8-K 1 pacoaksor8k.htm FORM 8-K Document


 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
 
FORM 8-K
__________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 1, 2019
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
(Exact name of registrant specified in its charter)
______________________________________________________

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

11150 Santa Monica Blvd., Suite 400
Los Angeles, California 90025
(Address of principal executive offices)

Registrant's telephone number, including area code: (424) 208-8100

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
None
N/A
N/A
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
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. o
 
 
 
 
 



ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On November 1, 2019, Pacific Oak Strategic Opportunity REIT, Inc. (formerly known as KBS Strategic Opportunity REIT, Inc.) (the “Company”), through an indirect wholly owned subsidiary, sold an office property consisting of two office buildings containing an aggregate of 445,317 rentable square feet in Irving, Texas (“125 John Carpenter”) to KORE 125 John Carpenter, LLC, a wholly owned subsidiary of Keppel Pacific Oak US REIT (the “SREIT”). The sale price, net of closing credits, of 125 John Carpenter was $99.8 million, before third-party closing costs of approximately $0.2 million and excluding any disposition fees payable to Pacific Oak Capital Advisors LLC, the Company’s external advisor. Prior to the sale of 125 John Carpenter, the Company owned 56,979,352 common units of the SREIT, representing a 6.89% ownership interest. On October 29, 2019, the Company purchased 7,186,000 common units of the SREIT for $5.2 million in connection with a private placement to institutional and other investors, maintaining its 6.89% ownership interest. In connection with the sale of 125 John Carpenter, the Company repaid $53.2 million of outstanding debt secured by 125 John Carpenter.
The SREIT is externally managed by a joint venture (the “Manager”) between (i) an entity in which Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter McMillan III, the Company’s President and Chairman of the board of directors, have an indirect ownership interest and (ii) Keppel Capital Holding Pte. Ltd., which is not affiliated with the Company. The SREIT pays certain purchase and sale commissions and asset management fees to the Manager in exchange for the provision of certain management services.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS


1



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 hereunto duly authorized.
 
 
 
 
 
 
 
PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
 
 
 
Dated: November 4, 2019
 
BY:
 
/s/ Jeffrey K. Waldvogel
 
 
 
 
Jeffrey K. Waldvogel
 
 
 
 
Chief Financial Officer
 
 
 
 
 


2


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following pro forma information should be read in conjunction with the consolidated balance sheet and notes of Pacific Oak Strategic Opportunity REIT, Inc. (formerly known as KBS Strategic Opportunity REIT, Inc.) (“Pacific Oak SOR”) as of June 30, 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2018 and for the six months ended June 30, 2019 and the notes thereto. The consolidated financial statement of Pacific Oak SOR for the year ended December 31, 2018 and the consolidated financial statements as of and for the six months ended June 30, 2018 have been included in Pacific Oak SOR’s prior filings with the SEC.
The unaudited pro forma balance sheet as of June 30, 2019 has been prepared to give effect to the disposition of an office property consisting of two office buildings containing an aggregate of 445,317 rentable square feet in Irving, Texas (“125 John Carpenter”), as if the disposition occurred on June 30, 2019.
The unaudited pro forma statements of operations for the six months ended June 30, 2019 and for the year ended December 31, 2018 have been prepared to give effect to the disposition of 125 John Carpenter on November 1, 2019, as if such disposition occurred on January 1, 2018.
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the disposition of 125 John Carpenter been consummated as of the dates indicated.

F-1


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 2019
(in thousands, except share and per share amounts)
 
 
 
Pro Forma Adjustments
 
 
 
Pacific Oak Strategic Opportunity REIT Historical (a)
 
125 John Carpenter (b)
 
Pro Forma Total
Assets
 
 
 
 
 
 
 
Real estate held for investment, net
$
731,881

 
$
(80,811
)
 
 
 
$
651,070

Real estate held for sale, net
14,081

 
—

 
 
 
14,081

Real estate equity securities
65,267

 
5,210

 
(c)
 
70,477

Total real estate and real estate-related investments, net
811,229

 
(75,601
)
 
 
 
735,628

Cash and cash equivalents
110,166

 
40,170

 
(d)
 
150,336

Restricted cash
10,886

 
—

 
 
 
10,886

Investments in unconsolidated joint ventures
51,956

 
—

 
 
 
51,956

Rents and other receivables, net
15,874

 
(1,837
)
 
 
 
14,037

Above-market leases, net
3,175

 
—

 
 
 
3,175

Prepaid expenses and other assets
13,501

 
(1,530
)
 
 
 
11,971

Assets related to real estate held for sale, net
666

 
—

 
 
 
666

Total assets
$
1,017,453

 
$
(38,798
)
 
 
 
$
978,655

Liabilities and equity
 
 
 
 
 
 
 
Notes and bonds payable, net
 
 
 
 
 
 


Notes and bonds payable related to real estate held for investment, net
$
655,944

 
$
(52,931
)
 
(e)
 
$
603,013

Note payable related to real estate held for sale, net
10,589

 
—

 
 
 
10,589

Total notes and bonds payable, net
666,533

 
(52,931
)
 
 
 
613,602

Accounts payable and accrued liabilities
20,142

 
—

 
 
 
20,142

Due to affiliate
98

 
—

 
 
 
98

Below-market leases, net
4,980

 
(1,193
)
 
 
 
3,787

Liabilities related to real estate held for sale, net
42

 
—

 
 
 
42

Other liabilities
18,043

 
—

 
 
 
18,043

Redeemable common stock payable
5,463

 
—

 
 
 
5,463

Total liabilities
715,301

 
(54,124
)
 
 
 
661,177

Commitments and contingencies
 
 
 
 
 
 
 
Redeemable common stock
—

 
—

 
 
 
—

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, 66,342,855 issued and outstanding as of June 30, 2019
663

 
—

 
 
 
663

Additional paid-in capital
547,767

 
—

 
 
 
547,767

Cumulative distributions and net income
(247,603
)
 
15,326

 
 
 
(232,277
)
Total Pacific Oak Strategic Opportunity REIT, Inc. stockholders’ equity
300,827

 
15,326

 
 
 
316,153

Noncontrolling interests
1,325

 
—

 
 
 
1,325

Total equity
302,152

 
15,326

 
 
 
317,478

Total liabilities and equity
$
1,017,453

 
$
(38,798
)
 
 
 
$
978,655



F-2


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 2019
(a)
Historical financial information derived from Pacific Oak SOR’s Quarterly Report on Form 10-Q as of June 30, 2019.
(b)
Represents adjustments to reflect the disposition of 125 John Carpenter. The sale price, net of closing credits, of 125 John Carpenter was $99.8 million.
(c)
Represents the purchase of 7,186,000 common units of the SREIT for $5.2 million in order to maintain the Company’s 6.89% ownership interest.
(d)
Represents the amount of proceeds from 125 John Carpenter disposition after closing credits of approximately $1.7 million, third-party closing costs of approximately $0.2 million, disposition fees of approximately $0.9 million, the repayment of $53.2 million of outstanding debt secured by 125 John Carpenter and the purchase of 7,186,000 common units of the SREIT for $5.2 million.
(e)
Represents the required repayment of the outstanding debt due under the mortgage secured by 125 John Carpenter. As of June 30, 2019, the aggregate outstanding principal balance of the loan was $53.2 million.


F-3


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019
(in thousands, except share and per share amounts)
 
 
 
Pro Forma Adjustments
 
 
 
Pacific Oak Strategic Opportunity REIT Historical (a)
 
125 John Carpenter (b)
 
Pro Forma Total
Revenues:
 
 
 
 
 
Rental income
$
38,210

 
$
(5,815
)
 
$
32,395

Other operating income
2,902

 
(468
)
 
2,434

Interest income from real estate debt securities
369

 
—

 
369

Dividend income from real estate equity securities
2,119

 
—

 
2,119

Total revenues
43,600

 
(6,283
)
 
37,317

Expenses:
 
 
 
 
 
Operating, maintenance, and management
13,098

 
(1,759
)
 
11,339

Real estate taxes and insurance
6,279

 
(1,372
)
 
4,907

Asset management fees to affiliate
3,861

 
(323
)
 
3,538

General and administrative expenses
3,548

 
(1
)
 
3,547

Foreign currency transaction gain, net
5,290

 
—

 
5,290

Depreciation and amortization
16,037

 
(2,351
)
 
13,686

Interest expense
14,417

 
(1,178
)
 
13,239

Total expenses
62,530

 
(6,984
)
 
55,546

Other income (loss):
 
 
 
 
 
Equity in income of unconsolidated joint venture
7,096

 
—

 
7,096

Casualty-related loss
(506
)
 
—

 
(506
)
Other interest income
1,327

 
—

 
1,327

Gain on real estate equity securities
15,459

 
—

 
15,459

Gain on sale of real estate
7,569

 
—

 
7,569

Loss on extinguishment of debt
(856
)
 
—

 
(856
)
Total other income, net
30,089

 
—

 
30,089

Net income
11,159

 
701

 
11,860

Net loss attributable to noncontrolling interests
(627
)
 
—

 
(627
)
Net income attributable to common stockholders
10,532

 
701

 
11,233

Net income per common share, basic and diluted
$
0.16

 
 
 
$
0.17

Weighted-average number of common shares outstanding, basic and diluted
66,685,447

 
 
 
66,685,447



F-4


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2019
(a)
Historical financial information derived from Pacific Oak SOR’s Quarterly Report on Form 10-Q for the six months ended June 30, 2019.
(b)
Amounts represent the historical operations of 125 John Carpenter as reflected in the historical statement of operations of Pacific Oak SOR for the six months ended June 30, 2019.


F-5


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2018
(in thousands, except share and per share amounts)
 
 
 
Pro Forma Adjustments
 
 
 
Pacific Oak Strategic Opportunity REIT Historical (a)
 
125 John Carpenter (b)
 
Pro Forma Total
Revenues:
 
 
 
 
 
Rental income
$
72,334

 
$
(9,313
)
 
$
63,021

Tenant reimbursements
12,621

 
(2,217
)
 
10,404

Other operating income
2,812

 
(330
)
 
2,482

Interest income from real estate debt securities
2,018

 
—

 
2,018

Dividend income from real estate equity securities
6,002

 
—

 
6,002

Total revenues
95,787

 
(11,860
)
 
83,927

Expenses:
 
 
 
 
 
Operating, maintenance, and management
29,110

 
(3,297
)
 
25,813

Real estate taxes and insurance
11,762

 
(2,547
)
 
9,215

Asset management fees to affiliate
8,525

 
(638
)
 
7,887

General and administrative expenses
7,784

 
(14
)
 
7,770

Foreign currency transaction gain, net
(10,141
)
 
—

 
(10,141
)
Depreciation and amortization
35,006

 
(4,689
)
 
30,317

Interest expense
31,054

 
(2,005
)
 
29,049

Other-than-temporary impairment of debt securities
2,500

 
 
 
2,500

Total expenses
115,600

 
(13,190
)
 
102,410

Other income (loss):
 
 
 
 
 
Income from unconsolidated joint venture
428

 
—

 
428

Equity in loss of unconsolidated joint venture
(9,830
)
 
—

 
(9,830
)
Other interest income
1,884

 
(1
)
 
1,883

Loss on real estate equity securities
(19,010
)
 
—

 
(19,010
)
Gain on sale of real estate
80,594

 
—

 
80,594

Loss on extinguishment of debt
(493
)
 
—

 
(493
)
Total other income, net
53,573

 
(1
)
 
53,572

Net income before income taxes
33,760

 
1,329

 
35,089

Income tax provision
(436
)
 
—

 
(436
)
Net income
33,324

 
1,329

 
34,653

Net loss attributable to noncontrolling interests
222

 
—

 
222

Net income attributable to common stockholders
33,546

 
1,329

 
34,875

Net income per common share, basic and diluted
$
0.57

 
 
 
$
0.59

Weighted-average number of common shares outstanding, basic and diluted
58,738,732

 
 
 
58,738,732




F-6


PACIFIC OAK STRATEGIC OPPORTUNITY REIT, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 2018
(a)
Historical financial information derived from Pacific Oak SOR’s Annual Report on Form 10-K for the year ended December 31, 2018.
(b)
Amounts represent the historical operations of 125 John Carpenter as reflected in the historical statement of operations of Pacific Oak SOR for the year ended December 31, 2018.


F-7