Pacific Oak Strategic Opportunity REIT (PCOK) 8-K/A Completion of Acquisition or Disposition of Assets

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 10, 2016

KBS STRATEGIC OPPORTUNITY REIT, INC.

(Exact name of registrant specified in its charter)

Maryland	000-54382	26-3842535
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

(Address of principal executive offices)

Registrant’s telephone number, including area code: (949) 417-6500

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

On May 11, 2016, KBS Strategic Opportunity REIT, Inc. (the “Company”) filed a Current Report on Form 8-K dated May 10, 2016 with regard to the acquisition, through an indirect wholly owned subsidiary, of a portfolio of 21 office/flex/industrial buildings containing a total of 778,472 rentable square feet located on approximately 41 acres of land in Redmond, Washington (the “Westpark Portfolio”). The Company hereby amends the Form 8-K dated May 10, 2016 to provide the required financial information related to its acquisition of the Westpark Portfolio.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(a)	Financial Statements of Real Estate Acquired
	Westpark Portfolio
	Report of Independent Auditors	F-1
	Statements of Revenues Over Certain Operating Expenses for the Three Months Ended March 31, 2016 (unaudited) and the Year Ended December 31, 2015	F-2
	Notes to Statements of Revenues Over Certain Operating Expenses for the Three Months Ended March 31, 2016 (unaudited) and the Year Ended December 31, 2015	F-3
(b)	Pro Forma Financial Information
	KBS Strategic Opportunity REIT, Inc.
	Summary of Unaudited Pro Forma Financial Statements	F-5
	Unaudited Pro Forma Balance Sheet as of March 31, 2016	F-6
	Unaudited Pro Forma Statement of Operations for the Three Months Ended March 31, 2016	F-8
	Unaudited Pro Forma Statement of Operations for the Year Ended December 31, 2015	F-10

1

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	KBS STRATEGIC OPPORTUNITY REIT, INC.
Dated: July 21, 2016	BY:	/s/ Jeffrey K. Waldvogel
		Jeffrey K. Waldvogel
		Chief Financial Officer, Treasurer and Secretary

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of

KBS Strategic Opportunity REIT, Inc.

We have audited the accompanying statement of revenues over certain operating expenses of Westpark Portfolio for the year ended December 31, 2015, and the related notes to the financial statement.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of the statement of revenues over certain operating expenses in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the statement of revenues over certain operating expenses that are free of material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the statement of revenues over certain operating expenses based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues over certain operating expenses is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the statement of revenues over certain operating expenses. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the statement of revenues over certain operating expenses, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the statement of revenues over certain operating expenses in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the statement of revenues over certain operating expenses.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the statement of revenues over certain operating expenses referred to above presents fairly, in all material respects, the revenues and certain operating expenses described in Note 2 of the footnotes for the year ended December 31, 2015, in accordance with accounting principles generally accepted in the United States of America.

Basis of Accounting

As described in Note 2, the statement of revenues over certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission, and is not intended to be a complete presentation of Westpark Portfolio’s revenues and expenses. Our opinion is not modified with respect to this matter.

/s/ Squar Milner LLP

Newport Beach, California

July 21, 2016

F- 1

WESTPARK PORTFOLIO

STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES

(in thousands)

	Three Months Ended		Year Ended
	March 31, 2016		December 31, 2015
	(unaudited)
Revenues:
Rental income	$	2,002	$	7,254
Tenant reimbursements	641		2,270
Other income	9		36
Total revenues	2,652		9,560
Expenses:
Real estate taxes and insurance	344		1,364
Repairs and maintenance	221		742
Utilities	139		631
Management fees	92		308
General and administrative	59		117
Total expenses	855		3,162
Revenues over certain operating expenses	$	1,797	$	6,398

See accompanying notes.

F- 2

WESTPARK PORTFOLIO

NOTES TO STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES

For the Three Months Ended March 31, 2016 (unaudited)

and the Year Ended December 31, 2015

1. DESCRIPTION OF REAL ESTATE PROPERTY

On May 10, 2016, KBS Strategic Opportunity REIT, Inc. (“KBS SOR”), through an indirect wholly owned subsidiary, acquired from Calwest Industrial Properties, LLC a portfolio of 21 office/flex/industrial buildings containing a total of 778,472 rentable square feet located on approximately 41 acres of land in Redmond, Washington (“Westpark Portfolio”). The seller is not affiliated with KBS SOR or its external advisor, KBS Capital Advisors LLC. The purchase price (net of closing credits) of the Westpark Portfolio was approximately $125.8 million plus closing costs.

KBS SOR is a Maryland corporation formed to invest in and manage a diverse portfolio of real estate-related loans, opportunistic real estate, real estate-related debt securities and other real estate-related investments.

2. BASIS OF PRESENTATION

The accompanying statements of revenues over certain operating expenses have been prepared to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”).

The Westpark Portfolio is not a legal entity and the accompanying statements of revenues over certain operating expenses are not representative of the actual operations for the periods presented, as certain revenues and expenses have been excluded that may not be comparable to the revenues and expenses KBS SOR expects to incur in the future operations of Westpark Portfolio. Excluded items include interest expense, depreciation and amortization, and certain general and administrative costs not directly comparable to the future operations of Westpark Portfolio.

The accompanying unaudited statement of revenues over certain operating expenses for the three months ended March 31, 2016 has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board Accounting Standards Codification and the rules and regulations of the SEC, including the instructions to Form 8-K and Article 3-14 of Regulation S-X. Accordingly, the unaudited statement of revenues over certain operating expenses does not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the statement of revenues over certain operating expenses for the unaudited interim period presented includes all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such period. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ended December 31, 2016.

An audited statement of revenues over certain operating expenses is being presented for the most recent fiscal year available instead of the three most recent years based on the following factors: (i) Westpark Portfolio was acquired from an unaffiliated party and (ii) based on due diligence of Westpark Portfolio by KBS SOR, management is not aware of any material factors relating to Westpark Portfolio that would cause this financial information not to be indicative of future operating results.

Square footage, acreage, occupancy and other measures used to describe real estate included in these notes to the statements of revenues over certain operating expenses are presented on an unaudited basis.

3. SIGNIFICANT ACCOUNTING POLICIES

Rental Revenues

Minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, is recognized on a straight-line basis over the term of the related lease and amounts expected to be received in later years are recorded as deferred rent. The adjustment to record deferred rent increased rental revenue by $0.1 million and $0.1 million for the three months ended March 31, 2016 (unaudited) and the year ended December 31, 2015, respectively.

Use of Estimates

The preparation of the statement of revenues over certain operating expenses, as described in Note 2 and in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.

F- 3

WESTPARK PORTFOLIO

NOTES TO STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES (CONTINUED)

For the Three Months Ended March 31, 2016 (unaudited)

and the Year Ended December 31, 2015

4. DESCRIPTION OF LEASING ARRANGEMENTS

As of December 31, 2015, Westpark Portfolio was 80% leased to more than 100 tenants. No single tenant leases represented more than 10% of rental income for the year ended December 31, 2015.

5. FUTURE MINIMUM RENTAL COMMITMENTS

As of December 31, 2015, the expected future minimum rental receipts due under non-cancelable operating leases for the years ending December 31 and thereafter were as follows (in thousands):

2016	$	7,882
2017	6,629
2018	4,934
2019	3,839
2020	2,143
Thereafter	2,076
	$	27,503

6. COMMITMENTS AND CONTINGENCIES

Tenant Lease Termination Options

Certain tenants have lease termination options built into their leases, which are subject to termination fees. Westpark Portfolio did not recognize any termination fees during the year ended December 31, 2015 or the three months March 31, 2016. In the event that a tenant does exercise its option to terminate its lease early and the terminated space is not subsequently leased out or is leased out at a lower rental rate, the total amount of future minimum rent received by Westpark Portfolio will be reduced.

Environmental

The Westpark Portfolio is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on Westpark Portfolio’s financial condition and results of operations for the periods presented.

7. SUBSEQUENT EVENTS

KBS SOR evaluates subsequent events up until the date the statements of revenues over certain operating expenses are issued. The accompanying statement of revenues over certain operating expenses was issued on July 21, 2016.

F- 4

KBS STRATEGIC OPPORTUNITY REIT, INC.

SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following pro forma information should be read in conjunction with the consolidated balance sheet and notes of KBS Strategic Opportunity REIT, Inc. (“KBS SOR”) as of March 31, 2016, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2015 and the three months ended March 31, 2016, and the notes thereto. The consolidated financial statements of KBS SOR as of and for the year ended December 31, 2015 and the consolidated financial statements as of and for the three months ended March 31, 2016 have been included in KBS SOR’s prior filings with the SEC. In addition, this pro forma information should be read in conjunction with the statements of revenues over certain operating expenses and notes thereto for the three months ended March 31, 2016 and for the year ended December 31, 2015 of Westpark Portfolio, which are included herein.

The unaudited pro forma balance sheet as of March 31, 2016 has been prepared to give effect to the acquisition of Westpark Portfolio, as if the acquisition occurred on March 31, 2016.

The unaudited pro forma statements of operations for the three months ended March 31, 2016 and for the year ended December 31, 2015 have been prepared to give effect to the acquisition of Westpark Portfolio, that occurred on May 10, 2016, as if such acquisition occurred on January 1, 2015.

These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition of Westpark Portfolio been consummated as of January 1, 2015. In addition, the pro forma balance sheet includes pro forma preliminary estimates of the fair value of the assets and liabilities acquired in connection with the acquisition. These preliminary estimates may be adjusted in the future upon finalization of the purchase accounting.

F- 5

KBS STRATEGIC OPPORTUNITY REIT, INC.

UNAUDITED PRO FORMA BALANCE SHEET

As of March 31, 2016

(in thousands, except share and per share amount)

	KBS Strategic Opportunity REIT Historical (a)			Pro Forma Adjustment				Pro Forma Total
				Westpark Portfolio (b)
Assets
Real estate held for investment, net	818,841			126,312				945,153
Real estate loan receivable, net	27,850			—				27,850
Total real estate and real estate - related investments, net	846,691			126,312				973,003
Cash and cash equivalents	273,563			(127,345		)		146,218
Restricted cash	19,428			—				19,428
Investments in unconsolidated joint ventures	74,841			—				74,841
Rents and other receivables, net	25,706			—				25,706
Above-market leases, net	918			54			(c)	972
Due from affiliate	141			—				141
Prepaid expenses and other assets	26,208			—				26,208
Total assets	$	1,267,496		$	(979	)		$	1,266,517
Liabilities and stockholders’ equity
Notes and bond payable, net	$	819,848		$	—			$	819,848
Accounts payable and accrued liabilities	17,734			—				17,734
Due to affiliates	164			—				164
Below-market leases, net	2,427			556			(c)	2,983
Other liabilities	27,350			—				27,350
Total liabilities	867,523			556				868,079
Commitments and contingencies
Redeemable common stock	2,161			—				2,161
Equity
KBS Strategic Opportunity REIT, Inc. stockholders’ equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding	—			—				—
Common stock, $.01 par value; 1,000,000,000 shares authorized, 58,678,256 shares issued and outstanding and 58,678,256 pro forma shares	587			—				587
Additional paid-in capital	504,047			—				504,047
Cumulative distributions and net losses	(121,893		)	(1,535		)	(d)	(123,428		)
Total KBS Strategic Opportunity REIT, Inc. stockholders’ equity	382,741			(1,535		)		381,206
Noncontrolling interests	15,071			—				15,071
Total equity	397,812			(1,535		)		396,277
Total liabilities and stockholders’ equity	$	1,267,496		$	(979	)		$	1,266,517

F- 6

KBS STRATEGIC OPPORTUNITY REIT, INC.

NOTES TO UNAUDITED PRO FORMA BALANCE SHEET

As of March 31, 2016

(a) Historical financial information derived from KBS SOR’s Quarterly Report on Form 10-Q as of March 31, 2016.

(b) Represents the acquisition of Westpark Portfolio. The purchase price (net of closing credits) of Westpark Portfolio was $125.8 million plus closing costs. This amount was funded with proceeds from KBS SOR’s offering of Series A debentures to Israeli investors and proceeds from an existing credit facility.

(c) KBS SOR determined the cost of tangible assets, identifiable intangible assets and assumed liabilities (consisting of above and below-market leases and tenant origination and absorption costs) acquired in the business combination based on their estimated fair values. The purchase accounting for this acquisition is preliminary and subject to change. KBS SOR allocated the purchase price and adjustments as follows:

Assets:
Land	$	36,085
Building improvements	81,265
Tenant origination and absorption costs	8,962
Real estate, cost	126,312
Above-market leases	54
Below-market leases	(556		)
Total purchase price, net	$	125,810

(d) Represents direct and incremental acquisition costs related to the acquisition which are not reflected in KBS SOR’s historical balance sheet.

F- 7

KBS STRATEGIC OPPORTUNITY REIT, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2016

(in thousands, except share and per share amounts)

	KBS Strategic Opportunity REIT Historical (a)			Pro Forma Adjustment			Pro Forma Total
				Westpark Portfolio
Revenues:
Rental income	$	22,831		$	2,015	(b)	$	24,846
Tenant reimbursements	4,754			641		(c)	5,395
Other operating income	780			9		(d)	789
Total revenues	28,365			2,665			31,030
Expenses:
Operating, maintenance and management	9,520			511		(e)	10,031
Real estate taxes and insurance	3,874			344		(f)	4,218
Asset management fees to affiliate	2,088			239		(g)	2,327
General and administrative expenses	1,440			—			1,440
Depreciation and amortization	11,008			1,372		(h)	12,380
Interest expense	5,176			—			5,176
Total expenses	33,106			2,466			35,572
Other income:
Other interest income	5			—			5
Equity in loss of unconsolidated joint venture	(196		)	—			(196		)
Total other loss, net	(191		)	—			(191		)
Net (loss) income	(4,932		)	199			(4,733		)
Net loss attributable to noncontrolling interests	38			—			38
Net (loss) income attributable to common stockholders	(4,894		)	199			(4,695		)
Net loss per common share, basic and diluted	$	(0.08	)				$	(0.08	)
Weighted-average number of common shares outstanding, basic and diluted	58,699,129						58,699,129

F- 8

KBS STRATEGIC OPPORTUNITY REIT, INC.

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2016

(a) Historical financial information derived from KBS SOR’s Quarterly Report on Form 10-Q for the three months ended March 31, 2016.

(b) Represents base rental income (not reflected in the historical statement of operations of KBS SOR), including amortization of above-market lease assets and below-market lease liabilities, for the three months ended March 31, 2016. Base rent is recognized on a straight-line basis beginning on the pro forma acquisition date of January 1, 2015. Above-market lease assets and below-market lease liabilities are amortized over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods.

(c) Represents operating cost reimbursements from tenants (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016, based on historical operations of the previous owners.

(d) Represents parking revenue and other operating income from tenants (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016, based on historical operations of the previous owners.

(e) Represents property operating, maintenance and management expenses (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016, based on historical operations of the previous owners.

(f) Represents real estate taxes and insurance expenses (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016 based on historical operations of the previous owners.

(g) Represents asset management fees (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016 that would be due to an affiliate of KBS SOR had the property been acquired on January 1, 2015. With respect to investments in real property, the asset management fee is a monthly fee paid to KBS SOR’s affiliated advisor equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition expenses related thereto.

(h) Represents adjustments to depreciation and amortization expense (not reflected in the historical statement of operations of KBS SOR) for the three months ended March 31, 2016. Depreciation expense on the purchase price of buildings is recognized using the straight-line method and a 39-year life. Depreciation expense on tenant improvements is recognized using the straight-line method over the shorter of the life of the lease or expected useful life of the improvement. Amortization expense on lease intangible costs is recognized using the straight-line method over the life of the lease.

F- 9

KBS STRATEGIC OPPORTUNITY REIT, INC.

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2015

(in thousands, except share and per share amounts)

	KBS Strategic Opportunity REIT Historical (a)			Pro Forma Adjustment			Pro Forma Total
				Westpark Portfolio
Revenues:
Rental income	$	88,543		$	7,572	(b)	$	96,115
Tenant reimbursements	18,313			2,270		(c)	20,583
Interest income from real estate loan receivable	1,968			—			1,968
Other operating income	3,304			36		(d)	3,340
Total revenues	112,128			9,878			122,006
Expenses:
Operating, maintenance, and management	37,512			1,797		(e)	39,309
Real estate taxes and insurance	14,565			1,364		(f)	15,929
Asset management fees to affiliate	8,348			955		(g)	9,303
General and administrative expenses	3,246			—			3,246
Depreciation and amortization	44,739			4,258		(h)	48,997
Interest expense	14,986			—			14,986
Total expenses	123,396			8,374			131,770
Other income:
Other interest income	18			—			18
Other income	5,085			—			5,085
Equity in loss of unconsolidated joint venture	(368		)	—			(368		)
Gain on sale of real estate, net	13,665			—			13,665
Total other income, net	18,400			—			18,400
Net income	7,132			1,504			8,636
Net income attributable to noncontrolling interests	(4,688		)	—			(4,688		)
Net income attributable to common stockholders	$	2,444		$	1,504		$	3,948
Net income per common share, basic and diluted	$	0.04					$	0.07
Weighted-average number of common shares outstanding, basic and diluted	59,656,667						59,656,667

F- 10

KBS STRATEGIC OPPORTUNITY REIT, INC.

NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

For the Year Ended December 31, 2015

(a) Historical financial information derived from KBS SOR’s Annual Report on Form 10-K for the year ended December 31, 2015.

(b) Represents base rental income (not reflected in the historical statement of operations of KBS SOR), including amortization of above-market lease assets and below-market lease liabilities, for the year ended December 31, 2015. Base rent is recognized on a straight-line basis beginning on the pro forma acquisition date of January 1, 2015. Above-market lease assets and below-market lease liabilities are amortized over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods.

(c) Represents operating cost reimbursements from tenants (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015, based on historical operations of the previous owners.

(d) Represents parking revenue and other operating income from tenants (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015, based on historical operations of the previous owners.

(e) Represents property operating, maintenance and management expenses (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015, based on historical operations of the previous owners.

(f) Represents real estate taxes and insurance expenses (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015, based on historical operations of the previous owners.

(g) Represents asset management fees (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015 that would be due to an affiliate of KBS SOR had the property been acquired on January 1, 2015. With respect to investments in real property, the asset management fee is a monthly fee paid to KBS SOR’s affiliated advisor equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition expenses related thereto.

(h) Represents adjustments to depreciation and amortization expense (not reflected in the historical statement of operations of KBS SOR) for the year ended December 31, 2015. Depreciation expense on the purchase price of buildings is recognized using the straight-line method and a 39-year life. Depreciation expense on tenant improvements is recognized using the straight-line method over the shorter of the life of the lease or expected useful life of the improvement. Amortization expense on lease intangible costs is recognized using the straight-line method over the life of the lease.

F- 11