8-K: Pacific Oak REIT Remains Neutral on West 4 Capital's Tender Offer

Pacific Oak Strategic Opportunity REIT's board has decided to remain neutral regarding West 4 Capital's tender offer of $2.28 per share, advising stockholders to consult their financial advisors.

Summary

• Pacific Oak Strategic Opportunity REIT is responding to a tender offer from West 4 Capital LP (the Bidder) to purchase shares of the REIT at $2.28 per share.
• The REIT's board of directors has decided to remain neutral and will not make a recommendation to stockholders regarding whether to accept or decline the offer.
• This decision was made after evaluating the tender offer, consulting with management, and considering the current economic environment, particularly uncertainties in the real estate and debt markets.
• The board considered that the REIT's common stock had an updated estimated value per share (EVPS) of $5.72 as of December 10, 2024, but developments after this date are not included in the EVPS.
• The REIT expects to calculate an updated EVPS to be presented to the Board for approval no later than December of 2025.
• The share redemption program (SRP) has been suspended since July 30, 2024, and there are limited options for stockholders to sell their shares.
• The board is monitoring market conditions for opportunities to generate liquidity for stockholders, including a potential listing of the shares, but the timing and potential consideration are uncertain.
• The board encourages stockholders to consult with their own financial and tax advisors.
• The SEC has cautioned investors about mini-tender offers, which are offers to purchase less than 5% of a company's outstanding shares.
• The company has posted its response in the Investor Information section at www.sorinvinfo.com.

Sentiment

Score: 4

Explanation: The sentiment is neutral to slightly negative due to the board's neutrality on the tender offer, the significant discount of the offer price to the EVPS, and the continued suspension of the share redemption program. However, the REIT is exploring options to improve liquidity, which is a positive sign.

Positives

• The REIT is exploring options to provide liquidity to stockholders, including a potential listing of shares.
• The REIT's board is actively monitoring market conditions and considering opportunities to improve liquidity.

Negatives

• The tender offer price of $2.28 per share is significantly lower than the REIT's estimated value per share of $5.72 as of December 10, 2024.
• The share redemption program (SRP) remains suspended, limiting stockholders' ability to sell their shares.
• There is uncertainty regarding the timing and potential consideration of a future liquidity event, such as a listing of shares.

Risks

• The value of the shares may fluctuate in response to developments related to individual assets and the real estate and finance markets.
• The REIT's ability to provide additional liquidity to stockholders is uncertain.
• Future economic, competitive, and market conditions could impact the REIT's performance.
• The REIT's ability to maintain occupancy levels and rental rates at its real estate properties is a risk factor.

Future Outlook

The REIT expects to calculate an updated EVPS to be presented to the Board for approval no later than December of 2025 and is monitoring market conditions for opportunities to generate liquidity for stockholders, including a potential listing of the shares.

Management Comments

• The REIT's board of directors has determined that the REIT will remain neutral and makes no recommendation on whether any stockholders should accept or decline the Bidder's tender offer.
• The Board encourages stockholders to consult with their own financial and tax advisors to review their own individual circumstances, as well as the considerations set forth in the Bidder's offer and in this letter.

Industry Context

Mini-tender offers are a known phenomenon in the market, and the SEC has issued warnings about them. The REIT is acting responsibly by informing its shareholders and advising caution.

Comparison to Industry Standards

• It's common for REITs to face tender offers, especially when their share price deviates significantly from their net asset value.
• Blackstone's non-traded REIT, BREIT, faced redemption requests exceeding limits, highlighting liquidity challenges in the non-traded REIT sector, similar to Pacific Oak's suspended SRP.
• Starwood Real Estate Income Trust (SREIT) also limited redemptions, reflecting broader concerns about liquidity in the face of market volatility.
• The difference between the tender offer price ($2.28) and the REIT's EVPS ($5.72) is substantial, which is not uncommon in distressed situations but warrants careful consideration by investors.

Stakeholder Impact

• Stockholders are impacted by the tender offer and the suspension of the share redemption program.
• The REIT's employees and management are affected by the strategic decisions regarding liquidity and potential listing of shares.

Next Steps

• The REIT expects to calculate an updated EVPS to be presented to the Board for approval no later than December of 2025.
• The REIT will continue to monitor market conditions and look for market improvements which could offer opportunities for us to generate liquidity that can be provided to stockholders who want it, including through a potential listing of our Shares.

Key Dates