PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. ITEM 7.01 REGULATION FD DISCLOSURE
Information for
The information in this Item 7.01 of Form 8-K and the attached Exhibit 99.4 are furnished to theSecurities and Exchange Commission ("SEC"), and shall not be deemed to be "filed" with theSEC for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing. ITEM 8.01 OTHER EVENTS Estimated Value Per Share OnDecember 2, 2022 , the Company's board of directors approved an estimated value per share of the Company's common stock of$10.50 based on the estimated value of the Company's assets less the estimated value of the Company's liabilities, or net asset value, divided by the number of shares outstanding, all as ofSeptember 30, 2022 . There have been no material changes betweenSeptember 30, 2022 and the date of this filing to the net values of the Company's assets and liabilities that materially impacted the overall estimated value per share. The Company is providing this estimated value per share to assist broker-dealers that participated in the Company's initial public offering in meeting their customer account statement reporting obligations underNational Association of Securities Dealers Conduct Rule 2340 as required by theFinancial Industry Regulatory Authority ("FINRA"). This valuation was performed in accordance with the provisions of and also to comply with Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by theInstitute for Portfolio Alternatives ("IPA") inApril 2013 . The Company's conflicts committee, composed of all of the Company's independent directors, is responsible for the oversight of the valuation process, including the review and approval of the valuation process and methodologies used to determine the Company's estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals. The estimated value per share was based upon the recommendation and valuation prepared byPacific Oak Capital Advisors, LLC (the "Advisor"), the Company's external advisor. The Advisor's valuation of the Company's consolidated investments in real estate properties and two of its unconsolidated entity investments in real estate properties was based on valuations performed by third-party valuation firms. The Advisor's valuation of its other unconsolidated entity investment, valued at$38.3 million or$0.37 per share, was based on the Advisor's estimate of the unit value for a fund in which the Company owns units and which is sponsored by an affiliate of the Advisor. The aforementioned third-party valuations represented appraisals for the Company's consolidated investments in real estate properties and two of its unconsolidated joint ventures, except for the Company's consolidated residential home portfolio consisting of 2,458 homes which was valued at the total of individual home values generated by the third-party valuation firm's proprietary automated valuation models. The appraisals were performed byKroll, LLC ("Kroll"), except for the undeveloped land which was appraised byColliers International Valuation & Advisory Services, LLC ("Colliers"). Valuation of the residential home portfolio was performed byHouseCanary, Inc. ("HouseCanary"). Kroll, Colliers andHouseCanary , each an independent third-party valuation firm, also prepared appraisal/valuation reports, summarizing key inputs and assumptions, for each of the real estate properties they respectively valued. The Advisor performed valuations with respect to the Company's real estate-related investments, one of its unconsolidated entity investments, cash, other assets, mortgage debt and other liabilities. The methodologies and assumptions used to determine the estimated value of the Company's assets and the estimated value of the Company's liabilities are described further below. 1 -------------------------------------------------------------------------------- The Advisor used the valuations from the third-party valuation firms, an Advisor adjustment downward to the appraised value for one of the properties to reflect the Advisor's judgment that there is the potential to incur higher tenant-required costs at the property where a large lease is currently being negotiated, and the Advisor's estimated values for other assets and liabilities to calculate and recommend an estimated value per share of the Company's common stock. Upon (i) the conflicts committee's receipt and review of the Advisor's valuation report, including the Advisor's summary of the appraisal/valuation reports prepared by Kroll, Colliers andHouseCanary , and (ii) the conflicts committee's review of the reasonableness of the Company's estimated value per share resulting from the Advisor's valuation process, and (iii) in light of other factors considered by the conflicts committee and the conflicts committee's own extensive knowledge of the Company's assets and liabilities, the conflicts committee concluded that the estimated value per share proposed by the Advisor was reasonable and recommended to the board of directors that it adopt$10.50 as the estimated value per share of the Company's common stock. At the special meeting of the board of directors, the board of directors unanimously agreed to accept the recommendation of the conflicts committee and approved$10.50 as the estimated value of the Company's common stock, which determination is ultimately and solely the responsibility of the board of directors. The table below sets forth the calculation of the Company's estimated value per share as ofDecember 2, 2022 , as well as the calculation of the Company's prior estimated value per share as ofDecember 2, 2021 : December 2, 2022 December 2, 2021 Change in Estimated Value per Estimated Value per Estimated Value Share Share per Share Real estate properties (2) $ 17.52 $ 17.51 $ 0.01 Real estate equity securities 0.61 1.02 (0.41) Cash 0.82 1.46 (0.64) Investments in unconsolidated entities 1.67 2.16 (0.49) Other assets 0.65 0.50 0.15 Mortgage debt (3) (6.92) (7.98) 1.06 Series A Debentures (4) - (2.09) 2.09 Series B Debentures (5) (2.94) (0.82) (2.12)Pacific Oak Residential Advisors participation fee liability (6) (0.06) - (0.06) Other liabilities (0.57) (0.52) (0.05) Noncontrolling Series A Preferred Stock (7) (0.16) (0.16) - Non-controlling interest (8) (0.12) (0.40) 0.28 Estimated value per share $ 10.50 $ 10.68 $ (0.18) Estimated enterprise value premium None assumed None assumed None assumed Total estimated value per share $ 10.50 $
10.68 $ (0.18)
Less: Adjustment forDecember 30, 2021 special distribution to common stockholders (9) $ - $ (1.17) $ 1.17 Total estimated value per share, adjusted forDecember 30, 2021 special distribution to common stockholders (9) $ 10.50 $ 9.51 $ 0.99 _____________________ (1) TheDecember 2, 2021 estimated value per share was based upon the recommendation and valuation of the Advisor. The Company engaged Kroll, Colliers, andHouseCanary, Inc. to provide valuations of the Company's real estate properties, investments in undeveloped land and two of its unconsolidated investments in real estate properties and the Advisor performed valuations of the Company's two other unconsolidated investments, real estate-related investments, cash, other assets, mortgage debt and other liabilities. For more information relating to theDecember 2, 2021 estimated value per share and the assumptions and methodologies used by Kroll (f/k/aDuff & Phelps, LLC ), Colliers, andHouseCanary, Inc. and the Advisor, see the Company's Current Report on Form 8-K filed with theSEC onDecember 8, 2021 .
(2) The increase in the estimated value of real estate properties was primarily due to increases in property fair values and consolidation of a previously unconsolidated entity, partially offset by declines from property dispositions.
(3) The decrease in mortgage debt was primarily due to repayments including those upon asset sales.
(4) Amount relates to Series A debentures issued inIsrael onMarch 8, 2016 andMarch 4, 2021 , which were ultimately repaid onNovember 15, 2021 . The decrease is due to repayment of the debentures onNovember 15, 2021 . (5) Amount relates to Series B debentures issued inIsrael onFebruary 16, 2020 ,November 1, 2021 ,November 8, 2021 , andMay 2, 2022 . The increase is due to issuance of additional debentures, partially offset by a decrease in the quoted bond price on the Tel Aviv Stock Exchange.
(6) Represents the potential participation fee payable to
(7) Represents the redemption value plus accrued unpaid dividends on the Series A cumulative convertible redeemable preferred stock issued byPacific Oak Residential Trust, Inc. onNovember 6, 2019 . The preferred stock was redeemed at the redemption value plus accrued unpaid dividends inNovember 2022 .
(8) The decrease in non-controlling interests was primarily due to non-controlling interest distributions and a decline in one non-controlling interest value related to a property value decline.
(9) The Company's board of directors authorized a special distribution of$1.17 per share to the common stockholders of record as of the close of business onDecember 30, 2021 , which was ultimately paid inJanuary 2022 . The special distribution was paid in shares of common stock of the Company or cash to, and at the election of, the stockholders of record, though the stock and cash portions were subject to adjustment such that a maximum of 10% of the total special distribution was payable in cash. 2 -------------------------------------------------------------------------------- The change in the Company's estimated value per share from the previous estimate was primarily due to the items listed below. The changes are not equal to the change in values of each asset and liability group presented in the table above due to real estate property acquisitions, dispositions, debt financings and other factors, which caused the value of certain asset or liability groups to change with no impact to the Company's fair value of equity or the overall estimated value per share. Change in Estimated Value per Share December 2, 2021 estimated value per share $ 10.68 Less: December 30, 2021 special distribution to common stockholders (1.17) December 30, 2021 estimated value per share 9.51 Changes to estimated value per share Investments Real estate 1.31 Investments in unconsolidated entities (0.06) Investments in equity securities (0.31) Leasing costs & capital expenditures on real estate (0.25) Total change related to investments 0.69 Operating cash flows in excess of distributions declared (1) 0.02 Foreign currency gain 0.28 Property selling, acquisition and financing costs (2) (0.15) Advisor disposition and acquisition fees (3) (0.01) Mortgage debt 0.14 Series A debentures and Series B debentures 0.08 Pacific Oak Residential Advisors participation fee liability (0.06) Total change in estimated value per share $ 0.99 December 2, 2022 estimated value per share $ 10.50 _____________________ (1) Operating cash flow reflects modified funds from operations ("MFFO") attributable to common stockholders, adjusted for the Company's share of (i) deducts for capitalized interest expense, real estate taxes and insurance and (ii) add backs for deferred financing cost amortization. The Company computes MFFO in accordance with the definition included in the practice guideline issued by the IPA inNovember 2010 . (2) Property selling, acquisition and financing costs include approximately (i)$14.3 million , or$0.14 per share, for financing costs including the prepayment costs related to the Company's Series A debentures repayment onNovember 15, 2021 and the issuance costs related to the Company's Series B debentures issued inNovember 2021 andMay 2022 and (ii)$0.9 million or$0.01 per share for . . .
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits Ex. Description 99.1 Consent ofKroll, LLC
99.2 Consent of
99.3 Consent ofHouseCanary, Inc. 99.4 Presentation to Stockholders 13
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