured based on an income approach with the significant unobservable inputs used in evaluating the estimated fair value of these properties, including discount rates between 7.5 to 9.0% and terminal cap rates of 7.0 to 8.25%. One investment in unconsolidated entity was measured at the estimated value of the Company’s ownership calculated based on a hypothetical liquidation of the net assets, discounted for lack of marketability and control. The Company used a discount rate of 8.75% and a cap rate of 7.0% to estimate the fair value of the real estate, an interest rate adjustment of 0.15% to estimate the fair value of the debt, a discount rate of 20% for lack of marketability, and a discount rate of 20% for lack of control.

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~~June 30, ~~2022~~2023

(unaudited)

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


				Fair Value Measurements Using									Fair Value Measurements Using
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:	Recurring Basis:									Recurring Basis:
Real estate equity securities	Real estate equity securities	$	63,784	$	63,784	$	—	$	—	Real estate equity securities	$	60,153	$	60,153	$	—	$	—
Asset derivative - interest rate caps	Asset derivative - interest rate caps	$	1,971	$	—	$	1,971	$	—	Asset derivative - interest rate caps	$	2,267	$	—	$	2,267	$	—
Liability derivative - foreign currency collar										Liability derivative - foreign currency collar	$	3,115	$	—	$	3,115	$	—
Nonrecurring Basis:	Nonrecurring Basis:									Nonrecurring Basis:
Impaired real estate	Impaired real estate	$	220,360	$	—	$	—	$	220,360	Impaired real estate	$	212,800	$	—	$	—	$	212,800
Impaired goodwill	Impaired goodwill	$	5,436	$	—	$	—	$	5,436	Impaired goodwill	$	5,436	$	—	$	—	$	5,436

As of September 30, 2022, two of the Company’s real estate properties were measured at their estimated fair value. 210 West 31st Street was based on a sales comparison approach as of September 30, 2022. Oakland City Center was based on an income approach with the significant unobservable inputs used in measuring the estimated fair value of this property include a discount rate of 6.50% and a terminal cap rate of 5.75%. Additionally, the Springmaid Beach Resort was measured at it’s estimated fair value based on the contractual sale price. During the three and nine months ended September 30, 2022, the Company recorded impairment charges on real estate in the aggregate of $11.9 million, to write down the carrying value of 210 West 31st Street, Oakland City Center, and the Springmaid Beach Resort. The fair value of the Company's real estate were measured using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022, which included contractual sale price, discounted cash flows, terminal capitalization rates, and discount rates.

As of September 30, 2022, the Company determined that based on the sale of the Springmaid Beach Resort and a decline in projected cash flows for Oakland City Center, it was more likely than not that the fair value of the reporting units that included Oakland City Center and Springmaid Beach Resort were less than book value. The resulting real estate impairment charge on Oakland City Center and the sale of Springmaid Beach Resort, resulted in the fair value of the reporting units to be below fair value and the entirety of the goodwill associated to the reporting units to be written off. During the three and nine months ended September 30, 2022, the Company recorded goodwill impairment charges of $8.1 million in the consolidated statement of operations.

~~The following table summarizes the goodwill impairment activity during nine months ended September 30, 2022 (in thousands):~~

Gross Goodwill Accumulated Impairment Net Goodwill
Balance, December 31, 2021 $ 16,342 $ (2,808) $ 13,534
Impairment charges on goodwill — (8,098) (8,098)
Balance, September 30, 2022 $ 16,342 $ (10,906) $ 5,436

~~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, 2022~~

~~(unaudited)~~

~~As of December 31, 2021, 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 $ 112,096 $ 112,096 $ — $ —
Asset derivative - interest rate caps $ 8 $ — $ 8 $ —
Nonrecurring Basis:
Impaired real estate (1)
$ 97,600 $ — $ — $ 97,600
Impaired goodwill (1)
$ 13,534 $ — $ — $ 13,534

~~_____________________~~

~~(1)~~ ~~The fair value of these assets were assessed as of September 30, 2021.~~

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 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 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~~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 ~~a wholly owned subsidiary.~~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, ~~the Company~~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 ~~the Company’s~~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 ~~the Company’s~~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, ~~the Company~~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.

~~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, 2022~~

~~(unaudited)~~

In connection with the PORT Advisory Agreement, the Company amended and restated its advisory agreement with the Advisor, also effective September 1, 2022, ~~(the “Amended Company Advisory Agreement”).~~which was subsequently renewed as of November 1, 2022. Under the ~~Amended Company~~ Advisory Agreement, the Company ~~will no longer~~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 ~~Amended Company~~ 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, ~~the Company~~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, ~~the Company~~PORT will pay DMH Realty a property management fee equal to the following: (a) 8% of Collected Rental Revenues, as defined below, up to $50.0 million per annum; (b) 7% of Collected Rental Revenues in excess of $50.0 million per annum, but less than or equal to $75.0 million per annum; and (c) 6% of Collected Rental Revenues in excess of $75.0 million per annum, “Collected Rental Revenues” means the amount of rental revenue actually collected for each property per the terms of the lease pertaining to each property (including lease breakage fees) or pursuant to any early termination buyouts, but excluding other income items, fees or revenue collected by DMH Realty, including but not limited to: application fees, insufficient funds fees, late fees, move-in fees, pet fees, and security deposits (except to the extent applied to rent per the terms of the lease pertaining to any property).

Pacific Oak Capital Markets, LLC

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

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2023 and 2022, respectively, and any related amounts payable as of June 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

1918

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~~June 30, ~~2022~~2023

(unaudited)

Pursuant to the terms of the related party agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2022 and 2021, respectively, and any related amounts payable as of September 30, 2022 and December 31, 2021 (in thousands):

Incurred Payable as of
Three Months Ended September 30, Nine Months Ended September 30, September 30, 2022 December 31, 2021
Expensed 2022 2021 2022 2021
Asset management fees $ 3,630 $ 3,422 $ 9,945 $ 10,802 $ 3,252 $ 1,903
Property management fees 294 119 552 362 — —
Disposition fees (1)
637 692 744 1,196 — —
Change in subordinated performance fee due upon termination to affiliate (2)
— 1,545 — 1,745 (2) (2)
Capitalized
Acquisition fees on real estate (3)
67 — 67 20 — —
Acquisition fee on investment in unconsolidated entities — — — 45 — —
$ 4,628 $ 5,778 $ 11,308 $ 14,170 $ 3,252 $ 1,903

_____________________

(1) ~~Disposition~~Property management fees ~~with respect~~related to ~~real estate sold~~DMH Realty are ~~included in~~recorded as operating, maintenance, and management expenses on the ~~gain (loss) on sale of real estate in the accompanying~~Company’s consolidated statements of operations.

(2) ~~Change in estimate of fees payable~~Reimbursable offering costs to the ~~Company’s previous advisor, KBS Capital Advisors LLC (“KBS Capital Advisors) due~~Advisor related to the ~~termination of the former advisory agreement with KBS Capital Advisors.~~

~~(3)~~ ~~Acquisition fees associated with asset acquisitions~~Private Offering are capitalized ~~while costs associated with business combinations expensed~~and recorded as ~~incurred.~~

~~PORT OP LP Share Redemption~~

~~On June 24, 2022,~~prepaid expenses and other assets on the Company’s ~~board of directors authorized and approved the redemption of the 510,816 Special Common Units of PORT OP LP, a~~ consolidated subsidiary of the Company (“PORT OP”), representing approximately 3.20% interest, held by BPT Holdings, LLC (“BPT Holdings”), a subsidiary of the Advisor, for a price of $13.09 per unit. In July 2022, the Company redeemed the special common units of PORT OP for $6.7 million. Following the redemption, the Company owned 100% of PORT OP.

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, 2022~~

~~(unaudited)~~

Pacific Oak Opportunity Zone Fund I

As of ~~September~~June 30, ~~2022,~~2023, the Company’s investment balance in the Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”) is ~~$26.3~~$26.2 million, which is included in investments in unconsolidated entities on the consolidated balance sheets. The Advisor is entitled to certain fees in connection with the fund. Pacific Oak Opportunity Zone Fund I will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness incurred (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on the Company’s proportionate share of the investment. The Advisor is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s investment. In addition, side letter agreements between the Advisor and Pacific Oak Opportunity Zone Fund I were executed on February 28, 2020 and stipulate that any asset management fees allocable to the Company and waived by Pacific Oak Capital Advisors for Pacific Oak Opportunity Zone Fund I ~~will~~would be distributed to the Company. During the three and nine months ended September 30, 2022, the Company recorded $0.3 million and $0.4 million, respectively, of waived asset management fees recorded as equity in income of unconsolidated entities. During the three and nine months ended September 30, 2021, the Company recorded $0.2 million and $0.3 million, respectively, of waived asset management fees recorded as equity in income of unconsolidated entities.

8. ~~INVESTMENT~~INVESTMENTS IN UNCONSOLIDATED ENTITIES

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s investments in unconsolidated entities were composed of the following ~~(dollars in~~(in thousands):


		Number of Properties as of September 30, 2022						Investment Balance at									Number of Properties as of June 30, 2023						Investment Balance as of
Joint Venture	Joint Venture		Location		Ownership %		September 30, 2022			December 31, 2021		Joint Venture						Location		Ownership %		June 30, 2023			December 31, 2022
110 William Joint Venture	110 William Joint Venture		1		New York, New York		60.0%			$	—			$	—	110 William Joint Venture		1		New York, New York		60% (1)			$	—	(2)		$	—
353 Sacramento Joint Venture	353 Sacramento Joint Venture	1		San Francisco, California		55.0%		46,572				49,916		353 Sacramento Joint Venture			1		San Francisco, California		55.0%		26,290				45,173
Pacific Oak Opportunity Zone Fund I(3)	Pacific Oak Opportunity Zone Fund I(3)	3		Various		46.0%		26,266				27,215		Pacific Oak Opportunity Zone Fund I(3)			3		Various		46.0%		26,219				25,669
PORT II OP LP		(1)		(1)		(1)		(1)				11,125
								$	72,838			$	88,256										$	52,509			$	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 110 William Joint Venture’s property. Additionally, in July ~~1, 2022,~~2023, the 110 William Joint Venture completed a debt and equity restructuring. Refer to Note 11 for further discussion.

(2) As of June 30, 2023, the Company’s investment in the 110 William Joint Venture was $0 due to historical distributions from the 110 William Joint Venture exceeding the Company’s book value and the Company ~~through PORT OP, made a tender offer~~suspended the equity method of accounting.

(3) The maximum exposure to ~~purchase 76,735 shares of PORT II common stock held by unrelated parties for a price of $14.66 per share. As~~loss as a result of the ~~Company determined that it became the primary beneficiary of PORT II, which resulted~~Company’s investment in the ~~consolidation of PORT II into~~Pacific Oak Opportunity Zone Fund I is limited to the ~~Company’s consolidated financial statements. On July 29, 2022, the Company consummated the transactions with the unrelated parties and owned 100% of PORT II. See Note 3 for the assessment~~carrying amount of the fair value of the assets and liabilities of PORT II. There are no liquidity arrangements or agreements to fund capital or purchase assets that could require the Company to provide financial support to PORT II. The Company and the aforementioned unrelated parties did not guarantee any debt in connection with the transaction.investment.

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)

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


	June 30, 2023		December 31, 2022

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Total revenues	$	10,673	$	12,461	$	21,793	$	24,570
Operating loss	(13,718)		(6,807)		(27,753)		(12,060)
Net loss	$	(13,771)	$	(6,795)	$	(27,719)	$	(12,036)

The Company’s investments in unconsolidated entities are reviewed for impairment annually or when conditions exist that may indicate that the decrease in the carrying amount of 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 months ended June 30, 2023, the carrying amount of the Company’s investment in a joint venture 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, no investments in unconsolidated entities were impaired.

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)

9. REPORTING SEGMENTS

The Company recognizes three reporting segments for the three and six months ended June 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 months ended June 30, 2023 and 2022 are as follows (in thousands):



	Three Months Ended June 30, 2023
	Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	$	23,874	$	9,457	$	2,565	$	35,896
Total expenses	(64,298)		(11,403)		(3,261)		(78,962)
Total other (loss) income	(14,482)		21		46		(14,415)
Net (loss) before income taxes	$	(54,906)	$	(1,925)	$	(650)	$	(57,481)

	Six Months Ended June 30, 2023
	Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	$	49,761	$	18,782	$	5,478	$	74,021
Total expenses	(119,673)		(22,668)		(6,162)		(148,503)
Total other income	797		21		75		893
Net (loss) income before income taxes	$	(69,115)	$	(3,865)	$	(609)	$	(73,589)



	Three Months Ended June 30, 2022
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	24,884	$	5,801	$	12,854	$	43,539
Total expenses	(13,699)		(6,505)		(9,432)		(29,636)
Total other (loss) income	(21,797)		(479)		4		(22,272)
Net (loss) income before income taxes	$	(10,612)	$	(1,183)	$	3,426	$	(8,369)

	Six Months Ended June 30, 2022
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	51,750	$	11,544	$	18,771	$	82,065
Total expenses	(40,776)		(13,009)		(16,844)		(70,629)
Total other (loss) income	(26,387)		(521)		2,372		(24,536)
Net (loss) income before income taxes	$	(15,413)	$	(1,986)	$	4,299	$	(13,100)

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~~June 30, ~~2022~~2023

(unaudited)

~~9. SUPPLEMENTAL CASH FLOW AND SIGNIFICANT NONCASH TRANSACTION DISCLOSURES~~

~~Supplemental cash flow and significant noncash transaction disclosures were as follows (in thousands):~~
Nine Months Ended September 30,
2022 2021
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,703 and $1,579 for the nine months ended September 30, 2022 and 2021, respectively $ 29,839 $ 29,220
Supplemental Disclosure of Significant Noncash Transactions:
Assets acquired in the consolidation of previously unconsolidated entity 137,569 —
Liabilities assumed in the consolidation of previously unconsolidated entity 85,096 —
Accrued improvements to real estate 6,389 1,721
Redeemable common stock payable 1,567 3,385
Distributions paid to common stockholders through common stock issuances 99,094 —
Accrued preferred dividends 225 225
PPP notes forgiveness 2,367 1,500

~~10. REPORTING SEGMENTS~~

The Company recognizes three reporting segments for the three and nine months ended September 30, 2022 and 2021: 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. On July 1, 2022, the Company made a prospective name change to the “Single-Family Homes” segment to “Residential Homes” to reflect the Company’s acquisition of PORT II multifamily homes, see Note 3 for further details on the acquisition. On September 1, 2022, the Company made a prospective name change to the “Hotels” segment to “Hotel” to reflect the September 1, 2022 disposition of the Springmaid Beach Resort, see Note 3 for further details on the disposition. The selected financial information for reporting segments for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):
Three Months Ended September 30, 2022
Strategic Opportunistic Properties Residential Homes Hotel Total
Total revenues $ 25,847 $ 8,576 $ 9,182 $ 43,605
Total expenses (46,453) (10,726) (12,056) (69,235)
Total other (loss) income (24,052) 18,671 11 (5,370)
Net (loss) income $ (44,658) $ 16,521 $ (2,863) $ (31,000)
Nine Months Ended September 30, 2022
Strategic Opportunistic Properties Residential Homes Hotel Total
Total revenues $ 77,599 $ 20,120 $ 27,952 $ 125,671
Total expenses (87,232) (23,735) (28,900) (139,867)
Total other (loss) income (50,436) 18,149 2,382 (29,905)
Net (loss) income $ (60,069) $ 14,534 $ 1,434 $ (44,101)

~~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, 2022~~

~~(unaudited)~~

Three Months Ended September 30, 2021
Strategic Opportunistic Properties Single-Family Homes Hotels Total
Total revenues $ 28,050 $ 5,566 $ 12,153 $ 45,769
Total expenses (52,891) (6,398) (8,948) $ (68,237)
Total other (loss) income (4,435) 81 1,276 $ (3,078)
Net (loss) income $ (29,276) $ (751) $ 4,481 $ (25,546)
Nine Months Ended September 30, 2021
Strategic Opportunistic Properties Single-Family Homes Hotels Total
Total revenues $ 88,187 $ 16,436 $ 24,578 $ 129,201
Total expenses (128,418) (19,581) $ (22,924) $ (170,923)
Total other income 42,527 159 $ 1,289 $ 43,975
Net income (loss) $ 2,296 $ (2,986) $ 2,943 $ 2,253

Total assets and goodwill related to the reporting segments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows (in thousands):
September 30, 2022
Strategic Opportunistic Properties Residential Homes Hotel Total
Total assets $ 1,174,855 $ 337,513 $ 51,999 $ 1,564,367
Goodwill (1)
4,220 — 1,216 5,436
December 31, 2021
Strategic Opportunistic Properties Single-Family Homes Hotels Total
Total assets $ 1,223,122 $ 211,050 $ 150,447 $ 1,584,619
Goodwill (1)
9,489 — 4,045 13,534

~~_____________________~~

~~(1)~~ During the three and nine months ended September 30, 2022, the Company recorded impairment charges on goodwill of $5.5 million and $2.6 million related to the Strategic Opportunistic Properties and Hotel segments, respectively. During the three and nine months ended September 30, 2021, the Company recorded impairment charges on goodwill of $2.8 million related to the Strategic Opportunistic Properties segment.


	June 30, 2023
	Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total assets	$	1,029,968	$	333,241	$	51,367	$	1,414,576
Goodwill	4,220		—		1,216		5,436

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

~~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, 2022~~

~~(unaudited)~~

~~11. PORT MEZZANINE EQUITY~~

~~The following is a reconciliation of PORT’s noncontrolling cumulative convertible redeemable preferred stock for the nine months ended September 30, 2022 and 2021 (dollars in thousands):~~
Series A Preferred Stock Series B Preferred Stock
Shares Amounts Shares Amounts
Balance, December 31, 2021 15,000 $ 15,134 125 $ 99
Dividends Available Upon Redemption — 1,045 — 8
Dividends Paid — (1,045) — (8)
Balance, September 30, 2022 15,000 $ 15,134 125 $ 99

Series A Preferred Stock Series B Preferred Stock
Shares Amounts Shares Amounts
Balance, December 31, 2020 15,000 $ 15,134 125 $ 99
Dividends Available Upon Redemption — 453 — —
Dividends Paid — (453) — —
Balance, September 30, 2021 15,000 $ 15,134 125 $ 99

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

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



~~December 31, 2021~~	$	~~2,822~~
~~Net loss attributable to redeemable noncontrolling interest~~	~~(81)~~
~~Adjustment to value of redeemable noncontrolling interest~~ ~~(1)~~	~~3,946~~
~~Payment to redeem noncontrolling interest~~	~~(6,687)~~
~~September 30, 2022~~	$	—

~~December 31, 2020~~	$	~~2,968~~
~~Net loss attributable to redeemable noncontrolling interest~~	~~(113)~~
~~September 30, 2021~~	$	~~2,855~~

~~_____________________~~

~~(1)~~ On June 24, 2022, the Company’s board of directors approved the redemption of the 510,816 PORT OP Special Common Units held by BPT Holdings for a price of $13.09 per unit.and recorded at its fair value. The Company redeemed the noncontrolling interest in PORT OP in July 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)~~

~~September 30, 2022~~

~~(unaudited)~~

~~12.~~10. COMMITMENTS AND CONTINGENCIES

Lease Obligations

As of ~~September~~June 30, ~~2022,~~2023, the Company’s lease and rights to a leasehold interest with respect to 210 West 31st, ~~Street,~~ which was accounted for as a finance lease, are included in the consolidated balance ~~sheet~~sheets as follows:



Right-of-use asset (included in real estate held for investment, ~~net)~~ net, in thousands)~~(1)~~	$	7,281
Lease obligation (included in other ~~liabilities)~~liabilities, in thousands)	~~9,424~~9,491

Remaining lease term	~~91.3 years~~90.4
Discount rate	4.8		%

The components of lease expense were as follows:
Interest on lease obligation for the three months ended ~~September~~June 30, ~~2022~~2023 (in thousands)	~~112~~$	113
Interest on lease obligation for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 (in thousands)	~~334~~225

~~_____________________~~

~~(1)~~ ~~During the three and nine months ended September 30, 2022, the Company wrote down its right-of-use asset and recorded an impairment charge of $0.8 million on 210 West 31st Street.~~

As of ~~September~~June 30, ~~2022,~~2023, the Company had a leasehold interest expiring in 2114. Future minimum lease payments owed by the Company under the finance lease as of ~~September~~June 30, ~~2022~~2023 are as follows (in thousands):


July 1, 2021 through December 31, 2021		$	90
2022		360
2023		360
July 1, 2023 through December 31, 2023				July 1, 2023 through December 31, 2023	$	180
2024	2024	393		2024	360
2025	2025	396		2025	393
2026				2026	396
2027				2027	396
Thereafter	Thereafter	52,167		Thereafter	51,771
Total expected minimum lease obligations	Total expected minimum lease obligations	53,766		Total expected minimum lease obligations	53,496
Less: Amount representing interest (1)	Less: Amount representing interest (1)	(44,342)		Less: Amount representing interest (1)	(44,005)
Present value of net minimum lease payments (2)	Present value of net minimum lease payments (2)	$	9,424	Present value of net minimum lease payments (2)	$	9,491

_____________________

(1) Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.

(2) The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.

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)

Economic Dependency

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

~~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, 2022~~

~~(unaudited)~~

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 ~~September~~June 30, ~~2022.~~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.

~~13.~~11. SUBSEQUENT EVENTS

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

~~Dividends on and accretion to redemption value of Series A Redeemable Preferred Stock~~110 William Joint Venture

On ~~October 25, 2022,~~July 5, 2023, in exchange for the Company’s 77.5% preferred interest ownership percentage in the 110 William Joint Venture, the Company ~~received notice~~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 exchanged a mezzanine loan encumbering the property of approximately $85.7 million between 110 William Mezz III, LLC, an indirect subsidiary of 110 William Joint Venture, as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchange for contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for previously contributed capital.

110 William Joint Venture entered into an amended loan agreement, which restructured the original loan of $248.7 million (the “Original Loan”), and increased the supplemental loan by $56.7 million (the “Supplemental Loan”). The initial maturity date of the ~~holders~~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 ~~PORT’s~~ 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.

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)

Series ~~A noncontrolling cumulative convertible redeemable preferred stock~~C Bonds

On July 6, 2023, Pacific Oak SOR BVI, completed a public offering to ~~redeem their outstanding redeemable preferred stock. If outstanding~~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 ~~November 4, 2022,~~July 9, 2023. The terms of the Series ~~A redeemable preferred stock must be redeemed~~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 ~~Company within 120 days after November 4, 2022.~~rate of 9% per year. The ~~Company authorized~~Series C Bonds mature on June 30, 2026 and ~~approved~~are collateralized by land.

On July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the ~~redemption~~amount of ~~all 15,000 outstanding~~20.7 million Israeli new Shekels. The Series ~~A Preferred Shares,~~C Expansion was issued at a ~~price~~1.0% discount, resulting in a total consideration of ~~(i) $1,120 per~~20.5 million Israeli new Shekels (approximately $5.6 million). The Series ~~A Preferred Share, plus (ii) all accrued but unpaid dividends, through~~C Expansion has an equal level of security, pari passu, amongst themselves and between them and the ~~redemption date.~~initial Series C Bonds, without any right of precedence or preference between any of them.

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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.

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

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

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

•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.

~~Table of Contents~~

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

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

•We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program, future funding obligations under any real estate loans receivable we acquire, the funding of capital expenditures on our real estate investments or the repayment of debt. If such funds are not available from the dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.

•We have focused, and may continue to focus, our investments in non-performing real estate and real estate-related loans, real estate-related loans secured by non-stabilized assets and real estate-related securities, which involve more risk than investments in performing real estate and real estate-related assets.

All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2023, each as filed with the Securities and Exchange Commission (the “SEC”).

Table of Contents

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,~~Operating Partnership, of which we are the sole general partner.

Market Outlook – Real Estate and Real Estate Finance Markets

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

Liquidity and Capital Resources

Our principal demand for funds during the short and long-term is and will be for the acquisition of real estate and real estate-related investments, payment of operating expenses, capital expenditures and general and administrative expenses, payments under debt and funding obligations, redemptions and purchases of our common stock and payments of distributions to stockholders. To date, we have had six primary sources of capital for meeting our cash requirements:

•Proceeds from the primary portion of our initial public offering;

•Proceeds from our dividend reinvestment plan;

•Proceeds from our public bond offering in Israel;

•Debt financing;

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

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

~~Table of Contents~~

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

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

We sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $561.7 million. ~~We ceased offering shares in the primary portion of our initial public offering on November 14, 2012. We continue to offer shares of common stock under the dividend reinvestment plan.~~ As of ~~September~~June 30, ~~2022,~~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 ~~and proceeds from our dividend reinvestment plan~~ as our primary sources of immediate and long-term liquidity.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures and corporate general and administrative expenses. Cash flow from operations from our real estate investments is primarily dependent upon the occupancy levels of our properties, the net effective rental rates on our leases, the collectability of rent and operating recoveries from our tenants and how well we manage our expenditures. As of ~~September~~June 30, ~~2022,~~2023, our office properties were collectively ~~70%~~68% occupied, our residential home portfolio was ~~96%~~95% occupied and our apartment properties were ~~95%~~93% occupied.

Our ~~investments~~investment in the hotel ~~properties generate~~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 ~~properties are~~property is primarily dependent upon the occupancy levels of our ~~hotels,~~hotel, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel ~~properties~~property for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

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 Number of Rooms 2022 2021 2022 2021 2022 2021
Springmaid Beach Resort (1)
453 61.4% 58.4% $226.60 $218.28 $139.05 $127.49
Q&C Hotel 196 59.3% 42.3% $192.73 $121.24 $114.30 $51.24

~~_____________________~~



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

~~(1)~~ ~~The Springmaid Beach Resort was sold on September 1, 2022.~~

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of ~~September~~June 30, ~~2022,~~2023, we had three investments in real estate equity securities outstanding with a total carrying value of ~~$63.8~~$30.5 million.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended ~~September~~June 30, ~~2022~~2023 did not exceed the charter-imposed limitation.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, our cash needs for capital expenditures, redemptions of common stock and debt ~~servicing~~requirements were met with proceeds from dispositions of real estate, proceeds from debt financing and cash on ~~hand.~~hand, except where otherwise noted. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand. As of ~~September~~June 30, ~~2022,~~2023, we had outstanding debt obligations in the aggregate principal amount of ~~$1.1 billion,~~$993.1 million, with a weighted-average remaining term of ~~2.3~~1.7 years. As of ~~September~~June 30, ~~2022,~~2023, we had a total of ~~$386.9~~$460.1 million of debt obligations scheduled to mature within 12 months of that date. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates. We have also agreed to fund expenditures and improvements in our 110 William Joint Venture of up to $105.0 million. We have begun conversations with our lenders about refinancing options upon maturity and we believe it is possible that we will be successful in refinancing the amounts outstanding. There can be no assurance that the refinancing will occur or on the terms currently contemplated. If sufficient refinancing cannot be arranged to satisfy our upcoming obligations, we believe we have other options to meet our obligations. These other options include but are not limited to, refinancing with other lending institutions, issuing additional debt, and selling properties and using net sales proceeds to satisfy the obligations. We believe that with these options we have sufficient cash on hand and availability to address our debt maturities and capital needs scheduled to mature within 12 months of June 30, 2023.

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

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Cash Flows from Operating Activities

Cash Flows from Investing Activities

Net cash provided by investing activities was ~~$70.3~~$27.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and primarily consisted of the following:

•Proceeds from sales of real estate ~~net~~ of ~~$97.9~~$40.8 million;

•~~Contributions to unconsolidated entities~~Net cash paid on foreign currency derivative settlements of ~~$23.9~~$18.0 million, as a result of purchase of foreign currency derivatives of $67.1 million and proceeds from disposition of foreign currency derivatives of $49.2 million;

•~~Earnest money received of $17.0 million related to~~Proceeds from the ~~pending~~ sale of ~~Park Highlands land;~~real estate equity securities of $13.6 million; and

•Improvements to real estate of ~~$16.5 million;~~

•~~Proceeds from advances due from affiliates of $8.2 million;~~

•~~Acquisitions of real estate of $6.7 million; and~~

•~~Funding of $6.4 million for development obligations related to Park Highlands land.~~$10.3 million.

Cash Flows from Financing Activities

Net cash used in financing activities was ~~$37.3~~$60.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and primarily consisted of the following:

•$~~11.0 million of cash distributions paid;~~

•~~$10.7 million of distributions paid to noncontrolling interests;~~

•~~$4.6 million of cash used for redemptions of common stock; and~~

•~~$3.5~~56.3 million of net cash used ~~for~~in debt and other financings as a result of principal payments on notes payable of ~~$190.5~~$56.9 million and payments of deferred financing costs of ~~$4.7~~$0.4 million and partially offset by proceeds from notes payable of ~~$191.7 million.~~$1.0 million; and

•$3.2 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 ~~September~~June 30, ~~2022,~~2023, our borrowings and other liabilities were ~~both~~ approximately ~~70%~~64% of the cost ~~(before depreciation and other noncash reserves) and the book value (before depreciation)~~ of our tangible assets.

~~Table of Contents~~

~~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 issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of ~~the~~ Series B ~~Debentures~~debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures ~~will~~ bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. ~~On November 1, 2021,~~ Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures insubsequent to the ~~amount~~initial issuance and as of ~~536.4 million~~June 30, 2023, 1.2 billion Israeli new Shekels ~~par value through a public offering. The public offering Series B Debentures were issued at a 2.6% discount resulting in a total consideration of 522.4 million Israeli new Shekels ($166.8~~(approximately $314.1 million as of ~~November 1, 2021). On November 8, 2021, Pacific Oak Strategic Opportunity BVI also issued Series B Debentures in the amount of 53.6 million Israeli new Shekels par value through a private offering.~~June 30, 2023) were outstanding. The ~~private offering Series B Debentures were issued at a 3.1% discount resulting in a total consideration of 52.0 million Israeli new Shekels ($16.7 million as of November 8, 2021).~~

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

On July 6, 2023, Pacific Oak Strategic Opportunity BVI completed a public offering to Israeli investors 319.6 million Israeli new Shekels (approximately $86.4 million) Series C Bonds. Additionally, on July 17, 2023, Pacific Oak SOR BVI issued an additional 20.7 million Israeli new Shekels (approximately $5.6 million) of Series C Expansion. Refer to the Subsequent Events section for further discussion.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

In addition to making investments in accordance with our investment objectives, we use or have used our capital resources to make certain payments to our advisor and our dealer manager. During our offering stage, these payments included payments to our dealer manager for selling commissions and dealer manager fees related to sales in our primary offering and payments to our dealer manager and our advisor for reimbursement of certain organization and other offering expenses related both to the primary offering and the dividend reinvestment plan. During our acquisition and development stage, we expect to continue to make payments to our advisor in connection with the selection and origination or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us as well as for any dispositions of assets (including the discounted payoff of non-performing loans).

Among the fees payable to our advisor is an asset management fee. With respect to investments in loans and any investments other than real property, the asset management fee is a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount actually paid or allocated to acquire or fund the loan or other investment, inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the sum of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property, and inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment, inclusive of our proportionate share of any fees and expenses related thereto. 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 ~~September~~June 30, ~~2022~~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 2022		2023-2024		2025-2026		Thereafter		Contractual Obligations	Total		Remainder of 2023		2024-2025		2026-2027		Thereafter
Outstanding debt obligations (1)	Outstanding debt obligations (1)	$	1,066,736	$	49,441	$	495,012	$	522,283	$	—	Outstanding debt obligations (1)	$	993,087	$	264,241	$	459,913	$	268,933	$	—
Interest payments on outstanding debt obligations (2)	Interest payments on outstanding debt obligations (2)	85,083		12,459		55,469		17,155		—		Interest payments on outstanding debt obligations (2)	68,174		23,098		42,624		2,452		—
Finance lease obligation	Finance lease obligation	53,766		90		720		789		52,167		Finance lease obligation	53,496		180		753		792		51,771

_____________________

(1) Amounts include principal payments only.

(2) Projected interest payments are based on the outstanding principal amounts, maturity dates, foreign currency rates and interest rates in effect at ~~September~~June 30, ~~2022.~~2023.

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

Results of Operations

Overview

As of ~~September~~June 30, ~~2022,~~2023, we consolidated eight office properties, one office portfolio consisting of two office buildings and 1425 acres of undeveloped land, two apartment properties, one hotel property, one residential home portfolio consisting of ~~2,458~~2,453 residential homes, ~~three~~two investments in undeveloped land with approximately ~~800~~671 developable acres, one office/retail development property and owned three investments in unconsolidated entities and three investments in real estate equity securities. As of September 30, 2021, we consolidated eight office properties, one office portfolio consisting of four office buildings and 14 acres of undeveloped land, two apartment properties, two hotel properties, one residential home portfolio consisting of 1,806 single-family homes, three investments in undeveloped land with approximately 800 developable acres, one office/retail development property, and owned four investments in unconsolidated entities and three investments in real estate equity securities. Our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our office properties ~~excluding our residential home portfolio,~~ has not been stabilized. As of ~~September~~June 30, ~~2022,~~2023, our office properties were collectively ~~70%~~69% occupied, our residential home portfolio was ~~96%~~95% occupied and our apartment properties ~~were 95%~~was 93% occupied. However, due to the amount of near-term lease expirations, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that ~~occupancies~~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 30, 2023 versus the three months ended June 30, 2022

The following table provides summary information about our results of operations for the three months ended June 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)
	2023		2022
Rental income	$	32,152	$	28,979	$	3,173	11	%	$	3,611	$	(438)
Hotel revenues	2,565		12,854		(10,289)		(80)	%	(9,755)		(534)
Other operating income	1,066		887		179		20	%	—		179
Dividend income from real estate equity securities	113		819		(706)		(86)	%	—		(706)
Operating, maintenance, and management	11,107		10,342		765		7	%	883		(118)
Real estate taxes and insurance	5,843		5,079		764		15	%	845		(81)
Hotel expenses	1,984		6,998		(5,014)		(72)	%	(5,187)		173
Asset management fees to affiliates	3,710		3,189		521		16	%	606		(85)
General and administrative expenses	3,222		2,983		239		8	%	n/a		n/a
Foreign currency transaction loss (gain), net	6,272		(23,833)		30,105		(126)	%	n/a		n/a
Depreciation and amortization	12,110		14,098		(1,988)		(14)	%	750		(2,738)
Interest expense	15,788		10,780		5,008		46	%	(5)		5,013
Impairment charges on real estate and related intangibles	18,926		—		18,926		100	%	n/a		n/a
Loss from unconsolidated entities, net	(14,630)		(2,075)		(12,555)		605	%	355		(12,910)
Other interest income	1,012		48		964		2,008	%	n/a		n/a
Loss on real estate equity securities, net	(4,089)		(20,070)		15,981		(80)	%	—		15,981
Gain (loss) on sale of real estate	3,292		(175)		3,467		(1,981)	%	3,467		—

_____________________

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

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

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PART I. FINANCIAL INFORMATION (CONTINUED)

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

~~Comparison of the three months ended September 30, 2022 versus the three months ended September 30, 2021~~

~~The following table provides summary information about our results of operations for the three months ended September 30, 2022 and 2021 (dollar amounts in thousands):~~
Three Months Ended September 30, Increase (Decrease) Percentage Change
$ Change Due to Acquisitions/ Dispositions (1)
$ Change Due to
Investments Held Throughout
Both Periods (2)
2022 2021
Rental income $ 31,445 $ 29,504 $ 1,941 7 % $ 1,511 $ 430
Hotel revenues 9,182 12,153 (2,971) (24) % (2,892) (79)
Other operating income 830 923 (93) (10) % (89) (4)
Dividend income from real estate equity securities 2,148 3,189 (1,041) (33) % — (1,041)
Operating, maintenance, and management 12,342 10,668 1,674 16 % 858 816
Real estate taxes and insurance 5,650 5,262 388 7 % 365 23
Hotel expenses 5,377 6,483 (1,106) (17) % (1,249) (1,106)
Asset management fees to affiliate 3,630 3,422 208 6 % 210 (2)
General and administrative expenses 2,504 2,365 139 6 % n/a n/a
Foreign currency transaction (gain) loss, net (6,001) 2,271 (8,272) (364) % n/a n/a
Depreciation and amortization 12,717 13,895 (1,178) (8) % 436 (1,614)
Interest expense 12,976 10,092 2,884 29 % 161 2,723
Impairment charges on real estate 11,942 10,971 971 9 % n/a n/a
Impairment charges on goodwill 8,098 2,808 5,290 188 % n/a n/a
Equity in loss of unconsolidated entities (3,376) (569) (2,807) 493 % — (2,807)
Casualty-related gain — 27 (27) (100) % n/a n/a
Other interest income 61 55 6 11 % n/a n/a
Loss on real estate equity securities (20,722) (2,614) (18,108) 693 % — (18,108)
Change in subordinated performance fee due upon termination to affiliate — (1,545) 1,545 (100) % n/a n/a
(Loss) gain on sale of real estate (75) 216 (291) (135) % (291) —
Gain on extinguishment of debt — 1,352 (1,352) 100 % n/a n/a
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 September 30, 2022 compared to the three months ended September 30, 2021 related to real estate and real estate-related investments acquired or disposed on or after October 1, 2021.

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

Rental income increased ~~from $29.5~~to $32.2 million for the three months ended ~~September~~June 30, ~~2021 to $31.4~~2023 from $29.0 million for the three months ended ~~September~~June 30, 2022, primarily as a result of the consolidation of Pacific Oak Residential Trust II, Inc. (“PORT ~~II consolidation,~~II”) in July 2022, which ~~attributed to a $3.0~~accounted for approximately $3.7 million ~~increase and partially offset by~~of rental income during the ~~disposition of City Tower on July 27, 2021, which attributed to a $1.1 million decrease.~~three months ended June 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 ~~from $12.2~~to $2.6 million for the three months ended ~~September~~June 30, ~~2021 to $9.2~~2023 from $12.9 million for the three months ended ~~September~~June 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort onin September 1, 2022, which accounted for approximately $9.4 million of hotel revenues during the three months ended June 30, 2022.

Operating, maintenance, and ~~partially offset by the increase in occupancy for the Q&C Hotel.~~

~~Property operating~~management costs, and real estate taxes and insurance increased ~~from $10.7~~to $11.1 million and $5.8 million, respectively, for the three months ended ~~September~~June 30, ~~2021 to $12.3~~2023 from $10.3 million and $5.1 million, respectively for the three months ended ~~September~~June 30, 2022, primarily ~~as a result of the PORT II consolidation, which attributed to a $1.5 million increase and partially offset by a $0.3 million decrease~~ due to the ~~disposition~~consolidation of ~~City Tower. Real~~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, ~~slightly increased between~~respectively, during the ~~two periods.~~three months ended June 30, 2023. We expect ~~property~~ operating, maintenance, and management costs and real estate taxes and insurance to increase in future periods 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 million for the three months ended June 30, 2023 from $7.0 million for the three months ended June 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort during 2022, which accounted for approximately $4.6 million of hotel expenses during the three months ended June 30, 2022

Asset management fees increased to $3.7 million for the three months ended June 30, 2023 from $3.2 million for the three months ended June 30, 2022, primarily due to the consolidation of PORT II, which accounted for approximately $0.8 million increase during the three months ended June 30, 2023. We expect asset management fees to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

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

Depreciation and amortization decreased to $12.1 million for the three months ended June 30, 2023 from $14.1 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 30, 2022 primarily due to increased one-month floating rates during the three months ended June 30, 2023 and partially offset by a decrease in the outstanding debt balance during three months ended June 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and pay down debt, including annual principal installment payments on the debentures.

During the three months ended June 30, 2023, we recognized impairment charges of $18.9 million for our two real estate properties. There were no impairments recognized during the three months ended June 30, 2022.

Loss from unconsolidated entities, net increased to $14.6 million for the three months ended June 30, 2023 from $2.1 million for the three months ended June 30, 2022, primarily related to the impairment of an unconsolidated joint venture of $14.8 million and partially offset by income recognized from an unconsolidated joint venture, which accounted for $1.1 million of income from unconsolidated entities for the three months ended June 30, 2023.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

~~Hotel expenses~~Loss on real estate equity securities, net decreased ~~from $6.5~~to $4.1 million for the three months ended ~~September~~June 30, ~~2021 to $5.4~~2023 from $20.1 million for the three months ended ~~September~~June 30, 2022, ~~primarily due to the disposition~~which was composed of ~~the Springmaid Beach Resort, which resulted in a decrease of $0.7 million. We expect hotel expenses to vary in future periods based on occupancy rates.~~

~~Asset management fees slightly increased from $3.4~~$9.9 million for the three months ended September 30, 2021 to $3.6 million for the three months ended September 30, 2022, primarily as a result of the PORT II consolidation, which attributed to a $0.4 million increase and partially offset by the disposition of City Tower, which attributed to a $0.2 million decrease. 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 $6.0 million foreign currency transaction gain, net for the three months ended September 30, 2022 and $2.3 million of foreign currency transaction~~unrealized loss net, for the three months ended September 30, 2021, related to the debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates.

Depreciation and amortization decreased from $13.9 million for the three months ended September 30, 2021 to $12.7 million for the three months ended September 30, 2022, primarily as a result of the disposition of the Springmaid Beach Resort, which attributed to $0.5 million decrease, intangibles that were fully amortized in 2021, which attributed to a $1.0 million decrease, and partially offset by the PORT II consolidation, which attributed to a $1.0 million increase. 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 tenant origination costs related to lease expirations and disposition of properties.

Interest expense increased from $10.1 million for the three months ended September 30, 2021 to $13.0 million for the three months ended September 30, 2022, primarily due to increasing benchmark rates affecting our variable rate debt, increase in notes payable balance of $86.5 million related to the PORT II consolidation, and partially offset by a decrease in the notes payable balance of $53.1 million related to the disposition of the Springmaid Beach Resort.

During the three months ended September 30, 2022, we recognized impairment charges of $4.4 million, $5.0 million and $2.5 million on 210 West 31st Street, Oakland City Center and the Springmaid Beach Resort, respectively. During the three months ended September 30, 2021, we recognized impairment charges of $6.6 million on 210 West 31st Street and $4.4 million on Lincoln Court.

During the three months ended September 30, 2022, we recognized impairment charges on goodwill of $5.5 million and $2.6 million on Oakland City Center and the Springmaid Beach Resort, respectively. During the three months ended September 30, 2021, we recognized impairment charges on goodwill of $1.6 million on Lincoln Court and $1.2 million on 210 West 31st Street.

Equity in loss of unconsolidated entities increased from $0.6 million for the three months ended September 30, 2021 to $3.4 million for the three months ended September 30, 2022, primarily as a result of losses related to the 110 William Joint Venture of $1.7 million and the Pacific Oak Opportunity Zone Fund I of $0.9 million for the three months ended September 30, 2022.

~~Loss~~ on real estate equity securities ~~increased from $2.6~~held at June 30, 2023 and $5.8 million ~~for~~realized gain on real estate equity securities sold during the three months ended ~~September~~June 30, ~~2021 to $20.7 million for the three months ended September 30, 2022.~~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 ~~September~~June 30, ~~2022,~~2023, we ~~consolidated PORT II and recognized~~sold a vacant building related to the Madison Square property in Phoenix, Arizona (“Madison Square School”) that resulted in a gain ~~from consolidation~~on sale of ~~previously unconsolidated entity~~real estate of ~~$18.7~~$3.3 million.

~~Table of Contents~~

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

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

There were no material dispositions during the three months ended June 30, 2022.

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 versus the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022

The following table provides summary information about our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (dollar amounts in thousands):


		Nine Months Ended September 30,				Increase (Decrease)			Percentage Change		$ Change Due to Acquisitions/ Dispositions (1)				$ Change Due to Investments Held Throughout Both Periods (2)				Months Ended June 30,						Increase (Decrease)				Percentage Change				$ Change Due to Acquisitions/ Dispositions (1)				$ Change Due to Investments Held Throughout Both Periods (2)
		2022		2021									2023					2022
Rental income	Rental income	$	89,806	$	94,812		$	(5,006)				(5)		%		$	(6,133)		$	1,127	Rental income		$	64,229			$	58,360			$	5,869			10	%			$	7,138	$	(1,269)
Hotel revenues	Hotel revenues	27,952		24,578		3,374			14	%	(314)				3,688		Hotel revenues		5,478			18,771				(13,293)				(71)		%		(13,269)				(24)
Other operating income	Other operating income	2,559		3,118		(559)			(18)	%	(614)				55		Other operating income		2,204			1,728			476				28		%		(15)				491
Dividend income from real estate equity securities	Dividend income from real estate equity securities	5,354		6,693		(1,339)			(20)	%	—				(1,339)		Dividend income from real estate equity securities		2,110			3,206			(1,096)				(34)		%		—				(1,096)
Operating, maintenance, and management	Operating, maintenance, and management	32,560		31,444		1,116			4	%	(1,012)				2,128		Operating, maintenance, and management		22,275			20,218			2,057				10		%		1,651				406
Real estate taxes and insurance	Real estate taxes and insurance	15,753		15,949		(196)			(1)	%	(306)				110		Real estate taxes and insurance		12,260			10,103			2,157				21		%		689				1,468
Hotel expenses	Hotel expenses	17,485		15,715		1,770			11	%	(16)				1,786		Hotel expenses		3,945			12,109			(8,164)				(67)		%		(8,693)				529
Asset management fees to affiliate		9,945		10,802		(857)			(8)	%	(481)				(376)
Asset management fees to affiliates																	Asset management fees to affiliates		7,684			6,315			1,369				22		%		1,166				203
General and administrative expenses	General and administrative expenses	8,486		7,120		1,366			19	%	n/a				n/a		General and administrative expenses		6,220			5,977			243				4		%		n/a				n/a
Foreign currency transaction gain, net		(37,100)		(568)		(36,532)			6,432	%	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
Depreciation and amortization	Depreciation and amortization	39,379		45,969		(6,590)			(14)	%	(2,521)				(4,069)		Depreciation and amortization		24,158			26,662			(2,504)				(9)		%		1,170				(3,674)
Interest expense	Interest expense	33,319		30,713		2,606			8	%	(1,301)				3,907		Interest expense		31,819			20,343			11,476				56		%		(447)				11,923
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
Loss from unconsolidated entities, net																	Loss from unconsolidated entities, net		(16,962)			(2,754)			(14,208)				516		%		451				(14,659)
Other interest income																	Other interest income		1,216			94			1,122				1,194		%		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

Impairment charges on real estate		11,942		10,971		971			9	%	n/a				n/a
Impairment charges on goodwill		8,098		2,808		5,290			188	%	n/a				n/a
Equity in loss of unconsolidated entities		(6,130)		(144)		(5,986)			4,157	%	—				(5,986)
Casualty-related gain		—		27		(27)			(100)	%	n/a				n/a
Other interest income		155		148		7			5	%	n/a				n/a
(Loss) gain on real estate equity securities		(48,312)		12,939		(61,251)			(473)	%	225				(61,476)
Change in subordinated performance fee due upon termination to affiliate		—		(1,745)		1,745			(100)	%	n/a				n/a
(Loss) gain on sale of real estate		3,273		31,385		(28,112)			(90)	%	(28,112)				—
Gain on sale of real estate																	Gain on sale of real estate		32,761			3,348			29,413				879		%		29,413				—
Gain on extinguishment of debt	Gain on extinguishment of debt	2,367		1,365		1,002			73	%	n/a				n/a		Gain on extinguishment of debt		—			2,367			(2,367)				(100)		%		n/a				n/a
Gain from consolidation of previously unconsolidated entity		18,742		—		18,742			100	%	18,742				—
Income tax provision																	Income tax provision		(3,662)			—			(3,662)				100		%		(3,662)				—

_____________________

(1) Represents the dollar amount increase (decrease) for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 related to real estate and real estate-related investments acquired or disposed on or after ~~October~~July 1, ~~2021.~~2022.

(2) Represents the dollar amount increase (decrease) for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.

Rental income ~~decreased from $94.8~~increased to $64.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $89.8~~2023 from $58.4 million for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily ~~due to~~as a result of the ~~disposition~~consolidation of ~~City Tower, which attributed to a $8.7 million decrease and partially offset with the~~ PORT II ~~consolidation,~~in July 2022, which ~~attributed to a $3.6~~accounted for approximately $7.3 million ~~increase.~~of rental income during the six months ended June 30, 2023. There were no significant changes to the occupancy rate and annualized base rent per square foot of our office properties held throughout both periods. We expect rental income to increase in future periods as a result of leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.

Hotel revenues ~~increased from $24.6~~decreased to $5.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $28.0~~2023 from $18.8 million for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily as a result of the ~~increase in occupancy from 58.4%% to 61.4% and average daily rate from $127.49 to $139.05 for~~disposition of the Springmaid Beach Resort ~~as well as~~in September 2022, which accounted for approximately $12.7 million of hotel revenues during the increase in occupancy from 42.3% to 59.3% and average daily rate from $51.24 to $114.30 for the Q&C Hotel. The increase was partially offset by the Springmaid Beach Resort disposition, which attributed to a $0.4 million decrease.six months ended June 30, 2022.

3532

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

~~Property operating~~Operating, maintenance, and management costs, and real estate taxes and insurance increased ~~from $31.4~~to $22.3 million and $12.3 million, respectively, for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $32.6~~2023 from $20.2 million and $10.1 million, respectively for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily due to ~~increase in legal and marketing fees related to various properties and~~ the consolidation of PORT II, which ~~attributed to an increase of~~accounted for approximately $1.7 million and ~~was partially offset by the disposition~~$1.7 million of ~~City Tower, which attributed to a $2.0 million decrease. Real~~operating, maintenance, and management costs, and real estate taxes and insurance, ~~slightly decreased between~~respectively, during the ~~two periods.~~six months ended June 30, 2023. We expect ~~property~~ operating, maintenance, and management costs and real estate taxes and insurance to increase in future periods to the extent we acquire additional properties, increase occupancy of our real estate assets and due to general inflation, but to decrease to the extent we dispose of properties.

Hotel expenses ~~increased from $15.7~~decreased to $3.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $17.5~~2023 from $12.1 million for the ~~nine~~six months ended September 30, 2022, primarily as a result of the increase in occupancy from 58.4%% to 61.4% for the Springmaid Beach Resort as well as the increase in occupancy from 42.3% to 59.3% for the Q&C Hotel. We expect hotel expenses to vary in future periods based on occupancy rates.

~~Asset management fees decreased from $10.8 million for the nine months ended September 30, 2021 to $9.9 million for the nine months ended September~~June 30, 2022, primarily as a result of the disposition of ~~City Tower,~~the Springmaid Beach Resort in September 2022, which ~~attributed~~accounted for approximately $8.1 million of hotel expenses during the six months ended June 30, 2022.

Asset management fees increased to ~~a $0.8~~$7.7 million ~~decrease and partially offset by~~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, ~~consolidation,~~ which ~~attributed to an~~accounted for approximately $1.5 million increase ~~of $0.4 million.~~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.

General and administrative expenses increased from $7.1 million for the nine months ended September 30, 2021 to $8.5 million for the nine months ended September 30, 2022, primarily due to increased accounting and advisory expenses. We expect general and administrative expenses to fluctuate in future periods based on investment and disposition activity as well as costs incurred to evaluate strategic transactions.

We recognized a ~~$0.6~~$3.6 million foreign currency transaction loss, net for the six months ended June 30, 2023 and a $31.1 million foreign currency transaction gain, net for the ~~nine~~six months ended ~~September 30, 2021 and $37.1 million foreign currency transaction gain, net, for the nine months ended September~~June 30, 2022, related to the debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange ~~rates.~~rates and partially offset by results of foreign currency collars.

Depreciation and amortization decreased ~~from $46.0~~to $24.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $39.4~~2023 from $26.7 million for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily ~~as a result of~~due to the disposition of ~~City Tower,~~the Springmaid Beach Resort, which ~~attributed to $2.4~~accounted for approximately $1.0 million ~~decrease~~of depreciation and amortization during the six months ended June 30, 2022 and lease intangibles that were fully amortized ~~in 2021,~~during the six months ended June 30, 2022 and partially offset by the consolidation of PORT II, which ~~attributed to a $3.4~~accounted for $2.2 million ~~decrease.~~of depreciation and amortization during the six months ended June 30, 2023. We expect depreciation and amortization to increase in future periods ~~as a result of~~to the extent we acquire additional properties, but to decrease as a result of amortization of ~~tenant origination costs~~lease intangibles related to lease expirations and disposition of properties.

Interest expense increased ~~from $30.7~~to $31.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $33.3~~2023 from $20.3 million for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily due to ~~increasing benchmark~~increased one-month floating rates ~~affecting our variable rate debt, increase in notes payable balance of $86.5 million related to~~during the ~~PORT II consolidation,~~six months ended June 30, 2023 and partially offset by a decrease in the ~~notes payable~~outstanding debt balance during the six months ended June 30, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of ~~$53.1 million related~~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 ~~disposition~~extent we dispose of properties and pay down debt, including annual principal installment payments on the ~~Springmaid Beach Resort.~~debentures.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we recognized impairment charges of ~~$4.4~~$36.6 million ~~$5.0 million and $2.5 million on 210 West 31st Street, Oakland City Center and~~for our two real estate properties. There were no impairments recognized during the ~~Springmaid Beach Resort, respectively. During the nine~~six months ended ~~September~~June 30, ~~2021, we recognized impairment charges of $6.6 million on 210 West 31st Street and $4.4 million on Lincoln Court.~~2022.

During the nine months ended September 30, 2022, we recognized impairment charges on goodwill of $5.5 million and $2.6 million on Oakland City Center and the Springmaid Beach Resort, respectively. During the nine months ended September 30, 2021, we recognized impairment charges on goodwill of $1.6 million on Lincoln Court and $1.2 million on 210 West 31st Street.

~~Equity in loss of~~Loss from unconsolidated entities, ~~increase from $0.1~~net increased to $17.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to $6.1~~2023 from $2.8 million for the ~~nine~~six months ended ~~September~~June 30, 2022, primarily related to ~~losses with the: 353 Sacramento Joint Venture~~the impairment of ~~$3.3 million loss, primarily as a result~~an unconsolidated joint venture of ~~the allowance for credit losses, the 110 William Joint Venture of $1.7~~$14.8 million and partially offset by income recognized from an unconsolidated joint venture, which accounted for $0.5 million of income from unconsolidated entities for the ~~Pacific Oak Opportunity Zone Fund I of $0.4 million .~~six months ended June 30, 2023.

~~Gain~~Loss on real estate equity securities, net decreased ~~from $12.9~~to $16.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021 to a $48.3~~2023 from $27.6 million ~~loss~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2022, which was composed of $21.9 million unrealized loss on real estate equity securities held at June 30, 2023 and $5.8 million realized gain on real estate equity securities sold during the six months ended June 30, 2023. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in share prices of our investments in real estate equity securities.

During the six months ended June 30, 2023, we sold approximately 71 acres of developable land and the Madison Square School and recognized a gain on sale of real estate of $29.5 million and $3.3 million, respectively. During the six months ended June 30, 2022, we sold two office buildings related to the Richardson Portfolio and recognized a gain on sale of $3.6 million.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

During the nine months ended September 30, 2021, we sold approximately 193 developable acres of Park Highlands undeveloped land that resulted in a gain on sale of $31.1 million. During the nine months ended September 30, 2022, we sold two office buildings related to the Richardson Portfolio and the Springmaid Beach Resort and recognized an aggregate gain on sale of $3.3 million.

~~During the nine months ended September 30, 2022, we consolidated PORT II and recognized a gain from consolidation of previously unconsolidated entity of $18.7 million.~~

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

We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated ~~partnerships and joint ventures.~~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.

~~Table of Contents~~

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

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

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 or gain on extinguishment of debt. A loss or gain on extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss or gain from extinguishment of debt in our calculation of MFFO because these losses or gains do not impact the current operating performance of our investments and do not provide an indication of future operating performance;

•~~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.

~~Table of Contents~~

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

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

Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain of our investments in undeveloped land. We have included adjustments for the costs incurred necessary to bring these investments to their intended use, as these costs are recurring operating costs that are capitalized in accordance with GAAP and not reflected in our net (loss) income, FFO and MFFO. In addition, adjusted MFFO includes an adjustment for ~~casualty loss.~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.


		For the Three Months Ended September 30,					For the Nine Months Ended September 30,					For the Three Months Ended June 30,				For the Six Months Ended June 30,
		2022		2021			2022		2021			2023		2022		2023		2022
Net (loss) income attributable to common stockholders		$	(30,492)	$	(24,516)		$	(44,267)	$	3,671
Net loss attributable to common stockholders											Net loss attributable to common stockholders	$	(57,475)	$	(9,019)	$	(77,056)	$	(13,775)
Depreciation of real estate assets	Depreciation of real estate assets	8,882		8,569			25,544		26,689		Depreciation of real estate assets	9,615		8,368		19,001		16,662
Impairment charges on real estate and related intangibles											Impairment charges on real estate and related intangibles	18,926		—		36,589		—
Amortization of lease-related costs	Amortization of lease-related costs	3,835		5,326			13,835		19,279		Amortization of lease-related costs	2,495		5,730		5,157		10,000
Loss (gain) on sale of real estate (1)		2,621		(216)			(727)		(31,385)
Impairment charges on real estate		11,942		10,971			11,942		10,971
Loss (gain) on real estate equity securities		20,722		2.614			48,312		(12,939)
(Gain) loss on sale of real estate (1)											(Gain) loss on sale of real estate (1)	(3,292)		175		(32,761)		(3,348)
Loss on real estate equity securities, net											Loss on real estate equity securities, net	4,089		20,070		16,122		27,591
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	(1,724)		(400)			(2,308)		(1,238)		Adjustments for noncontrolling interests - consolidated entities (2)	112		(287)		(70)		(584)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	(4,716)		(25)			(1,783)		747		Adjustments for investments in unconsolidated entities (3)	10,872		2,021		7,368		2,933
FFO attributable to common stockholders	FFO attributable to common stockholders	11,070		(288)			50,548		15,795		FFO attributable to common stockholders	(14,658)		27,058		(25,650)		39,479
Straight-line rent and amortization of above- and below-market leases	Straight-line rent and amortization of above- and below-market leases	(791)		(711)		0	(2,729)		(2,544)		Straight-line rent and amortization of above- and below-market leases	(814)		(621)		(1,841)		(1,935)
Amortization of premium/discount on bond and notes payable, net		1,117		461			3,372		1,906
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
Gain on extinguishment of debt	Gain on extinguishment of debt	—		(1.352)			(2,367)		(1.365)		Gain on extinguishment of debt	—		—		—		(2,367)
Unrealized (gain) loss on interest rate caps		(834)		1			(1,103)		17
Gain from consolidation of previously unconsolidated entity		(18,742)		—			(18,742)		—
Mark-to-market foreign currency transaction (gain) loss, net		(6,001)		2,271			(37,100)		(568)
Unrealized gain on interest rate caps											Unrealized gain on interest rate caps	(364)		(215)		(328)		(270)
Foreign currency transaction loss (gain), net											Foreign currency transaction loss (gain), net	6,272		(23,833)		3,553		(31,098)
Adjustments for noncontrolling interests - consolidated entities (2)	Adjustments for noncontrolling interests - consolidated entities (2)	(21)		(24)			(100)		(122)		Adjustments for noncontrolling interests - consolidated entities (2)	(3)		(42)		(7)		(82)
Adjustments for investments in unconsolidated entities (3)	Adjustments for investments in unconsolidated entities (3)	98		15			2,999		1,662		Adjustments for investments in unconsolidated entities (3)	384		3,166		811		2,901
MFFO attributable to common stockholders	MFFO attributable to common stockholders	(14,104)		1,724			(5,222)		16,145		MFFO attributable to common stockholders	(8,101)		6,990		(21,277)		8,883
Other capitalized operating expenses (4)	Other capitalized operating expenses (4)	(801)		(597)			(2,012)		(1,926)		Other capitalized operating expenses (4)	(2,002)		(638)		(2,002)		(1,211)

Casualty-related gain		—		(27)			—		(27)
Change in subordinated performance fee due upon termination to affiliate		—		1,545			—		1,745
Income tax provision											Income tax provision	—		—		3,662		—
Adjusted MFFO attributable to common stockholders	Adjusted MFFO attributable to common stockholders	(14,905)		2,645			(7,234)		15,937		Adjusted MFFO attributable to common stockholders	$	(10,103)	$	6,352	$	(19,617)	$	7,672

_____________________

(1) Reflects an adjustment to eliminate ~~gains or losses~~pre-tax gain on ~~sales~~sale of real estate.

(2) Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net income (loss) ~~income~~ 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) ~~income~~ attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investments in unconsolidated ~~joint ventures.~~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) ~~income,~~, 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 ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Our net loss attributable to common stockholders for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$44.3~~$77.1 million and our cash flows ~~provided by~~used in operations were ~~$8.7~~$9.4 million. Our cumulative distributions paid and net ~~income~~loss attributable to common stockholders from inception through ~~September~~June 30, ~~2022~~2023 were ~~$495.0~~$572.8 million. We have funded our cumulative distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with prior period cash flow from operating activities in excess of distributions paid and with cash from gains realized from the disposition of properties. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have fewer funds available for investment in real estate-related loans, opportunistic real estate, real estate-related debt securities, real estate equity securities and other real estate-related investments, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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

Critical Accounting Policies

Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments and assumptions, ~~require~~requires estimates about matters that are inherently uncertain and ~~because they~~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, ~~2021~~2022 filed with the SEC.

~~Recently Adopted Accounting Pronouncements~~

~~Reference Rate Reform — In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (ASC Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, which provides optional relief to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Additionally, in January 2021, the FASB issued ASU No. 2021-01, ~~Reference Rate Reform (ASC Topic 848)~~, which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. We adopted ASC Topic 848 on September 30, 2022 and the related prospective optional expedients for its variable rate debt and related derivatives is not expected to have a material impact us.

There have been no ~~other recent accounting pronouncements,~~significant changes ~~in accounting pronouncements or recently adopted accounting guidance~~to our policies during ~~the nine months ended September 30, 2022 that are of significance or potential significance to us.~~2023.

Subsequent Events

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

~~Dividends on~~110 William

On July 5, 2023, in exchange 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 ~~accretion~~improvements (the “Capital Contributions”). The 110 William Joint Venture also converted a mezzanine loan encumbering the property of approximately $85.7 million between 110 William Mezz III, LLC, an indirect subsidiary of 110 Williams Joint Venture, as a borrower and Invesco CMI Investments 110 William, LLC (“Invesco”) as lender, into Invesco’s 22.5% preferred equity interest in the 110 William Joint Venture. As part of the restructuring, SREF III 110 William JV, LLC’s previous 40% membership interest was diluted in exchange for contingent consideration of 10% of net cash received. Following the buyout of SREF III 110 William JV, LLC, the Company held 100% of the common interests in the joint venture for contributed capital.

110 William Joint Venture entered into an amended loan agreement, which restructured the original loan of $248.7 million (the “Original Loan”), and increased the supplemental loan by $56.7 million (the “Supplemental Loan”). The initial maturity date of the Original Loan and the Supplemental Loan is July 5, 2026, although the maturity date may be extended. The interest rate with respect to ~~redemption value~~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 ~~A Redeemable Preferred~~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 ~~October 25, 2022, we received notice by~~July 17, 2023, Pacific Oak SOR BVI issued additional Series C bonds in the ~~holders~~amount of ~~PORT’s~~20.7 million Israeli new Shekels par value (the “Series C Expansion”). The Series ~~A noncontrolling cumulative convertible redeemable preferred stock to redeem their outstanding redeemable preferred stock. If outstanding on November 4, 2022,~~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 ~~A redeemable preferred stock must be redeemed by us within 120 days after November 4, 2022. We authorized~~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 ~~approved the redemption~~Series C Expansion contains various financial covenants.

Table of ~~all 15,000 outstanding Series A Preferred Shares, at a price of (i) $1,120 per Series A Preferred Share, plus (ii) all accrued but unpaid dividends, through the redemption date.~~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.~~

~~Table of Contents~~

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

~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~

WeShekel; in particular, we are exposed to the effects of foreign currency changes in Israel with respect to the ~~3.93%~~ Series B Debentures, the Series C Bonds and Series C Expansion issued to investors in Israel.

In addition, we are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes and foreign currency changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. In order to limit the effects of changes in foreign currency on our operations, we may utilize a variety of foreign currency hedging strategies such as cross currency swaps, forward contracts, puts or calls. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and the risk that the losses may exceed the amount we invested in the instruments. Additionally, certain of these strategies may cause us to fund a margin account periodically to offset changes in foreign currency rates which may also reduce the funds available for payments to holders of our common stock.

As of ~~September~~June 30, ~~2022,~~2023, we held ~~129.9~~39.8 million Israeli new Shekels and ~~24.6~~24.7 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of ~~September~~June 30, ~~2022,~~2023, we had bonds outstanding and the related interest payable in the amounts of 1.2 billion Israeli new Shekels and ~~7.6~~19.1 million Israeli new Shekels, respectively. Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on the remeasurement for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$25.9~~$23.5 million and ~~$31.7~~$37.5 million, respectively, for the same period.

~~Interest Rate Risk~~

Generally, the composition of our investments is such that declining interest rates will increase our net income, while rising interest rates will decrease our net income. Recently, interest rates have remained at relatively low levels on a historical basis and the Federal Reserve maintained the federal funds target range at 0.0% to 0.25% for much of 2021. However, in March 2022, the Federal Reserve approved a 0.25% rate increase and approved four additional 0.75% rate increases in 2022. The Federal Reserve has indicated that it foresees further increases and has maintained a stance of monetary policy that is sufficiently restrictive to to return inflation to 2%.

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities.

We 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 ~~September~~June 30, ~~2022,~~2023, the fair value of our ~~Pacific Oak SOR BVI~~ Series B Debentures was ~~$306.1~~$296.4 million and the outstanding principal balance was ~~$326.5~~$314.1 million. As of ~~September~~June 30, ~~2022,~~2023, excluding the ~~Pacific Oak SOR BVI~~ Series B Debentures, the fair value of our fixed rate debt was ~~$216.6~~$219.7 million and the outstanding principal balance of our fixed rate debt was ~~$233.2~~$233.5 million. The fair value estimate of ~~our Pacific Oak SOR BVI~~the Series B Debentures ~~were~~was calculated using the quoted bond price as of ~~September~~June 30, ~~2022~~2023 on the Tel Aviv Stock Exchange of ~~94.40~~95.99 Israeli new ~~Shekels.~~Shekels, respectively. The fair value estimate of our fixed rate debt was calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of ~~September~~June 30, ~~2022.~~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 ~~September~~June 30, ~~2022,~~2023, we had entered into three separate interest rate caps with an aggregate notional of ~~$181.0~~$156.6 million which effectively limits our exposure to increases in one-month ~~LIBOR and~~ SOFR above certain thresholds. Based on interest rates as of ~~September~~June 30, ~~2022,~~2023, if interest rates were 100 basis points higher or lower during the 12 months ending ~~September~~June 30, 2022, interest expense on our variable rate debt would increase or decrease by ~~$4.0~~$2.8 million and ~~$4.8~~$5.3 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, 2022 were 4.10 and 5.2%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of September 30, 2022 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of September 30, 2022 where applicable.

We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of ~~September~~June 30, ~~2022,~~2023, we owned real estate equity securities with a book value of ~~$63.8~~$30.5 million. Based solely on the prices of real estate equity securities as of ~~September~~June 30, ~~2022,~~2023, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately ~~$6.4~~$3.1 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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

~~There have been no material changes from~~In addition to the risk ~~factors previously disclosed~~factor discussed below, please see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the ~~six months~~period ended ~~June 30, 2022,~~March 31, 2023, each as filed with the SEC.

In certain cases, financings for our investments may be recourse to us.

Generally, commercial real estate financings are structured as nonrecourse to the borrower. However, lenders customarily will require that a creditworthy parent entity enter so-called “recourse carveout” guarantees. For example, a lender might require guarantees from the guarantors for the completion of tenant improvements, payment of the guarantor’s obligation, or against certain bad acts. In addition, certain guarantees typically provide that the loan will be a full personal recourse obligation of the guarantor, for certain actions.

The change in the value of Israeli currency may materially and adversely affect our results of operations and financial condition.

On February 16, 2020, Pacific Oak Strategic Opportunity BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B Debentures to Israeli investors pursuant to a public offering, which bonds are denominated in Israeli new Shekels. The Series B Debentures bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures subsequent to the initial issuance and as of June 30, 2023, 1.2 billion Israeli new Shekels (approximately $314.1 million as June 30, 2023) were outstanding.

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

As a result, we are subject to foreign currency risk due to potential fluctuations in exchange rates between Israeli new Shekels and U.S. Dollars. More specifically, a significant change in the value of the Israeli new Shekels may have an adverse effect on our results of operations and financial condition. We have attempted to mitigate this foreign currency risk by using derivative contracts. However, there can be no assurance that those attempts to mitigate foreign currency risk will ultimately be successful.

Uncertain market conditions could cause us to sell our real estate investments or investments in unconsolidated entities at a loss in the future.

We intend to hold our real estate investments and investments in unconsolidated entities until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. We may exercise discretion as to whether and when to sell an investment, and we will have no obligation to sell at any particular time. We generally intend to hold our investments for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our investments, we may not be able to sell our investments at a profit in the future or at all. In addition, if we are unable to access the capital markets for financing in the future, we may need to sell some of our investments to raise capital. We may incur prepayment penalties in the event that we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, we could be forced to sell our investments at inopportune times which could result in us selling the affected investment at a substantial loss. Any inability to sell a property could adversely impact our ability to make debt payments as they come due.

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PART II. OTHER INFORMATION (CONTINUED)

Item 2.2 Unregistered Sales of Equity Securities and Use of Proceeds

a)During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

b)Not applicable.

c)We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.

Pursuant to the share redemption program there are several limitations on our ability to redeem shares:

•Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year.

•During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

•We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

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

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PART II. OTHER INFORMATION (CONTINUED)

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds (Continued)

•We may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that, in a given fiscal quarter, we redeem less than the sum of (a) $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) and (b) any excess capacity carried over to such fiscal quarter from a prior fiscal quarter as described below, any remaining excess capacity to redeem shares in such fiscal quarter will be added to our capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during succeeding fiscal quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders.

We may amend, suspend or terminate the program upon ten business days’ notice to our stockholders. We may provide notice to our stockholders by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.

•Separate from the funding described in the first bullet above, on March 10, 2022 and July 22, 2022, our board of directors made available a total of $3.0 million and $2.5 million, respectively for redemptions in connection with a stockholder's death, “qualifying disability”, or “determination of incompetence” and that will carry forward until depleted. As of September 30, 2022, $1.6 million remained available.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we fulfilled redemption requests eligible for redemption under our share redemption program and received in good order and funded redemptions under our share redemption program with ~~the net proceeds from our dividend reinvestment plan and~~ cash on hand. We redeemed shares pursuant to our share redemption program as follows:
Month
Total Number
of Shares Redeemed
Average Price Paid
Per Share (1)
Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2022 — $ — (2)
February 2022 42,430 $ 9.51 (2)
March 2022 22,735 $ 9.51 (2)
April 2022 75,875 $ 9.51 (2)
May 2022 62,376 $ 9.51 (2)
June 2022 38,920 $ 9.51 (2)
July 2022 178,951 $ 9.51 (2)
August 2022 41,124 $ 9.51 (2)
September 2022 23,060 $ 9.51 (2)
Total 485,471


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	75,025	$	10.50	(2)
February 2023	25,954	$	10.50	(2)
March 2023	42,806	$	10.50	(2)
April 2023	47,885	$	10.50	(2)
May 2023	47,410	$	10.50	(2)
June 2023	66,907	$	10.50	(2)
Total	305,987

_____________________

(1) On ~~January 26,~~December 2, 2022, our board of directors approved an estimated value per share of our common stock of ~~$9.51.~~$10.50. The change in the redemption price became effective for the January ~~2022~~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 ~~2022.~~2023.

(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the ~~nine~~six months ended ~~September 2022,~~June 2023, we redeemed ~~$4.6~~$3.2 million of common stock under the program, which represented all redemption requests received in good order and eligible for redemption through the ~~September 2022~~June 2023 redemption date, except for the ~~$134.0~~$146.8 million of shares in connection with redemption requests not made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” which redemption requests will be fulfilled subject to the limitations described above. Based on the Twelfth SRP, we had ~~$1.6~~$1.4 million available for redemptions in the remainder of ~~2022~~2023, as of ~~September 2022,~~June 30, 2023, and on May 11, 2023 and August 10, 2023, our board of directors approved additional $2.0 million and 4.0 million, respectively, all of which are in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations described above.

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PART II. OTHER INFORMATION (CONTINUED)

Item 3. Defaults upon Senior Securities

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

Item 4. Mine Safety Disclosures

None.

~~Table of Contents~~

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

Item 5. Other Information

~~On November 14, 2022, we renewed~~Pursuant to the ~~advisory agreement~~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 ~~the Advisor. The renewed advisory agreement is effective through November 1, 2023. The terms~~a stockholder’s death, “qualifying disability” or “determination of ~~the renewed advisory agreement are consistent with those of the advisory agreement that was previously in effect.~~incompetence,” which will carry forward until depleted.

Item 6. Exhibits


Ex.						Description

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

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

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

3.4						~~Third~~Fourth Amended and Restated Bylaws, incorporated by reference to Exhibit ~~3.2~~3.4 to the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K filed ~~November 1, 2019~~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						~~Advisory~~ 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						Amended and Restated Limited Liability Company 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, 2023 by Pacific Oak SOR Properties, LLC

10.6						Completion Guaranty as of July 5, 2023 by Pacific Oak SOR Properties, LLC

10.7						Funding Guaranty as of July 5, 2023 by Pacific Oak SOR Properties, LLC

10.8						Guaranty of Recourse Obligations as of July 5, 2023 by Pacific Oak SOR Properties, LLC

10.9						Membership Interest Purchase Agreement as of July 5, 2023 by and between ~~the Company~~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 ~~Capital Advisors,~~SOR SREF III 110 William, LLC ~~dated November 1, 2022~~(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).

4544

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:	~~November 14, 2022~~August 11, 2023	By:	/S/ KEITH D. HALL
			Keith D. Hall
			Chief Executive Officer and Director
			(principal executive officer)

Date:	~~November 14, 2022~~August 11, 2023	By:	/S/ MICHAEL A. BENDER
			Michael A. Bender
			Chief Financial Officer
			(principal financial officer)

4645



October 1, 2022 through December 31, 2022	$	15,105
2023	59,457
2024	54,145
2025	43,184
2026	30,074
Thereafter	72,929
	$	274,894


	September 30, 2022		December 31, 2021
Contract liability	$	23,115	$	7,313
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period	$	449	$	159


	Book Value as of September 30, 2022		Book Value as of December 31, 2021		Contractual Interest Rate as of September 30, 2022	Effective Interest Rate at September 30, 2022 (1)	Payment Type (2)	Maturity Date (3)
Richardson Portfolio Mortgage Loan	$	18,944	$	28,470	LIBOR + 2.50%	5.64%	Principal & Interest	11/1/2022 (4)
Park Centre Mortgage Loan	26,104		26,185		BSBY + 1.75%	4.88%	Principal & Interest	06/27/2023
1180 Raymond Mortgage Loan (5)	31,070		31,070		BSBY + 2.25%	5.38%	Interest Only	12/01/2023
Pacific Oak SOR (BVI) Holdings, Ltd. Series B Debentures (6)	326,523		271,978		3.93%	3.93%	(6)	01/31/2026
Crown Pointe Mortgage Loan	53,758		52,315		SOFR + 2.30%	4.77%	Interest Only	04/01/2025
The Marq Mortgage Loan	60,998		61,874		BSBY + 1.55%	4.68%	Principal & Interest	06/06/2023
Eight & Nine Corporate Centre Mortgage Loan	48,095		48,545		BSBY + 1.60%	4.73%	Principal & Interest	06/08/2023
Georgia 400 Center Mortgage Loan	44,129		61,154		LIBOR + 1.55%	4.69%	Interest Only	05/22/2023
PORT Mortgage Loan 1	51,303		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 Loans	153,703		60,000		3.90%	3.90%	Interest Only	04/10/2026
Springmaid Beach Resort Mortgage Loan	(7)		55,491		(7)	(7)	(7)	(7)
Q&C Hotel Mortgage Loan	24,815		25,000		LIBOR + 2.50% (8)	5.64%	Principal & Interest	12/23/2022
Lincoln Court Mortgage Loan (5)	35,314		34,623		SOFR + 3.25%	5.72%	Interest Only	08/07/2025
Lofts at NoHo Commons Mortgage Loan	71,536		74,536		SOFR + 2.18% (9)	4.65%	Interest Only	09/09/2023
210 West 31st Street Mortgage Loan (5)	3,000		8,850		BSBY + 3.00%	6.13%	Principal & Interest	12/16/2022
Oakland City Center Mortgage Loan (5)	89,250		96,075		BSBY + 3.00%	6.13%	Principal & Interest	09/01/2023
Madison Square Mortgage Loan	17,671		17,500		4.63%	4.63%	Interest Only	10/07/2024
Total Notes and Bonds Payable principal outstanding	1,066,736		1,015,491
Discount on Notes and Bonds Payable, net (10)	(13,376)		(8,146)
Deferred financing costs, net	(10,500)		(8,396)
Total Notes and Bonds Payable, net	$	1,042,860	$	998,949


	Gross Goodwill		Accumulated Impairment		Net Goodwill
Balance, December 31, 2021	$	16,342	$	(2,808)	$	13,534
Impairment charges on goodwill	—		(8,098)		(8,098)
Balance, September 30, 2022	$	16,342	$	(10,906)	$	5,436


	Incurred								Payable as of
	Three Months Ended September 30,				Nine Months Ended September 30,				September 30, 2022		December 31, 2021
Expensed	2022		2021		2022		2021
Asset management fees	$	3,630	$	3,422	$	9,945	$	10,802	$	3,252	$	1,903

Property management fees	294		119		552		362		—		—
Disposition fees (1)	637		692		744		1,196		—		—
Change in subordinated performance fee due upon termination to affiliate (2)	—		1,545		—		1,745		(2)		(2)
Capitalized
Acquisition fees on real estate (3)	67		—		67		20		—		—

Acquisition fee on investment in unconsolidated entities	—		—		—		45		—		—
	$	4,628	$	5,778	$	11,308	$	14,170	$	3,252	$	1,903



	Three Months Ended September 30, 2022
	Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	$	25,847	$	8,576	$	9,182	$	43,605
Total expenses	(46,453)		(10,726)		(12,056)		(69,235)
Total other (loss) income	(24,052)		18,671		11		(5,370)
Net (loss) income	$	(44,658)	$	16,521	$	(2,863)	$	(31,000)

	Nine Months Ended September 30, 2022
	Strategic Opportunistic Properties		Residential Homes		Hotel		Total
Total revenues	$	77,599	$	20,120	$	27,952	$	125,671
Total expenses	(87,232)		(23,735)		(28,900)		(139,867)
Total other (loss) income	(50,436)		18,149		2,382		(29,905)
Net (loss) income	$	(60,069)	$	14,534	$	1,434	$	(44,101)



	Three Months Ended September 30, 2021
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	28,050	$	5,566	$	12,153	$	45,769
Total expenses	(52,891)		(6,398)		(8,948)		$	(68,237)
Total other (loss) income	(4,435)		81		1,276		$	(3,078)
Net (loss) income	$	(29,276)	$	(751)	$	4,481	$	(25,546)

	Nine Months Ended September 30, 2021
	Strategic Opportunistic Properties		Single-Family Homes		Hotels		Total
Total revenues	$	88,187	$	16,436	$	24,578	$	129,201
Total expenses	(128,418)		(19,581)		$	(22,924)	$	(170,923)
Total other income	42,527		159		$	1,289	$	43,975
Net income (loss)	$	2,296	$	(2,986)	$	2,943	$	2,253


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


Balance, December 31, 2021	15,000	$	15,134	125	$	99
Dividends Available Upon Redemption	—	1,045		—	8
Dividends Paid	—	(1,045)		—	(8)
Balance, September 30, 2022	15,000	$	15,134	125	$	99



		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	Number of Rooms	2022	2021	2022	2021	2022	2021
Springmaid Beach Resort (1)	453	61.4%	58.4%	$226.60	$218.28	$139.05	$127.49
Q&C Hotel	196	59.3%	42.3%	$192.73	$121.24	$114.30	$51.24