Pacific Oak Strategic Opportunity REITs I and II Propose Merger
January 29, 2020
In a January 29 filing with the SEC, Pacific Oak Strategic Opportunity REIT II, Inc. (“POSOR II”) announced that a Special Committee of its Board of Directors is negotiating a proposed merger (the “Merger”) with a Special Committee of the Board of Directors of Pacific Oak Strategic Opportunity REIT Inc. (“POSOR I”). POSOR I and POSOR II are affiliated companies that share a common sponsor, Pacific Oak Holding Group, LLC, and a common external advisor, Pacific Oak Capital Advisors, LLC.
POSOR II anticipates that the parties will be in a position to execute a definitive merger agreement (“Merger Agreement”) in February 2020. The proposed structure of the Merger is a business combination in which POSOR II would be merged with and into a wholly owned subsidiary of Pacific Oak Opportunity (BVI) Holdings, Ltd. (“BVI”). BVI is, in turn, a wholly owned subsidiary of POSOR I. The Merger Sub would be the surviving company in the Merger. POSOR II stockholders would receive shares of POSOR I common stock in the transaction and cease to be POSOR II stockholders.
POSOR II has agreed to an exclusive negotiation period with POSOR I during which neither POSOR II, nor any of its officers, directors, stockholders, employees, agents, affiliates and/or their respective representatives will directly or indirectly, itself or through any third party, participate in any negotiations or solicit, initiate or encourage submission of inquiries, proposals or offers from any potential investor, financing source or acquirer concerning the possible sale or acquisition, whether by direct sale, merger, or other business combination, of any of the stock, property or assets of POSOR II. This period will last until the earlier of (i) the entry into a definitive Merger Agreement with POSOR I or (ii) March 1, 2020, and will be automatically extended for additional 30-day periods unless terminated by either party. POSOR II anticipates that the Merger Agreement will provide that it may solicit such proposals for a 45-day period after the signing of the Merger Agreement.
POSOR I and POSOR II are disclosing this information now, before a Merger Agreement has been approved and signed, so that it may be shared by POSOR I with potential offshore investors. Although the information in this Current Report represents POSOR II’s good faith expectations, there are no assurances whether or when any agreement for a business combination will be approved or consummated. In addition, even if a Merger Agreement is signed, consummation of the Merger will be subject to a number of conditions, including but not limited to approval of the Merger by holders a majority of all outstanding shares of common stock of POSOR II.
Pacific Oak Strategic Opportunity REIT II, Inc. was previously known as KBS Strategic Opportunity REIT II, Inc. and was externally managed by KBS Capital Advisors, LLC. On November 1, 2019, the Company entered into an advisory agreement with Pacific Oak Capital Advisors, LLC.
POSOR II has invested in and manages a portfolio of opportunistic real estate, real estate-related loans, real estate equity securities and other real estate-related investments located in the United States and Europe. As of September 30, 2019, the Company had invested in two hotel properties, four office properties, one apartment building, an investment in an unconsolidated entity and an investment in real estate equity securities. Additionally, as of September 30, 2019, the Company had entered into a consolidated joint venture to develop one retail property. On November 4, 2019, the Company sold an office property in Henderson, Nevada, 2200 Paseo Verde, for $18.70 million. The property was acquired in December 2015 for approximately $13.66 million.
Pacific Oak Strategic Opportunity REIT currently consolidates nine office properties, four parcels of land, six portfolios of single family properties acquired in November 2019, a multifamily property, and has a 5% joint venture interest in an industrial property portfolio.
On December 17, 2019, the board of directors of POSOR II approved an estimated net asset value (“NAV”) per share of the Company’s common stock of $10.25 as of September 30, 2019, with the exception of the following adjustments: (i) the Company’s consolidated investments in real estate properties were valued as of October 31, 2019; (ii) an adjustment to reduce cash for the amount of capital expenditures incurred in October 2019; (iii) an adjustment for disposition costs and fees incurred in connection with the disposition of 2200 Paseo Verde.
On December 17, 2019, the POSOR I board of directors approved an estimated value per share of the Company’s common stock of $10.63 as of September 30, 2019, with the exception of the following adjustments: (i) the Company’s real estate properties were valued as of October 31, 2019; (ii) an adjustment to reduce cash for the amount of capital expenditures incurred in October 2019; (iii) an adjustment for acquisition and disposition fees and expenses incurred in connection with the acquisition of Reven Housing REIT, Inc. and disposition of 125 John Carpenter, an office property in Irving, Texas, for $99.8 million on November 1, 2019; and (iv) a number of adjustments related to the participation fee potentiality liabilities to the former advisor, KBS Capital Advisors LLC, and the current advisor, Pacific Oak Capital Advisors, LLC, in connection with the termination of KBS Capital Advisors effective October 31, 2019, and the hiring of Pacific Oak Capital Advisors on November 1, 2019.
Sources: SEC, S&P Global
