Table of Contents

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



FORM 10-Q

(Mark One)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2019
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-55424

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

Maryland46-2822978
(State or Other Jurisdiction of

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

Identification No.)
800 Newport Center Drive,11150 Santa Monica Blvd., Suite 700
Newport Beach, California
400		92660
Los Angeles,California90025
(Address of Principal Executive Offices)(Zip Code)
(949) 417-6500(424) 208-8100
(Registrant’s Telephone Number, Including Area Code)
______________________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒  No  ¨☐
Indicate by check mark whether the registrant has submitted electronically 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  x☒No  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer¨☐Accelerated Filer¨☐
Non-Accelerated Filerx☒Smaller reporting companyx☒
Emerging growth companyx☒
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.   x☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨☐  No  x☒
Securities registered pursuant to Section 12(b) for the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A
As of May 10,November 4, 2019, there were 17,936,71517,949,244 and 12,230,82012,269,483 outstanding shares of Class A and Class T common stock, respectively, of KBSPacific Oak Strategic Opportunity REIT II, Inc.


Table of Contents

KBS Strategic OpportunityPACIFIC OAK STRATEGIC OPPORTUNITY REIT II, Inc.INC.
FORM 10-Q
March 31,September 30, 2019
INDEX
PART I.
2
Item 1.
2
2
3
4
5
67
78
Item 2.
3035
Item 3.
4352
Item 4.
4452
PART II.
4553
Item 1.
4553
Item 1A.
4553
Item 2.
4654
Item 3.
4755
Item 4.
4755
Item 5.
4755
Item 6.
4856
4958



1

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 September 30, 2019December 31, 2018
 (unaudited)
Assets
Real estate, net$507,427  $511,606  
Real estate equity securities9,818  7,230  
Total real estate and real estate-related investments, net517,245  518,836  
Cash and cash equivalents30,524  21,063  
Restricted cash6,858  5,795  
Investment in unconsolidated entity539  2,868  
Rents and other receivables4,996  5,612  
Above-market leases, net51  65  
Prepaid expenses and other assets8,895  8,239  
Total assets$569,108  $562,478  
Liabilities and equity
Notes payable, net$347,530  $326,543  
Accounts payable and accrued liabilities9,136  7,226  
Due to affiliates251  235  
Distributions payable241  484  
Below-market leases, net5,309  7,348  
Other liabilities12,485  13,176  
Redeemable common stock payable1,907  3,028  
Total liabilities376,859  358,040  
Commitments and contingencies (Note 11)
Redeemable common stock—  —  
Equity
Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, 0 shares issued and outstanding—  —  
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 17,934,013 and 18,103,437 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively179  181  
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 12,255,327 and 12,208,242 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively123  122  
Additional paid-in capital266,320  266,339  
Cumulative distributions and net losses(82,792) (73,461) 
Accumulated other comprehensive income—  89  
Total Pacific Oak Strategic Opportunity REIT II, Inc. stockholders’ equity183,830  193,270  
Noncontrolling interests8,419  11,168  
Total equity192,249  204,438  
Total liabilities and equity$569,108  $562,478  
  March 31, 2019 December 31, 2018
  (unaudited)  
Assets    
Real estate, net $509,947
 $511,606
Real estate equity securities 8,344
 7,230
Total real estate and real estate-related investments, net 518,291
 518,836
Cash and cash equivalents 10,506
 21,063
Restricted cash 5,510
 5,795
Investment in unconsolidated entity 5,616
 2,868
Rents and other receivables 7,454
 5,612
Above-market leases, net 60
 65
Prepaid expenses and other assets 9,612
 8,239
Total assets $557,049
 $562,478
Liabilities and equity    
Notes payable, net $325,674
 $326,543
Accounts payable and accrued liabilities 7,055
 7,226
Due to affiliates 269
 235
Distributions payable 241
 484
Below-market leases, net 6,645
 7,348
Other liabilities 14,528
 13,176
Redeemable common stock payable 1,454
 3,028
Total liabilities 355,866
 358,040
Commitments and contingencies (Note 11) 

 

Redeemable common stock —
 —
Equity    
KBS Strategic Opportunity REIT II, Inc. stockholders’ equity    
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding —
 —
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 17,926,128 and 18,103,437 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 179
 181
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 12,216,244 and 12,208,242 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 122
 122
Additional paid-in capital 266,320
 266,339
Cumulative distributions and net losses (76,202) (73,461)
Accumulated other comprehensive income 37
 89
Total KBS Strategic Opportunity REIT II, Inc. stockholders’ equity 190,456
 193,270
Noncontrolling interests 10,727
 11,168
Total equity 201,183
 204,438
Total liabilities and equity $557,049
 $562,478

See accompanying condensed notes to consolidated financial statements.


2

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

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
Three Months Ended September 30,  Nine Months Ended September 30,  
2019201820192018
Revenues:
Office revenues$7,358  $7,515  $21,669  $22,475  
Hotel revenues9,271  10,461  25,318  26,234  
Apartment revenues2,014  1,940  5,979  5,459  
Dividend income from real estate equity securities104  77  313  113  
Interest income from real estate loan receivable—  —  —  10  
Total revenues18,747  19,993  53,279  54,291  
Expenses:
Office expenses3,493  3,241  10,317  8,951  
Hotel expenses6,249  6,106  17,560  17,161  
Apartment expenses927  976  2,707  2,858  
Asset management fees to affiliate1,026  1,020  3,137  2,940  
General and administrative expenses892  704  2,368  1,947  
Depreciation and amortization5,133  5,150  15,314  15,322  
Interest expense5,210  3,435  15,197  9,740  
Impairment charge on real estate—  4,245  —  4,245  
Total expenses22,930  24,877  66,600  63,164  
Other income:
Other interest income125  105  237  257  
Equity in income of unconsolidated entity—  94  2,800  225  
Gain (loss) on real estate equity securities1,253  (486) 2,588  (172) 
Loss on extinguishment of debt(90) —  (90) —  
Total other income (loss)1,288  (287) 5,535  310  
Net loss before income taxes(2,895) (5,171) (7,786) (8,563) 
Income tax benefit—  —  —  9  
Net loss(2,895) (5,171) (7,786) (8,554) 
Net loss attributable to noncontrolling interests338  208  1,109  421  
Net loss attributable to common stockholders$(2,557) $(4,963) $(6,677) $(8,133) 
Class A Common Stock:
Net loss attributable to common stockholders$(1,519) $(2,914) $(3,971) $(4,514) 
Net loss per common share, basic and diluted$(0.08) $(0.16) $(0.22) $(0.26) 
Weighted-average number of common shares outstanding, basic and diluted17,937,658  17,968,924  17,949,375  17,670,771  
Class T Common Stock:
Net loss attributable to common stockholders$(1,038) $(2,049) $(2,706) $(3,619) 
Net loss per common share, basic and diluted$(0.08) $(0.17) $(0.22) $(0.31) 
Weighted-average number of common shares outstanding, basic and diluted12,251,341  12,065,049  12,231,856  11,753,608  
  Three Months Ended March 31,
  2019 2018
Revenues:    
Office revenues $7,117
 $7,599
Hotel revenues 5,980
 5,510
Apartment revenues 1,995
 1,716
Dividend income from real estate equity securities 104
 —
Interest income from real estate loan receivable —
 10
Total revenues 15,196
 14,835
Expenses:    
Office expenses 3,397
 2,671
Hotel expenses 5,175
 4,790
Apartment expenses 897
 917
Asset management fees to affiliate 1,049
 935
General and administrative expenses 707
 639
Depreciation and amortization 5,074
 5,103
Interest expense 4,961
 2,897
Total expenses 21,260
 17,952
Other income (loss):    
Other interest income 64
 60
Equity in income of unconsolidated entity 2,800
 15
Gain (loss) on real estate equity securities 1,114
 (86)
Total other income (loss) 3,978
 (11)
Net��loss before income taxes (2,086) (3,128)
Income tax benefit —
 9
Net loss (2,086) (3,119)
Net loss attributable to noncontrolling interests 551
 252
Net loss attributable to common stockholders $(1,535) $(2,867)
     
Class A Common Stock:    
Net loss attributable to common stockholders $(914) $(1,573)
Net loss per common share, basic and diluted $(0.05) $(0.09)
Weighted-average number of common shares outstanding, basic and diluted 17,984,563
 17,350,919
     
Class T Common Stock:    
Net loss attributable to common stockholders $(621) $(1,294)
Net loss per common share, basic and diluted $(0.05) $(0.11)
Weighted-average number of common shares outstanding, basic and diluted 12,213,311
 11,443,642

See accompanying condensed notes to consolidated financial statements.


3

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

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
 Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Net loss$(2,895) $(5,171) $(7,786) $(8,554) 
Other comprehensive loss:
Foreign currency translation loss—  (16) (25) (84) 
Reclassification adjustment for amounts recognized in net loss—  —  (64) —  
Total other comprehensive loss—  (16) (89) (84) 
Total comprehensive loss(2,895) (5,187) (7,875) (8,638) 
Total comprehensive loss attributable to noncontrolling interests338  208  1,109  421  
Total comprehensive loss attributable to common stockholders$(2,557) $(4,979) $(6,766) $(8,217) 
  Three Months Ended March 31,
  2019 2018
Net loss $(2,086) $(3,119)
Other comprehensive (loss) income:    
Foreign currency translation (loss) gain (52) 67
Total other comprehensive (loss) income (52) 67
Total comprehensive loss (2,138) (3,052)
Total comprehensive loss attributable to noncontrolling interests 551
 252
Total comprehensive loss attributable to common stockholders $(1,587) $(2,800)

See accompanying condensed notes to consolidated financial statements.


4

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

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31,September 30, 2019 and 2018
(unaudited)
(dollars in thousands)
 Common StockAdditional Paid-in CapitalCumulative Distributions and Net LossesAccumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNoncontrolling InterestsTotal Equity
Class AClass T
 SharesAmountsSharesAmounts
Balance, June 30, 201917,925,774  $179  12,238,090  $123  $266,320  $(79,511) $—  $187,111  $10,507  $197,618  
Net loss—  —  —  —  —  (2,557) —  (2,557) (338) (2,895) 
Issuance of common stock23,927  —  21,664  —  439  —  —  439  —  439  
Redemptions of common stock(15,688) —  (4,427) —  (194) —  —  (194) —  (194) 
Transfers to redeemable common stock—  —  —  —  (245) —  —  (245) —  (245) 
Distributions declared—  —  —  —  —  (724) —  (724) —  (724) 
Distributions to noncontrolling interests—  —  —  —  —  —  —  —  (1,750) (1,750) 
Balance, September 30, 201917,934,013  $179  12,255,327  $123  $266,320  $(82,792) $—  $183,830  $8,419  $192,249  
 Common StockAdditional Paid-in CapitalCumulative Distributions and Net LossesAccumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNoncontrolling InterestsTotal Equity
Class AClass T
 SharesAmountsSharesAmounts
Balance, June 30, 201817,619,873  $176  11,770,887  $118  $259,191  $(47,614) $134  $212,005  $13,352  $225,357  
Net loss—  —  —  —  —  (4,963) —  (4,963) (208) (5,171) 
Other comprehensive loss—  —  —  —  —  —  (16) (16) —  (16) 
Issuance of common stock284,944  3  272,508  2  5,369  —  —  5,374  —  5,374  
Stock dividends issued88,816  1  59,596  1  1,341  (1,343) —  —  —  —  
Redemptions of common stock(30,434) —  (2,255) —  (295) —  —  (295) —  (295) 
Transfers to redeemable common stock—  —  —  —  (474) —  —  (474) —  (474) 
Distributions declared—  —  —  —  —  (1,349) —  (1,349) —  (1,349) 
Commissions on stock sales, dealer manager fees and stockholder servicing fees to affiliate—  —  —  —  (280) —  —  (280) —  (280) 
Other offering costs—  —  —  —  (45) —  —  (45) —  (45) 
Noncontrolling interests contributions—  —  —  —  —  —  —  —  536  536  
Distributions to noncontrolling interests—  —  —  —  —  —  —  —  (150) (150) 
Balance, September 30, 201817,963,199  $180  12,100,736  $121  $264,807  $(55,269) $118  $209,957  $13,530  $223,487  


5

Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
                    
 Common Stock Additional Paid-in Capital Cumulative Distributions and Net Losses Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Noncontrolling Interests Total Equity
 Class A Class T 
 Shares Amounts Shares Amounts 
Balance, December 31, 201818,103,437
 $181
 12,208,242
 $122
 $266,339
 $(73,461) $89
 $193,270
 $11,168
 $204,438
Net loss—
 —
 —
 —
 —
 (1,535) —
 (1,535) (551) (2,086)
Other comprehensive loss—
 —
 —
 —
 —
 —
 (52) (52) —
 (52)
Issuance of common stock49,225
 —
 43,979
 —
 899
 —
 —
 899
 —
 899
Redemptions of common stock(226,534) (2) (35,977) —
 (2,492) —
 —
 (2,494) —
 (2,494)
Transfers from redeemable common stock—
 —
 —
 —
 1,574
 —
 —
 1,574
 —
 1,574
Distributions declared—
 —
 —
 —
 —
 (1,206) —
 (1,206) —
 (1,206)
Noncontrolling interests contributions—
 —
 —
 —
 —
 —
 —
 —
 110
 110
Balance, March 31, 201917,926,128
 $179
 12,216,244
 $122
 $266,320
 $(76,202) $37
 $190,456
 $10,727
 $201,183
                    
 Common Stock Additional Paid-in Capital Cumulative Distributions and Net Losses Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Noncontrolling Interests Total Equity
 Class A Class T 
 Shares Amounts Shares Amounts 
Balance, December 31, 201716,888,940
 $169
 11,031,895
 $110
 $245,077
 $(39,657) $202
 $205,901
 $13,397
 $219,298
Net loss—
 —
 —
 —
 —
 (2,867) —
 (2,867) (252) (3,119)
Other comprehensive income—
 —
 —
 —
 —
 —
 67
 67
 —
 67
Issuance of common stock313,416
 3
 334,373
 3
 6,224
 —
 —
 6,230
 —
 6,230
Stock dividends issued84,889
 1
 55,896
 1
 1,272
 (1,274) —
 —
 —
 —
Redemptions of common stock(80,127) (1) (13,762) —
 (820) —
 —
 (821) —
 (821)
Transfers from redeemable common stock—
 —
 —
 —
 156
 —
 —
 156
 —
 156
Distributions declared—
 —
 —
 —
 —
 (1,082) —
 (1,082) —
 (1,082)
Commissions on stock sales, dealer manager fees and stockholder servicing fees to affiliate—
 —
 —
 —
 (323) —
 —
 (323) —
 (323)
Other offering costs—
 —
 —
 —
 (61) —
 —
 (61) —
 (61)
Noncontrolling interests contributions—
 —
 —
 —
 —
 —
 —
 —
 403
 403
Balance, March 31, 201817,207,118
 $172
 11,408,402
 $114
 $251,525
 $(44,880) $269
 $207,200
 $13,548
 $220,748
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2019 and 2018
(unaudited)
(dollars in thousands)
 Common StockAdditional Paid-in CapitalCumulative Distributions and Net LossesAccumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNoncontrolling InterestsTotal Equity
Class AClass T
 SharesAmountsSharesAmounts
Balance, December 31, 201818,103,437  $181  12,208,242  $122  $266,339  $(73,461) $89  $193,270  $11,168  $204,438  
Net loss—  —  —  —  —  (6,677) —  (6,677) (1,109) (7,786) 
Other comprehensive loss—  —  —  —  —  —  (89) (89) —  (89) 
Issuance of common stock97,476  1  87,489  1  1,784  —  —  1,786  —  1,786  
Redemptions of common stock(266,900) (3) (40,404) —  (2,924) —  —  (2,927) —  (2,927) 
Transfers from redeemable common stock—  —  —  —  1,121  —  —  1,121  —  1,121  
Distributions declared—  —  —  —  —  (2,654) —  (2,654) —  (2,654) 
Noncontrolling interests contributions—  —  —  —  —  —  —  —  210  210  
Distributions to noncontrolling interests—  —  —  —  —  —  —  —  (1,850) (1,850) 
Balance, September 30, 201917,934,013  $179  12,255,327  $123  $266,320  $(82,792) $—  $183,830  $8,419  $192,249  
 Common StockAdditional Paid-in CapitalCumulative Distributions and Net LossesAccumulated Other Comprehensive Income (Loss)Total Stockholders’ EquityNoncontrolling InterestsTotal Equity
Class AClass T
 SharesAmountsSharesAmounts
Balance, December 31, 201716,888,940  $169  11,031,895  $110  $245,077  $(39,657) $202  $205,901  $13,397  $219,298  
Net loss—  —  —  —  —  (8,133) —  (8,133) (421) (8,554) 
Other comprehensive loss—  —  —  —  —  —  (84) (84) —  (84) 
Issuance of common stock1,047,279  10  937,874  9  19,074  —  —  19,093  —  19,093  
Stock dividends issued260,498  3  173,135  2  3,919  (3,924) —  —  —  —  
Redemptions of common stock(233,518) (2) (42,168) —  (2,415) —  —  (2,417) —  (2,417) 
Transfers from redeemable common stock—  —  —  —  291  —  —  291  —  291  
Distributions declared—  —  —  —  —  (3,555) —  (3,555) —  (3,555) 
Commissions on stock sales, dealer manager fees and stockholder servicing fees to affiliate—  —  —  —  (965) —  —  (965) —  (965) 
Other offering costs—  —  —  —  (174) —  —  (174) —  (174) 
Noncontrolling interests contributions—  —  —  —  —  —  —  —  1,054  1,054  
Distributions to noncontrolling interests—  —  —  —  —  —  —  —  (500) (500) 
Balance, September 30, 201817,963,199  $180  12,100,736  $121  $264,807  $(55,269) $118  $209,957  $13,530  $223,487  

See accompanying condensed notes to consolidated financial statements.

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

PART I. FINANCIAL INFORMATION (CONTINUED)
KBSItem 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the Nine Months Ended September 30,
20192018
Cash Flows from Operating Activities:
Net loss$(7,786) $(8,554) 
Adjustment to reconcile net loss to net cash provided by operating activities
Equity in income of unconsolidated entity(2,800) (225) 
Distribution of earnings from unconsolidated joint venture—  29  
Depreciation and amortization15,314  15,322  
Impairment charge on real estate—  4,245  
(Gain) loss on real estate equity securities(2,588) 172  
Loss on extinguishment of debt90  —  
Deferred rents(413) (1,244) 
Bad debt expense—  285  
Amortization of above- and below-market leases, net(2,025) (2,656) 
Amortization of deferred financing costs1,271  794  
Foreign currency translation gain(64) —  
Unrealized gain on derivative instruments(24) (84) 
Changes in operating assets and liabilities:
Rents and other receivables1,029  (2,521) 
Prepaid expenses and other assets(1,404) (1,633) 
Accounts payable and accrued liabilities1,720  538  
Due to affiliates28  20  
Other liabilities(495) 1,115  
Net cash provided by operating activities1,853  5,603  
Cash Flows from Investing Activities:
Improvements to real estate(9,840) (6,485) 
Investment in real estate securities(4) (6,986) 
Payments for construction costs(437) (4,796) 
Payoff of real estate loan receivable—  3,500  
Distribution of capital from unconsolidated joint venture5,104  —  
Purchase of interest rate cap agreement(48) (8) 
Proceeds from termination of derivative instruments145  —  
Proceeds from insurance claims—  237  
Net cash used in investing activities(5,080) (14,538) 
Cash Flows from Financing Activities:
Proceeds from notes payable135,778  2,058  
Principal payments on notes payable(113,881) (5,154) 
Payments of deferred financing costs(2,272) (100) 
Principal payments on finance lease obligations(196) (175) 
Proceeds from issuance of common stock—  16,921  
Payments to redeem common stock(2,927) (2,417) 
Payments of commissions on stock sales, dealer manager fees and stockholder servicing fees—  (1,645) 
Payments of other offering costs—  (1,162) 
Distributions paid(1,111) (1,322) 
Noncontrolling interest contributions210  1,054  
Distributions to noncontrolling interest(1,850) (500) 
Net cash provided by financing activities13,751  7,558  
Net increase (decrease) in cash, cash equivalents and restricted cash10,524  (1,377) 
Cash, cash equivalents and restricted cash, beginning of period26,858  35,053  
Cash, cash equivalents and restricted cash, end of period$37,382  $33,676  
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $0 and $3,920 for the nine months ended September 30, 2019 and 2018, respectively$14,527  $8,101  
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan$1,786  $2,126  
Stock dividends issued$—  $3,924  
Foreign currency translation loss on investment in unconsolidated entity$(25) $(84) 
Redemption payable$1,907  $2,126  
Accrued improvements to real estate$1,698  $1,020  
Other offering costs due to affiliates$—  $54  
Acquisition fees due to affiliates$8  $133  
Distributions payable$241  $473  
Construction cost payable$13  $682  
  For the Three Months Ended March 31,
  2019 2018
Cash Flows from Operating Activities:    
Net loss $(2,086) $(3,119)
Adjustment to reconcile net loss to net cash used in operating activities    
Equity in income of unconsolidated entity (2,800) (15)
Distribution of earnings from unconsolidated joint venture —
 15
Depreciation and amortization 5,074
 5,103
(Gain) loss on real estate equity securities (1,114) 86
Deferred rents (96) (642)
Bad debt expense —
 89
Amortization of above- and below-market leases, net (698) (943)
Amortization of deferred financing costs 406
 264
Unrealized (gain) loss on derivative instruments (71) 53
Changes in operating assets and liabilities:    
Rents and other receivables (1,746) (1,346)
Prepaid expenses and other assets (1,518) (3,087)
Accounts payable and accrued liabilities 138
 (464)
Due to affiliates 48
 (4)
Other liabilities 1,352
 2,082
Net cash used in operating activities (3,111) (1,928)
Cash Flows from Investing Activities:    
Improvements to real estate (3,278) (1,967)
Investment in real estate securities (4) (3,154)
Payments for construction costs (240) (1,796)
Payoff of real estate loan receivable —
 3,500
Purchase of interest rate cap agreement —
 (8)
Proceeds from insurance claims —
 100
Net cash used in investing activities (3,522) (3,325)
Cash Flows from Financing Activities:    
Proceeds from notes payable 3,147
 931
Principal payments on notes payable (4,400) (1,822)
Payments of deferred financing costs (22) (100)
Proceeds from issuance of common stock —
 5,660
Payments to redeem common stock (2,494) (821)
Payments of commissions on stock sales, dealer manager fees and stockholder servicing fees —
 (563)
Distributions paid (550) (407)
Noncontrolling interest contributions 110
 403
Net cash (used in) provided by financing activities (4,209) 3,281
Net decrease in cash, cash equivalents and restricted cash (10,842) (1,972)
Cash, cash equivalents and restricted cash, beginning of period 26,858
 35,053
Cash, cash equivalents and restricted cash, end of period $16,016
 $33,081
Supplemental Disclosure of Cash Flow Information:    
Interest paid, net of capitalized interest of $0 and $1,353 for the three months ended March 31, 2019 and 2018, respectively $4,417
 $2,331
Supplemental Disclosure of Noncash Investing and Financing Activities:    
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan $899
 $665
Stock dividends issued $—
 $1,274
Foreign currency translation (loss) gain on investment in unconsolidated entity $(52) $67
Redemption payable $1,454
 $—
Accrued improvements to real estate $1,158
 $1,043
Other offering costs due to affiliates $—
 $1,103
Stockholder servicing fees due to affiliate $—
 $440
Acquisition fees due to affiliates $—
 $103
Distributions payable $241
 $376
Construction cost payable $55
 $318

See accompanying condensed notes to consolidated financial statements.


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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2019 (unaudited)

(unaudited)


1.ORGANIZATION
1.ORGANIZATION
Pacific Oak Strategic Opportunity REIT II, Inc. (formerly known as KBS Strategic Opportunity REIT II, Inc.) (the “Company”) was formed on February 6, 2013 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2014 and intends to continue to operate in such a manner. The Company’s business is conducted through KBSPacific Oak Strategic Opportunity Limited Partnership II (the “Operating Partnership”), a Delaware limited partnership formed on February 7, 2013. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBSPacific Oak Strategic Opportunity Holdings II LLC (“REIT Holdings”), a Delaware limited liability company formed on February 7, 2013, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings. The Company has three3 wholly owned taxable REIT subsidiaries (“TRS”), two of which lease the Company’s hotel properties and in turn contract with independent hotel management companies that manage the day-to-day operations of the Company’s hotels; the third consolidates the Company’s wholly owned TRSs.  The Company’s TRSs are subject to federal and state income tax at regular corporate tax rates.
Subject to certain restrictions and limitations, the business of the Company has beenwas externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, since July 2013 pursuant to an advisory agreement the Company renewed with the Advisor on September 26, 2019 (the “Advisory Agreement”). The Advisor conductsconducted the Company’s operations and managesmanaged its portfolio of real estate loans, opportunistic real estate and other real estate-related investments. On October 31, 2019, the Advisor ceased to serve as the Company’s advisor or have any advisory responsibility to the Company immediately following the filing of the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2019 (the “Third Quarter 10-Q”) with the Securities and Exchange Commission (the “SEC”). On November 1, 2019, the Company entered into an advisory agreement with Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”). The advisory agreement is effective as of November 1, 2019 through November 1, 2020; however the Company may terminate the advisory agreement without cause or penalty upon providing 30 days’ written notice and Pacific Oak Capital Advisors may terminate the advisory agreement without cause or penalty upon providing 90 days’ written notice. The terms of the advisory agreement are consistent with those of the advisory agreement that was previously in effect with the Advisor. The Advisor has entered into a sub-advisory agreement with STAM, a real estate operating company to provide real estate acquisition and portfolio management services to the Advisor in connection with any investments the Company may make in value-added real estate, distressed debt, and real estate-related investments in Europe. Effective April 17, 2019, STAM terminated the sub-advisory agreement with the Advisor. On July 3, 2013, the Company issued 21,739 shares of its common stock to the Advisor at a purchase price of $9.20 per share.
The Company has invested in and manages a portfolio of opportunistic real estate, real estate-related loans, real estate equity securities and other real estate-related investments located in the United States and Europe. As of March 31,September 30, 2019, the Company had invested in two2 hotel properties, four4 office properties, one1 apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of March 31,September 30, 2019, the Company had entered into a consolidated joint venture to develop one1 retail property.
From July 3, 2013 to August 11, 2014, the Company conducted a private placement offering (the “Private Offering”) exempt from registration under Regulation D of the Securities Act of 1933, as amended (the “Act”). The Company sold 3,619,851 shares of common stock for gross offering proceeds of $32.2 million in the Private Offering.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

On November 14, 2013, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”)SEC to offer a maximum of 180,000,000 shares of common stock for sale to the public (the “Public Offering”), of which 100,000,000 shares were registered in a primary offering and 80,000,000 shares were registered to be sold under the Company’s dividend reinvestment plan. The SEC declared the Company’s registration statement effective on August 12, 2014. On February 11, 2016, the Company filed an amended registration statement on Form S-11 with the SEC to offer a second class of common stock designated as Class T shares and to designate its initially offered and outstanding common stock as Class A shares. Pursuant to the amended registration statement, the Company is offering to sell any combination of Class A and Class T shares in the Public Offering but in no event may the Company sell more than 180,000,000 of shares of its common stock pursuant to the Public Offering. The Company commenced offering Class T shares of common stock for sale to the public on February 17, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, servesserved as the dealer manager of the Public Offering pursuant to a dealer manager agreement originally dated August 12, 2014 and amended and restated February 17, 2016 (the “Dealer Manager Agreement”). Previously the Dealer Manager served as dealer manager for the Private Offering. The Dealer Manager is responsible for marketing the Company’s shares. The Company ceased offering shares of common stock in the primary portion of the Public Offering on July 31, 2018 and terminated the primary portion of the Public Offering on September 28, 2018. The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



The Company sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, in the Public Offering for aggregate gross offering proceeds of $228.6 million. As of March 31,September 30, 2019, the Company had sold 651,687699,941 and 269,116312,627 shares of Class A and Class T common stock, respectively, under its dividend reinvestment plan for aggregate gross offering proceeds of $8.5$9.4 million. Also as of March 31,September 30, 2019, the Company had redeemed 670,077710,444 and 99,903104,330 shares of Class A and Class T common stock, respectively, for $6.9$7.3 million.
In addition, the Company raised $4.2 million in separate private transactions exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, 2018, except for the Company’s adoption of the lease accounting standards issued by the Financial Accounting Standards Board (“FASB”) effective on January 1, 2019. 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, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the FASB Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended March 31,September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership and their direct and indirect wholly owned subsidiaries and joint ventures in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

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.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



Reclassifications
Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation.  These reclassifications have not changed the results of operations of prior periods.  Upon adoption of the lease accounting standards of Topic 842 on January 1, 2019 (described below), the Company accounted for tenant reimbursements for property taxes, insurance and common area maintenance as variable lease payments and recorded these amounts as rental income. For the three months ended March 31,September 30, 2018, the Company reclassified $0.6$0.7 million and $6,000$5,000 of tenant reimbursement revenue for property taxes, insurance, and common area maintenance to office revenues and apartment revenues, respectively, for comparability purposes.  For the nine months ended September 30, 2018, the Company reclassified $1.9 million and $17,000 of tenant reimbursement revenue for property taxes, insurance, and common area maintenance to office revenues and apartment revenues, respectively, for comparability purposes.
In addition, upon adoption of the lease accounting standards of Topic 842, the Company’s two2 ground leases which were classified as capital leases under ASC 840 were reclassified as finance leases under ASC 842. The existing capital lease assets were reclassified as right-of-use assets and the existing obligation as lease liabilities as of January 1, 2019. The reclassification of these ground leases did not have a material impact to the Company’s financial statements as the accounting and presentation of the related assets and liabilities on the Company’s balance sheet as of March 31,September 30, 2019 was consistent with the previous periods. The Company’s two2 ground leases had an aggregate right-of-use asset of $8.6 million and an aggregate lease liability of $8.4$8.2 million as of March 31,September 30, 2019, which are included in total real estate, net and other liabilities, respectively, on the Company’s consolidated balance sheet.
Revenue Recognition - Operating Leases
Office and Apartment Revenues
On January 1, 2019, the Company adopted the lease accounting standards under Topic 842 including the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company (i) did not reassess whether any expired or existing contracts are or contain leases, (ii) did not reassess the lease classification for any expired or existing lease, and (iii) did not reassess initial direct costs for any existing leases. The Company did not elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, the Company adopted the practical expedient for land easements and did not assess whether existing or expired land easements that were not previously accounted for as leases under the lease accounting standards of Topic 840 are or contain a lease under Topic 842.
In addition, Topic 842 provides an optional transition method to allow entities to apply the new lease accounting standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. The Company adopted this transition method upon its adoption of the lease accounting standards of Topic 842, which did not result in a cumulative effect adjustment to the opening balance of retained earnings on January 1, 2019. The Company’s comparative periods presented in the financial statements will continue to be reported under the lease accounting standards of Topic 840.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

In accordance with Topic 842, tenant reimbursements for property taxes and insurance are included in the single lease component of the lease contract (the right of the lessee to use the leased space) and therefore are accounted for as variable lease payments and are recorded as rental income on the Company’s statement of operations beginning January 1, 2019. In addition, the Company adopted the practical expedient available under Topic 842 to not separate nonlease components from the associated lease component and instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met, specifically related to tenant reimbursements for common area maintenance which would otherwise be accounted for under the revenue recognition standard. The Company believes the two conditions have been met for tenant reimbursements for common area maintenance as (i) the timing and pattern of transfer of the nonlease components and associated lease components are the same and (ii) the lease component would be classified as an operating lease. Accordingly, tenant reimbursements for common area maintenance are also accounted for as variable lease payments and recorded as rental income on the Company’s statement of operations beginning January 1, 2019.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is probable and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of rental revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
•whether the lease stipulates how a tenant improvement allowance may be spent;
•whether the lessee or lessor supervises the construction and bears the risk of cost overruns;
•whether the amount of a tenant improvement allowance is in excess of market rates;
•whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
•whether the tenant improvements are unique to the tenant or general purpose in nature; and
•whether the tenant improvements are expected to have any residual value at the end of the lease.
The Company leases apartment units under operating leases with terms generally of one year or less. Generally, credit investigations will be performed for prospective residents and security deposits will be obtained. The Company recognizes rental revenue, net of concessions, on a straight-line basis over the term of the lease, when collectibility is determined to be probable.
In accordance with Topic 842, the Company makes a determination of whether the collectibility of the lease payments in an operating lease is probable. If the Company determines the lease payments are not probable of collection, the Company would fully reserve for any contractual lease payments, deferred rent receivable, and tenant reimbursementsvariable lease payments and would recognize rental income only if cash is received. Beginning January 1, 2019, these changes to the Company’s collectibility assessment are reflected as an adjustment to rental income included in office revenues and apartment revenues in the Company’s consolidated statement of operations. Prior to January 1, 2019, bad debt expense related to uncollectible accounts receivable and deferred rent receivable was included in office expenses and apartment expenses in the Company’s consolidated statement of operations.  Any subsequent changes to the collectibility of the allowance for doubtful accounts as of December 31, 2018, which was recorded prior to the adoption of Topic 842, are recorded in office expenses and apartment expenses in the Company’s consolidated statement of operations.
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

Beginning January 1, 2019, the Company, as a lessor, records costs to negotiate or arrange a lease that would have been incurred regardless of whether the lease was obtained, such as legal costs incurred to negotiate an operating lease, as an expense and classify such costs as operating, maintenance, and management expense, which is included in office expenses in the Company’s consolidated statement of operations, as these costs are no longer capitalizable under the definition of initial direct costs under Topic 842.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



Segments
The Company has invested in opportunistic real estate investments, real estate equity securities and originated a loan secured by a non-stabilized real estate asset, which was repaid on January 12, 2018. In general, the Company intends to hold its investments in opportunistic real estate, real estate equity securities and other real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and other real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views opportunistic real estate and other real estate-related assets as similar investments. Substantially all of its revenue and net income (loss) is from opportunistic real estate and other real estate-related assets, and therefore, the Company currently aggregates its operating segments into one1 reportable business segment. In addition, the Company has invested in a participating loan facility secured by a portfolio of light industrial properties located in Europe. However, based on the Company’s investment portfolio and future investment focus, the Company does not believe that its investment in the European asset is a reportable segment.
Per Share Data
Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding for each class of share outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no0 potentially dilutive securities outstanding during the three and nine months ended March 31,September 30, 2019 and 2018. For the purpose of determining the weighted-average number of shares outstanding, stock dividends issued are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. 
From March 2015 through November 2018, the Company’s board of directors declared and issued stock dividends on shares of the Company’s common stock. During the three and nine months ended March 31,September 30, 2018, the Company’s board of directors declared 0.005001 and 0.015003 shares per share outstanding, respectively, and, accordingly, issued 140,785 shares.148,412 and 433,633 shares, respectively. The amount declared per share outstanding included monthly dividends and assumed each share was issued and outstanding for the entire period presented. Stock dividends were issued in the same class of shares as the shares for which such stockholder received the stock dividend. Stock dividends are non-taxable to stockholders at the time of issuance. During the Company’s offering stage and through November 2018, the Company’s board of directors declared stock dividends on a set monthly basis based on monthly record dates. The Company currently does not expect its board of directors to declare additional monthly stock dividends.
Cash distributions declared per share of Class A and Class T common stock were $0.03995833$0.02397501 and $0.08790835 for the three and nine months ended March 31, 2019.September 30, 2019, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2019 through MarchSeptember 2019.
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

Cash distributions declared per share of Class A common stock were $0.04729320$0.04834416 and $0.14345604 for the three and nine months ended March 31, 2018.September 30, 2018, respectively. Cash distributions declared per share of Class T common stock were $0.02444609$0.04054959 and $0.08984833 for the three and nine months ended March 31, 2018.September 30, 2018, respectively. Until the Company ceased offering shares of common stock in the Public Offering on July 31, 2018, the declared rate of cash distributions for Class T Shares was different than the rate declared for the Class A Shares by an amount equivalent to any applicable daily stockholder servicing fees. Distributions declared per share of Class A common stock assumes each share was issued and outstanding each day that was a record date during the three and nine months ending March 31,September 30, 2018. Distributions declared per share of Class T common stock assumes each share was issued and outstanding each day that was a record date during the three and nine months ending March 31,September 30, 2018. Each day during the period from January 1, 2018 through March 31,September 30, 2018 was a record date for distributions. Distributions for January 1, 2018 through March 31,September 30, 2018 were calculated based on stockholders of record each day during the period at a rate of $0.00052548 per share per day, all of which were reduced by the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



The Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding other than Class A Common Stock and Class T Common stock during the periods presented.
The Company’s calculated earnings per share for the three and nine months ended March 31,September 30, 2019 and 2018 were as follows (in thousands, except share and per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Net loss attributable to common stockholders$(2,557) $(4,963) $(6,677) $(8,133) 
Less: Class A Common Stock cash distributions declared430  862  1,578  2,505  
Less: Class T Common Stock cash distributions declared294  487  1,076  1,050  
Undistributed net loss attributable to common stockholders$(3,281) $(6,312) $(9,331) $(11,688) 
Class A Common Stock:
Undistributed net loss attributable to common stockholders$(1,949) $(3,776) $(5,549) $(7,019) 
Class A Common Stock cash distributions declared430  862  1,578  2,505  
Net loss attributable to Class A common stockholders$(1,519) $(2,914) $(3,971) $(4,514) 
Net loss per common share, basic and diluted$(0.08) $(0.16) $(0.22) $(0.26) 
Weighted-average number of common shares outstanding, basic and diluted17,937,658  17,968,924  17,949,375  17,670,771  
Class T Common Stock:
Undistributed net loss attributable to common stockholders$(1,332) $(2,536) $(3,782) $(4,669) 
Class T Common Stock cash distributions declared294  487  1,076  1,050  
Net loss attributable to Class T common stockholders$(1,038) $(2,049) $(2,706) $(3,619) 
Net loss per common share, basic and diluted$(0.08) $(0.17) $(0.22) $(0.31) 
Weighted-average number of common shares outstanding, basic and diluted12,251,341  12,065,049  12,231,856  11,753,608  

13
  Three Months Ended March 31,
  2019 2018
     
Net loss attributable to common stockholders $(1,535) $(2,867)
Less: Class A Common Stock cash distributions declared 718
 807
Less: Class T Common Stock cash distributions declared 488
 275
Undistributed net loss attributable to common stockholders $(2,741) $(3,949)
Class A Common Stock:    
Undistributed net loss attributable to common stockholders $(1,632) $(2,380)
Class A Common Stock cash distributions declared 718
 807
Net loss attributable to Class A common stockholders $(914) $(1,573)
Net loss per common share, basic and diluted $(0.05) $(0.09)
Weighted-average number of common shares outstanding, basic and diluted 17,984,563
 17,350,919
Class T Common Stock:    
Undistributed net loss attributable to common stockholders $(1,109) $(1,569)
Class T Common Stock cash distributions declared 488
 275
Net loss attributable to Class T common stockholders $(621) $(1,294)
Net loss per common share, basic and diluted $(0.05) $(0.11)
Weighted-average number of common shares outstanding, basic and diluted 12,213,311
 11,443,642

Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

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

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



Recently Issued Accounting Standards Updates
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.   ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  During October 2019, the FASB announced that certain entities. including smaller reporting companies, will be allowed additional implementation time with the standard becoming effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”).  The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement.  In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impact of adopting ASU No. 2018-13 on its financial statements, but does not expect the adoption of ASU No. 2018-13 to have a material impact on its financial statements.


3. REAL ESTATE
As of September 30, 2019, the Company’s real estate portfolio was composed of 2 hotel properties, 4 office properties and 1 apartment building. In addition, as of September 30, 2019, the Company has entered into a consolidated joint venture to develop 1 retail property. The following table summarizes the Company’s real estate as of September 30, 2019 and December 31, 2018 (in thousands):
September 30, 2019December 31, 2018
Land$104,138  $104,138  
Buildings and improvements436,448  425,989  
Tenant origination and absorption costs16,022  17,183  
Total real estate, cost and net of impairment charge556,608  547,310  
Accumulated depreciation and amortization(49,181) (35,704) 
Total real estate, net$507,427  $511,606  


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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




3.REAL ESTATE
As of March 31, 2019, the Company’s real estate portfolio was composed of two hotel properties, four office properties and one apartment building. In addition, as of March 31, 2019, the Company has entered into a consolidated joint venture to develop one retail property. The following table summarizes the Company’s real estate as of March 31, 2019 and December 31, 2018 (in thousands):
  March 31, 2019 December 31, 2018
Land $104,138
 $104,138
Buildings and improvements 429,188
 425,989
Tenant origination and absorption costs 16,648
 17,183
Total real estate, cost and net of impairment charge 549,974
 547,310
Accumulated depreciation and amortization (40,027) (35,704)
Total real estate, net $509,947
 $511,606
The following table provides summary information regarding the Company’s real estate as of March 31,September 30, 2019 (in thousands):

Property Date
Acquired		 City State Property Type Land 
Building
and Improvements (1) 
 Tenant Origination and Absorption Total Real Estate, at Cost and Net of Impairment Charge Accumulated Depreciation and Amortization Total Real Estate, Net Ownership %PropertyDate
Acquired		CityStateProperty TypeLand
Building
and Improvements (1)
Tenant Origination and AbsorptionTotal Real Estate, at Cost and Net of Impairment ChargeAccumulated Depreciation and AmortizationTotal Real Estate, NetOwnership %
Springmaid Beach Resort 12/30/2014 Myrtle Beach SC Hotel $27,438
 $34,056
 $—
 $61,494
 $(7,980) $53,514
 90.0%Springmaid Beach Resort12/30/2014Myrtle BeachSCHotel$27,438  $36,040  $—  $63,478  $(9,558) $53,920  90.0%  
Q&C Hotel 12/17/2015 New Orleans LA Hotel 1,232
 53,108
 —
 54,340
 (6,629) 47,711
 90.0%Q&C Hotel12/17/2015New OrleansLAHotel1,232  53,137  —  54,369  (7,751) 46,618  90.0%  
2200 Paseo Verde 12/23/2015 Henderson NV Office 1,850
 11,861
 419
 14,130
 (1,607) 12,523
 100.0%
2200 Paseo Verde (2)
2200 Paseo Verde (2)
12/23/2015HendersonNVOffice1,850  12,271  419  14,540  (1,910) 12,630  100.0%  
Lincoln Court 05/20/2016 Campbell CA Office 14,706
 35,088
 2,554
 52,348
 (4,610) 47,738
 100.0%Lincoln Court05/20/2016CampbellCAOffice14,706  35,887  2,307  52,900  (5,346) 47,554  100.0%  
Lofts at NoHo Commons 11/16/2016 North Hollywood CA Apartment 26,222
 79,870
 —
 106,092
 (4,797) 101,295
 90.0%Lofts at NoHo Commons11/16/2016North HollywoodCAApartment26,222  81,193  —  107,415  (6,013) 101,402  90.0%  
210 West 31st Street (2)
 12/01/2016 New York NY Retail —
 55,081
 —
 55,081
 —
 55,081
 80.0%
210 West 31st Street (3)
210 West 31st Street (3)
12/01/2016New YorkNYRetail—  55,236  —  55,236  —  55,236  80.0%  
Oakland City Center 08/18/2017 Oakland CA Office 22,150
 139,795
 10,875
 172,820
 (12,224) 160,596
 100.0%Oakland City Center08/18/2017OaklandCAOffice22,150  141,287  10,496  173,933  (15,637) 158,296  100.0%  
Madison Square (3)
 10/03/2017 Phoenix AZ Office 10,540
 20,329
 2,800
 33,669
 (2,180) 31,489
 90.0%
Madison Square (4)
Madison Square (4)
10/03/2017PhoenixAZOffice10,540  21,397  2,800  34,737  (2,966) 31,771  90.0%  
 $104,138
 $429,188
 $16,648
 $549,974
 $(40,027) $509,947
 $104,138  $436,448  $16,022  $556,608  $(49,181) $507,427  
_____________________
(1) Building and improvements includes construction costs for the Company’s project that was under development.
(2) On November 4, 2019, the Company sold this property. See note 12, “Subsequent Events - Real Estate Disposition Subsequent to September 30, 2019” for more information.
(3) The Company acquired the rights to a leasehold interest with respect to this property, which was accounted for as a finance lease. The Company applied a 6.1% discount rate to the finance lease and the lease expires on January 31, 2114. As of March 31,September 30, 2019, the finance lease right-of-use asset had a carrying value of $6.8 million included in building and improvements. NoNaN depreciation or amortization was recorded to this property as of March 31,September 30, 2019.
(3)(4) The Company acquired the rights to a leasehold interest with respect to the land at this property, which was accounted for as a finance lease. The Company applied a 5.4% discount rate to the finance lease and as of March 31,September 30, 2019, the finance lease had a weighted average remaining lease term of 3.32.8 years. As of March 31,September 30, 2019, the finance lease right-of-use asset had a carrying value of $1.9 million included in land.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Office Properties
As of March 31,September 30, 2019, the Company owned four4 office properties encompassing in the aggregate 864,940865,370 rentable square feet which were 69%72% occupied. The following table provides detailed information regarding the Company’s office revenues and expenses for the three and nine months ended March 31,September 30, 2019 and 2018 (in thousands):
 Three Months Ended March 31,Three Months Ended September 30,  Nine Months Ended September 30,  
 2019 20182019201820192018
Office revenues:    Office revenues:
Rental income (1)
 $6,912
 $7,422
Rental income (1)
$7,137  $7,332  $21,056  $21,932  
Other income 205
 177
Other income221  183  613  543  
Office revenues $7,117
 $7,599
Office revenues$7,358  $7,515  $21,669  $22,475  
    
Office expenses:    Office expenses:
Operating, maintenance, and management (2)
 $2,325
 $1,719
Operating, maintenance, and management (2)
$2,386  $2,219  $7,049  $6,072  
Real estate taxes and insurance (2)
 1,072
 952
Real estate taxes and insurance (2)
1,107  1,022  3,268  2,879  
Office expenses $3,397
 $2,671
Office expenses$3,493  $3,241  $10,317  $8,951  
_____________________
(1) For the three and nine months ended March 31,September 30, 2018, the Company reclassified $0.6$0.7 million and $1.9 million of tenant reimbursement revenue for property taxes, insurance, and common area maintenance to rental income. See note 2, “Summary of Significant Accounting Policies” for a further discussion on this reclassification.
(2) On October 1, 2018, the Company placed the development of 210 West 31st Street on hold and began expensing certain costs that were previously capitalized. Included in office expenses for the three months ended March 31,September 30, 2019 is $0.3$0.1 million of operating, maintenance and management and $0.1 million of real estate taxes and insurance and for the nine months ended September 30, 2019 is $0.5 million of operating, maintenance and management and $0.3 million of real estate taxes and insurance for 210 West 31st Street.
Operating Leases
The Company’s office properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31,September 30, 2019, the leases had remaining terms, excluding options to extend, of up to 9.48.9 years with a weighted-average remaining term of 3.73.5 years. Some of the leases may have provisions to extend the term of the lease, options for early termination for all or a part of the leased premises 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 the tenant 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 lease and the creditworthiness of the tenant, but generally is not a significant amount. 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 related to office tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $1.1$1.2 million and $1.3 million as of March 31,September 30, 2019 and December 31, 2018, respectively.
During the three and nine months ended March 31,September 30, 2019, the Company recognized deferred rent from tenants of $0.2 million and $0.4 million, respectively, net of lease incentive amortization. During the three and nine months ended September 30, 2018, the Company recognized deferred rent from tenants of $0.1$0.2 million and $0.6$1.2 million, respectively, net of lease incentive amortization. As of March 31,September 30, 2019 and December 31, 2018, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $2.9$3.2 million and $2.8 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.2 million of unamortized lease incentives as of March 31,September 30, 2019 and December 31, 2018.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




As of March 31,September 30, 2019, the future minimum rental income from the Company’s office properties under its non-cancelable operating leases was as follows (in thousands):
October 1, 2019 through December 31, 2019$5,729  
202022,804  
202120,962  
202217,395  
202314,470  
Thereafter46,774  
$128,134  
April 1, 2019 through December 31, 2019$16,525
202020,549
202117,589
202214,271
202311,491
Thereafter22,723
 $103,148

As of March 31,September 30, 2019, the Company’s commercial real estate properties were leased to approximately 10095 tenants over a diverse range of industries and geographic areas. As of March 31,September 30, 2019, the highest tenant industry concentrations (greater than 10% of annualized base rent) in the Company’s portfolio were as follows:
Industry Number of Tenants 
Annualized Base Rent (1) 
(in thousands)
 Percentage of
Annualized Base Rent		IndustryNumber of Tenants
Annualized Base Rent (1)
(in thousands)
Percentage of
Annualized Base Rent
Professional, Scientific and Technical Services 15 $3,872
 17.3%Professional, Scientific and Technical Services  16  $4,833  20.2 %
Legal Services 12 3,768
 16.8%Legal Services13  4,282  17.9 %
Public Administration (Government) 6 3,273
 14.6%Public Administration (Government) 6  3,547  14.8 %
Finance 12 2,349
 10.5%Finance  13  2,542  10.6 %
 $13,262
 59.2%$15,204  63.5 %
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of March 31,September 30, 2019, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.
No other tenant industries accounted for more than 10% of annualized base rent. No tenant accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During the threenine months ended March 31,September 30, 2019, the Company did not record any adjustment to office revenues for lease payments deemed not probable of collection. During the threenine months ended March 31,September 30, 2019 the Company recorded bad debt recovery of $0.1 million, which was included in office expenses in the accompanying consolidated statements of operations. During the three months ended March 31,and 2018, the Company recorded bad debt expense of $0.1$17,000 and $0.3 million, respectively, which waswere included in office expenses in the accompanying consolidated statements of operations.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Hotel Properties
As of March 31,September 30, 2019, the Company owned two2 hotel properties. The following table provides detailed information regarding the Company’s hotel revenues and expenses for the three and nine months ended March 31,September 30, 2019 and 2018 (in thousands):
Three Months Ended September 30,  Nine Months Ended September 30,  
2019201820192018
Hotel revenues:
Room$7,151  8,094  $19,206  20,207  
Food, beverage and convention services1,339  1,574  3,891  3,893  
Campground278  298  829  879  
Other503  495  1,392  1,255  
Hotel revenues$9,271  $10,461  $25,318  $26,234  
Hotel expenses:
Room$1,689  1,824  $4,693  4,839  
Food, beverage and convention services1,137  1,084  3,077  3,005  
General and administrative749  704  2,243  2,149  
Sales and marketing870  932  2,476  2,381  
Repairs and maintenance563  571  1,655  1,566  
Utilities391  364  876  916  
Property taxes and insurance435  447  1,308  1,311  
Other415  180  1,232  994  
Hotel expenses$6,249  $6,106  $17,560  $17,161  
  Three Months Ended March 31,
  2019 2018
Hotel revenues:    
Room $4,465
 4,110
Food, beverage and convention services 873
 816
Campground 271
 289
Other 371
 295
Hotel revenues $5,980
 $5,510
     
Hotel expenses:    
Room $1,324
 1,250
Food, beverage and convention services 776
 724
General and administrative 786
 636
Sales and marketing 694
 652
Repairs and maintenance 566
 486
Utilities 261
 276
Property taxes and insurance 438
 443
Other 330
 323
Hotel expenses $5,175
 $4,790

Contract liabilities
The following table summarizes the Company’s contract liabilities, which are comprised of advanced deposits and are included in other liabilities in the accompanying consolidated balance sheets, as of March 31,September 30, 2019 and December 31, 2018 (in thousands):
September 30, 2019December 31, 2018
Contract liability$652  $324  
Revenue recognized in the period from:
Amounts included in contract liability at the beginning of the period$276  $—  
  March 31, 2019 December 31, 2018
Contract liability $1,149
 $324
Revenue recognized in the period from:    
Amounts included in contract liability at the beginning of the period $147
 $—


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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Apartment Property
As of March 31,September 30, 2019, the Company owned one1 apartment property with 292 units which was 91%96% occupied. The following table provides detailed information regarding the Company’s apartment revenues and expenses for the three and nine months ended March 31,September 30, 2019 and 2018 (in thousands):
    
 Three Months Ended March 31,Three Months Ended September 30,  Nine Months Ended September 30,  
 2019 20182019201820192018
Apartment revenues:    Apartment revenues:
Rental income (1)
 $1,830
 $1,590
Rental income (1)
$1,867  $1,779  $5,526  $5,020  
Other income 165
 126
Other income147  161  453  439  
Apartment revenues $1,995
 $1,716
Apartment revenues$2,014  $1,940  $5,979  $5,459  
    
Apartment expenses:    Apartment expenses:
Operating, maintenance, and management $536
 $569
Operating, maintenance, and management$582  $639  $1,662  $1,844  
Real estate taxes and insurance 361
 348
Real estate taxes and insurance345  337  1,045  1,014  
Apartment expenses $897
 $917
Apartment expenses$927  $976  $2,707  $2,858  
_____________________
(1) For the three and nine months ended March 31,September 30, 2018, the Company reclassified $6,000$5,000 and $17,000, respectively, of tenant reimbursement revenue for property taxes, insurance, and common area maintenance to rental income. See note 2, “Summary of Significant Accounting Policies” for a further discussion on this reclassification.
Geographic Concentration Risk
As of March 31,September 30, 2019, the Company’s real estate investments in California represented 55.6%54.0% 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 real estate market. Any adverse economic or real estate developments in this market, 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.
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4.TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

4. TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
As of March 31,September 30, 2019 and December 31, 2018, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):
 Tenant Origination and Absorption CostsAbove-Market
Lease Assets		Below-Market
Lease Liabilities
 September 30, 2019December 31, 2018September 30, 2019December 31, 2018September 30, 2019December 31, 2018
Cost$16,022  $17,183  $99  $99  $(10,801) $(11,526) 
Accumulated Amortization(7,690) (6,163) (48) (34) 5,492  4,178  
Net Amount$8,332  $11,020  $51  $65  $(5,309) $(7,348) 
 Tenant Origination and Absorption Costs Above-Market Lease Assets Below-Market Lease Liabilities
 March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
Cost$16,648
 $17,183
 $99
 $99
 $(11,082) $(11,526)
Accumulated Amortization(6,571) (6,163) (39) (34) 4,437
 4,178
Net Amount$10,077
 $11,020
 $60
 $65
 $(6,645) $(7,348)

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)




Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended March 31,September 30, 2019 and 2018 were as follows (in thousands):
Tenant Origination and Absorption CostsAbove-Market
Lease Assets		Below-Market
Lease Liabilities
For the Three Months Ended September 30,For the Three Months Ended September 30,For the Three Months Ended September 30,
201920182019201820192018
Amortization$(857) $(1,117) $(5) $(5) $657  $838  
 Tenant Origination and Absorption Costs Above-Market Lease Assets Below-Market Lease Liabilities
 For the Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31,
 2019 2018 2019 2018 2019 2018
Amortization$(943) $(1,214) $(5) $(4) $703
 $947

Tenant Origination and Absorption CostsAbove-Market
Lease Assets		Below-Market
Lease Liabilities
For the Nine Months Ended September 30,For the Nine Months Ended September 30,For the Nine Months Ended September 30,
201920182019201820192018
Amortization$(2,688) $(3,495) $(14) $(14) $2,039  $2,670  

As of March 31,September 30, 2019 and December 31, 2018, the Company had recorded a housing subsidy intangible asset, net of amortization, which is included in prepaid expenses and other assets in the accompanying balance sheets, of $2.3 million and $2.4 million, respectively, which is amortized on a straight line basis over 31.8 years. During each of the three months ended March 31,September 30, 2019 and 2018, the Company recorded amortization expense of $20,000 related to the housing subsidy intangible asset. During each of the nine months ended September 30, 2019 and 2018, the Company recorded amortization expense of $60,000 related to the housing subsidy intangible asset.
Additionally, as of March 31,September 30, 2019 and December 31, 2018, the Company had recorded property tax abatement intangible assets, net of amortization, which are included in prepaid expenses and other assets in the accompanying balance sheets, of $2.2$1.9 million and $2.3 million, respectively, which are amortized on a straight line basis over a range of 0.7 to 6.6 years. During each of the three months ended March 31,September 30, 2019 and 2018, the Company recorded amortization expense of $0.1 million related to the property tax abatement intangible assets. During the nine months ended September 30, 2019 and 2018, the Company recorded amortization expense of $0.4 million related to the property tax abatement intangible assets.
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5.REAL ESTATE EQUITY SECURITIES
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

5. REAL ESTATE EQUITY SECURITIES
The Company’s real estate equity securities are carried at their estimated fair value based on quoted market prices for the security. Transaction costs that are directly attributable to the acquisition of real estate equity securities are capitalized to its cost basis. Unrealized gains and losses on real estate equity securities are recognized in earnings.
As of March 31,September 30, 2019 and December 31, 2018, the Company owned 1,160,591 shares of common stock of Franklin Street Properties Corp. (NYSE Ticker: FSP). As of March 31,September 30, 2019 and December 31, 2018, the total book value of the Company’s real estate equity securities was $8.3$9.8 million and $7.2 million, respectively. During the three and nine months ended March 31,September 30, 2019, the Company recognized $0.1 million and $0.3 million of dividend income from real estate equity securities.securities, respectively. During the three and nine months ended September 30, 2018, the Company recognized $77,000 and $113,000 of dividend income from real estate equity securities, respectively.

6.INVESTMENT IN UNCONSOLIDATED ENTITY
6. INVESTMENT IN UNCONSOLIDATED ENTITY
On June 28, 2016, the Company originated a participating loan facility in an amount up to €2.6 million ($2.9 million at closing). The Company funded approximately €2.1 million ($2.3 million at closing). The proceeds were used by STAM to fund a 5% general partner interest in a joint venture acquiring a portfolio of light industrial properties located throughout France. The total acquisition cost of the portfolio was approximately €95.5 million ($105.6 million at closing). Under the terms of the participating loan facility, the Company participates in the expected residual profits of the portfolio and the terms are structured in a manner such that the risks and rewards of the arrangement are similar to those associated with an investment in a real estate joint venture. Accordingly, the participating loan facility is accounted for under the equity method of accounting. In addition to the amount funded at closing, the Company also capitalized an additional $0.2 million of acquisition costs and fees. During the three and nine months ended March 31,September 30, 2018, the Company recognized $15,000$94,000 and $225,000 of income with respect to this investment.
During the threenine months ended March 31,September 30, 2019, STAM completed the liquidation of the portfolio and the Company recognized $2.8 million of equity in income of unconsolidated entity with respect to this investment. As of March 31, 2019, the Company’s investment in unconsolidated entity was $5.6 million. On May 9, 2019, the Company received a distribution in the amount of €4.5 million or $5.1 million. As of September 30, 2019, the Company’s investment in unconsolidated entity was $0.5 million.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




7. NOTES PAYABLE
7.NOTES PAYABLE
As of March 31,September 30, 2019 and December 31, 2018, the Company’s notes payable consisted of the following (in thousands):
Book Value as of September 30, 2019Book Value as of December 31, 2018
Contractual Interest Rate (1)
Effective Interest Rate (1)
Payment TypeMaturity Date
 Book Value as of March 31, 2019 Book Value as of December 31, 2018 
Contractual Interest Rate (1)
 
Effective Interest Rate (1)
 Payment Type Maturity Date
Springmaid Beach Resort Mortgage Loan $37,100
 $37,280
 One-month LIBOR + 3.00% 5.49% Principal &
Interest		 12/30/2019
Springmaid Beach Resort Mortgage Loan (2)
Springmaid Beach Resort Mortgage Loan (2)
$56,884  $37,280  
One-month LIBOR + 3.50% (2)
5.75%  Principal &
Interest		08/10/2022
Q&C Hotel Mortgage Loan 23,331
 23,551
 One-month LIBOR + 3.25% 5.74% Principal &
Interest		 12/17/2019Q&C Hotel Mortgage Loan23,166  23,551  One-month LIBOR + 3.25%5.34%  Interest Only12/17/2019
2200 Paseo Verde Mortgage Loan (2)
 8,564
 7,947
 One-month LIBOR + 2.25% 4.74% 
Interest Only (2)
 07/01/2020
2200 Paseo Verde Mortgage Loan (3)
2200 Paseo Verde Mortgage Loan (3)
8,667  7,947  One-month LIBOR + 2.25%4.34%  Principal & Interest07/01/2020
Lincoln Court Mortgage Loan 34,520
 33,500
 One-month LIBOR + 1.75% 4.24% Interest Only 06/01/2020Lincoln Court Mortgage Loan34,615  33,500  One-month LIBOR + 1.75%3.85%  Interest Only06/01/2020
Lofts at NoHo Commons Mortgage Loan 72,100
 72,100
 One-month LIBOR + 2.66% 5.15% Interest Only 12/01/2019
Lofts at NoHo Commons Mortgage Loan (4)
Lofts at NoHo Commons Mortgage Loan (4)
73,861  72,100  One-month LIBOR + 2.18%4.21%  Interest Only09/09/2021
210 West 31st Street Mortgage Loan 34,041
 38,041
 One-month LIBOR + 5.50% 7.99% Interest Only 12/01/2019210 West 31st Street Mortgage Loan34,041  38,041  One-month LIBOR + 5.50%7.60%  Interest Only12/01/2019
Oakland City Center Mortgage Loan (3)
 95,615
 94,500
 One-month LIBOR + 1.75% 4.24% 
Interest Only (3)
 09/01/2022
Madison Square Mortgage Loan (4)
 22,290
 21,895
 
One-month LIBOR + 4.05% (5)
 6.53% Interest Only 10/09/2020
Oakland City Center Mortgage Loan (5)
Oakland City Center Mortgage Loan (5)
95,989  94,500  One-month LIBOR + 1.75%3.85%  
Interest Only (4)
09/01/2022
Madison Square Mortgage Loan (6)
Madison Square Mortgage Loan (6)
23,488  21,895  
One-month LIBOR + 4.05% (5)
6.08%  Interest Only10/09/2020
Total notes payable principal outstanding 327,561
 328,814
 Total notes payable principal outstanding350,711  328,814  
Deferred financing costs, net (1,887) (2,271) Deferred financing costs, net(3,181) (2,271) 
Total notes payable, net $325,674
 $326,543
 Total notes payable, net$347,530  $326,543  
_____________________
(1) Contractual interest rate represents the interest rate in effect under the loan as of March 31,September 30, 2019. Effective interest rate is calculated as the actual interest rate in effect as of March 31,September 30, 2019 (consisting of the contractual interest rate, contractual floor rates and the effects of interest rate caps, if applicable), using interest rate indices at March 31,September 30, 2019, where applicable.
(2) On July 19, 2019, the Springmaid Beach Resort Mortgage Loan was refinanced. See below, “- Recent Financing Transactions - Refinancing of the Springmaid Beach Resort Mortgage Loan.” As of March 31,September 30, 2019, $8.6$56.9 million of the Springmaid Beach Resort Mortgage Loan was outstanding and $10.0 million remained available for future disbursements, subject to certain terms and conditions set forth in the loan documents.
(3) As of September 30, 2019, $8.7 million had been disbursed to the Company and up to $0.9$0.8 million is available for future disbursements to be used for tenant improvement costs, capital improvements costs and leasing commissions, subject to certain terms and conditions contained in the loan documents. BeginningOn November 4, 2019, in connection with the disposition of 2200 Paseo Verde, the Company repaid the $8.7 million outstanding principal balance due under the 2200 Paseo Verde Mortgage Loan.
(4) On August 1,30, 2019, monthly payments include principal amortization paymentsthe Lofts at NoHo Commons Mortgage Loan was refinanced. See below, “- Recent Financing Transactions - Refinancing of $10,000 per month.the Lofts at NoHo Commons Mortgage Loan.”
(3)(5) As of March 31,September 30, 2019, $95.6$96.0 million had been disbursed to the Company and up to $7.8$7.4 million is available for future disbursements to be used for tenant improvements and leasing commissions, subject to certain terms and conditions contained in the loan documents. Beginning October 1, 2020, monthly payments will include principal and interest with principal payments of $110,000 or, in the event the Company repays any principal of the loan amount, with principal payments calculated using an amortization schedule of 30 years and an annual interest rate of 6.0%, subject to certain terms and conditions contained in the loan documents.
(4)(6) As of March 31,September 30, 2019, $22.3$23.5 million had been disbursed to the Company and up to $11.8$10.6 million is available for future disbursements to be used for tenant improvements and leasing expenses, subject to certain terms and conditions contained in the loan documents. The Madison Square Mortgage Loan bears interest at a floating rate of 405 basis points over one-month LIBOR, but at no point shall the interest rate be less than 5.05%. The property securing this mortgage loan was formerly known as Grace Court and was re-named Madison Square in connection with the Company’s re-branding strategy of the property.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

During the three and nine months ended March 31,September 30, 2019, the Company incurred $5.2 million and $15.2 million, respectively, of interest expense. During the three and nine months ended September 30, 2018, the Company incurred $5.0$3.4 million and $2.9$9.7 million, respectively, of interest expense. Included in interest expense was: (i) the amortization of deferred financing costs of $0.5 million and $1.3 million for the three and nine months ended September 30, 2019, respectively, and $0.4 million and $1.3 million for the three and nine months ended September 30, 2018, respectively, (ii) an unrealized loss of $47,000 and $53,000 on interest rate cap agreements for the three and nine months ended September 30, 2019, respectively, and an unrealized gain of $1,000 and $11,000 on interest rate cap agreements for the three and nine months ended September 30, 2018, respectively, and (iii) $0.1 million and $0.4 million of interest on finance leases for the three and nine months ended September 30, 2019, respectively, and $0.1 million and $0.4 million for each of the three and nine months ended March 31, 2019September 30, 2018, respectively. Additionally, during the three and nine months ended September 30, 2018, (ii) the capitalization ofCompany capitalized interest to building and improvements related to its redevelopment project at 210 West 31st Street of $1.4$1.3 million for the three months ended March 31, 2018, (iii) an unrealized loss of $6,000 and an unrealized gain of $30,000 on interest rate cap agreements for the three months ended March 31, 2019 and 2018, respectively, and (iv) $0.1$3.9 million, of interest on finance leases for each of the three months ended March 31, 2019 and 2018.respectively. As of March 31,September 30, 2019 and December 31, 2018, the Company’s interest payable was $1.1 million and $1.4 million.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



million, respectively.
The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of March 31,September 30, 2019 (in thousands):
October 1, 2019 through December 31, 2019$57,585  
202068,462  
202176,575  
2022148,089  
$350,711  
April 1, 2019 through December 31, 2019 $166,622
2020 65,654
2021 1,320
2022 93,965
  $327,561

The Company’s notes payable contain financial and non-financial debt covenants. As of March 31,September 30, 2019, the Company was in compliance with all debt covenants, except that the borrower under the Madison Square Mortgage Loan was out of debt service coverage compliance. Such non-compliance does not constitute an event of default under the loan agreement. As a result of such non-compliance, the Company is required to maintain an interest shortfall reserve.
The Company’s note payable with respect toRecent Financing Transactions
Refinancing of the Springmaid Beach Resort Mortgage Loan requires
On December 30, 2014, the Company, to maintainthrough a minimum working capital reserve in an amount sufficient to fundjoint venture (“Springmaid Property JV”) between the working capital requirementsCompany’s indirect wholly owned subsidiary and IC Myrtle Beach Holdings LLC (the “JV Partner”), acquired a 30-acre property, containing a 491-room hotel, a 36,000 square foot conference center and a 187-unit recreational vehicle campground located at 3200 S. Ocean Boulevard, Myrtle Beach, South Carolina (the “Springmaid Beach Resort”). In connection with the acquisition of the Springmaid Beach Resort, throughSpringmaid Property JV entered a lease agreement for the off-peak season,hotel portion of the Springmaid Beach Resort, which amount shall be reduced by any amountsincludes the resort and conference center, with a joint venture (“Springmaid Operations JV”) between the Company’s indirect wholly owned subsidiary which the Company has elected to treat as a TRS and the JV Partner. The Company owns a 90% equity interest in the joint ventures. In connection with the acquisition of the Springmaid Beach Resort, Springmaid Property JV, as borrower, and Springmaid Operations JV, as operating lessee, entered into a mortgage loan with an unaffiliated lender, for working capital reservedborrowings of up to $38.0 million, secured by the third-party hotel operator.Springmaid Beach Resort (the “Springmaid Beach Resort Mortgage Loan”).
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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

On July 19, 2019, the joint ventures closed the refinancing of the Springmaid Beach Resort Mortgage Loan with unaffiliated lenders (the “Springmaid Refinancing”). The working capital reservejoint ventures repaid $36.9 million of principal in satisfaction of the Springmaid Beach Resort Mortgage Loan. The Springmaid Refinancing was includedcomprised of a maximum loan amount of up to $67.0 million, comprised of a mortgage loan of up to $65.3 million and a mezzanine loan amount of up to $1.7 million. At closing, $57.0 million of the Springmaid Refinancing was funded and the remaining $10.0 million was available for future disbursements, subject to certain terms and conditions contained in restricted cashthe loan documents.
The loans under the Springmaid Refinancing mature on August 10, 2022, with 2 one-year extension options, subject to certain terms and conditions contained in the accompanying consolidatedloan documents. Monthly payments include principal and interest with principal payments of $0.1 million, with the remaining principal balance, sheets.all accrued and unpaid interest and all other sums due under the loan documents payable at maturity. The weighted-average interest rate is 350 basis points plus the higher of one-month LIBOR or 225 basis points. The joint ventures entered into interest rate caps that effectively limits one-month LIBOR at 4.0% on $65.3 million and $1.7 million, effective July 25, 2019 through August 10, 2021. The joint ventures have the right to prepay all or a portion of the Refinancing, subject to certain fees and conditions contained in the loan documents.
Pacific Oak SOR US Properties II LLC (“SOR US Properties II”), the Company’s indirect wholly owned subsidiary, provided a guaranty of (i) the principal balance and any interest or other sums outstanding under the Refinancing in the event of certain bankruptcy or insolvency proceedings involving Springmaid Property JV, Springmaid Operations JV or SOR US Properties II or any affiliate thereof, the transfer of Springmaid Property JV’s interest in the property in violation of the loan documents, and certain other events as described in the loan documents and (ii) the payment of certain liabilities, losses or damages incurred by the lender as a result of certain intentional acts committed by Springmaid Property JV or Springmaid Operations JV, the fraud or intentional misrepresentation by Springmaid Property JV, Springmaid Operations JV or SOR US Properties II in connection with the loan or the loan documents, and certain other events as described in the loan documents.
Refinancing of the Lofts at NoHo Commons Mortgage Loan
On November 16, 2016, the Company, through a joint venture (the “Lofts at NoHo Commons JV”) between the Company’s indirect wholly owned subsidiary and Noho Commons Pacific Investors LLC (the “Lofts at NoHo Commons JV Partner”), acquired a 292-unit apartment building in North Hollywood, California (the “Lofts at NoHo Commons”). The Company owns a 90% equity interest in the Lofts at NoHo Commons JV. The Lofts at NoHo Commons JV Partner is the managing member of the joint venture; however, its authority is limited, as the Company must give approval of major decisions involving the business of the joint venture or the Lofts at NoHo Commons and its operations, in the manner set forth in the joint venture agreement. In connection with the acquisition of the Lofts at NoHo Commons, the Lofts at NoHo Commons JV entered into a multifamily loan and security agreement with an unaffiliated lender, for borrowings of $72.1 million, secured by the Lofts at NoHo Commons (the “Lofts at NoHo Commons Mortgage Loan”).
On August 30, 2019, the joint venture closed the refinancing of the Lofts at NoHo Commons Mortgage Loan with an unaffiliated lender (the “Lofts at NoHo Commons Refinancing”). The joint venture repaid $72.1 million of principal in satisfaction of the Lofts at NoHo Commons Mortgage Loan. The Lofts at NoHo Commons Refinancing was comprised of a maximum loan amount of up to $76.0 million. At closing, $73.9 million of the Lofts at NoHo Commons Refinancing was funded and the remaining $2.1 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents.
The loan under the Lofts at NoHo Commons Refinancing matures on September 9, 2021, with 3-one year extension options, subject to certain terms and conditions contained in the loan documents. The loan under the Lofts at NoHo Commons Refinancing bears an interest rate at higher of a floating rate of 218 basis points over one-month LIBOR or 3.93%. The joint venture entered into interest rate caps that effectively limits one-month LIBOR at 3.50% on $76.0 million. The joint venture have the right to prepay all or a portion of the Lofts at NoHo Commons Refinancing, subject to certain fees and conditions contained in the loan documents.

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8.DERIVATIVE INSTRUMENTS
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

SOR US Properties II provided a guaranty of (i) the principal balance and any interest or other sums outstanding under the Lofts at NoHo Commons Refinancing in the event of certain bankruptcy or insolvency proceedings involving the Lofts at NoHo Commons JV or SOR US Properties II or any affiliate thereof, the transfer of the Lofts at NoHo Commons JV’s interest in the property in violation of the loan documents, and certain other events as described in the loan documents and (ii) the payment of certain liabilities, losses or damages incurred by the lender as a result of certain intentional acts committed by the Lofts at NoHo Commons JV, the fraud or intentional misrepresentation by the Lofts at NoHo Commons JV or SOR US Properties II in connection with the loan or the loan documents, and certain other events as described in the loan documents.

8. DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into the derivatives for speculative purposes.
The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero.
As of March 31,September 30, 2019, the Company had four5 interest rate caps outstanding, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s derivative instruments as of March 31,September 30, 2019 and December 31, 2018. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):
Fair Value of Asset
Derivative InstrumentsEffective DateMaturity DateNotional ValueReference RateSeptember 30, 2019December 31, 2018Balance Sheet Location
Interest Rate Cap07/25/201908/10/2021$65,325  One-month LIBOR at 4.00%$—  $—  Prepaid expenses and other assets
Interest Rate Cap07/25/201908/10/20211,675  One-month LIBOR at 4.00%—  —  Prepaid expenses and other assets
Interest Rate Cap08/30/201909/15/202175,950  One-month LIBOR at 3.50%1  —  Prepaid expenses and other assets
Interest Rate Cap12/01/201612/01/201947,110  One-month LIBOR at 3.00%—  4  Prepaid expenses and other assets
Interest Rate Cap10/03/201710/15/201934,125  One-month LIBOR at 3.00%—  2  Prepaid expenses and other assets
Interest Rate Cap12/30/201806/30/201926,000  One-month LIBOR at 3.00%—  —  Prepaid expenses and other assets
Interest Rate Cap01/03/201906/01/201923,551  One-month LIBOR at 3.00%—  —  Prepaid expenses and other assets
Total Derivative Instruments not designated as hedging instruments$1  $6  
          Fair Value of Asset  
Derivative Instruments Effective Date Maturity Date Notional Value Reference Rate March 31, 2019 December 31, 2018 Balance Sheet Location
Interest Rate Cap 12/01/2016 12/01/2019 $47,110
 One-month LIBOR at 3.00% $—
 $4
 Prepaid expenses and other assets
Interest Rate Cap 10/03/2017 10/15/2019 $34,125
 One-month LIBOR at 3.00% —
 2
 Prepaid expenses and other assets
Interest Rate Cap 12/30/2018 06/30/2019 $26,000
 One-month LIBOR at 3.00% —
 —
 Prepaid expenses and other assets
Interest Rate Cap 01/03/2019 06/01/2019 $23,551
 One-month LIBOR at 3.00% —
 —
 Prepaid expenses and other assets
Total Derivative Instruments not designated as hedging instruments  $—
 $6
  

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)




During the three and nine months ended March 31,September 30, 2019, the Company recorded an unrealized loss of $6,000$47,000 and $53,000 on interest rate cap agreements, which was included in interest expense on the accompanying consolidated statements of operations. During the three and nine months ended March 31,September 30, 2018, the Company recorded an unrealized gain of $30,000$1,000 and $11,000 on interest rate cap agreements, which wasis included as an offset to interest expense on the accompanying consolidated statements of operations.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

The Company enters into foreign currency forward contracts to mitigate its exposure to foreign currency exchange rate movements on its investment in unconsolidated entity. The foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future.
The following table summarizes the notional amount and other information related to the Company’s foreign currency forward contract as of March 31, 2019. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (currency in thousands):
Derivative Instrument Notional Amount Strike Price Trade Date Maturity Date
Derivative instrument not designated as hedging instrument        
Foreign currency forward contract $2,100
 1.2704 USD-EUR 09/05/2017 
09/07/2021 (1)
_____________________
(1) On May 9, 2019, the Company terminated its $2.1 million foreign currency forward contract.contract and received $0.1 million in connection with the termination.
During the threenine months ended March 31,September 30, 2019, the Company recorded a foreign currency gain of $0.1 million$77,000 on the foreign currency forward contract, which is included as an offset to general and administrative expenses on the accompanying consolidated statements of operations. During the three and nine months ended March 31,September 30, 2018, the Company recorded a foreign currency lossgain of $0.1 million$22,000 and $73,000, respectively, on the foreign currency forward contract, which is included inas an offset to general and administrative expenses on the accompanying consolidated statements of operations. The fair value of the foreign currency forward contract was $0.1 million asset as of March 31, 2019 and December 31, 2018, which is included in prepaid expenses and other assets on the accompanying balance sheets.

9.FAIR VALUE DISCLOSURES
9. FAIR VALUE DISCLOSURES
Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
•Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
•Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

22
Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of assets and liabilities for which it is practicable to estimate the fair value:
Cash and cash equivalents, restricted cash, rent and other receivables and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.
Real estate equity securities: The Company’s real estate equity securities are presented at fair value on the accompanying consolidated balance sheet. The fair values of real estate equity securities were based on a quoted price in an active market on a major stock exchange. The Company classifies these inputs as Level 1 inputs.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

Derivative instruments:The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments are determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floor) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities. The fair value of foreign currency forward contract are valued by comparing the contracted forward exchange rate to the current market exchange rate.
Notes payable: The fair value of the Company’s notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.
The following were the face value, carrying amount and fair value of the Company’s financial instruments as of March 31,September 30, 2019 and December 31, 2018, which carrying amounts do not approximate the fair values (in thousands):
September 30, 2019December 31, 2018
Face ValueCarrying AmountFair ValueFace ValueCarrying AmountFair Value
Financial liability:
Notes payable$350,711  $347,530  $351,811  $328,814  $326,543  $329,588  
 March 31, 2019 December 31, 2018
 Face Value Carrying Amount Fair Value Face Value Carrying Amount Fair Value
Financial liability:           
Notes payable$327,561
 $325,674
 $328,684
 $328,814
 $326,543
 $329,588

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. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. 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.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBS STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2019
(unaudited)



As of March 31,September 30, 2019, the Company measured the following assets at fair value on a recurring basis (in thousands):
  Fair Value Measurements Using
TotalQuoted Prices in Active Markets for Identical Assets
(Level 1)		Significant Other Observable Inputs
(Level 2)		Significant Unobservable Inputs
(Level 3)
Recurring Basis:
Real estate equity securities$9,818  $9,818  $—  $—  
Asset derivatives - interest rate caps$1  $—  $1  $—  


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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2019
(unaudited)

    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 $8,344
 $8,344
 $—
 $—
Asset derivatives - interest rate caps $—
 $—
 $—
 $—
Asset derivative - foreign currency forward contract $145
 $—
 $145
 $—
10. RELATED PARTY TRANSACTIONS
10.RELATED PARTY TRANSACTIONS
The Company has entered into the Advisory Agreement with the Advisor and dealer manager agreements with the Dealer Manager, with respect to the Private Offering and the Public Offering. These agreements entitleentitled the Advisor and the Dealer Manager to specified fees upon the provision of certain offering-related services and the investment of funds in real estate-related investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as described in the Advisory Agreement. The Advisor also serves or has served as the advisor for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBSPacific Oak Strategic Opportunity REIT, Inc. (“KBSPacific Oak Strategic Opportunity REIT”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”). The Dealer Manager also serves or has served as the dealer manager for the KBS dividend reinvestment plan offerings for KBSPacific Oak Strategic Opportunity REIT, KBS REIT III and KBS Growth & Income REIT.
On October 31, 2019, the Advisor ceased to serve as the Company’s advisor or have any advisory responsibility to the Company immediately following the filing of the Third Quarter 10-Q with the SEC. On November 1, 2019, the Company entered into an advisory agreement with Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”). The advisory agreement is effective as of November 1, 2019 through November 1, 2020; however the Company may terminate the advisory agreement without cause or penalty upon providing 30 days’ written notice and Pacific Oak Capital Advisors may terminate the advisory agreement without cause or penalty upon providing 90 days’ written notice. The terms of the advisory agreement are consistent with those of the advisory agreement that was previously in effect with the Advisor.
On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS REIT III, KBS Legacy Partners Apartment REIT, KBSPacific Oak Strategic Opportunity REIT, the Dealer Manager, the Advisor and other KBS-affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage were shared. The cost of these lower tiers was allocated by the Advisor and its insurance broker among each of the various entities covered by the program, and was billed directly to each entity. In June 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. KBS REIT I elected to cease participation in the program at the June 2017 renewal and obtained separate insurance coverage. At renewal in June 2018, the Company, KBSPacific Oak Strategic Opportunity REIT and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtain separate insurance coverage. The Company, together with KBSPacific Oak Strategic Opportunity REIT, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each REIT covered by the program, and is billed directly to each REIT. The program is effective through June 30, 2019.2020.
During the three and nine months ended March 31,September 30, 2019 and 2018, no other business transactions occurred between the Company and these other KBS-sponsored programs.
The Advisory Agreement has a one-year term that expires August 12, 2019. The Company may terminate the Advisory Agreement on 30 days’ written notice and the Advisor may terminate on 90 days’ written notice. The Advisor in its sole discretion may defer any fee payable to it under the Advisory Agreement. All or any portion of such fee not taken may be deferred without interest and paid when the Advisor determines.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended March 31,September 30, 2019 and 2018, respectively, and any related amounts payable as of March 31,September 30, 2019 and December 31, 2018 (in thousands):
 Incurred Payable as ofIncurredPayable as of
 Three Months Ended March 31, March 31, 2019 December 31, 2018Three Months Ended September 30,Nine Months Ended September 30,September 30, 2019December 31, 2018
 2019 2018 2019201820192018September 30, 2019
Expensed        Expensed
Asset management fees $1,049
 $935
 $28
 $22
Asset management fees$1,026  $1,020  $3,137  $2,940  $27  $22  
Reimbursable operating expenses (1)
 102
 92
 77
 35
Reimbursable operating expenses (1)
99  113  293  337  42  35  
Capitalized        Capitalized
Acquisition fees —
 107
 164
 178
Acquisition fees8  19  8  234  182  178  
Additional Paid-in Capital        Additional Paid-in Capital
Sales commissions —
 201
 —
 —
Sales commissions—  190  —  614  —  —  
Dealer manager fees —
 109
 —
 —
Dealer manager fees—  92  —  337  —  —  
Stockholder servicing fees (2)
 —
 13
 —
 —
Stockholder servicing fees (2)
—  (2) —  14  —  —  
Reimbursable other offering costs (3)
 —
 61
 —
 —
Reimbursable other offering costs (3)
—  45  —  174  —  —  
 $1,151
 $1,518
 $269
 $235
$1,133  $1,477  $3,438  $4,650  $251  $235  
_____________________
(1) Reimbursable operating expenses primarily consists of internal audit personnel costs, accounting software and cyber-security related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $0.1 million and $0.1$0.2 million for the three and nine months ended March 31,September 30, 2019, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2018, respectively, and were the only employee costs reimbursed under the Advisory Agreement for the three and nine months ended March 31,September 30, 2019 and 2018. The Advisor may seek reimbursement for certain other employee costs under the Advisory Agreement. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.
(2) Reflects the stockholder servicing fee paid based on the terms of the Class T Shares. Pursuant to the terms of the Class T shares as set forth in the Articles Supplementary and Multiple Class Plan of the Company, the Company ceased accruing for stockholder servicing fees after July 31, 2018.
(3) See “Other Offering Costs” below.
During the nine months ended September 30, 2018, the Advisor reimbursed the Company $35,000 for property insurance rebates.
Other Offering Costs
Organization and offering costs (other than selling commissions, dealer manager fees and the stockholder servicing fee) of the Company may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. These offering costs include all expenses incurred by the Company in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred by the Company in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company.
The Company recorded $1.0 million of offering costs (other than selling commissions and dealer manager fees) related to the Private Offering, all of which was initially paid by the Advisor or its affiliates on behalf of the Company and subsequently reimbursed by the Company. In addition, the Company paid $1.9 million in selling commissions and dealer manager fees related to the Private Offering.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




During the Public Offering, pursuant to the Advisory Agreement and the Dealer Manager Agreement, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of the Company, provided that no reimbursements made by the Company to the Advisor or the Dealer Manager may cause total organization and offering expenses incurred by the Company in connection with the Public Offering (including selling commissions, dealer manager fees and the stockholder servicing fee) to exceed 15% of the aggregate gross proceeds from the Public Offering as of the date of reimbursement. In addition, the Advisor and its affiliates reimbursed the Company to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by the Company in connection with the primary portion of the Public Offering, regardless of when incurred, exceeded 1.0% of gross offering proceeds from the primary portion of the Public Offering. The Advisor and its affiliates are responsible for any organization and other offering expenses related to the primary portion of the Public Offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the Public Offering.
Through March 31,September 30, 2019, the Advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions dealer manager fees and stockholder servicing fees) on the Company’s behalf in connection with the Public Offering of approximately $11.4 million. As of March 31,September 30, 2019, the Company had recorded $14.5 million in selling commissions and dealer manager fees and $1.7 million of stockholder servicing fees. As of March 31,September 30, 2019, the Company had recorded $2.3 million of other organization and offering expenses, which amounts represent the Company’s maximum liability for organization and other offering costs as of March 31,September 30, 2019 based on the 1.0% limitation described above.
In addition, as of March 31,September 30, 2019, the Advisor had incurred $0.1 million in organization and offering costs on behalf of the Company in connection with a proposed follow-on offering the Company filed with the SEC on August 10, 2017. On December 18, 2018, the Company withdrew the proposed follow-on offering.

11.COMMITMENTS AND CONTINGENCIES
11. COMMITMENTS AND CONTINGENCIES
Management Agreement
Springmaid Beach Resort
The consolidated joint venture entity through which the Company leases the operations for Springmaid Beach Resort has entered into a management agreement with Doubletree Management LLC, an independent third-party hotel operator (the “Operator”) pursuant to which the Operator will manage and operate the Springmaid Beach Resort. The hotel was branded a DoubleTree by Hilton in September 2016 (the “Brand Commencement Date”).
The management agreement expires on December 31 of the 20th full year following the Brand Commencement Date. Upon mutual agreement, the parties may extend the term of the agreement for two successive periods of five years each. If an event of default occurs and continues beyond any applicable notice and cure periods set forth in the management agreement, the non-defaulting party generally has, among other remedies, the option of terminating the management agreement upon written notice to the defaulting party with no termination fee payable to Doubletree. In addition, the Company has the right to terminate the management agreement without the payment of a termination fee if Doubletree fails to achieve certain criteria relating to the performance of the hotel for any two consecutive years following the Brand Commencement Date. Under certain circumstances following a casualty or condemnation event, either party may terminate the management agreement provided Doubletree receives a termination fee an amount equal to two years of the base fee.  The Company is permitted to terminate the management agreement upon a sale, lease or other transfer of the Springmaid Beach Resort any time so long as the buyer is approved for, and enters into a DoubleTree by Hilton franchise agreement for the balance of the agreement’s term. Finally, the Company is restricted in its ability to assign the management agreement upon a sale, lease or other transfer the Springmaid Beach Resort unless the transferee is approved by Doubletree to assume the management agreement.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Pursuant to the management agreement, the Operator receives the following fees:
•a base fee, which is a percentage of total operating revenue that starts at 2.5% and increases to 2.75% in the second year following the Brand Commencement Date and further increases in the third year following the Brand Commencement Date and thereafter to 3.0%;
•a campground area management fee, which is 2% of any campground revenue;
•an incentive fee, which is 15% of operating cash flow (after deduction for capital renewals reserve and the joint venture owner’s priority, which is 12% of the joint venture owner’s total investment);
•an additional services fee in the amount reasonably determined by the Operator from time to time; and
•a brand services fee in the amount of 4% of total rooms revenue, and an other brand services fee in an amount determined by the Operator from time to time.
The management agreement contains specific standards for the operation and maintenance of the hotel, which allows the Operator to maintain uniformity in the system created by the Operator’s franchise. Such standards generally regulate the appearance of the hotel, quality and type of goods and services offered, signage and protection of trademarks. Compliance with the management agreement will require the Company to make significant expenditures for capital improvements.  
During each of the three and nine months ended March 31,September 30, 2019 and 2018, the Company incurred $0.1$0.2 million and $0.5 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.
Q&C Hotel
A wholly owned subsidiary of the joint venture through which the Company leases the operations of the Q&C Hotel (“Q&C Hotel Operations”) has entered into a management agreement with Encore Hospitality, LLC (“Encore Hospitality”), an affiliate of the joint venture partner, pursuant to which Encore Hospitality will manage and operate the Q&C Hotel. The management agreement expires on December 17, 2035. Subject to certain conditions, Encore Hospitality may extend the term of the agreement for a period of five years. Pursuant to the management agreement Encore Hospitality will receive a base fee, which is 4.0% of gross revenue (as defined in the management agreement). During each of the three and nine months ended March 31,September 30, 2019 and 2018, the Company incurred $0.1 million and $0.3 million, respectively, of fees related to the management agreement, which are included in hotel expenses on the accompanying consolidated statements of operations.
Q&C Hotel Operations has also entered into a franchise agreement with Marriott International (“Marriott”) pursuant to which Marriott has granted Q&C Hotel Operations a limited, non-exclusive license to establish and operate the Q&C Hotel using certain of Marriott’s proprietary marks and systems and the hotel was branded as a Marriott Autograph Collection hotel on May 25, 2016. The franchise agreement will expire on May 25, 2041. Pursuant to the franchise agreement, Q&C Hotel Operations pays Marriott a monthly franchise fee equal to a percent of gross room sales on a sliding scale that is initially 2% and increases to 5% on May 25, 2019 and a monthly marketing fund contribution fee equal to 1.5% of the Q&C Hotel’s gross room sales. In addition, the franchise agreement requires the maintenance of a reserve account to fund all renovations at the hotel based on a percentage of gross revenues which starts at 2% of gross revenues and increases to 5% of gross revenues on May 25, 2019. Q&C Hotel Operations is also responsible for the payment of certain other fees, charges and costs as set forth in the agreement. During the three and nine months ended March 31,September 30, 2019, the Company incurred $0.2 million and $0.6 million, respectively, of fees related to the Marriott franchise agreement. During the three and nine months ended September 30, 2018, the Company incurred $0.2 million and $0.3$0.8 million, respectively, of fees related to the Marriott franchise agreement.
In addition, in connection with the execution of the franchise agreement, SOR US Properties II is providing an unconditional guarantee that all Q&C Hotel Operations’ obligations under the franchise agreement will be punctually paid and performed. Finally, certain transfers of the Q&C Hotel or an ownership interest therein are subject to a notice and consent requirement, and the franchise agreement further provides Marriott with a right of first refusal with respect to a sale of the hotel to a competitor of Marriott.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




Lease Obligations
As of March 31,September 30, 2019, the Company had leasehold interests expiring on various expiration dates between AprilOctober 1, 2019 and 2114. Future minimum lease payments owed by the Company under the finance leases as of March 31,September 30, 2019 are as follows (in thousands):
April 1, 2019 through December 31, 2019$605
October 1, 2019 through December 31, 2019October 1, 2019 through December 31, 2019$150  
2020680
2020680  
2021735
2021735  
2022935
2022935  
2023525
2023525  
Thereafter53,316
Thereafter53,316  
Total expected minimum lease liabilities56,796
Total expected minimum lease liabilities56,341  
Less: Amount representing interest (1)
(48,439)
Less: Amount representing interest (1)
(48,150) 
Present value of net minimum lease payments (2)
$8,357
Present value of net minimum lease payments (2)
$8,191  
_____________________
(1) Interest includes the amount necessary to reduce the total expected minimum lease obligations to present value calculated at the Company’s incremental borrowing rate at acquisition.
(2) The present value of net minimum lease payments are presented in other liabilities in the accompanying consolidated balance sheets.
Economic Dependency
The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor is unable to provide these services, the Company will be required to obtain such services from other sources.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of March 31,September 30, 2019. 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.

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Table of Contents
PART I.FINANCIAL INFORMATION (CONTINUED)
Item 1.Financial Statements (continued)
KBSPART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31,September 30, 2019
(unaudited)




12. SUBSEQUENT EVENTS
12.SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Cash Distributions Paid
On AprilOctober 1, 2019, the Company paid distributions of $0.2 million related to a monthly distribution in the amount of $0.00799167 per share on the outstanding shares of all classes of its common stock as of March 18,September 20, 2019. On MayNovember 1, 2019, the Company paid distributions of $0.2 million related to a monthly distribution in the amount of $0.00799167 per share on the outstanding shares of all classes of its common stock as of April 18,October 21, 2019.
Distributions Declared
On May 13,November 7, 2019, the Company’s board of directors declared monthly distributions in the amount of $0.00799167 per share on the outstanding shares of all classes of its common stock as of May 17,November 20, 2019 and June 18,December 19, 2019, which the Company expects to pay in JuneDecember 2019 and July 2019,January 2020, respectively. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan.

Real Estate Disposition Subsequent to September 30, 2019
Disposition of 2200 Paseo Verde
On November 4, 2019, the Company sold 2200 Paseo Verde to a purchaser unaffiliated with the Company, the Advisor or Pacific Oak Capital Advisors for a sales price, net of closing credits, of $18.6 million, excluding closing costs. As of September 30, 2019, the carrying value of 2200 Paseo Verde was $13.1 million, which was net of $1.9 million of accumulated depreciation and amortization.
On November 4, 2019, in connection with the disposition of 2200 Paseo Verde, the Company repaid $8.7 million of the outstanding principal balance due under the 2200 Paseo Verde mortgage loan.
Resignation of Officers
On October 31, 2019, Jeffrey K. Waldvogel notified the Board of Directors of the Company (the “Board”) of his resignation as Secretary and Treasurer of the Company effective immediately and of his resignation as Chief Financial Officer of the Company effective immediately following the filing of the Third Quarter 10-Q with SEC. Also on October 31, 2019, Stacie K. Yamane notified the Board of her resignation as Chief Accounting Officer of the Company immediately following the filing of the Third Quarter 10-Q with the SEC.
Appointment of New Chief Financial Officer
On October 31, 2019, the Board appointed Michael A. Bender to serve as Executive Vice President, Treasury, Secretary and Chief Financial Officer-Elect of the Company effective as of November 1, 2019, and as Chief Financial Officer effective immediately following the filing by the Company of the Third Quarter 10-Q with the SEC. As Chief Financial Officer, Mr. Bender will serve as principal financial officer and principal accounting officer for the Company.
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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBSPacific Oak Strategic Opportunity REIT II, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBSPacific Oak Strategic Opportunity REIT II, Inc., a Maryland corporation, and, as required by context, KBSPacific Oak Strategic Opportunity Limited Partnership II, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBSPacific Oak Strategic Opportunity REIT II, 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 new advisor, Pacific Oak Capital Advisors, 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.
•All of our executive officers, our affiliated 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 former or current advisor, our dealer manager and other KBS-affiliatedKBS or 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 KBS-advisedKBS or 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.
•We raised substantially less than the maximum offering amount in our initial public offering. Therefore, our portfolio of properties may not be as diverse as it otherwise would, which will cause the value of our stockholders’ investment to vary more widely with the performance of specific assets.
•Our advisor and its affiliates receive fees in connection with transactions involving the management of our investments. These fees are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us and increase our stockholders’ risk of loss.
•Our distribution policy is generally not to use offering proceeds to pay distributions. However, we may pay distributions from any source, including, without limitation, from offering proceeds or borrowings (which may constitute a return of capital). If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investment in properties and other assets and the overall return to our stockholders may be reduced.
•Our policies do not limit us from incurring debt until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt such that our total liabilities would exceed this limit. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in us.
•Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to stockholders.
•Our opportunistic property-acquisition strategy involves a higher risk of loss than would a strategy of investing in stabilized properties.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
•Our estimated net asset value per share does not currently represent our enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that our shares would trade at on a national stock exchange.
•Certain of our debt obligations have variable interest rates and related payments that vary with the movement of LIBOR or other indexes. Increases in these indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

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

All forward-looking statements should be read in light of the risks identified herein in Part II, Item 1A “Risk Factors” and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission (the “SEC”).

Overview
We were formed on February 6, 2013 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ending December 31, 2014. We have no employees and KBS Capital Advisors LLC (“KBS Capital Advisors”) has served as our external advisor since commencement of the private offering. On October 31, 2019, KBS Capital Advisors ceased to serve as our advisor or have any advisory responsibility to us immediately following the filing of our Quarterly Report on Form 10-Q for the period ending September 30, 2019 (the “Third Quarter 10-Q”) with the SEC. On November 1, 2019, we entered into a new advisory agreement with Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”). The new advisory agreement is effective as of November 1, 2019 through November 1, 2020; however we may terminate the advisory agreement without cause or penalty upon providing 30 days’ written notice and Pacific Oak Capital Advisors may terminate the advisory agreement without cause or penalty upon providing 90 days’ written notice. The terms of the advisory agreement are consistent with those of the advisory agreement that was previously in effect with KBS Capital Advisor. As our advisor, Pacific Oak Capital Advisors manages our day-to-day operations and managed our portfolio of real estate properties and real estate-related investments. Pacific Oak Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf.
On July 3, 2013, we commenced a private placement offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), to offer a maximum of $105,000,000 of shares of common stock for sale to certain accredited investors, of which $5,000,000 of shares were offered pursuant to our dividend reinvestment plan. We ceased offering shares in our private offering on August 11, 2014. KBS Capital Markets Group LLC, an affiliate of our advisor, served as the dealer manager of the offering pursuant to a dealer manager agreement and was responsible for marketing our shares in the offering.
On November 14, 2013, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register for sale to the public a maximum of 180,000,000 shares of common stock, of which 80,000,000 shares were to be offered pursuant to our dividend reinvestment plan. The SEC declared our registration statement effective on August 12, 2014 and we retained KBS Capital Markets Group LLC to serve as the dealer manager of the initial public offering pursuant to a dealer manager agreement. On February 11, 2016, we filed an amended registration statement on Form S-11 with the SEC to offer a second class of common stock designated as Class T shares and to designate our initially offered and outstanding common stock as Class A shares. Pursuant to the amended registration statement, we were offering to sell any combination of Class A and Class T shares in our primary offering and dividend reinvestment plan offering but in no event could we sell more than 180,000,000 of shares of our common stock pursuant to the offering. We commenced offering our Class T shares of our common stock for sale to the public on February 17, 2016. The dealer manager was responsible for marketing our shares in the initial public offering. We ceased offering shares of common stock in our initial public primary offering on July 31, 2018 and terminated our initial public primary offering on September 28, 2018. We continue to offer shares of common stock under our dividend reinvestment plan. In some states, we will need to renew the registration statement annually or file a new registration statement to continue our dividend reinvestment plan offering. We may terminate our dividend reinvestment plan offering at any time.
We have used substantially all of the net proceeds from our offerings to invest in and manage a portfolio of opportunistic real estate, real estate-related loans, real estate equity securities and other real estate-related investments located in the United States and Europe. As of March 31,September 30, 2019, we had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of March 31,September 30, 2019, we had entered into a consolidated joint venture to develop one retail property.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
We sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, for aggregate gross offering proceeds of $228.6 million in our initial public primary offering. As of March 31,September 30, 2019, we had sold 651,687699,941 and 269,116312,627 shares of Class A and Class T common stock, respectively, under our dividend reinvestment plan for aggregate gross offering proceeds of $8.5$9.4 million. Also as of March 31,September 30, 2019, we had redeemed 670,077710,444 and 99,903104,330 shares of Class A and Class T common stock, respectively, for $6.9$7.3 million.
We sold 3,619,851 shares of Class A common stock for gross offering proceeds of $32.2 million in our private offering. In addition, we raised $4.2 million in separate private transactions exempt from the registration requirements of the Act pursuant to Section 4(2) of the Act.
We have no employees and KBS Capital Advisors LLC (“KBS Capital Advisors”) has served as our external advisor since commencement of the private offering. As our advisor, KBS Capital Advisors manages our day-to-day operations and manages our portfolio of real estate properties and real estate-related investments. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf.

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

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.debt.

Liquidity and Capital Resources
Our principal demand for funds during the short and long-term is and will be for the payment of operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; capital commitments and development expenses under our joint venture agreements; and payments of distributions to stockholders.
To date, we have had fourfive 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 the sale of real estate and the repayment of a real estate loan receivable;
•Debt financings; and
•Cash flow generated by our real estate investments.
We had sold 11,977,758 and 11,537,701 shares of Class A and Class T common stock, respectively, for aggregate gross offering proceeds of $228.6 million in our initial public offering. Additionally, we sold 3,619,851 shares of common stock in our private offering for gross offering proceeds of $32.2 million. We ceased offering shares of common stock in our initial public primary offering on July 31, 2018 and terminated our initial public primary offering on September 28, 2018.
To date, we have invested a significant amount of the proceeds from the primary public offering in real estate and do not anticipate making additional real estate acquisitions due to the termination of the primary portion of our initial public offering on July 31, 2018. We intend to use our cash on hand, cash flow generated by our real estate operations and proceeds from our dividend reinvestment plan as our primary sources of immediate and long-term liquidity.
As of March 31,September 30, 2019, we had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of March 31,September 30, 2019, we had entered into a consolidated joint venture to develop one retail property.
Our office and apartment properties generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from office and apartment properties is primarily dependent upon the occupancy level of our properties, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of March 31,September 30, 2019, we owned four office properties that were 69%72% occupied and one apartment property that was 91%96% occupied.

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

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our hotel properties generate cash flow in the form of room, food, beverage and convention services, campground and other revenues, which are reduced by hotel expenses, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our hotel properties are primarily dependent upon the occupancy levels of our hotels, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel properties as of March 31,for the nine months ended September 30, 2019 and 2018:
PropertyNumber of RoomsPercentage 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,
201920182019201820192018
Springmaid Beach Resort452  69.1%  65.7%  $149.36  $170.09  $103.22  $111.78  
Q&C Hotel196  72.4%  75.7%  $165.42  $158.08  $120.39  $119.61  
Property Number of Rooms Percentage Occupied for the Three Months Ended March 31, Average Daily Rate for the Three Months Ended March 31, Average Revenue per Available Room for the Three Months Ended March 31,
  2019 2018 2019 2018 2019 2018
Springmaid Beach Resort 452 42.3% 35.7% $108.32 $110.53 $45.84 $39.46
Q&C Hotel 196 83.0% 81.6% $177.45 $173.97 $147.20 $141.99

Investments in real estate equity securities generate cash flow in the form of dividend income, which is reduced by asset management fees. As of March 31,September 30, 2019, we had an investment in real estate equity securities outstanding with a total book value of $8.3$9.8 million.
As of March 31,September 30, 2019, we had mortgage debt obligations in the aggregate principal amount of $327.6$350.7 million, with a weighted-average remaining term of 1.61.9 years. As of March 31,September 30, 2019, an aggregate amount of $20.5$32.5 million was available under our mortgage loans for future disbursements to be used for capital improvement costs, tenant improvement costs, leasing commissions and expenses and operating/interest shortfall, subject to certain terms and conditions contained in the loan documents.
We expect to use our capital resources to make certain payments to our advisor in connection with the management of our assets and costs incurred by our advisor in providing services to us. Our currently effective advisory agreement expires August 12,On October 31, 2019, and may be renewed for an unlimited number of successive one-year periods upon the mutual consent of KBS Capital Advisors ceased to serve as our advisor or have any advisory responsibility to us. On November 1, 2019, we entered into a new advisory agreement with Pacific Oak Capital Advisors. The new advisory agreement is effective as of November 1, 2019 through November 1, 2020; however we may terminate the advisory agreement without cause or penalty upon providing 30 days’ written notice and our conflicts committee.Pacific Oak Capital Advisors may terminate the advisory agreement without cause or penalty upon providing 90 days’ written notice. The terms of the advisory agreement are consistent with those of the advisory agreement that was previously in effect with KBS Capital Advisor.
Among the fees payable to our advisor is an asset management fee. We pay our advisor a monthly fee equal to the lesser of one-twelfth of (i) 1.0% of the cost of our investments and (ii) 2.0% of the sum of the cost of our investments, less any debt secured by or attributable to the investments. The cost of the real property investments is calculated as the amount paid or allocated to acquire the real property, including the cost of any subsequent development, construction or improvements to the property and including fees and expenses related thereto (but excluding acquisition fees paid or payable our advisor). The cost of the loans and any investments other than real property is calculated as the lesser of (x) the amount actually paid or allocated to acquire or fund the loan or other investment, including fees and expenses related thereto (but excluding acquisition fees paid or payable to our advisor) and (y) the outstanding principal amount of such loan or other investment, including fees and expenses related to the acquisition or funding of such investment (but excluding acquisition fees paid or payable to our advisor) as of the time of calculation. In the case of investments made through joint ventures, the asset management fee is determined based on our proportionate share of the underlying investment.
We elected to be taxed and to operate as a REIT beginning with our taxable year ended December 31, 2014. To maintain our qualification as a REIT, we will be 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.
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 expense reimbursements for the four fiscal quarters ended March 31,September 30, 2019 did not exceed the charter imposed limitation.

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

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cash Flows from Operating Activities
We commenced operations on September 4, 2014 in connection with our first investment. As of March 31,September 30, 2019, we had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of March 31,September 30, 2019, we had entered into a consolidated joint venture to develop one retail property. During the threenine months ended March 31,September 30, 2019, net cash used inprovided by operating activities was $3.1$1.9 million. We expect that our cash flows from operating activities will generally increase in future periods as a result of leasing additional space that is currently unoccupied.
Cash Flows from Investing Activities
Net cash used in investing activities was $3.5$5.1 million for the threenine months ended March 31,September 30, 2019 and primarily consisted of the following:
•$3.39.8 million of improvements to real estate; and
•$0.25.1 million of distribution of capital from unconsolidated joint venture;
•$0.4 million of payments for a construction project.project; and
•$0.1 million of proceeds from termination of derivative instruments.
Cash Flows from Financing Activities
Net cash used inprovided by financing activities was $4.2$13.8 million for the threenine months ended March 31,September 30, 2019 and primarily consisted of the following:
•$1.319.6 million of net cash used inprovided by debt and other financings as a result of proceeds from notes payable of $135.8 million, partially offset by principal payments on notes payable of $4.4$113.9 million partially offset by proceeds from notes payableand payment of $3.1deferred financing costs of $2.3 million;
•$2.52.9 million of cash used for redemptions of common stock;
•$0.61.9 million of distributions to noncontrolling interest;
•$1.1 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $0.9$1.8 million; and
•$0.10.2 million of noncontrolling interest contributions.contributions; and
•$0.2 million of principal payments on finance lease obligations.
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. We expect our debt financing will be 60% or less of the cost of our tangible assets (before deducting depreciation or other non-cash reserves). 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 (before deducting depreciation or other non-cash reserves); however, we may exceed that limit if a majority of the Conflicts Committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our common stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of March 31,September 30, 2019, our borrowings and other liabilities were approximately 60%61% of the cost (before depreciation and other noncash reserves) and book value (before depreciation) of our tangible assets.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of March 31,September 30, 2019 (in thousands):
    Payments Due During the Years Ending December 31,
Contractual Obligations Total Remainder of 2019 2020-2021 2022-2023 Thereafter
Outstanding debt obligations (1)
 $327,561
 $166,622
 $66,974
 $93,965
 $—
Interest payments on outstanding debt obligations (2)
 26,344
 13,691
 10,015
 2,638
 —
Finance lease liabilities 56,796
 605
 1,415
 1,460
 53,316
_____________________
Payments Due During the Years Ending December 31,
Contractual ObligationsTotalRemainder of 20192020-20212022-2023Thereafter
Outstanding debt obligations (1)
$350,711  $57,585  $145,037  $148,089  $—  
Interest payments on outstanding debt obligations (2)
29,015  4,019  20,811  4,185  —  
Finance lease liabilities56,341  150  1,415  1,460  53,316  
_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amounts and interest rates in effect at March 31,September 30, 2019. We incurred interest expense of $4.6$13.9 million, excluding amortization of deferred financing costs of $0.4$1.3 million for the threenine months ended March 31,September 30, 2019.


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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 March 31,September 30, 2018 and 2019, we had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of March 31,September 30, 2018 and 2019, we had entered into a consolidated joint venture to develop one retail property. We funded the acquisitions of these investments with proceeds from our terminated offerings and debt financing. Our results of operations for the three and nine months ended March 31,September 30, 2019 are not indicative of those in future periods as we expect that our revenue and expenses related to our portfolio will increase in future periods as the occupancies at our properties stabilize as discussed below. Our investment objectives include acquiring properties with significant possibilities for short-term capital appreciation, such as non-stabilized properties, properties with moderate vacancies or near-term lease rollovers, poorly managed and positioned properties, properties owned by distressed sellers and built-to-suit properties.  As of March 31,September 30, 2019, the occupancy in our properties has not been stabilized. However, due to the amount of near-term lease expirations, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that occupancies of our assets will increase, or that we will recognize a gain on the sale of our assets. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of leasing additional space and improving our properties but decrease due to disposition activity.
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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 March 31,September 30, 2019 versus the three months ended March 31,September 30, 2018
The following table provides summary information about our results of operations for the three months ended March 31,September 30, 2019 and 2018 (dollar amounts in thousands):
 Three Months Ended March 31, Increase (Decrease) Percentage Change 
$ Change Due to Acquisitions/Repayments (1)
 
$ Change Due to 
Investments Held Throughout
Both Periods (2)
 Three Months Ended September 30,Increase (Decrease)Percentage Change
$ Change Due to Acquisitions (1)
$ Change Due to 
Investments Held Throughout
Both Periods (2)
 2019 2018 20192018
Office revenues $7,117
 $7,599
 $(482) (6)% $—
 $(482)Office revenues$7,358  $7,515  $(157) (2)%$—  $(157) 
Hotel revenues 5,980
 5,510
 470
 9 % —
 470
Hotel revenues9,271  10,461  (1,190) (11)%—  (1,190) 
Apartment revenues 1,995
 1,716
 279
 16 % —
 279
Apartment revenues2,014  1,940  74  4 %—  74  
Dividend income from real estate equity securities 104
 —
 104
 n/a
 104
 —
Dividend income from real estate equity securities104  77  27  35 %27  —  
Interest income from real estate loan receivable —
 10
 (10) (100)% (10) —
Office expenses 3,397
 2,671
 726
 27 % —
 726
Office expenses3,493  3,241  252  8 %—  252  
Hotel expenses 5,175
 4,790
 385
 8 % —
 385
Hotel expenses6,249  6,106  143  2 %—  143  
Apartment expenses 897
 917
 (20) (2)% —
 (20)Apartment expenses927  976  (49) (5)%—  (49) 
Asset management fees to affiliate 1,049
 935
 114
 12 % 36
 78
Asset management fees to affiliate1,026  1,020  6  1 %—  6  
General and administrative expenses 707
 639
 68
 11 % n/a
 n/a
General and administrative expenses892  704  188  27 %n/a  n/a  
Depreciation and amortization 5,074
 5,103
 (29) (1)% —
 (29)Depreciation and amortization5,133  5,150  (17) — %—  (17) 
Interest expense 4,961
 2,897
 2,064
 71 % —
 2,064
Interest expense5,210  3,435  1,775  52 %—  1,775  
Impairment charge on real estateImpairment charge on real estate—  4,245  (4,245) (100)%(4,245) 
Other interest income 64
 60
 4
 7 % n/a
 n/a
Other interest income125  105  20  19 %n/a  n/a  
Equity in income of unconsolidated entity 2,800
 15
 2,785
 18,567 % —
 2,785
Equity in income of unconsolidated entity—  94  (94) (100)%—  (94) 
Gain (loss) on real estate equity securities 1,114
 (86) 1,200
 n/a
 1,200
 —
Gain (loss) on real estate equity securities1,253  (486) 1,739  (358)%1,739  —  
Income tax benefit —
 9
 (9) (100)% —
 (9)
Loss on extinguishment of debtLoss on extinguishment of debt(90) —  (90) (100)%—  (90) 
_____________________
(1) Represents the dollar amount increase (decrease) for the three months ended March 31,September 30, 2019 compared to the three months ended March 31,September 30, 2018 related to real estate and real estate-related investments acquired or repaid on or after JanuaryJuly 1, 2018.
(2) Represents the dollar amount increase (decrease) for the three months ended March 31,September 30, 2019 compared to the three months ended March 31,September 30, 2018 with respect to real estate and real estate-related investments owned by us during the entire periods presented.
Office revenues decreased slightly from $7.6$7.5 million for the three months ended March 31,September 30, 2018 to $7.1$7.4 million for the three months ended March 31, 2019, primarily due to decreased rental income collected as a result of decreased occupancy.September 30, 2019. The occupancy of our office properties, collectively, held throughout both periods decreased from 73%remained consistent at 72% as of March 31,September 30, 2019 and 2018, to 69% as of March 31, 2019.respectively. We expect office revenues to vary in future periods based on occupancy and rental rates of our office properties.

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

Hotel revenues increaseddecreased from $5.5$10.5 million for the three months ended March 31,September 30, 2018 to $6.0$9.3 million for the three months ended March 31,September 30, 2019, primarily due to increaseda decrease in hotel room revenues collected as a result of increased occupancy.a decrease in average daily rate at Springmaid Beach Resort and a decrease in occupancy increasedat Q&C Hotel. The average daily rate at Springmaid Beach Resort decreased from 35.7%$192.42 for the three months ended March 31,September 30, 2018 to 42.3%$166.22 for the three months ended March 31,September 30, 2019. Springmaid Beach Resort occupancy decreased from 81.3% for the three months ended September 30, 2018 to 80.7% for the three months ended September 30, 2019. The average daily rate at Q&C Hotel increased from $127.99 for the three months ended September 30, 2018 to $139.35 for the three months ended September 30, 2019. Q&C Hotel occupancy increaseddecreased from 81.6%66.2% for the three months ended March 31,September 30, 2018 to 83.0%58.9% for the three months ended March 31,September 30, 2019. We expect hotel revenues to vary in future periods based on occupancy and room rates.
Apartment revenues increased slightly from $1.7$1.9 million for the three months ended March 31,September 30, 2018 to $2.0 million for the three months ended March 31,September 30, 2019, primarily due to increased rental income collected as a result of increased rental rates and occupancy. The occupancy of our apartment property increased from 90% as of March 31, 2018 to 91% as of March 31,September 30, 2018 to 96% as of September 30, 2019. We expect apartment revenues to vary in future periods depending on occupancy and rental rates.
Dividend income from real estate equity securities was $0.1 millionincreased from $77,000 for the three months ended March 31, 2019.September 30, 2018 to $104,000 for the three months ended September 30, 2019 due to the acquisition of real estate equity securities. We expect dividend income from real estate equity securities to vary in future periods as a result of declaration of dividends and to the extent we buy or sell any securities.
Interest income from our real estate loan receivable, recognized using the interest method, was $10,000 for the three months ended March 31, 2018. The real estate loan receivable was repaid in full on January 12, 2018.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Office expenses increased from $2.7$3.2 million for the three months ended March 31,September 30, 2018 to $3.4$3.5 million for the three months ended March 31,September 30, 2019, primarily as a result of (i) approximately $0.4$0.2 million of 210 West 31st Street expenses incurred during the three months ended March 31,September 30, 2019, which were previously capitalized to building and improvements prior to the development being placed on hold on October 1, 2018 and (ii) a $0.2 million increase in Oakland City Center owner’s association fees.2018. Hotel expenses increased from $4.8$6.1 million for the three months ended March 31,September 30, 2018 to $5.2$6.2 million for the three months ended March 31,September 30, 2019, primarily due to an increase in occupancy rates.other hotel costs. We expect total expenses to vary in future periods based on occupancy rates.
Asset management fees to affiliate increased from $0.9remained consistent at $1.0 million for each of the three months ended March 31,September 30, 2018 to $1.0 million for the three months ended March 31, 2019, primarily as a result of improvements made at our properties and the acquisition of real estate equity securities in 2018.2019. We expect asset management fees to increase in future periods as a result of any additional improvements we make to our properties. Approximately $28,000$27,000 of asset management fees incurred were payable as of March 31,September 30, 2019.
General and administrative expenses increased from $0.6 million for the three months ended March 31, 2018 to $0.7 million for the three months ended March 31, 2019.September 30, 2018 to $0.9 million for the three months ended September 30, 2019, primarily due to an increase in legal costs. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.
Depreciation and amortization expenses remained consistent at approximately $5.1$5.2 million for each of the three months ended March 31,September 30, 2018 and 2019. We expect depreciation and amortization expenses to vary in future periods as a result of a decrease in amortization related to fully amortized tenant origination and absorption costs and increase as a result of improvements to real estate.
Interest expense increased from $2.9$3.4 million for the three months ended March 31,September 30, 2018 to $5.0$5.2 million for the three months ended March 31,September 30, 2019, primarily as a result of approximately $1.5$1.3 million of 210 West 31st Street interest expense incurred during the three months ended March 31,September 30, 2019, which was previously capitalized to building and improvements prior to the development being placed on hold on October 1, 2018. For the three months ended March 31, 2018, approximately $1.4 million of 210 West 31st Street interest was capitalized to building and improvements and therefore was excluded from interest expense. Additionally, interest expense increased as a result of increased one-month LIBOR ratesan overall increase in our total debt outstanding during the three months ended March 31,September 30, 2019. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the availability and cost of debt financing. The increase in interest expense due to increases in LIBOR rates would be minimized somewhat to the extent rates are above the strike rates on our interest rate cap instruments.
During the three months ended March 31,September 30, 2018, we recorded an impairment charge of $4.2 million to write-down the carrying value of 210 West 31st Street, a development property located in New York, New York, to its estimated fair value due to a change in the projected hold period and related decrease in projected cash flows.
During the three months ended September 30, 2018, we recognized $0.1 million of equity income from unconsolidated entity. We did not recognize any equity income from unconsolidated entity during the three months ended September 30, 2019 as a result of the liquidation of the underlying portfolio related to our STAM investment. 
Loss on real estate equity securities was $0.5 million during the three months ended September 30, 2018. Gain on real estate equity securities was $1.3 million during the three months ended September 30, 2019. We expect gain (loss) on real estate equity securities to fluctuate in future periods as a result of changes in the share price of our investment in real estate equity securities.
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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 nine months ended September 30, 2019 versus the nine months ended September 30, 2018
The following table provides summary information about our results of operations for the nine months ended September 30, 2019 and 2018 (dollar amounts in thousands):
 Nine Months Ended September 30,Increase (Decrease)Percentage Change
$ Change Due to Acquisitions/Repayments (1)
$ Change Due to 
Investments Held Throughout
Both Periods (2)
20192018
Office revenues$21,669  $22,475  $(806) (4)%$—  $(806) 
Hotel revenues25,318  26,234  (916) (3)%—  (916) 
Apartment revenues5,979  5,459  520  10 %—  520  
Dividend income from real estate equity securities313  113  200  177 %200  —  
Interest income from real estate loan receivable—  10  (10) (100)%(10) —  
Office expenses10,317  8,951  1,366  15 %—  1,366  
Hotel expenses17,560  17,161  399  2 %—  399  
Apartment expenses2,707  2,858  (151) (5)%—  (151) 
Asset management fees to affiliate3,137  2,940  197  7 %12  185  
General and administrative expenses2,368  1,947  421  22 %n/a  n/a  
Depreciation and amortization15,314  15,322  (8) — %—  (8) 
Interest expense15,197  9,740  5,457  56 %—  5,457  
Impairment charge on real estate—  4,245  (4,245) (100)%(4,245) 
Other interest income237  257  (20) (8)%n/a  n/a  
Equity in income of unconsolidated entity2,800  225  2,575  1,144 %—  2,575  
Gain (loss) on real estate equity securities2,588  (172) 2,760  (1,605)%2,760  —  
Loss on extinguishment of debt(90) —  (90) (100)%—  (90) 
_____________________
(1) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 related to real estate and real estate-related investments acquired or repaid on or after January 1, 2018.
(2) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 with respect to real estate and real estate-related investments owned by us during the entire periods presented.
Office revenues decreased from $22.5 million for the nine months ended September 30, 2018 to $21.7 million for the nine months ended September 30, 2019, primarily due to a decrease in average occupancy to 70% for the nine months ended September 30, 2019 compared to 72% for the nine months ended September 30, 2018. We expect office revenues to vary in future periods based on occupancy and rental rates of our office properties.
Hotel revenues decreased from $26.2 million for the nine months ended September 30, 2018 to $25.3 million for the nine months ended September 30, 2019, primarily due to a decrease in hotel room revenues collected as a result of a decrease in average daily rate at Springmaid Beach Resort and a decrease in occupancy at Q&C Hotel. The average daily rate at Springmaid Beach Resort decreased from $170.09 for the nine months ended September 30, 2018 to $149.36 for the nine months ended September 30, 2019. Springmaid Beach Resort occupancy increased from 65.7% for the nine months ended September 30, 2018 to 69.1% for the nine months ended September 30, 2019. Q&C Hotel occupancy decreased from 75.7% for the nine months ended September 30, 2018 to 72.4% for the nine months ended September 30, 2019. We expect hotel revenues to vary in future periods based on occupancy and room rates.
Apartment revenues increased from $5.5 million for the nine months ended September 30, 2018 to $6.0 million for the nine months ended September 30, 2019, primarily due to increased rental income collected as a result of increased occupancy. The occupancy of our apartment property increased from 91% as of September 30, 2018 to 96% as of September 30, 2019. We expect apartment revenues to vary in future periods depending on occupancy and rental rates.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dividend income from real estate equity securities increased from $0.1 million for the nine months ended September 30, 2018 to $0.3 million for the nine months ended September 30, 2019 due to the acquisition of real estate equity securities. We expect dividend income from real estate equity securities to vary in future periods as a result of declaration of dividends and to the extent we buy or sell any securities.
Office expenses increased from $9.0 million for the nine months ended September 30, 2018 to $10.3 million for the nine months ended September 30, 2019, primarily as a result of (i) approximately $0.9 million of 210 West 31st Street expenses incurred during the nine months ended September 30, 2019, which were previously capitalized to building and improvements prior to the development being placed on hold on October 1, 2018 and (ii) a $0.4 million increase in Oakland City Center owner’s association fees. Hotel expenses increased from $17.2 million for the nine months ended September 30, 2018 to $17.6 million for the nine months ended September 30, 2019, primarily due to an increase in other hotel costs. We expect total expenses to vary in future periods based on occupancy rates.
Asset management fees to affiliate increased from $2.9 million for the nine months ended September 30, 2018 to $3.1 million for the nine months ended September 30, 2019, primarily as a result of improvements made at our properties and the acquisition of real estate equity securities in 2018. We expect asset management fees to increase in future periods as a result of any additional improvements we make to our properties. Approximately $27,000 of asset management fees incurred were payable as of September 30, 2019.
General and administrative expenses increased from $1.9 million for the nine months ended September 30, 2018 to $2.4 million for the nine months ended September 30, 2019, primarily due to an increase in legal costs. We expect general and administrative expenses to fluctuate based on our legal expenses and investment and disposition activity.
Depreciation and amortization expenses remained consistent at approximately $15.3 million for each of the nine months ended September 30, 2018 and 2019. We expect depreciation and amortization expenses to vary in future periods as a result of a decrease in amortization related to fully amortized tenant origination and absorption costs and increase as a result of improvements to real estate.
Interest expense increased from $9.7 million for the nine months ended September 30, 2018 to $15.2 million for the nine months ended September 30, 2019, primarily as a result of approximately $3.9 million of 210 West 31st Street interest expense incurred during the nine months ended September 30, 2019, which was previously capitalized to building and improvements prior to the development being placed on hold on October 1, 2018. Additionally, interest expense increased as a result of an overall increase in our total debt outstanding during the nine months ended September 30, 2019. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the availability and cost of debt financing. The increase in interest expense due to increases in LIBOR rates would be minimized somewhat to the extent rates are above the strike rates on our interest rate cap instruments.
During the nine months ended September 30, 2018, we recorded an impairment charge of $4.2 million to write-down the carrying value of 210 West 31st Street, a development property located in New York, New York, to its estimated fair value due to a change in the projected hold period and related decrease in projected cash flows.
During the nine months ended September 30, 2019, we recognized $2.8 million of equity income from unconsolidated entity as a result of the liquidation of the underlying portfolio related to our STAM investment. 
Loss on real estate equity securities was $0.1$0.2 million during the threenine months ended March 31,September 30, 2018. Gain on real estate equity securities was $1.1$2.6 million during the threenine months ended March 31,September 30, 2019. We expect gain (loss) on real estate equity securities to fluctuate in future periods as a result of changes in the share price of our investment in real estate equity securities.

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

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. 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 (to the extent that such costs have been recorded as operating expenses) from MFFO and Adjusted MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage.  MFFO and Adjusted MFFO also exclude non-cash items such as straight-line rental revenue.  Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance.  MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.
FFO, MFFO and Adjusted MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO, MFFO and Adjusted MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO, MFFO and Adjusted MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO, MFFO and Adjusted MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO, MFFO and Adjusted MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.

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

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, and mark-to-market adjustments included in net income and loss on 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; and
•Mark to Market adjustments included in net income. These are fair value adjustments to derivative instruments. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect core operating performance; and
•Loss on extinguishment of debt. A loss 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 from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance.
Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain renovation projects. 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 income (loss), FFO and MFFO.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculations of MFFO and Adjusted MFFO, for the three and nine months ended March 31,September 30, 2019 and 2018 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.
 For the Three Months Ended March 31,For the Three Months Ended September 30,  For the Nine Months Ended September 30,  
 2019 20182019201820192018
Net loss attributable to common stockholders $(1,535) $(2,867)Net loss attributable to common stockholders$(2,557) $(4,963) $(6,677) $(8,133) 
Depreciation of real estate assets 3,527
 3,187
Depreciation of real estate assets3,699  3,373  10,865  9,788  
Amortization of lease-related costs 1,547
 1,916
Amortization of lease-related costs1,434  1,777  4,449  5,534  
(Gain) loss on real estate equity securities (1,114) 86
(Gain) loss on real estate equity securities(1,253) 486  (2,588) 172  
Impairment charge on real estateImpairment charge on real estate—  4,245  —  4,245  
Adjustments for noncontrolling interests (1)
 (243) (224)
Adjustments for noncontrolling interests (1)
(251) (517) (741) (967) 
Adjustments for investment in unconsolidated entity (2)
 (2,800) —
Adjustments for investment in unconsolidated entity (2)
—  (35) (2,800) (53) 
FFO attributable to common stockholders (618) 2,098
FFO attributable to common stockholders1,072  4,366  2,508  10,586  
Straight-line rent and amortization of above- and below-market leases (794) (1,585)Straight-line rent and amortization of above- and below-market leases(832) (1,035) (2,438) (3,900) 
Unrealized losses on derivative instruments (71) 53
Loss on extinguishment of debtLoss on extinguishment of debt90  —  90  —  
Unrealized loss (gain) on derivative instrumentsUnrealized loss (gain) on derivative instruments47  (23) (24) (84) 
Adjustments for noncontrolling interests (1)
 (6) 1
Adjustments for noncontrolling interests (1)
(14) (5) (24) (12) 
MFFO attributable to common stockholders (1,489) 567
MFFO attributable to common stockholders363  3,303  112  6,590  
Other capitalized operating expenses (3)
 —
 (426)
Other capitalized operating expenses (3)
—  (298) —  (998) 
Adjusted MFFO attributable to common stockholders $(1,489) $141
Adjusted MFFO attributable to common stockholders$363  $3,005  $112  $5,592  
_____________________
(1) Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net loss attributable to common stockholders to FFO, MFFO and Adjusted MFFO.
(2) Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net loss attributable to common stockholders to FFO for our equity investment in an unconsolidated entity.
(3) Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain renovation projects but excluding development projects. During the time in which we are incurring costs necessary to bring these investments to their intended use, certain financing costs are capitalized in accordance with GAAP and not reflected in our net loss, FFO and MFFO.

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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 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 increase as a result of stabilizing occupancies at our properties.

Organization and Offering Costs
Our organization and offering costs (other than selling commissions, dealer manager fees and the stockholder servicing fee) were paid by our advisor, the dealer manager or their affiliates on our behalf or paid directly by us. These offering costs include all expenses incurred in connection with our offerings. Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate.
We recorded $1.0 million of offering costs (other than selling commissions and dealer manager fees) related to our private offering, all of which were initially paid by our advisor or its affiliates on our behalf and subsequently reimbursed by us. In addition, we paid $1.9 million in selling commissions and dealer manager fees related to our private offering.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
During our initial public offering, pursuant to the advisory agreement and dealer manager agreement, we were obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on behalf of us, provided that no reimbursements made by us to our advisor or the dealer manager could cause total organization and offering expenses incurred by us in connection with our initial public offering (including selling commissions, dealer manager fees and the stockholder servicing fees) to exceed 15% of the aggregate gross proceeds from our initial public offering as of the date of reimbursement. In addition, our advisor and its affiliates reimbursed us to the extent that the organization and other offering expenses (which exclude selling commissions, dealer manager fees and stockholder servicing fees) paid directly or reimbursed by us in connection with the primary portion of our initial public offering, regardless of when incurred, exceeded 1.0% of gross offering proceeds from the primary portion of our initial public offering. Our advisor and its affiliates are responsible for any organization and other offering expenses related to the primary portion of our initial public offering to the extent they exceed 1.0% of gross proceeds from the primary portion of the public offering as of the termination of the primary portion of our initial public offering.
Through March 31,September 30, 2019, our advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions dealer manager fees and stockholder servicing fees) on our behalf in connection with our initial public offering of approximately $11.4 million. As of March 31,September 30, 2019, we had recorded $14.5 million in selling commissions and dealer manager fees and $1.7 million of stockholder servicing fees. As of March 31,September 30, 2019, we had recorded $2.3 million of other organization and offering expenses, which amounts represent our maximum liability for organization and other offering costs as of March 31,September 30, 2019 based on the 1.0% limitation described above.

Distributions
To maintain our qualification as a REIT, we must make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. In general, we anticipate making distributions to our stockholders of at least 100% of our REIT taxable income so that none of our income is subject to federal income tax. 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.
From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. Distributions declared, distributions paid and cash flow used in(used in) provided by operations were as follows for the first, quartersecond and third quarters of 2019 (in thousands, except per share amounts):
 
Distributions Declared (1)
Distributions Declared Per Class A Share (1)
Distributions Declared Per Class T Share (1)
Distributions Paid (2)
Cash Flows (used in) provided by Operations
PeriodCashReinvestedTotal
First Quarter 2019$1,206  $0.040  $0.040  $550  $899  $1,449  $(3,111) 
Second Quarter 2019724  0.024  0.024  276  448  724  2,899  
Third Quarter 2019724  0.024  0.024  285  439  $724  2,065  
$2,654  $0.088  $0.088  $1,111  $1,786  $2,897  $1,853  
  Distributions Declared Distributions Declared Per Class A Share Distributions Declared Per Class T Share Distributions Paid Cash Flows Used in Operations
Period    Cash Reinvested Total 
First Quarter 2019 $1,206
 $0.040
 $0.040
 $550
 $899
 $1,449
 $(3,111)
_____________________

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

On December 6, 2018, our board of directors declared a monthly cash distribution in the amount of $0.01598333 per share on the outstanding shares of all classes of our common stock as of(1) For each month commencing January 18, 2019 which we paid onthrough February 4, 2019. On January 24,2019 and March 2019 through September 2019, our board of directors declared a monthly cash distributiondistributions per common share in the amount of $0.01598333 per share on the outstanding shares of all classes of our common stock as of February 18, 2019, which we paid on March 1, 2019. On March 7, 2019, our board of directors declared a monthly cash distributions in the amount ofand $0.00799167 per share on the outstanding shares of our classes of our common stock, asrespectively, to stockholders of March 18, 2019, which werecord based on a monthly record date.
(2) Distributions generally are paid on April 1, 2019. For thesea monthly cash distributions, investors could choose to receive cash distributionsbasis, on or purchase additional shares through our dividend reinvestment plan.about the first business day of the following month.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
For the threenine months ended March 31,September 30, 2019, we paid aggregate distributions of $1.4$2.9 million including $0.5$1.1 million distributions paid in cash and $0.9$1.8 million of distributions reinvested through our dividend reinvestment plan. Our net loss attributable to common stockholders for the threenine months ended March 31,September 30, 2019 was $1.5$6.7 million and cash flow used inprovided by operations was $3.1$1.9 million. We funded our total distributions paid for the threenine months ended March 31,September 30, 2019, which includes net cash distributions and distributions reinvested by stockholders, with current period cash flow from operating activities of $1.5 million and prior period cash flow from operating activities of $1.4 million. For purposes of determining the source of distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.
Going forward, we expect our board of directors to continue to authorize and declare monthly cash distributions. Cash distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage rate of return for cash distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.
We expect that we will fund these cash distributions from rental and other income on our real property investments and dividend income from real estate equity securities. We may also utilize strategic refinancings to fund cash distributions for investments that have appreciated in value after our acquisition. Generally, our distribution policy is not to pay cash distributions from sources other than cash flow from operations, investment activities and strategic financings. However, we may fund cash distributions from any source and there are no limits to the amount of distributions that we may pay from any source, including proceeds from our public offering or the proceeds from the issuance of securities in the future, other third party borrowings, advances from our advisor or sponsors or from our advisor’s deferral of its fees under the advisory agreement. Distributions paid from sources other than current or accumulated earnings and profits may constitute a return of capital. From time to time, we may generate taxable income greater than our net income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. In these situations we may make distributions in excess of our cash flow from operations, investment activities and strategic financings to satisfy the REIT distribution requirement. In such an event, we would look first to other third party borrowings to fund these distributions.

Critical Accounting Policies
Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC. There have been no significant changes to our policies during 2019, except for our adoption of the lease accounting standards issued by the Financial Accounting Standards Board effective on January 1, 2019.

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

Revenue Recognition - Operating Leases
Office and Apartment Revenues
On January 1, 2019, we adopted the lease accounting standards under Topic 842 including the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, we (i) did not reassess whether any expired or existing contracts are or contain leases, (ii) did not reassess the lease classification for any expired or existing lease, and (iii) did not reassess initial direct costs for any existing leases. We did not elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, we adopted the practical expedient for land easements and did not assess whether existing or expired land easements that were not previously accounted for as leases under the lease accounting standards of Topic 840 are or contain a lease under Topic 842.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
In addition, Topic 842 provides an optional transition method to allow entities to apply the new lease accounting standards at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. We adopted this transition method upon our adoption of the lease accounting standards of Topic 842, which did not result in a cumulative effect adjustment to the opening balance of retained earnings on January 1, 2019. Our comparative periods presented in the financial statements will continue to be reported under the lease accounting standards of Topic 840.
In accordance with Topic 842, tenant reimbursements for property taxes and insurance are included in the single lease component of the lease contract (the right of the lessee to use the leased space) and therefore are accounted for as variable lease payments and are recorded as rental income on our statement of operations beginning January 1, 2019. In addition, we adopted the practical expedient available under Topic 842 to not separate nonlease components from the associated lease component and instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met, specifically related to tenant reimbursements for common area maintenance which would otherwise be accounted for under the revenue recognition standard. We believe the two conditions have been met for tenant reimbursements for common area maintenance as (i) the timing and pattern of transfer of the nonlease components and associated lease components are the same and (ii) the lease component would be classified as an operating lease. Accordingly, tenant reimbursements for common area maintenance are also accounted for as variable lease payments and recorded as rental income on our statement of operations beginning January 1, 2019.
We recognize minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is probable and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or by us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of rental revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
•whether the lease stipulates how a tenant improvement allowance may be spent;
•whether the lessee or lessor supervises the construction and bears the risk of cost overruns;
•whether the amount of a tenant improvement allowance is in excess of market rates;
•whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
•whether the tenant improvements are unique to the tenant or general purpose in nature; and
•whether the tenant improvements are expected to have any residual value at the end of the lease.
We lease apartment units under operating leases with terms generally of one year or less. Generally, credit investigations will be performed for prospective residents and security deposits will be obtained. We recognize rental revenue, net of concessions, on a straight-line basis over the term of the lease, when collectibility is determined to be probable.

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

In accordance with Topic 842, we make a determination of whether the collectibility of the lease payments in an operating lease is probable. If we determine the lease payments are not probable of collection, we would fully reserve for any contractual lease payments, deferred rent receivable, and tenant reimbursementsvariable lease payments and would recognize rental income only if cash is received. Beginning January 1, 2019, these changes to our collectibility assessment are reflected as an adjustment to rental income included in office revenues and apartment revenues in our consolidated statement of operations. Prior to January 1, 2019, bad debt expense related to uncollectible accounts receivable and deferred rent receivable was included in office expenses and apartment expenses in our consolidated statement of operations.  Any subsequent changes to the collectibility of the allowance for doubtful accounts as of December 31, 2018, which was recorded prior to the adoption of Topic 842, are recorded in office expenses and apartment expenses in our consolidated statement of operations.
Beginning January 1, 2019, we, as a lessor, record costs to negotiate or arrange a lease that would have been incurred regardless of whether the lease was obtained, such as legal costs incurred to negotiate an operating lease as an expense and classify such costs as operating, maintenance, and management expense, which is included in office expenses in our consolidated statement of operations, as these costs are no longer capitalizable under the definition of initial direct costs under Topic 842.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Cash Distributions Paid
On AprilOctober 1, 2019, we paid distributions of $0.2 million related to a monthly distribution in the amount of $0.00799167 per share on the outstanding shares of all classes of our common stock as of March 18,September 20, 2019. On MayNovember 1, 2019, we paid distributions of $0.2 million related to a monthly distribution in the amount of $0.00799167 per share on the outstanding shares of all classes of our common stock as of April 18,October 21, 2019.
Distributions Declared
On May 13,November 7, 2019, our board of directors declared monthly distributions in the amount of $0.00799167 per share on the outstanding shares of all classes of our common stock as of May 17,November 20, 2019 and June 18,December 19, 2019, which we expect to pay in JuneDecember 2019 and July 2019,January 2020, respectively. Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

Real Estate Disposition Subsequent to September 30, 2019
Disposition of 2200 Paseo Verde
On November 4, 2019, we sold 2200 Paseo Verde to a purchaser unaffiliated with us, KBS Capital Advisors or Pacific Oak Capital Advisors for a sales price, net of closing credits, of $18.6 million, excluding closing costs.
On November 4, 2019, in connection with the disposition of 2200 Paseo Verde, the Company repaid $8.7 million of the outstanding principal balance due under the 2200 Paseo Verde mortgage loan.
Resignation of Officers
On October 31, 2019, Jeffrey K. Waldvogel notified the our board of directors (the “Board”) of his resignation as Secretary and Treasurer of the Company effective immediately and of his resignation as Chief Financial Officer of the Company effective immediately following the filing of the Third Quarter 10-Q with SEC. Also on October 31, 2019, Stacie K. Yamane notified the Board of her resignation as Chief Accounting Officer of the Company immediately following the filing of the Third Quarter 10-Q with the SEC.
Appointment of New Chief Financial Officer
On October 31, 2019, the Board appointed Michael A. Bender to serve as Executive Vice President, Treasury, Secretary and our Chief Financial Officer-Elect effective as of November 1, 2019, and as Chief Financial Officer effective immediately following our filing of the Third Quarter 10-Q with the SEC. As Chief Financial Officer, Mr. Bender will serve as our principal financial officer and principal accounting officer.
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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 3.Quantitative and Qualitative Disclosures about Market Risk

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing of our real estate investment portfolio and operations. We are also exposed to the effects of foreign currency changes in the Euro with respect to our €2.1 million participating loan facility.  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. 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. 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 that the losses may exceed the amount we invested in the instruments.
Movements in interest rates on variable rate debt would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of March 31,September 30, 2019, we were exposed to market risks related to fluctuations in interest rates on $327.6$350.7 million of variable rate debt outstanding. As of March 31,September 30, 2019, we have also entered into fourfive interest rate cap agreements with an aggregate notional value of $130.8$224.2 million, which effectively cap one-month LIBOR at 3.00%.LIBOR. The weighted-average remaining term of the interest rate caps is 0.51.3 years. Based on interest rates as of March 31,September 30, 2019, if interest rates were 100 basis points higher or lower during the 12 months ending March 31,September 30, 2020, interest expense on our variable rate debt would increase or decrease, respectively, by $2.6$1.3 million and $3.3$3.5 million, respectively.
The weighted-average interest rate of our variable rate debt as of March 31,September 30, 2019 was 5.2%4.9%.  The weighted-average interest rate represents the actual interest rate in effect as of March 31,September 30, 2019 (consisting of the contractual interest rate and the effect of interest rate caps, if applicable), using interest rate indices as of March 31,September 30, 2019 where applicable.
We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of March 31,September 30, 2019, we owned real estate equity securities with a book value of $8.3$9.8 million. Based solely on the prices of real estate equity securities as of March 31,September 30, 2019, if prices were to increase or decrease by 10%, our net income would increase or decrease, respectively, by approximately $0.8$1.0 million.
For a discussion of the interest rate risks related to the current capital and credit markets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Outlook” herein, and Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC.


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PART I.FINANCIAL INFORMATION (CONTINUED)
Item 4.Item 4. Controls and Procedures

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


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PART II.OTHER INFORMATION

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1.Legal Proceedings
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A.Risk Factors
Item 1A. Risk Factors
The following risk factor supplements the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.
In January 2019, we exhausted funds available for redemptions under our share redemption program, other than those submitted in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” for which we had $0.5$0.1 million available as of March 31,September 30, 2019. Therefore, except in limited circumstances, our stockholders will be unable to sell their shares under our share redemption program.
During any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year provided that $500,000 of this amount is reserved for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence.” As of the January 2019 redemption date, we had exhausted the amount available for ordinary redemptions, and as of March 31,September 30, 2019, we had $2.7$6.1 million outstanding and unfulfilled redemption requests representing 284,589644,900 shares. We have $0.5$0.1 million available to fund special redemptions during the remainder of 2019. We can provide no assurances as to whether our board of directors will make additional funds available for our share redemption program.
We have paid distributionsPacific Oak Capital Advisors has a limited operating history.
Pacific Oak Capital Advisors, our advisor, was formed in part from financings2018 and expect thatstarted operating as our advisor on November 1, 2019. Keith D. Hall, our Chief Executive Officer and one of our directors, and Peter McMillan III, our Chairman of the Board and President and one of our directors, each own 50% and manage Pacific Oak Holdings, which owns and controls Pacific Oak Capital Advisors. Each of Messrs. Hall and McMillan has over 20 years of experience in the future we may not pay distributions solely from our cash flow from operating activities. To the extent that we pay distributions from sources other than our cash flow from operating activities, the overall return to our stockholders may be reduced.
Our organizational documents permit us to pay distributions from any source,investment management, including offering proceeds or borrowings (which may constitute14 years at KBS. Under their leadership, Pacific Oak has rapidly assembled a returnstrong and experienced team of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. We have paid distributions in part from financings and expect that in the future we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. We may also fund such distributions with proceeds from the sale of assets. If we fund distributions from borrowings, our interest expensereal estate, finance, accounting and other financing costs, as well asprofessionals, many of whom were formerly at KBS. Messrs. Hall and McMillan work together at Pacific Oak Capital Advisors with their team of key real estate and debt finance professionals. These senior real estate and debt finance professionals have been through multiple real estate cycles in their careers and have the repaymentexpertise gained through hands-on experience in acquisitions, originations, asset management, dispositions, development, leasing and property and portfolio management. Pacific Oak Capital Advisors currently manages approximately $3.3 billion of such borrowings, will reducereal estate investments. However, because Pacific Oak Capital Advisors was recently formed, it could face challenges with employee hiring and retention, information technology, vendor relationships, and funding. We rely on our earningssponsor, our officers, our advisor and cash flow from operating activities availablethe real estate, debt finance, management and accounting professionals that our advisor retains, to provide services to us for distributionthe day-to-day operation of our business. If Pacific Oak Capital Advisors faces challenges in future periods. If we fund distributions from the sale of assets, this will affectperforming its obligations to us, it could negatively impact our ability to generate cash flow from operating activities in future periods. To the extent that we pay distributions from sources other thanachieve our cash flow from operating activities, the overall return to our stockholders may be reduced. In addition, to the extent distributions exceed cash flow from operating activities, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. There is no limit on the amount of distributions we may fund from sources other than from cash flow from operating activities.investment objectives.
For the three months ended March 31, 2019, we paid aggregate distributions of $1.4 million including $0.5 million distributions paid in cash and $0.9 million of distributions reinvested through our dividend reinvestment plan. Our net loss attributable to common stockholders for the three months ended March 31, 2019 was $1.5 million and cash flow used in operations was $3.1 million. We funded our total distributions paid for the three months ended March 31, 2019, which includes net cash distributions and distributions reinvested by stockholders, with prior period cash flow from operating activities of $1.4 million. For purposes of determining the source of distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments.
To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

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

PART II. OTHER INFORMATION (CONTINUED)
a)During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
b)Not applicable
c)We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a).During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
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 each calendar year, the share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year provided that the last $0.5 million of net proceeds from the dividend reinvestment plan during the prior year is reserved exclusively for shares redeemed in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” with any excess funds being available to redeem shares not requested in connection with a stockholder’s death, “qualifying disability,” or “determination of incompetence” during the December redemption date in the current year. We may, however, increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders.
•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.
Pursuant to our share redemption program, redemptions made in connection with a stockholder’s death, qualifying disability, or determination of incompetence are made at a price per share equal to the most recent NAV per share as of the applicable redemption date. The price at which we redeem all other shares eligible for redemption is as follows:
•For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated NAV per share as of the applicable redemption date;
•For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated NAV per share as of the applicable redemption date;
•For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated NAV per share as of the applicable redemption date; and
•For those shares held by the redeeming stockholder for at least four years, 100% of our most recent estimated NAV per share as of the applicable redemption date.
For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to our dividend reinvestment plan and shares received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares or stock dividend shares relate. The date of the share’s original issuance by us is not determinative. In addition, as described above, the shares owned by a stockholder may be redeemed at different prices depending on how long the stockholder has held each share submitted for redemption.
On December 6, 2018, our board of directors approved an estimated NAV per share of our common stock of $9.65 based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding, all as of September 30, 2018. We expect to update our estimated NAV per share annually.

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

PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
Upon a transfer of shares any pending redemption requests with respect to such transferred shares will be canceled as of the date we accept the transfer. Stockholders wishing to continue to have a redemption request related to any transferred shares considered by us must resubmit their redemption request.
Our board may amend, suspend or terminate the share redemption program upon 10 business days’ notice to stockholders. We also may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice to stockholders.
During the threenine months ended March 31,September 30, 2019, we fulfilled redemption requests and redeemed shares pursuant to the 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 ProgramMonth
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 2019 260,225
 $9.50
 
(2) 
January 2019260,225  $9.50  
(2)
February 2019 —
 $—
 
(2) 
February 2019—  $—  
(2)
March 2019 —
 $—
 
(2) 
March 2019—  $—  
(2)
April 2019April 2019—  $—  
(2)
May 2019May 201923,534  $9.65  
(2)
June 2019June 20191,144  $9.65  
(2)
July 2019July 2019—  $—  
(2)
August 2019August 201913,059  $9.65  
(2)
September 2019September 20197,056  $9.65  
(2)
Total 260,225
   Total305,018  
_____________________
(1) Pursuant to the program, as amended, we redeem shares at the purchase prices described above.
(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the threenine months ended March 31,September 30, 2019, we redeemed $2.5$2.9 million of common stock. In January 2019, we exhausted all funds available for redemption of shares in 2019 in connection with redemption requests not made upon a stockholder’s death, “qualifying disability”, or determination of incompetence. As of March 31,September 30, 2019, we had $2.7$6.1 million outstanding and unfulfilled redemption requests representing 284,589644,900 shares due to the limitations described above. As of March 31,September 30, 2019, we have $0.5$0.1 million available for redemptions made upon a stockholder’s death, “qualifying disability” or “determination of incompetence” during the remainder of 2019.  Based on the amount of net proceeds raised from the sale of shares under the dividend reinvestment plan during 2019, we have $0.9$1.8 million available for redemptions during 2020, subject to the limitations described above.
In addition to the redemptions under the share redemption program described above, during the threenine months ended March 31,September 30, 2019, we repurchased 2,2772,286 shares of our common stock at $8.93$8.89 per share for an aggregate price of approximately $20,000.

Item 3. Defaults upon Senior Securities
None.

Item 4. Mine Safety Disclosures
None.

Item 5. Other Information
None.

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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits
Item 3.Ex.Defaults upon Senior Securities
None.
Item 4.Mine Safety Disclosures
None.
Item 5.Other Information
None.

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Table of Contents
PART II.OTHER INFORMATION (CONTINUED)
Item 6.Exhibits

Description
Ex.3.1Description
3.1
3.2
3.3
3.33.4
3.43.5
3.53.6
4.1
4.2
4.3
4.4
4.5
31.110.1
10.2
10.3
10.4
10.5
10.6

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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits (continued)
Ex.Description
31.1
31.2
32.1
32.2
99.1
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).


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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.
 
KBSPACIFIC OAK STRATEGIC OPPORTUNITY REIT II, INC.
Date:May 14,November 8, 2019By:
/S/ KEITH D. HALL        
Keith D. Hall
Chief Executive Officer and Director
(principal executive officer)
Date:May 14,November 8, 2019By:
/S/ JEFFREY K. WALDVOGEL
Jeffrey K. Waldvogel
Chief Financial Officer Treasurer and Secretary
(principal financial officer)


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