PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC. ITEM 7.01 REGULATION FD DISCLOSURE Information forPacific Oak Strategic Opportunity REIT, Inc.'s (the "Company") stockholders regarding its estimated value per share and other distribution information is attached as Exhibit 99.4 to this Current Report on Form 8-K. 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, 2021 , the Company's board of directors approved an estimated value per share of the Company's common stock of$10.68 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, 2021 . There have been no material changes betweenSeptember 30, 2021 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 joint venture investments in real estate properties was based on valuations performed by third-party valuation firms. The Advisor's valuation of its other two unconsolidated joint venture investments was equal to its equity capital contributions of$33.2 million or$0.35 per share. 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 single-family rental home portfolio ("SFR portfolio") consisting of 1,806 homes and which was valued at the total of individual home values generated by the third-party valuation firm's proprietary computer 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 SFR 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, two of its unconsolidated joint venture 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 together with the Advisor's estimated values 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 the Advisor's estimated value of each of the Company's other assets and the Company's liabilities, (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$10.68 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$10.68 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, 2021 , as well as the calculation of the Company's prior estimated value per share as ofDecember 4, 2020 : December 2, 2021 December 4, 2020 Estimated Value per Estimated Value per Change in Estimated Share Share (1) Value per Share Real estate properties (2) $ 17.51 $ 17.44 $ 0.07 Real estate equity securities 1.02 0.92 0.10 Cash 1.46 0.89 0.57 Investments in unconsolidated entities 2.16 2.12 0.04 Other assets 0.50 0.28 0.22 Mortgage debt (3) (7.98) (8.68) 0.70 Series A Debentures (4) (2.09) (1.62) (0.47) Series B Debentures (5) (0.82) (0.61) (0.21)Pacific Oak Capital Advisors participation fee potential liability - - - Merger-related liabilities (6) - (0.06) 0.06 Other liabilities (0.52) (0.50) (0.02) Noncontrolling Series A Preferred Stock (7) (0.16) (0.16) - Non-controlling interest (8) (0.40) (0.34) (0.06) Estimated value per share $ 10.68 $ 9.68 $ 1.00 Estimated enterprise value premium None assumed None assumed None assumed Total estimated value per share $ 10.68 $ 9.68 $ 1.00
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(1) TheDecember 4, 2020 estimated value per share was based upon the recommendation and valuation of the Advisor. The Company engaged Kroll, Colliers, andClearCapital.com, 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 4, 2020 estimated value per share and the assumptions and methodologies used by Kroll (f/k/aDuff & Phelps, LLC ), Colliers, andClearCapital.com, Inc. and the Advisor, see the Company's Current Report on Form 8-K filed with theSEC onDecember 10, 2020 . (2) The increase in the estimated value of real estate properties was primarily due to increases in property fair values, partially offset by declines from property dispositions. (3) The decrease in mortgage debt was primarily due to repayments upon asset sales. (4) Amount relates to Series A debentures issued inIsrael onMarch 8, 2016 andMarch 4, 2021 . The increase is primarily due to issuance of additional debentures and an increase in the quoted bond price on the Tel Aviv Stock Exchange, partially offset by a principal payment which was dueMarch 1, 2021 . (5) Amount relates to Series B debentures issued inIsrael onFebruary 16, 2020 . The increase is due to an increase in the quoted bond price on the Tel Aviv Stock Exchange. (6) Represents the fees payable to the Company's third-party financial advisors related to the merger ("Merger") of Pacific Oak Strategic Opportunity REIT II ("POSOR II") with a subsidiary of the Company and estimated property transfer tax liabilities, all incurred upon closing of the Merger onOctober 5, 2020 . (7) Represents the par value plus accrued unpaid dividends on the Series A cumulative convertible redeemable preferred stock issued byPacific Oak Residential Trust, Inc. onNovember 6, 2019 . (8) The increase in non-controlling interests was primarily due to increases in consolidated entities property fair values. 2 -------------------------------------------------------------------------------- The increase in the Company's estimated value per share from the previous estimate was primarily due to the items noted below, which reflect the significant contributors to the increase in the estimated value per share from$9.68 to$10.68 . The changes are not equal to the change in values of each real 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 4, 2020 estimated value per share $ 9.68 Changes to estimated value per share Investments Real estate 1.41 Investments in unconsolidated entities (0.21) Investments in equity securities 0.21 Capital expenditures on real estate (0.23) Total change related to investments 1.18 Operating cash flows in excess of distributions declared (1) 0.24 Foreign currency loss (0.16) Property selling, acquisition and financing costs (2) (0.05) Advisor disposition and acquisition fees (3) (0.01) Mortgage debt 0.04 Series A debentures and Series B debentures (0.26) Other 0.02 Total change in estimated value per share $ 1.00December 2, 2021 estimated value per share
$ 10.68
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(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 in November 2010 .
(2) Property selling, acquisition and financing costs include approximately (i)
$2.8 million , or $0.03 per share, for financing costs including the issuance
costs related to the Company's Series A debentures issued in March 2021 and (ii)
$2.3 million , or $0.02 per share, for acquisition and selling costs.
(3) Advisor fees were $1.2 million , or $0.01 per share.
As with any valuation methodology, the methodologies used are based upon a
number of estimates and assumptions that may not be accurate or complete.
Different parties using different assumptions and estimates could derive a
different estimated value per share, and these differences could be significant.
The estimated value per share is not audited and does not represent the fair
value of the Company's assets less the fair value of the Company's liabilities
according to U.S. generally accepted accounting principles ("GAAP"), nor does it
represent a liquidation value of the Company's assets and liabilities or the
price at which the Company's shares of common stock would trade at on a national
securities exchange. The estimated value per share does not reflect a discount
for the fact that the Company is externally managed, nor does it reflect a real
estate portfolio premium/discount versus the sum of the individual property
values. The estimated value per share also does not take into account estimated
disposition costs and fees for real estate properties that are not under
contract to sell, debt prepayment penalties that could apply upon the prepayment
of certain of the Company's debt obligations, the impact of restrictions on the
assumption of debt or swap breakage fees that may be incurred upon the
. . .
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
Ex. Description
99.1 Consent of Kroll, LLC 99.2 Consent of
99.3 Consent ofHouseCanary, Inc. 99.4 Presentation to Stockholders 13
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