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

 FORM 10-Q
______________________________________________________
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
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 000-54382
______________________________________________________
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
______________________________________________________
Maryland26-3842535
(State or Other Jurisdiction of
Incorporation or Organization)		(I.R.S. Employer
Identification No.)
11766 Wilshire Blvd., Suite 1670 
Los Angeles,California90025
(Address of Principal Executive Offices) (Zip Code)
(424) 208-8100
(Registrant’s Telephone Number, Including Area Code)
______________________________________________________________________
Securities registered pursuant to Section 12(b) for the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer☐Accelerated Filer☐
Non-Accelerated Filer☒Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐ No  ☒
As of May 10, 2023, there were 103,740,412 outstanding shares of common stock of Pacific Oak Strategic Opportunity REIT, Inc.

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
FORM 10-Q
March 31, 2023
INDEX 
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

1

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 March 31, 2023December 31, 2022
 (unaudited)
Assets
Real estate held for investment, net$1,190,752 $1,219,404 
Real estate equity securities48,120 60,153 
Total real estate and real estate-related investments, net1,238,872 1,279,557 
Cash and cash equivalents123,784 97,931 
Restricted cash44,627 61,113 
Investments in unconsolidated entities67,253 70,842 
Rents and other receivables, net22,828 21,518 
Prepaid expenses and other assets24,941 22,848 
Goodwill5,436 5,436 
Total assets$1,527,741 $1,559,245 
Liabilities and equity
Notes and bonds payable, net$1,037,371 $1,044,709 
Accounts payable and accrued liabilities18,218 25,231 
Due to affiliates3,029 2,799 
Other liabilities70,864 66,967 
Redeemable common stock payable1,128 2,638 
Restricted stock payable508 508 
Total liabilities1,131,118 1,142,852 
Commitments and contingencies (Note 10)
Equity
Pacific Oak 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, 103,788,298 and 103,932,083 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
1,038 1,039 
Additional paid-in capital907,045 907,044 
Cumulative distributions and net loss(515,363)(495,782)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity392,720 412,301 
Noncontrolling interests3,903 4,092 
Total equity396,623 416,393 
Total liabilities and equity$1,527,741 $1,559,245 
See accompanying condensed notes to consolidated financial statements.
2

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

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
 Three Months Ended March 31,
20232022
Revenues:
Rental income$32,077 $29,382 
Hotel revenues2,913 5,917 
Other operating income1,139 841 
Dividend income from real estate equity securities1,998 2,387 
Total revenues38,127 38,527 
Expenses:
Operating, maintenance, and management11,168 9,875 
Real estate taxes and insurance6,416 5,024 
Hotel expenses1,962 5,113 
Asset management fees to affiliates3,973 3,127 
General and administrative expenses3,001 2,991 
Foreign currency transaction gain, net(2,719)(7,266)
Depreciation and amortization12,048 12,565 
Interest expense16,031 9,563 
Impairment charges on real estate and related intangibles17,663 — 
Total expenses69,543 40,992 
Other income (loss):
Loss from unconsolidated entities(2,332)(679)
Other interest income204 46 
Loss on real estate equity securities(12,033)(7,521)
Gain on sale of real estate29,469 3,523 
Gain on extinguishment of debt— 2,367 
Total other income (loss), net15,308 (2,264)
Net income (loss) before income taxes(16,108)(4,729)
Income tax provision(3,662)— 
Net loss(19,770)(4,729)
Net loss attributable to noncontrolling interests189 118 
Net loss attributable to redeemable noncontrolling interest— 47 
Preferred stock dividends— (191)
Net loss attributable to common stockholders$(19,581)$(4,755)
Net loss per common share, basic and diluted$(0.19)$(0.05)
Weighted-average number of common shares outstanding, basic and diluted103,872,363 101,419,947 
See accompanying condensed notes to consolidated financial statements.
3

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

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2023 and 2022
(unaudited)
(in thousands, except share amounts)
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
 SharesAmounts
Balance, December 31, 2022103,932,083 $1,039 $907,044 $(495,782)$412,301 $4,092 $416,393 
Net loss— — — (19,581)(19,581)(189)(19,770)
Transfers from redeemable common stock payable— — 1,510 — 1,510 — 1,510 
Redemptions of common stock(143,785)(1)(1,509)— (1,510)— (1,510)
Balance, March 31, 2023103,788,298 $1,038 $907,045 $(515,363)$392,720 $3,903 $396,623 
Common StockAdditional
Paid-in Capital		Cumulative Distributions and Net LossTotal Stockholders' EquityNoncontrolling InterestsTotal Equity
 SharesAmounts
Balance, December 31, 202194,141,251 $941 $818,440 $(347,691)$471,690 $10,369 $482,059 
Net loss— — — (4,755)(4,755)(118)(4,873)
Transfers to redeemable common stock payable, net— — (2,380)— (2,380)— (2,380)
Redemptions of common stock(65,165)— (589)— (589)— (589)
Adjustment to redemption value of mezzanine equity redeemable noncontrolling interest— — — (2,231)(2,231)— (2,231)
Stock distribution issued10,420,079 104 98,989 (99,093)— — — 
Balance, March 31, 2022104,496,165 $1,045 $914,460 $(453,770)$461,735 $10,251 $471,986 
See accompanying condensed notes to consolidated financial statements.
4

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

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended March 31,
 20232022
Cash Flows from Operating Activities:
Net loss$(19,770)$(4,729)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Impairment charges on real estate and related intangibles17,663 — 
Loss from unconsolidated entities2,332 1,560 
Depreciation and amortization12,048 12,565 
Loss on real estate equity securities12,033 7,521 
Gain on sale of real estate(29,469)(3,523)
Gain on extinguishment of debt— (2,367)
Unrealized loss (gain) on interest rate caps36 (55)
Deferred rent(850)(1,055)
Amortization of above- and below-market leases, net(175)(256)
Amortization of deferred financing costs1,323 680 
Amortization of discount on bond and notes payable1,103 1,016 
Foreign currency transaction gain, net(2,719)(7,266)
Changes in assets and liabilities:
Rents and other receivables(402)2,937 
Prepaid expenses and other assets(2,967)(3,355)
Accounts payable and accrued liabilities(5,977)(4,983)
Due to affiliates592 1,978 
Other liabilities4,973 (353)
Net cash (used in) provided by operating activities(10,226)315 
Cash Flows from Investing Activities:
Improvements to real estate(6,764)(4,888)
Proceed from sales of real estate, net34,479 398 
Contribution to unconsolidated entity— (1,500)
Distribution of capital from unconsolidated entity1,144 142 
Purchase of interest rate caps— (506)
Escrow deposit for future real estate sale— 13,500 
Advance to affiliate— (1,201)
Purchase of foreign currency collars(1,936)— 
Settlement of foreign currency collars, net(4,314)— 
Proceeds for future development obligations, net1,296 — 
Net cash provided by investing activities23,905 5,945 
Cash Flows from Financing Activities:
Proceeds from notes payable980 53,758 
Principal payments on notes payable(2,841)(55,066)
Payments of deferred financing costs(472)(861)
Payments to redeem common stock(1,510)(589)
Distributions paid— (11,016)
Preferred dividends paid— (191)
Net cash used in financing activities(3,843)(13,965)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(469)(299)
Net increase (decrease) in cash, cash equivalents and restricted cash9,367 (8,004)
Cash, cash equivalents and restricted cash, beginning of period159,044 105,431 
Cash, cash equivalents and restricted cash, end of period$168,411 $97,427 

5

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

PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited)
(in thousands)
Three Months Ended March 31,
20232022
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $850 and $479 for the three months ended March 31, 2023 and 2022, respectively
$16,458 $10,950 
Supplemental Disclosure of Significant Noncash Transaction:
Accrued improvements to real estate2,554 2,685 
Redeemable common stock payable1,128 3,064 
Distributions paid to common stockholders through common stock issuances— 99,093 
PPP notes forgiveness— 2,367 
See accompanying condensed notes to consolidated financial statements.
6

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2023
(unaudited)

1.ORGANIZATION
Pacific Oak Strategic Opportunity REIT, Inc. (the “Company”) was formed on October 8, 2008 as a Maryland corporation and elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010. The Company conducts its business primarily through Pacific Oak SOR (BVI) Holdings, Ltd. (“Pacific Oak SOR BVI”), a private company limited by shares according to the British Virgin Islands Business Companies Act, 2004, which was incorporated on December 18, 2015 and is authorized to issue a maximum of 50,000 common shares with no par value. Upon incorporation, Pacific Oak SOR BVI issued one certificate containing 10,000 common shares with no par value to Pacific Oak Strategic Opportunity Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on December 10, 2008. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. Pacific Oak Strategic Opportunity Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on December 9, 2008, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2022. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, Pacific Oak SOR BVI and their direct and indirect wholly owned subsidiaries, and joint ventures in which the Company has a controlling interest and VIEs in which the Company is the primary beneficiary. All significant intercompany balances and transactions are eliminated in consolidation.
7

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Liquidity
The Company generally finances its real estate investments using notes payable that are typically structured as non-recourse secured mortgages with maturities of approximately three to five years, with short term extension options available upon the Company meeting certain debt covenants. Each reporting period management evaluates the Company’s ability to continue as a going concern by evaluating conditions and events, including assessing the liquidity needs to satisfy upcoming debt obligations and the ability to satisfy debt covenant requirements. Through the normal course of operations the Company has $517.4 million of debt obligations coming due over the 12-month period commencing April 1, 2023. In order to satisfy obligations as they mature, management will evaluate its options and may seek to utilize extension options available in the respective loan agreements, may make partial loan paydowns to meet debt covenant requirements, may seek to refinance certain debt instruments, may sell real estate equity securities to convert to cash to make principal payments, may market one or more properties for sale or may negotiate a turnover of one or more secured properties back to the related mortgage lender and remit payment for any associated loan guarantee. Historically, the Company has successfully refinanced debt instruments or utilized extension options in order to satisfy debt obligations as they come due and has not negotiated a turnover of a secured property back to a lender, though the Company may utilize such option if necessary. Based upon these plans, management believes it will have sufficient liquidity to satisfy its obligations as they come due and to continue as a going concern. There can be no assurance as to the certainty or timing of any of management’s plans. Refer to Note 5 for further discussion.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Restricted Cash
Restricted cash is comprised of escrow deposits for future real estate sales and lender impound reserve accounts on the Company’s borrowings for security deposits, property taxes, insurance, debt service obligations and capital improvements and replacements.
Segments
The Company operates in three reportable business segments: opportunistic real estate and real estate-related investments, residential homes, and hotel, which is how the Company's management manages the business. In general, the Company intends to hold its investments in opportunistic real estate and real estate-related assets for capital appreciation. Traditional performance metrics of opportunistic real estate and real estate-related assets may not be meaningful as these investments are generally non-stabilized and do not provide a consistent stream of interest income or rental revenue. These investments exhibit similar long-term financial performance and have similar economic characteristics. These investments typically involve a higher degree of risk and do not provide a constant stream of ongoing cash flows. As a result, the Company’s management views opportunistic real estate and real estate-related assets as similar investments and aggregates them into one reportable business segment. The Company owns residential homes in 18 markets which are all aggregated into one reportable business segment due to the homes being stabilized, having high occupancy rates and having similar economic characteristics. Additionally, as of March 31, 2023 the Company owns one hotel, which is a separate reportable business segment due to the nature of the hotel business with short-term stays.

8

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Per Share Data
The Company determines basic earnings per share and basic earnings per unit based on the weighted average number of shares of common stock or units, as applicable, outstanding during the period and the Company considers any participating securities, including unvested restricted stock, for purposes of applying the two-class method. The Company determines diluted earnings per share and diluted earnings per unit based on the weighted average number of shares of common stock or units, as applicable, outstanding combined with the incremental weighted average number of shares or units, as applicable, that would have been outstanding assuming all potentially dilutive securities were converted into shares of common stock or units, as applicable, at the earliest date possible.
Square Footage, Occupancy and Other Measures
Any references to square footage, acreage, occupancy or annualized base rent are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.
Recently Issued Accounting Standards Updates
There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three months ended March 31, 2023 that are of significance or potential significance to the Company.

3. REAL ESTATE HELD FOR INVESTMENT
As of March 31, 2023, the Company owned eight office properties, one office portfolio consisting of two office buildings and 25 acres of undeveloped land, encompassing, in the aggregate, approximately 3.2 million rentable square feet and these properties were 69% occupied. In addition, the Company owned one residential home portfolio consisting of 2,456 residential homes and encompassing approximately 3.5 million rental square feet and two apartment properties, containing 609 units and encompassing approximately 0.5 million rentable square feet, which were 94% and 95% occupied, respectively. The Company also owned one hotel property with 196 rooms, two investments in undeveloped land with approximately 671 developable acres and one office/retail development property. The following table summarizes the Company’s real estate held for investment as of March 31, 2023 and December 31, 2022, respectively (in thousands):
March 31, 2023
December 31, 2022
Land$262,940 $269,376 
Buildings and improvements1,052,299 1,063,782 
Tenant origination and absorption costs22,988 27,996 
Total real estate, cost1,338,227 1,361,154 
Accumulated depreciation and amortization(147,475)(141,750)
Total real estate held for investment, net$1,190,752 $1,219,404 


9

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Operating Leases
Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2023, the leases, excluding options to extend, apartment leases and residential home leases, which have terms that are generally one year or less, had remaining terms of up to 12.4 years with a weighted-average remaining term of 3.7 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets totaled $6.2 million and $6.5 million as of March 31, 2023 and December 31, 2022, respectively.
During the three months ended March 31, 2023 and 2022, the Company recognized deferred rent from tenants of $0.8 million and $1.1 million, net of lease incentive amortization, respectively. As of March 31, 2023 and December 31, 2022, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $19.3 million and $18.3 million, respectively, and is included in rents and other receivables on the accompanying consolidated balance sheets. The cumulative deferred rent balance included $2.9 million and $2.8 million of unamortized lease incentives as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023, the future minimum rental income from the Company’s properties, excluding apartment and residential leases which generally have initial terms of 12 months or less, under non-cancelable operating leases was as follows (in thousands):
April 1, 2023 through December 31, 2023$45,637 
202458,140 
202547,037 
202633,165 
202725,276 
Thereafter55,045 
$264,300 

As of March 31, 2023, the Company’s commercial real estate properties were leased to approximately 300 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:
IndustryNumber of Tenants
Annualized Base Rent (1)
(in thousands)
Percentage of
Annualized Base Rent
Public Administration15$7,774 12.3 %
Professional, Scientific, and Technical Services387,14411.3 %
Computer Systems Design and Related Services296,92111.0 %
$21,839 34.6 %
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of March 31, 2023, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

10

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Geographic Concentration Risk
As of March 31, 2023, the Company’s real estate investments in California and Georgia represented 21.6% and 10.2%, respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California and Georgia real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.
Hotel Properties
The following table provides detailed information regarding the Company’s hotel revenues for its hotel properties (the Springmaid Beach Resort was sold on September 1, 2022) during the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended March 31,
20232022
Hotel revenues:
Room$2,565 $4,295 
Food, beverage and convention services231 280 
Campground— 793 
Other117 549 
Hotel revenues$2,913 $5,917 
Contract Liabilities
The following table summarizes the Company’s contract liabilities, which are comprised of hotel advanced deposits and deferred proceeds received from the buyers of the Park Highlands land sales (referenced below) and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which are included in other liabilities in the accompanying consolidated balance sheets, as of March 31, 2023 and December 31, 2022 (in thousands):
March 31, 2023
December 31, 2022
Contract liabilities$27,753 $23,904 
Revenue recognized in the period from:
 Amounts included in contract liabilities at the beginning of the period$772 $9,215 

Real Estate Sales
During the three months ended March 31, 2023, the Company sold approximately 71 developable acres of undeveloped land in North Las Vegas, Nevada (“Park Highlands”) for proceeds of $34.5 million, net of closing costs and credits of $1.9 million for future development obligations. The Company recognized a pre-tax gain on sale of real estate of $29.5 million related to the disposition within the consolidated statements of operations. The purchaser is not affiliated with the Company nor the Advisor.
In addition, the land parcels were held and sold through one of the Company’s taxable REIT subsidiaries (“TRS”) for certain tax planning purposes and to ensure preservation of the Company’s REIT status. For purposes of the determination of U.S. federal and state income taxes, the Company’s TRS record current or deferred income taxes based on differences (both permanent and timing) between the determination of their taxable income and net income under GAAP. In connection with the Park Highlands sales, the Company recorded an income tax provision of $3.7 million at the TRS level. There were no state taxes related to this disposition. The U.S. federal statutory and effective income tax rate for the transaction’s taxable gain is 21%.
11

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Impairment of Real Estate
During the three months ended March 31, 2023, the Company recorded impairment charges on real estate in the aggregate of $17.7 million to write down the carrying value of Oakland City Center, an office property located in Oakland, California to their estimated fair value due to a change in the discount and cap rate assumptions and related decrease in projected cash flows. There were no impairment charges during the three months ended March 31, 2022.

4. REAL ESTATE EQUITY SECURITIES
The following summarizes the portion of loss for the period related to real estate equity securities held during the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended March 31,
20232022
Net loss recognized during the period on real estate equity securities$(12,033)$(7,521)
Less net gain recognized during the period on real estate equity securities sold during the period— — 
Unrealized loss recognized during the reporting period on real estate equity securities held at the end of the period$(12,033)$(7,521)
During the three months ended March 31, 2023 and 2022, the Company recognized $2.0 million and $2.4 million, respectively, of dividend income from real estate equity securities.


12

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
5. NOTES AND BONDS PAYABLE
As of March 31, 2023 and December 31, 2022, the Company’s notes and bonds payable consisted of the following (dollars in thousands):
 
Book Value as of
March 31, 2023
Book Value as of
December 31, 2022
Contractual Interest Rate as of
March 31, 2023
Effective Interest Rate at
March 31, 2023 (1)
Payment Type (2)
Maturity Date (3)
Richardson Portfolio Mortgage Loan$18,754 $18,844 
SOFR + 2.50%
7.13%Principal & Interest11/01/2023
Park Centre Mortgage Loan26,152 26,233 
BSBY + 1.75%
6.67%Principal & Interest06/27/2023
1180 Raymond Mortgage Loan (4)
31,070 31,070 
BSBY + 2.25%
7.17%Interest Only12/01/2023
Pacific Oak SOR BVI Series B
Debentures (5)
323,781 331,213 3.93%3.93%
(5)
01/31/2026
Crown Pointe Mortgage Loan54,738 53,758 
SOFR + 2.30%
6.93%Interest Only04/01/2025
The Marq Mortgage Loan60,594 60,796 
BSBY + 1.55%
6.47%Principal & Interest06/06/2023
Eight & Nine Corporate Centre Mortgage Loan47,795 47,945 
BSBY + 1.60%
6.52%Principal & Interest06/08/2023
Georgia 400 Center Mortgage Loan44,129 44,129 
LIBOR + 1.55%
6.41%Interest Only05/22/2023
PORT Mortgage Loan 151,302 51,302 4.74%4.74%Interest Only10/01/2025
PORT Mortgage Loan 210,525 10,523 4.72%4.72%Interest Only03/01/2026
PORT MetLife Loan60,000 60,000 3.90%3.90%Interest Only04/10/2026
PORT II Metlife Loan (6)
93,701 93,701 3.99%3.99%Interest Only04/10/2026
Q&C Hotel Mortgage Loan24,716 24,784 
SOFR + 3.50% (7)
8.13%Principal & Interest01/31/2024
Lincoln Court Mortgage Loan (4)
35,314 35,314 
SOFR + 3.25%
7.88%Interest Only08/07/2025
Lofts at NoHo Commons Mortgage Loan71,536 71,536 
SOFR + 2.18% (8)
6.48%Interest Only09/09/2023
Oakland City Center Mortgage Loan (4)
84,750 87,000 
BSBY + 3.00%
7.92%Principal & Interest09/01/2023
Madison Square Mortgage Loan17,962 17,964 4.63%4.63%Interest Only10/07/2024
Total Notes and Bonds Payable principal outstanding1,056,819 1,066,112 
Discount on Notes and Bonds Payable, net (9)
(10,861)(11,964)
Deferred financing costs, net(8,587)(9,439)
Total Notes and Bonds Payable, net$1,037,371 $1,044,709 
_____________________
(1) Contractual interest rate represents the interest rate in effect under the loan as of March 31, 2023. The interest rate is calculated as the actual interest rate in effect as of March 31, 2023 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at March 31, 2023, where applicable.
(2) Represents the payment type required under the loan as of March 31, 2023. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company’s contractual obligations under its notes and bonds payable, see five-year maturity table below.
(3) Represents the initial maturity date or the maturity date as extended as of March 31, 2023; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.
(4) The Company’s notes and bonds payable are generally non-recourse. These mortgage loans have guarantees over certain balances whereby the Company would be required to make guaranteed payments in the event that the Company turned the property over to the lender. The guarantees are typically 25% of the outstanding loan balance. As of March 31, 2023, the guaranteed amount in the aggregate was $37.8 million.
(5) See “Israeli Bond Financing” below.
13

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
(6) As of March 31, 2023, $93.7 million had been disbursed to the Company and up to $6.3 million was available for future disbursements, subject to certain terms and conditions contained in the loan documents.
(7) Beginning February 1, 2023 through March 31, 2023, the interest rate is 8.25% and thereafter is SOFR + 3.5%.
(8) The variable rate is at the higher of one-month SOFR or 1.75%, plus 2.18%.
(9) Represents the unamortized premium/discount on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bonds payable.
During the three months ended March 31, 2023 and 2022, the Company incurred $16.0 million and $9.6 million, respectively, of interest expense. Included in interest expense during the three months ended March 31, 2023 and 2022 was $1.3 million and $0.7 million, respectively, of amortization of deferred financing costs. Additionally, during the three months ended March 31, 2023 and 2022, the Company capitalized $0.9 million and $0.5 million, respectively, of interest related to its investments in undeveloped land.
As of March 31, 2023 and December 31, 2022, the Company’s interest payable was $6.2 million and $9.1 million, respectively.
The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of March 31, 2023 (in thousands):
April 1, 2023 through December 31, 2023$384,951 
2024150,434 
2025249,283 
2026272,151 
2027— 
Thereafter— 
$1,056,819 

The Company has extension options with respect to $141.8 million of the debt obligations outstanding that are scheduled to mature over the next 12 months; however, the Company cannot exercise these options if not then in compliance with certain financial covenants in the loans without making a cash payment and there is no assurance that the Company will be able to meet these requirements. All of the Company’s debt obligations are generally non-recourse, subject to certain limited guaranty payments, as outlined in the table above, except for the Company’s Series B Debentures. The Company plans to utilize available extension options or refinance the notes payable. The Company may also choose to market the properties for sale or may negotiate a turnover of the secured properties back to the related mortgage lender.
The Company’s notes payable contain financial debt covenants, including minimum equity requirements and liquidity ratios. As of March 31, 2023, the Company was in compliance with all of these debt covenants with the exception that the Georgia 400 Center Mortgage Loan, Park Centre Mortgage Loan, Lofts at NoHo Commons Mortgage Loan and Lincoln Court Mortgage Loan were not in compliance with the debt service coverage requirement. As a result of such non-compliance, the Company is required to provide a cash sweep for the Georgia 400 Center Mortgage Loan and the remaining loans are at-risk of cash sweeps and/or principal pay downs if in continuous non-compliance.

14

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Israeli Bond Financing
On February 16, 2020, Pacific Oak SOR BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. Pacific Oak SOR BVI issued additional Series B Debentures subsequent to the initial issuance and as of March 31, 2023, 1.2 billion Israeli new Shekels (approximately $323.8 million as March 31, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures without any right of precedence or preference between any of them.
The deed of trust that governs the terms of the Series B Debentures contains various financial covenants. As of March 31, 2023, the Company was in compliance with these financial covenants.

6. FAIR VALUE DISCLOSURES
The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of March 31, 2023 and December 31, 2022, which carrying amounts do not approximate the fair values (in thousands):
March 31, 2023
December 31, 2022
Face ValueCarrying AmountFair ValueFace ValueCarrying AmountFair Value
Financial liabilities (Level 3):
Notes payable$733,038 $727,130 $718,158 $734,899 $728,433 $716,813 
Financial liabilities (Level 1):
Pacific Oak SOR BVI Series B Debentures$323,781 $310,241 $286,725 $331,213 $316,276 $304,758 

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different.
As of March 31, 2023, the Company measured the following assets at fair value (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$48,120 $48,120 $— $— 
Asset derivative - interest rate caps (1)
$1,720 $— $1,720 $— 
Liability derivative - foreign currency collar (1)
$870 $— $870 $— 
U.S. Treasury bills (2)
$78,592 $78,592 $— $— 
Nonrecurring Basis:
Impaired real estate (3)
$152,635 $— $— $152,635 
_____________________
(1) Interest rate caps and foreign currency collars are included in prepaid expenses and other assets and other liabilities, respectively, on the consolidated balance sheets.
(2) During the three months ended March 31, 2023, the Company purchased $78.5 million in U.S. Treasury bills with an aggregate par value of $79.4 million. As of March 31, 2023, the Company’s investments in U.S. Treasury bills have an aggregate accreted cost of $78.6 million and have original maturities of less than three months and are included in cash and cash equivalents on the consolidated balance sheets.
15

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
(3) Amount represents the fair value for a real estate asset impacted by impairment charges during the months ended March 31, 2023, as of the date that the fair value measurement was made. The carrying value for the real estate asset may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.
As of March 31, 2023, one of the Company’s real estate properties was measured at its estimated fair value. Oakland City Center was based on an income approach with the significant unobservable inputs used in measuring the estimated fair value of this property, including a discount rate of 7.00% and a terminal cap rate of 6.5%.
As of December 31, 2022, the Company measured the following assets at fair value (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$60,153 $60,153 $— $— 
Asset derivative - interest rate caps$2,267 $— $2,267 $— 
Liability derivative - foreign currency collar$3,115 $— $3,115 $— 
Nonrecurring Basis:
Impaired real estate$212,800 $— $— $212,800 
Impaired goodwill$5,436 $— $— $5,436 

7. RELATED PARTY TRANSACTIONS
Pacific Oak Capital Advisors, LLC
As described further below, the Company has entered into agreements with certain affiliates pursuant to which they provide services to the Company. Keith D. Hall and Peter McMillan III control and indirectly own Pacific Oak Holding Group, LLC (“Pacific Oak Holding”), the Company’s sponsor since November 1, 2019. Pacific Oak Holding is the sole owner of Pacific Oak Capital Advisors, LLC (the “Advisor”), the Company’s advisor since November 1, 2019. Messrs. Hall and McMillan are also two of the Company’s executive officers and directors.
Subject to certain restrictions and limitations, the business of the Company is externally managed by the Advisor pursuant to an advisory agreement (the “Advisory Agreement”). The Advisory Agreement is currently effective through November 1, 2023; however the Company or the Advisor may terminate the Advisory Agreement without cause or penalty upon providing 60 days’ written notice. The Advisor conducts the Company’s operations and manages its portfolio of real estate and other real estate-related investments.

16

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Pacific Oak Residential Advisors, LLC
Effective September 1, 2022, the Company’s wholly-owned subsidiary, Pacific Oak Residential Trust, Inc. (“PORT”), entered into an advisory agreement with Pacific Oak Residential Advisors, LLC (“PORA”) (the “PORT Advisory Agreement”) pursuant to which PORA will act as a product specialist with respect to the Company’s residential homes portfolio, held through PORT. The PORT Advisory Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Advisory Agreement, PORT will pay PORA: (1) an acquisition fee equal to 1.0% of the cost of each asset which consists of the price paid for the asset plus any amounts funded or budgeted at the time of acquisition for capital expenditures; and (2) a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of the Company’s residential homes portfolio assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter. In the case of investments made through a joint venture, the acquisition fee will be based on PORT’s proportionate share of the joint venture. For substantial assistance in connection with the sale of properties or other investments related to the Company’s residential homes portfolio, PORT also pays PORA or its affiliates 1.0% of the contract sales price with a limit to not exceed commission paid to unaffiliated third parties.
In connection with the PORT Advisory Agreement, the Company amended and restated its advisory agreement with the Advisor, also effective September 1, 2022, which was subsequently renewed as of November 1, 2022. Under the Advisory Agreement, the Company does not pay acquisition fees, asset management fees or disposition fees to the Advisor with respect to the Company’s residential homes portfolio. The Company’s residential homes portfolio will still be considered when computing any potential incentive fees due to the Advisor under the Advisory Agreement.
DMH Realty, LLC
Effective September 1, 2022, PORT entered into a property management agreement with DMH Realty, LLC (“DMH Realty”), an affiliate of PORA and the Advisor (the “PORT Property Management Agreement”) for the Company’s residential homes portfolio. The PORT Property Management Agreement has an initial two-year term and may be renewed for additional one-year terms. Pursuant to the PORT Property Management Agreement, PORT will pay DMH Realty a property management fee equal to the following: (a) 8% of Collected Rental Revenues, as defined below, up to $50.0 million per annum; (b) 7% of Collected Rental Revenues in excess of $50.0 million per annum, but less than or equal to $75.0 million per annum; and (c) 6% of Collected Rental Revenues in excess of $75.0 million per annum, “Collected Rental Revenues” means the amount of rental revenue actually collected for each property per the terms of the lease pertaining to each property (including lease breakage fees) or pursuant to any early termination buyouts, but excluding other income items, fees or revenue collected by DMH Realty, including but not limited to: application fees, insufficient funds fees, late fees, move-in fees, pet fees, and security deposits (except to the extent applied to rent per the terms of the lease pertaining to any property).
Pacific Oak Capital Markets, LLC
On September 9, 2022, PORT commenced a private offering of up to $500 million of common stock in a primary offering and up to $50 million of common stock under its distribution reinvestment plan (the “Private Offering”). PORT engaged Pacific Oak Capital Markets, LLC (“POCM”), an affiliate of the Advisor, PORA and DHM Realty, to be the dealer manager for the Private Offering, pursuant to a dealer manager agreement effective as of September 9, 2022, which was subsequently amended and restated as of January 13, 2023 to reflect the creation of a $5 million escrow arrangement (the “PORT Dealer Manager Agreement”). Pursuant to the PORT Dealer Manager Agreement, with respect to Class A shares, PORT will generally pay POCM: (1) selling commissions equal to up to 6.0% of the net asset value (“NAV”) of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 1.5% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 1.5% of the NAV of each share sold in the primary offering. With respect to Class T shares, PORT will generally pay POCM: (1) selling commissions equal to up to 3.0% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; (2) a dealer manager fee equal to up to 0.75% of the NAV of each share sold in the primary offering, which POCM may reallow in part or in full to participating broker-dealers; and (3) a placement agent fee equal to up to 0.75% of the NAV of each share sold in the primary offering. PORT will not pay any selling commissions, dealer manager or placement agent fees in connection with the sale of shares
17

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
under the distribution reinvestment plan. The Advisor is the sponsor for the Private Offering and as the sponsor, they will incur reimbursable organization and offering costs on behalf of PORT. PORT will incur an organization and offering expense fee equal to 0.5% of the NAV of each share sold in the Private Offering to help fund the reimbursement to the sponsor.
Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three months ended March 31, 2023 and 2022, respectively, and any related amounts payable as of March 31, 2023 and December 31, 2022 (in thousands):
Incurred during the three months ended March 31,Payable as of
20232022
March 31, 2023
December 31, 2022
Expensed
Asset management fees$3,973 $3,127 $2,830 $2,618 
Property management fees (1)
664 125 199 181 
Disposition fees362 107 — — 
$4,999 $3,359 $3,029 $2,799 
_____________________
(1) Property management fees related to DMH Realty are recorded as operating, maintenance, and management expenses on the Company’s consolidated statements of operations.
Pacific Oak Opportunity Zone Fund I
As of March 31, 2023, the Company’s investment balance in the Pacific Oak Opportunity Zone Fund I, LLC (“Pacific Oak Opportunity Zone Fund I”) is $25.0 million, which is included in investments in unconsolidated entities on the consolidated balance sheets. The Advisor is entitled to certain fees in connection with the fund. Pacific Oak Opportunity Zone Fund I will pay an acquisition fee equal to 1.5% of the purchase price of each asset (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) with a purchase price less than or equal to $25.0 million plus 1.0% of the purchase price in excess of $25.0 million; a quarterly asset management fee equal to 0.25% of the total purchase price of all assets (including any debt incurred or assumed and significant capital improvement costs budgeted as of the date of acquisition) as of the end of the applicable quarter; and a financing fee equal to 0.5% of the original principal amount of any indebtedness incurred (reduced by any financing fee previously paid with respect to indebtedness being refinanced). In the case of investments made through joint ventures, the fees above will be determined based on the Company’s proportionate share of the investment. The Advisor is also entitled to certain distributions paid by the Pacific Oak Opportunity Zone Fund I after the Class A Members have received their preferred return. These fees and distributions have been waived for the Company’s investment. In addition, side letter agreements between the Advisor and Pacific Oak Opportunity Zone Fund I were executed on February 28, 2020 and stipulate that any asset management fees allocable to the Company and waived by Pacific Oak Capital Advisors for Pacific Oak Opportunity Zone Fund I will distributed to the Company.


18

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
8. INVESTMENT IN UNCONSOLIDATED ENTITIES
As of March 31, 2023 and December 31, 2022, the Company’s investments in unconsolidated entities were composed of the following (dollars in thousands):
Number of Properties as of March 31, 2023
Investment Balance as of
Joint VentureLocationOwnership %
March 31, 2023
December 31, 2022
110 William Joint Venture (1)
1New York, New York60.0%$— $— 
353 Sacramento Joint Venture1San Francisco, California55.0%42,302 45,173 
Pacific Oak Opportunity Zone Fund I3Various46.0%24,951 25,669 
$67,253 $70,842 
_____________________
(1) The book value of the Company’s investment in the 110 William Joint Venture was $0 due to historical distributions from the 110 William Joint Venture exceeding the Company’s book value. As such, the Company suspended the equity method of accounting and will not record the Company's share of losses or income for the 110 William Joint Venture until the Company’s share of net income exceeds the gain recorded and the Company’s share of the net losses not recognized during the period the equity method was suspended.

Summarized financial information for investment in unconsolidated entities follows (in thousands):
March 31, 2023December 31, 2022
Assets:
Real estate held for investment, net$479,262 $471,503 
Total assets532,982 546,142 
Liabilities:
Notes payable related to real estate held for investment, net494,442 490,302 
Total liabilities503,836 501,861 
Total equity$29,146 $44,281 

For the Three Months Ended March 31,
20232022
Total revenues$11,120 $17,887 
Operating loss(14,035)(10,411)
Net loss$(13,948)$(10,207)


19

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
9. REPORTING SEGMENTS
The Company recognizes three reporting segments for the three months ended March 31, 2023 and 2022: strategic opportunistic properties, residential homes and hotels. All corporate related costs are included in the strategic opportunistic properties segment to align with how financial information is presented to the chief operating decision maker. On July 1, 2022, the Company made a prospective name change to the “Single-Family Homes” segment to “Residential Homes” to reflect the Company’s consolidation of Pacific Oak Residential Trust II, Inc. (“PORT II”) residential homes. On September 1, 2022, the Company made a prospective name change to the “Hotels” segment to “Hotel” to reflect the September 1, 2022 disposition of the Springmaid Beach Resort. The selected financial information for reporting segments for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
Three Months Ended March 31, 2023
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total revenues$25,890 $9,324 $2,913 $38,127 
Total expenses(55,377)(11,265)(2,901)(69,543)
Total other income15,279 — 29 15,308 
Net income (loss) before income taxes$(14,208)$(1,941)$41 $(16,108)
Three Months Ended March 31, 2022
Strategic Opportunistic PropertiesSingle-Family HomesHotelsTotal
Total revenues$26,867 $5,743 $5,917 $38,527 
Total expenses(27,076)(6,504)(7,412)(40,992)
Total other (loss) income(4,589)(42)2,367 (2,264)
Net (loss) income before income taxes$(4,798)$(803)$872 $(4,729)
Total assets and goodwill related to the reporting segments as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
March 31, 2023
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total assets$1,144,432 $330,863 $52,446 $1,527,741 
Goodwill4,220 — 1,216 5,436 
December 31, 2022
Strategic Opportunistic PropertiesResidential HomesHotelTotal
Total assets$1,173,481 $333,128 $52,636 $1,559,245 
Goodwill4,220 — 1,216 5,436 


20

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
10. COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of March 31, 2023, the Company’s lease and rights to a leasehold interest with respect to 210 West 31st, which was accounted for as a finance lease, are included in the consolidated balance sheet as follows:
Right-of-use asset (included in real estate held for investment, net, in thousands)$7,281 
Lease obligation (included in other liabilities, in thousands) 9,469 
Remaining lease term90.8 years
Discount rate4.8 %
The components of lease expense were as follows:
Interest on lease obligation (in thousands)$112 
As of March 31, 2023, the Company had a leasehold interest expiring in 2114. Future minimum lease payments owed by the Company under the finance lease as of March 31, 2023 are as follows (in thousands):
April 1, 2023 through December 31, 2023$270 
2024360 
2025393 
2026396 
2027396 
Thereafter51,771 
Total expected minimum lease obligations53,586 
Less: Amount representing interest (1)
(44,117)
Present value of net minimum lease payments (2)
$9,469 
_____________________
(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, PORA, and DMH Realty for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor, PORA, and DMH Realty are unable to provide these services, the Company will be required to obtain such services from other sources.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations as of March 31, 2023. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities.

21

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1.     Financial Statements (continued)
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2023
(unaudited)
Legal Matters
From time to time, the Company is a party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and the possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

11. SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
22

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Pacific Oak Strategic Opportunity REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Pacific Oak Strategic Opportunity REIT, Inc., a Maryland corporation, and, as required by context, Pacific Oak Strategic Opportunity Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Pacific Oak Strategic Opportunity REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•We depend on our advisor to conduct our operations and eventually dispose of our investments.
•We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our property investments could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, limiting our ability to pay distributions to our stockholders.
•Our opportunistic investment strategy involves a higher risk of loss than would a strategy of investing in some other types of real estate and real estate-related investments.
•Inflation and increased interest rates may adversely affect our financial condition and results of operations.
•We have paid distributions from financings and in the future we may not pay distributions solely from our cash flow from operations or gains from asset sales. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have less funds available for investment in loans, properties and other assets, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.
•All of our executive officers and some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and other Pacific Oak-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other Pacific Oak-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us.
•We pay substantial fees to and expenses of our advisor and its affiliates. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase our stockholders’ risk of loss.
•We have focused, and may continue to focus, our investments in non-performing real estate and real estate-related loans, real estate-related loans secured by non-stabilized assets and real estate-related securities, which involve more risk than investments in performing real estate and real estate-related assets
All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”).
Overview
We were formed on October 8, 2008 as a Maryland corporation, elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2010 and intend to operate in such manner. Pacific Oak Capital Advisors, LLC (“Pacific Oak Capital Advisors”) is our advisor and as our advisor, Pacific Oak Capital Advisors manages our day-to-day operations and our portfolio of investments. Pacific Oak Capital Advisors also has the authority to make all of the decisions regarding our investments, except for our residential homes portfolio. Our residential homes portfolio, held through our subsidiary Pacific Oak Residential Trust, Inc. (“PORT”), is managed by an affiliate of Pacific Oak Capital Advisors. The advisory duties are subject to the limitations in our charter and the direction and oversight of our board of directors. Pacific Oak Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. We have sought to invest in and manage a diverse portfolio of real estate related loans, opportunistic real estate, real estate-related debt securities, real estate equity securities and other real estate-related investments. We conduct our business primarily through our Operating Partnership, of which we are the sole general partner.
As of March 31, 2023, we consolidated eight office properties, one office portfolio consisting of two office buildings and 25 acres of undeveloped land, two apartment properties, one hotel properties, one residential home portfolio consisting of 2,456 residential homes, two investments in undeveloped land with approximately 671 developable acres, one office/retail development property and owned three investments in unconsolidated entities and three investments in real estate equity securities.
Market Outlook – Real Estate and Real Estate Finance Markets
Volatility in global financial markets and changing political environments can cause fluctuations in the performance of the U.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. To the extent there are increases in the cost of financing due to higher interest rates, this may cause difficulty in refinancing debt obligations at terms as favorable as the terms of existing indebtedness. Further, increases in interest rates would increase the amount of our debt payments on our variable rate debt to the extent the interest rates on such debt are not limited by interest rate caps. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure.
Liquidity and Capital Resources
Our principal demand for funds during the short and long-term is and will be for the acquisition of real estate and real estate-related investments, payment of operating expenses, capital expenditures and general and administrative expenses, payments under debt obligations, redemptions and purchases of our common stock and payments of distributions to stockholders. To date, we have had six primary sources of capital for meeting our cash requirements:
•Proceeds from the primary portion of our initial public offering; 
•Proceeds from our dividend reinvestment plan;
•Proceeds from our public bond offering in Israel;
•Debt financing;
•Proceeds from the sale of real estate and the repayment of real estate-related investments; and
•Cash flow generated by our real estate and real estate-related investments. 
We sold 56,584,976 shares of common stock in the primary portion of our initial public offering for gross offering proceeds of $561.7 million. As of March 31, 2023, we had sold 6,851,969 shares of common stock under the dividend reinvestment plan for gross offering proceeds of $76.5 million. The Company ceased offering shares of common stock in its primary offering on November 14, 2012 and suspended offering shares under its dividend reinvestment plan as of March 28, 2023. To date, we have invested all of the net proceeds from our initial public offering in real estate and real estate-related investments. We intend to use our cash on hand, proceeds from asset sales, proceeds from debt financing and, cash flow generated by our real estate operations and real estate-related investments as our primary sources of immediate and long-term liquidity.
23

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures and corporate general and administrative expenses. Cash flow from operations from our real estate investments is primarily dependent upon the occupancy levels of our properties, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures. As of March 31, 2023, our office properties were collectively 69% occupied, our residential home portfolio was 94% occupied and our apartment properties were 95% occupied.
Our investment in the hotel property generates cash flow in the form of room, food, beverage and convention services, campground and other revenues, which are reduced by hotel expenses, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from our hotel property is primarily dependent upon the occupancy levels of our hotel, the average daily rates and how well we manage our expenditures. The following table provides summary information regarding our hotel property for the three months ended March 31, 2023 and 2022:
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,
PropertyNumber of Rooms202320222023202220232022
Q&C Hotel
19673.6%62.3%$197.69$191.97$145.40$119.54
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, 2023, we had three investments in real estate equity securities outstanding with a total carrying value of $48.1 million.
Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended March 31, 2023 did not exceed the charter-imposed limitation.
For the three months ended March 31, 2023, our cash needs for capital expenditures, redemptions of common stock and debt servicing were met with proceeds from dispositions of real estate, proceeds from debt financing and cash on hand. Operating cash needs during the same period were met through cash flow generated by our real estate and real estate-related investments and cash on hand. As of March 31, 2023, we had outstanding debt obligations in the aggregate principal amount of $1.1 billion, with a weighted-average remaining term of 1.8 years. As of March 31, 2023, we had a total of $517.4 million of debt obligations scheduled to mature within 12 months of that date. We plan to exercise our extension options available under our loan agreements or pay down or refinance the related notes payable prior to their maturity dates.
We have elected to be taxed as a REIT and intend to operate as a REIT. To maintain our qualification as a REIT, we are required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. We have not established a minimum distribution level.
Cash Flows from Operating Activities
As of March 31, 2023, we consolidated eight office properties, one office portfolio consisting of two office buildings and 25 acres of undeveloped land, two apartment properties, one hotel properties, one residential home portfolio consisting of 2,456 residential homes, two investments in undeveloped land with approximately 671 developable acres, one office/retail development property and owned three investments in unconsolidated entities and three investments in real estate equity securities. During the three months ended March 31, 2023, net cash used in operating activities was $10.2 million. We expect that our cash flows from operating activities will increase in future periods as a result of leasing additional space that is currently unoccupied and anticipated future acquisitions of real estate and real estate-related investments. However, our cash flows from operating activities may decrease to the extent that we dispose of additional assets.
Cash Flows from Investing Activities
Net cash provided by investing activities was $23.9 million for the three months ended March 31, 2023 and primarily consisted primarily of the following:
•Proceeds from sales of real estate of $34.5 million;
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
•Improvements to real estate of $6.8 million;
•Settlement of foreign currency collars of $4.3 million, net;
•Purchase of foreign currency collars of $1.9 million;
•Proceeds for future development obligations of $1.3 million, net; and
•Distribution of capital from unconsolidated entity of $1.1 million.
Cash Flows from Financing Activities
Net cash used in financing activities was $3.8 million for the three months ended March 31, 2023 and consisted primarily of the following:
•$2.3 million of net cash used in debt and other financings as a result of principal payments on notes payable of $2.8 million and payments of deferred financing costs of $0.5 million and partially offset by proceeds from notes payable of $1.0 million; and
•$1.5 million of cash used for redemptions of common stock.
In order to execute our investment strategy, we utilize secured debt and we may, to the extent available, utilize unsecured debt, to finance a portion of our investment portfolio. Management remains vigilant in monitoring the risks inherent with the use of debt in our portfolio and is taking actions to ensure that these risks, including refinancing and interest risks, are properly balanced with the benefit of using leverage. There is no limitation on the amount we may borrow for any single investment. Our charter limits our total liabilities such that our total liabilities may not exceed 75% of the cost of our tangible assets; however, we may exceed that limit if a majority of the conflicts committee approves each borrowing in excess of our charter limitation and we disclose such borrowing to our common stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. As of March 31, 2023, our borrowings and other liabilities were both approximately 70% of the cost (before depreciation and other noncash reserves) and the book value (before depreciation) of our tangible assets.
On February 16, 2020, Pacific Oak Strategic Opportunity BVI issued 254.1 million Israeli new Shekels (approximately $74.1 million as of February 16, 2020) of Series B debentures (the “Series B Debentures”) to Israeli investors pursuant to a public offering registered with the Israel Securities Authority. The Series B Debentures bear interest at the rate of 3.93% per year. The Series B Debentures have principal installment payments equal to 33.33% of the face amount of the Series B Debentures on January 31st of each year from 2024 to 2026. Pacific Oak Strategic Opportunity BVI issued additional Series B Debentures subsequent to the initial issuance and as of March 31, 2023, 1.2 billion Israeli new Shekels (approximately $323.8 million as March 31, 2023) were outstanding. The additional Series B Debentures have an equal level of security, pari passu, amongst themselves and between them and the initial Series B Debentures, without any right of precedence or preference between any of them.
In addition to making investments in accordance with our investment objectives, we use or have used our capital resources to make certain payments to our advisor and our dealer manager. During our offering stage, these payments included payments to our dealer manager for selling commissions and dealer manager fees related to sales in our primary offering and payments to our dealer manager and our advisor for reimbursement of certain organization and other offering expenses related both to the primary offering and the dividend reinvestment plan. During our acquisition and development stage, we expect to continue to make payments to our advisor in connection with the selection and origination or purchase of investments, the management of our assets and costs incurred by our advisor in providing services to us as well as for any dispositions of assets (including the discounted payoff of non-performing loans).
25

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Among the fees payable to our advisor is an asset management fee. With respect to investments in loans and any investments other than real property, the asset management fee is a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount actually paid or allocated to acquire or fund the loan or other investment, inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire or fund such investment and (ii) the outstanding principal amount of such loan or other investment, plus the fees and expenses related to the acquisition or funding of such investment, as of the time of calculation. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the sum of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property, and inclusive of fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment, inclusive of our proportionate share of any fees and expenses related thereto. Investments made in or through PORT are excluded from the calculation of the asset management fee we pay to our advisor. In addition to other fees described in the advisory agreement between PORT and PORA, PORT pays PORA a quarterly asset management fee equal to 0.25% (1.0% annually) on the aggregate value of PORT’s assets, as determined in accordance with PORT’s valuation guidelines, as of the end of each quarter.
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of March 31, 2023 (in thousands):
Payments Due During the Years Ending December 31,
Contractual ObligationsTotalRemainder of 20232024-20252026-2027Thereafter
Outstanding debt obligations (1)
$1,056,819 $384,951 $399,717 $272,151 $— 
Interest payments on outstanding debt obligations (2)
68,333 31,006 34,893 2,434 — 
Finance lease obligation53,586 270 753 792 51,771 
_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amounts, maturity dates, foreign currency rates and interest rates in effect at March 31, 2023.
Results of Operations
Overview
As of March 31, 2023, we consolidated eight office properties, one office portfolio consisting of two office buildings and 25 acres of undeveloped land, two apartment properties, one hotel properties, one residential home portfolio consisting of 2,456 residential homes, three investments in undeveloped land with approximately 671 developable acres, one office/retail development property and owned three investments in unconsolidated entities and three investments in real estate equity securities. Our results of operations for the three months ended March 31, 2023 may not be indicative of those in future periods due to acquisition and disposition activities. Additionally, the occupancy in our office properties has not been stabilized. As of March 31, 2023, our office properties were collectively 69% occupied, our residential home portfolio was 94% occupied and our apartment property was 95% occupied. However, due to the amount of near-term lease expirations, we do not put significant emphasis on quarterly changes in occupancy (positive or negative) in the short run. Our underwriting and valuations are generally more sensitive to “terminal values” that may be realized upon the disposition of the assets in the portfolio and less sensitive to ongoing cash flows generated by the portfolio in the years leading up to an eventual sale. There are no guarantees that the occupancy of our assets will increase, or that we will recognize a gain on the sale of our assets. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of leasing additional space and acquiring additional assets but decrease due to disposition activity.
26

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, 2023 versus the three months ended March 31, 2022
The following table provides summary information about our results of operations for the three months ended March 31, 2023 and 2022 (dollar amounts in thousands):
 Three Months Ended March 31,Increase (Decrease)Percentage Change
$ Change Due to Acquisitions/ Dispositions (1)
$ Change Due to 
Investments Held Throughout
Both Periods (2)
20232022
Rental income$32,077 $29,382 $2,695 9 %$3,511 $(816)
Hotel revenues2,913 5,917 (3,004)(51)%(3,514)510 
Other operating income1,139 841 298 35 %(15)313 
Dividend income from real estate equity securities1,998 2,387 (389)(16)%— (389)
Operating, maintenance, and management costs11,168 9,875 1,293 13 %762 531 
Real estate taxes and insurance6,416 5,024 1,392 28 %855 537 
Hotel expenses1,962 5,113 (3,151)(62)%(3,506)355 
Asset management fees to affiliates3,973 3,127 846 27 %560 286 
General and administrative expenses3,001 2,991 10 — %n/an/a
Foreign currency transaction gain, net(2,719)(7,266)4,547 (63)%n/an/a
Depreciation and amortization12,048 12,565 (517)(4)%(63)(454)
Interest expense16,031 9,563 6,468 68 %(813)7,281 
Impairment charges on real estate and related intangibles17,663 — 17,663 — %n/an/a
Loss from unconsolidated entities(2,332)(679)(1,653)243 %(45)(1,608)
Other interest income204 46 158 343 %n/an/a
Loss on real estate equity securities(12,033)(7,521)(4,512)60 %— (4,512)
Gain on sale of real estate29,469 3,523 25,946 736 %25,946 — 
Gain on extinguishment of debt— 2,367 (2,367)(100)%n/an/a
Income tax provision(3,662)— (3,662)100 %(3,662)— 
_____________________
(1) Represents the dollar amount increase (decrease) for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 related to real estate and real estate-related investments acquired or disposed on or after January 1, 2022.
(2) Represents the dollar amount increase (decrease) for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 with respect to real estate and real estate-related investments owned by us during the entirety of both periods presented.
Rental income increased from $29.4 million for the three months ended March 31, 2022 to $32.1 million for the three months ended March 31, 2023, primarily as a result of the consolidation of Pacific Oak Residential Trust II, Inc. (“PORT II”), which accounted for approximately $3.6 million of rental income during the three months ended March 31, 2023. This increase was partially offset by a decrease in office occupancy. The occupancy of our office properties held throughout both periods decreased from 73% as of March 31, 2022 to 69% as of March 31, 2023. We expect rental income to increase in future periods as a result of leasing additional space and to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.
Hotel revenues decreased from $5.9 million for the three months ended March 31, 2022 to $2.9 million for the three months ended March 31, 2023, primarily as a result of the disposition of the Springmaid Beach Resort during 2022, which accounted for approximately $3.5 million during the three months ended March 31, 2022. This decrease was partially offset by the increase in occupancy and average daily rates for the Q&C Hotel.
Operating, maintenance, and management costs increased from $9.9 million for the three months ended March 31, 2022 to $11.2 million for the three months ended March 31, 2023 and real estate taxes and insurance increased from $5.0 million for the three months ended March 31, 2022 to $6.4 million for the three months ended March 31, 2023, primarily due to the PORT II consolidation, which accounted for approximately $0.8 million of property operating costs and $0.9 million of real estate taxes and insurance during the three months ended March 31, 2023. We expect operating, maintenance, and management costs and real estate taxes and insurance to increase in future periods to the extent we acquire additional properties, increase occupancy of our real estate assets and due to general inflation, but to decrease to the extent we dispose of properties.
27

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Hotel expenses decreased from $5.1 million for the three months ended March 31, 2022 to $2.0 million for the three months ended March 31, 2023, primarily due to the disposition of the Springmaid Beach Resort during 2022, which accounted for approximately $3.5 million of expenses during the three months ended March 31, 2022. This decrease was partially offset by the increase in occupancy for the Q&C Hotel. We expect hotel expenses to vary in future periods based on occupancy rates.
Asset management fees to affiliates increased from $3.1 million for the three months ended March 31, 2022 to $4.0 million for the three months ended March 31, 2023. This change was primarily due to the PORT II consolidation, which increased asset management fees by $0.7 million, although that increase was partially offset by a $0.2 million reduction in asset management fees associated with the disposition of the Springmaid Beach Resort. Both the PORT II consolidation and the disposition of the Springmaid Beach Resort occurred during 2022. We expect asset management fees to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.
General and administrative expenses were both $3.0 million for the three months ended March 31, 2022 and 2023. We expect general and administrative expenses to increase in future periods to the extent we acquire additional properties, but to decrease to the extent we dispose of properties.
We recognized a $2.7 million foreign currency transaction gain, net for the three months ended March 31, 2023 and $7.3 million of foreign currency transaction gain, net, for the three months ended March 31, 2022, related to the debentures in Israel. These debentures are denominated in Israeli new Shekels and we expect to recognize foreign transaction gains and losses based on changes in foreign currency exchange rates.
Depreciation and amortization decreased from $12.6 million for the three months ended March 31, 2022 to $12.0 million for the three months ended March 31, 2023, primarily as a result of the disposition of the Springmaid Beach Resort, which accounted for approximately $0.5 million of depreciation and amortization during the three months ended March 31, 2022 and lease intangibles that were fully amortized during the three months ended March 31, 2022, which was partially offset by the PORT II consolidation, which accounted for $0.9 million of depreciation and amortization during the three months ended March 31, 2023. We expect depreciation and amortization to increase in future periods to the extent we acquire additional properties, but to decrease as a result of amortization of lease intangibles related to lease expirations and disposition of properties.
Interest expense increased from $9.6 million for the three months ended March 31, 2022 to $16.0 million for the three months ended March 31, 2023 primarily due to increased one-month floating rates during the three months ended March 31, 2023. Our interest expense in future periods will vary based on interest rate fluctuations, the amount of interest capitalized and our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives and will decrease to the extent we dispose of properties and pay down debt, including annual principal installment payments on the Debentures.
During the three months ended March 31, 2023, we recognized impairment charges of $17.7 million on Oakland City Center.
Loss on real estate equity securities was $7.5 million and $12.0 million for the three months ended March 31, 2022 and 2023, respectively. We expect gains and losses on real estate equity securities to fluctuate in future periods as a result of changes in share prices of our investments in real estate equity securities.
During the three months ended March 31, 2023, we sold approximately 71 acres of developable land and recognized a gain on sale of real estate of $29.5 million. Additionally, due to the sale of the 71 acres of developable land, we recognized an income tax provision of $3.7 million. During the three months ended March 31, 2022, we sold two office properties and recognized a gain on sale of real estate of $3.5 million.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Funds from Operations, Modified Funds from Operations and Adjusted Modified Funds from Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated 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, prior to our early adoption of ASU No. 2017-01 on January 1, 2017, from MFFO and Adjusted MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage. MFFO and Adjusted MFFO also exclude non-cash items such as straight-line rental revenue.  Additionally, we believe that MFFO and Adjusted MFFO provide investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance.  MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.
FFO, MFFO and Adjusted MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO, MFFO and Adjusted MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO, MFFO and Adjusted MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO, MFFO and Adjusted MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO, MFFO and Adjusted MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.
29

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Although MFFO includes other adjustments, the exclusion of straight-line rent, the amortization of above- and below-market leases, amortization of premium or discount on bond and notes payable, mark to market foreign currency transaction adjustments and extinguishment of debt are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations:
•Adjustments for straight-line rent.  These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;
•Amortization of above- and below-market leases.  Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue.  Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;
•Amortization of premium or discount on bond and notes payable. These are adjustments to interest expense as required by GAAP to recognize bond and notes payable discount and premiums on a straight-line basis over the life of the respective bond or notes payable. We have excluded these adjustments in our calculation of MFFO to appropriately reflect the current economic impact of our bond and notes payable and related interest expense;
•Loss or gain on extinguishment of debt. A loss or gain on extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss or gain from extinguishment of debt in our calculation of MFFO because these losses or gains do not impact the current operating performance of our investments and do not provide an indication of future operating performance; and
•Mark-to-market foreign currency transaction adjustments. The U.S. Dollar is our functional currency. Transactions denominated in currency other than our functional currency are recorded upon initial recognition at the exchange rate on the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are remeasured at each reporting date into the foreign currency at the exchange rate on that date. In addition, we have entered into foreign currency collars and foreign currency options that results in a foreign currency transaction adjustment. These amounts can increase or reduce net income. We exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis.
Adjusted MFFO includes adjustments to reduce MFFO related to real estate taxes, property insurance and financing costs which are capitalized with respect to certain of our investments in undeveloped land.  We have included adjustments for the costs incurred necessary to bring these investments to their intended use, as these costs are recurring operating costs that are capitalized in accordance with GAAP and not reflected in our net (loss) income, FFO and MFFO. In addition, adjusted MFFO includes an adjustment for casualty loss. We believe excluding this item appropriately presents the ongoing operating performance of our real estate investments on a comparative basis.
30

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 months ended March 31, 2023 and 2022 (in thousands). No conclusions or comparisons should be made from the presentation of these periods.
For the Three Months Ended March 31,
20232022
Net loss attributable to common stockholders$(19,581)$(4,755)
Depreciation of real estate assets9,386 8,294 
Impairment charges on real estate and related intangibles17,663 — 
Amortization of lease-related costs2,662 4,271 
Gain on sale of real estate (1)
(29,469)(3,523)
Loss on real estate equity securities12,033 7,521 
Adjustments for noncontrolling interests - consolidated entities (2)
(182)(298)
Adjustments for investments in unconsolidated entities (3)
(3,504)689 
FFO attributable to common stockholders(10,992)12,199 
Straight-line rent and amortization of above- and below-market leases(1,027)(1,312)
Amortization of net premium/discount on bond and notes payable1,103 1,016 
Unrealized loss (gain) on interest rate caps36 (55)
Gain on extinguishment of debt— (2,367)
Foreign currency transaction gain, net(2,719)(7,266)
Adjustments for noncontrolling interests - consolidated entities (2)
(3)(40)
Adjustments for investments in unconsolidated entities (3)
311 (47)
MFFO attributable to common stockholders(13,291)2,128 
Other capitalized operating expenses (4)
(4,077)(3,061)
Income tax provision3,662 — 
Adjusted MFFO attributable to common stockholders$(13,706)$(933)
_____________________
(1) Reflects an adjustment to eliminate pre-tax gain on sale of real estate.
(2) Reflects adjustments to eliminate the noncontrolling interest holders’ share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO.
(3) Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net income (loss) attributable to common stockholders to FFO, MFFO and Adjusted MFFO for our equity investments in unconsolidated entities.
(4) Reflects real estate taxes, property insurance and financing costs that are capitalized with respect to certain of our investments in undeveloped land and unconsolidated entity. During the periods in which we are incurring costs necessary to bring these investments to their intended use, certain normal recurring operating costs are capitalized in accordance with GAAP and not reflected in our net income (loss), FFO and MFFO.
FFO, MFFO and Adjusted MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO, MFFO and Adjusted MFFO, such as tenant improvements, building improvements and deferred leasing costs. We expect FFO, MFFO and Adjusted MFFO to improve in future periods to the extent that we continue to lease up vacant space and acquire additional assets. We expect FFO, MFFO and Adjusted MFFO to decrease as a result of dispositions.
Distributions
There were no distributions declared for the three months ended March 31, 2023. Our net loss attributable to common stockholders for the three months ended March 31, 2023 was $19.6 million and our cash flows used in operations were $14.3 million. Our cumulative distributions paid and net loss attributable to common stockholders from inception through March 31, 2023 was $515.4 million. We have funded our cumulative distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with prior period cash flow from operating activities in excess of distributions paid and with cash from gains realized from the disposition of properties. To the extent that we pay distributions from sources other than our cash flow from operations or gains from asset sales, we will have fewer funds available for investment in real estate-related loans, opportunistic real estate, real estate-related debt securities, real estate equity securities and other real estate-related investments, the overall return to our stockholders may be reduced and subsequent investors may experience dilution.

31

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Critical Accounting Policies
Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments and assumptions, requires estimates about matters that are inherently uncertain and which are important for understanding and evaluating our reported financial results. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC. There have been no significant changes to our policies during 2023.
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency and Interest Rate Risk
Certain transactions, assets, and liabilities are exposed to foreign currency risk. We monitor our foreign currency exposures to maximize the economic effectiveness of our foreign currency positions, including hedges. Principal currency exposure is Israeli New Shekel; in particular, we are exposed to the effects of foreign currency changes in Israel with respect to the 3.93% Series B Debentures issued to investors in Israel.
In addition, we are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity, fund distributions and to fund the refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans and the acquisition of real estate securities. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes and foreign currency changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. In order to limit the effects of changes in foreign currency on our operations, we may utilize a variety of foreign currency hedging strategies such as cross currency swaps, forward contracts, puts or calls. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for payments to holders of our common stock and the risk that the losses may exceed the amount we invested in the instruments. Additionally, certain of these strategies may cause us to fund a margin account periodically to offset changes in foreign currency rates which may also reduce the funds available for payments to holders of our common stock.
As of March 31, 2023, we held 61.6 million Israeli new Shekels and 24.7 million Israeli new Shekels in cash and restricted cash, respectively. In addition, as of March 31, 2023, we had bonds outstanding and the related interest payable in the amounts of 1.2 billion Israeli new Shekels and 7.6 million Israeli new Shekels, respectively. Foreign currency exchange rate risk is the possibility that our financial results could be better or worse than planned because of changes in foreign currency exchange rates. Based solely on the remeasurement for the three months ended March 31, 2023, if foreign currency exchange rates were to increase or decrease by 10%, our net income would increase or decrease by approximately $18.1 million and $33.5 million, respectively, for the same period.

32

PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
We borrow funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of March 31, 2023, the fair value of our Pacific Oak SOR BVI Series B Debentures was $286.7 million and the outstanding principal balance was $323.8 million. As of March 31, 2023, excluding the Pacific Oak SOR BVI Series B Debentures, the fair value of our fixed rate debt was $222.5 million and the outstanding principal balance of our fixed rate debt was $233.5 million. The fair value estimate of our Pacific Oak SOR BVI Series B Debentures was calculated using the quoted bond price as of March 31, 2023 on the Tel Aviv Stock Exchange of 89.21 Israeli new Shekels, respectively. The fair value estimate of our fixed rate debt was calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as of March 31, 2023. As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting changes in fair value of our fixed rate instruments, would have a significant impact on our operations.
Conversely, movements in interest rates on variable rate debt would change our future earnings and cash flows, but would not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of floating rate instruments. As of March 31, 2023, we had entered into three separate interest rate caps with an aggregate notional of $177.5 million which effectively limits our exposure to increases in one-month LIBOR and SOFR above certain thresholds. Based on interest rates as of March 31, 2023, if interest rates were 100 basis points higher or lower during the 12 months ending March 31, 2023, interest expense on our variable rate debt would increase or decrease by $3.3 million and $6.7 million, respectively.
The weighted-average interest rates of our fixed rate debt and variable rate debt as of March 31, 2023 were 4.0% and 7.1%, respectively. The interest rate and weighted-average interest rate represent the actual interest rate in effect as of March 31, 2023 (consisting of the contractual interest rate and the effect of contractual floor rates, if applicable), using interest rate indices as of March 31, 2023 where applicable.
We are exposed to financial market risk with respect to our real estate equity securities. Financial market risk is the risk that we will incur economic losses due to adverse changes in our real estate equity security prices. Our exposure to changes in real estate equity security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market prices of a real estate equity security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. In addition, amounts realized in the sale of a particular security may be affected by the relative quantity of the real estate equity security being sold. We do not currently engage in derivative or other hedging transactions to manage our real estate equity security price risk. As of March 31, 2023, we owned real estate equity securities with a book value of $48.1 million. Based solely on the prices of real estate equity securities as of March 31, 2023, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately $4.8 million.

Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33


PART II. OTHER INFORMATION

Item 1. Legal Proceedings
None.

Item 1A. Risk Factors
In addition to the risk factor discussed below, please see the risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC.
We believe that real estate values for our office properties may have declined since our most recent net asset value per share was calculated, and that if we were to recalculate our net asset value at this time, it could be lower.
On December 2, 2022, our board of directors approved an estimated value per share of our common stock of $10.50 based on the estimated value of our assets less the estimated value of our liabilities, or net asset value (“NAV”), divided by the number of shares outstanding as of September 30, 2022. However, since our NAV was last calculated, the U.S. office property market has continued to experience multiple challenges which have negatively impacted office property values. For example, the prevalence of remote work has decreased tenant demand and increased vacancies; increasing interest rates have made financing office properties more costly; and recent banking failures have only added volatility and uncertainty to the market. Cap rates in the markets in which our office properties are located have also increased since our NAV calculation, which is indicative of relatively lower property valuations. In light of these continued negative trends in the office property market, our office property values, and our NAV, may be lower than previously calculated.

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, as amended.
b)Not applicable.
c)We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.
Pursuant to the share redemption program there are several limitations on our ability to redeem shares:
•Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year.
•During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
•We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
34

PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Continued)
•During any calendar year, we may redeem only the number of shares that we can purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year; provided, however, that this limit may be increased or decreased by us upon ten business days’ notice to our stockholders. To the extent that we redeem less than the number of shares that we can purchase in any calendar year with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year plus any additional funds approved by us, such excess capacity to redeem shares during any calendar year shall be added to our capacity to otherwise redeem shares during the subsequent calendar year. We indefinitely suspended the dividend reinvestment plan as of March 28, 2023. Furthermore, during any calendar year, once we have received requests for redemptions, whether in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”, or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $1.0 million or less, the last $1.0 million of available funds shall be reserved exclusively for shares being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence.” To the extent that, in the last month of any calendar year, the amount of redemption requests in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” is less than the amount of available funds reserved for such redemptions in accordance with the previous sentence, any excess funds may be used to redeem shares not in connection with a stockholder’s death, “qualifying disability or “determination of incompetence” during such month.
35

PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Continued)
•We may not redeem more than $3.0 million of shares in a given quarter (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”). To the extent that, in a given fiscal quarter, we redeem less than the sum of (a) $3.0 million of shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) and (b) any excess capacity carried over to such fiscal quarter from a prior fiscal quarter as described below, any remaining excess capacity to redeem shares in such fiscal quarter will be added to our capacity to otherwise redeem shares (excluding shares redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence”) during succeeding fiscal quarter. We may increase or decrease this limit upon ten business days’ notice to stockholders.
We may amend, suspend or terminate the program upon ten business days’ notice to our stockholders. We may provide notice to our stockholders by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.
•During the three months ended March 31, 2023, we fulfilled redemption requests eligible for redemption under our share redemption program and received in good order and funded redemptions under our share redemption program with cash on hand. We redeemed shares pursuant to our share redemption program as follows:
Month
Total Number
of Shares Redeemed
Average Price Paid
Per Share (1)
Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2023
75,025 $10.50 
(2)
February 2023
25,954 $10.50 
(2)
March 2023
42,806 $10.50 
(2)
Total143,785 
_____________________
(1) On December 2, 2022, our board of directors approved an estimated value per share of our common stock of $10.50. The change in the redemption price became effective for the January 2023 redemption date and is effective until the estimated value per share is updated. We expect to update our estimated value per share no later than December 2023.
(2) We limit the dollar value of shares that may be redeemed under the program as described above. During the three months ended March 31, 2023, we redeemed $1.5 million of common stock under the program, which represented all redemption requests received in good order and eligible for redemption through the March 2023 redemption date, except for the $147.4 million of shares in connection with redemption requests not made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” which redemption requests will be fulfilled subject to the limitations described above. Based on the Twelfth SRP, we had $1.1 million available for redemptions in the remainder of 2023 as of March 31, 2023, and on May 11, 2023, our board of directors approved an additional $2.0 million, all of which are in connection with a stockholders’ death, “qualifying disability” or “determination of incompetence,” subject to the limitations described above.

Item 3. Defaults upon Senior Securities
None.

Item 4. Mine Safety Disclosures
None.
36

PART II. OTHER INFORMATION (CONTINUED)
Item 5. Other Information
Pursuant to the Twelfth Amended and Restated Share Redemption Program, on May 11, 2023, our board of directors approved an additional $2.0 million of funds available for redemptions in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence,” which will carry forward until depleted.

Item 6. Exhibits
Ex.Description
3.1
3.2
3.3
3.4
4.1
4.2
10.1
31.1
31.2
32.1
32.2
99.1
99.2
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).

37

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
Date:May 12, 2023By:
/S/ KEITH D. HALL        
Keith D. Hall
Chief Executive Officer and Director
(principal executive officer)
Date:May 12, 2023By:
/S/ MICHAEL A. BENDER   
 Michael A. Bender
 Chief Financial Officer
(principal financial officer)

38
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