UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant ☒

Filed by a Party other than the Registrant ☐

Check the appropriate box:

KBS STRATEGIC OPPORTUNITY REIT, INC.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

☐     Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

800 Newport Center Drive, Suite 700

Newport Beach, California 92660

Proxy Statement and

Notice of 2017 Annual Meeting of Stockholders

To Be Held March 14, 2018

SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS

Dear Stockholder:

On March 14, 2018, we will hold our 2017 annual meeting of stockholders at the offices of KBS, 800 Newport Center Drive, First Floor, Suite 140 Conference Center, Newport Beach, California 92660. The annual meeting will begin at 9:00 a.m. Pacific daylight time. Directions to the annual meeting can be obtained by calling 949-417-6500.

We are holding the 2017 annual meeting of stockholders for the following purposes:

The Board of Directors recommends a vote FOR each nominee.

The Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2017.

The Board of Directors recommends a vote FOR this proposal.

The Board of Directors recommends a vote FOR this proposal.

The Board of Directors recommends a vote FOR this proposal.

The board of directors has selected December 15, 2017 as the record date for determining stockholders entitled to vote at the annual meeting.

The proxy statement, proxy card and our 2016 annual report to stockholders are being mailed to you on or about December 22, 2017.

Whether you plan to attend the annual meeting and vote in person or not, we urge you to have your vote recorded as early as possible. Stockholders have the following three options for submitting their votes by proxy: (1) via the Internet; (2) by telephone; or (3) by mail, using the enclosed proxy card.

YOUR VOTE IS VERY IMPORTANT! Your immediate response will help avoid potential delays and may save us significant additional expenses associated with soliciting stockholder votes.

		By Order of the Board of Directors
		Peter McMillan III Chairman

Newport Beach, California

December 22, 2017

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Note that our advisor, KBS Capital Advisors LLC, which owned 20,000 shares of our common stock as of the record date, has agreed to abstain from voting any shares it owns in any vote regarding: (i) the removal of our advisor, a director or any of their affiliates or (ii) any transaction between us and our advisor, a director or any of their affiliates. Additionally, Willowbrook Capital Group LLC, which owned 330,754 shares of our common stock as of the record date and is directly owned and controlled by Peter McMillan III

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and Keith D. Hall, two of our executive officers and two of our directors, will abstain from voting any shares in any vote for the election of directors. Furthermore, neither KBS Capital Advisors nor Willowbrook Capital Group will vote on Proposals 3 or 4 in this proxy statement due to the interests of their principals in the Proposed NAV REIT Conversion, as defined and described in “Proposed NAV REIT Conversion.”

If the presence in person or by proxy of stockholders entitled to cast less than 50% of all the votes entitled to be cast on any matter are represented at the annual meeting, the chairman of the meeting may adjourn the annual meeting to another date, time or place, not later than 120 days after the original record date of December 15, 2017. Notice need not be given of the new date, time or place if announced at the annual meeting before an adjournment is taken.

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Although we can offer no assurances, we expect that the Singapore Transaction will improve our chances to successfully raise capital as an NAV REIT. First, the Singapore Transaction has made additional capital available to us that we may use to offer additional liquidity to our stockholders through our share redemption program and/or tender offers prior to the Proposed NAV REIT Conversion. We believe we will have greater success as an NAV REIT if we are able to eliminate any pent-up demand for redemptions prior to the conversion. Second, we expect to reinvest a majority of the proceeds from the Singapore Transaction

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in assets that are more consistent with our opportunistic strategy and objectives compared to the stabilized assets we sold in the Singapore Transaction.

This section further states that if a majority of the conflicts committee does determine that liquidation is not then in the best interests of our stockholders, the conflicts committee must revisit the issue of liquidation at least annually. The conflicts committee is a committee of our board of directors consisting solely of all of our independent directors, that is, all of our directors who are not affiliated with KBS Capital Advisors LLC, our external advisor.

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As described further herein, we believe that the continued inclusion of Section 5.11 in our charter may create confusion for existing and new investors if we are pursuing a perpetual-life company strategy. We believe that its continued inclusion may create doubts as to our long-term commitment to the perpetual-life strategy. In addition, complying with Section 5.11 is likely to create an annual burden on the time and focus of our board of directors and conflicts committee and may create significant additional expenses, in particular if the board of directors solicits input from financial advisors. For these reasons, our board of directors believes we are more likely to succeed with a perpetual-life strategy if we remove Section 5.11 from the charter, and has proposed its removal. In order to remove Section 5.11 from the charter, we need the approval of our stockholders. This proposal will not take effect unless the proposal to approve the acceleration of the payment of incentive compensation to our advisor is also approved.

We expect this acceleration payment would be made in the form of restricted stock units (“RSUs”) with terms that are still under consideration, but are currently expected to be structured as follows:

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For those stockholders with Internet access, we encourage you to vote by proxy via the Internet, since it is quick, convenient and provides a cost savings to us. When you vote by proxy via the Internet or by telephone prior to the annual meeting date, your vote is recorded immediately and there is no risk that postal delays will cause your vote to arrive late and, therefore, not be counted. For further instructions on voting,

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see the enclosed proxy card. Voting via the Internet is permitted under Section 2-507(c)(3) of the Maryland General Corporation Law.

If you elect to attend the annual meeting, you can submit your vote in person as described above under “Who is entitled to vote at the annual meeting?”, and any previous votes that you submitted, whether by Internet, telephone or mail, will be superseded.

Only the most recent proxy vote will be counted and all others will be discarded regardless of the method of voting.

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We will pay all of the costs of soliciting these proxies, including the cost of Broadridge’s services. We anticipate that the cost for Broadridge’s solicitation services will not exceed $73,000. We will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to our stockholders.

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FORWARD-LOOKING STATEMENTS

Certain statements contained in this proxy statement other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC. We make no representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements contained in this proxy statement, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash flows from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in our Annual Report on Form 10-K filed with the SEC on March 10, 2017 for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements. See “Proposed NAV REIT Conversion” for risks related to our Proposed NAV REIT Conversion.

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PROPOSED NAV REIT CONVERSION

Background

Our board of directors and management team believe significant opportunities currently exist and have been monitoring the real estate and equity markets closely in order to find the best opportunities possible to maximize the return to our stockholders and provide additional liquidity for our stockholders. We currently believe the best opportunity for us to achieve these objectives is to pursue a strategy as a non-listed, perpetual-life company that (a) calculates the net asset value or “NAV” per share on a regular basis that is more frequent that annually (i.e., daily, monthly or quarterly), (b) offers and sells new shares of our common stock continuously through a number of distribution channels in ongoing public offerings, and (c) seeks to provide increased liquidity to current and future stockholders through an expansion of our current share redemption program and/or periodic self-tender offers. We refer to a REIT that operates in this manner as an “NAV REIT” and we refer to our proposed conversion to this mode of operation as the “Proposed NAV REIT Conversion.” As an NAV REIT, we believe we will be able to raise additional equity capital to diversify and grow our portfolio for the benefit of our stockholders, while at the same time providing increased liquidity to our stockholders in excess of what is currently offered. We have seen significant appreciation in the portfolio to date and we believe there are still many opportunities in the marketplace to achieve strong stockholder returns.

Stockholders should carefully read this section of the proxy statement when deciding how to vote on Proposals 3 and 4. If our stockholders vote against those proposals, our board of directors and our advisor will reconsider all aspects of the Proposed NAV REIT Conversion, because we believe its success depends greatly on these proposals, and a decision might be made not to proceed with the NAV REIT Conversion. On the other hand, if our stockholders approve Proposals 3 and 4, we intend to implement the Proposed NAV REIT Conversion substantially as described herein. Therefore, before voting on Proposals 3 and 4, stockholders should carefully review the description of the Proposed NAV REIT Conversion that is provided below.

Terms of Proposed NAV REIT Conversion

We summarize below our current intentions as to the principal terms of the Proposed NAV REIT Conversion. While we have described in this proxy statement our current intentions with respect to the Proposed NAV REIT Conversion, our board of directors may change any aspects of it without stockholder approval, except the specific matters submitted for stockholder approval in Proposals 3 and 4. Such changes may be deemed appropriate for a variety of reasons, including but not limited to regulatory, capital-raising or business considerations, all of which can change over time. Furthermore, even if Proposals 3 and 4 are approved, our board of directors may delay the implementation of the Proposed NAV REIT Conversion until it deems it appropriate to do so and may decide, in its sole discretion, not to go forward at all with the Proposed NAV REIT Conversion.

More Frequent NAV Calculations

We currently calculate the NAV of our shares once each calendar year. As an NAV REIT, we currently intend to calculate our NAV once per month, though we could decide to calculate it daily or quarterly. We believe more frequent NAV calculations will improve our ability to offer and repurchase our shares at the most fair prices, and also improve visibility and transparency into our performance.

Revised Share Redemption Program

As an NAV REIT, we believe we can (a) offer an expanded share redemption program, (b) have additional capital to fund redemptions, and (c) provide more frequent NAV per share calculations, which will provide stockholders with more information when making liquidity decisions and also allow more frequent and fair pricing under our share redemption program. As an NAV REIT, we intend to revise our share redemption

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program to allow us to make monthly redemptions with an aggregate value of up to 5% of our NAV each quarter. This would be a significant increase in maximum capacity compared to our current share redemption program, which limits redemptions of shares during any calendar year to no more than 5% of the weighted average number of shares outstanding during the prior calendar year. Our current share redemption program is also limited by funding restrictions that prevent us from redeeming the maximum number of shares permitted under the program. Because the actual level of redemptions under our share redemption program as an NAV REIT would also depend on our ability to fund redemptions and our other capital needs, we may not be able to make redemptions up to the maximum capacity permitted by the program. However, our intention is to increase our stockholders’ access to liquidity through an expansion of our current share redemption program and/or through self-tender offers. During our first year as an NAV REIT, we intend to repurchase shares under the share redemption program on a monthly basis at a price equal to 95% of the most recently disclosed monthly NAV. After that time, we intend to repurchase shares under the share redemption program on a monthly basis at the most recently disclosed monthly NAV, or at 95% of the most recently disclosed NAV if the shares have been held for less than a year.

Distributions and Dividend Reinvestment Plan

We currently declare distributions with quarterly record and payment dates. As an NAV REIT, we expect that we would modify our distribution policy to pay distributions monthly and have daily record dates. We also expect to revise our dividend reinvestment plan so that we would sell shares at the most recent monthly NAV, rather than at the most recent annual NAV as we do now.

Ongoing Public Offerings Conducted through KBS Capital Markets Group LLC

As an NAV REIT, we expect that we would conduct ongoing primary public offerings of our shares on a continuous basis through our affiliated dealer manager, KBS Capital Markets Group LLC. Such offerings would likely include new classes of common stock, which would allow us to offer different classes of common stock with different combinations of upfront and ongoing commissions and other fees payable to our dealer manager and participating broker-dealers. We believe that having a number of different share classes with different distribution compensation structures will improve our ability to sell shares and raise capital in the current market.

While we expect that the upfront and ongoing commissions and other fees payable to our dealer manager and participating broker-dealers in connection with these offerings would be borne by the new investors, our company would incur other offering expenses in connection with these offerings, which expenses would impact our current stockholders. These other offering expenses would include our legal, accounting, printing, mailing and filing fees, charges of our transfer agent, charges of our advisor and/or transfer agent for administrative services related to the issuance of shares in the offering, reimbursement of bona fide due diligence expenses, reimbursement of our advisor for costs in connection with preparing supplemental sales materials, the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees payable to participating broker-dealers hosting retail seminars and travel, meal and lodging costs for registered persons associated with our dealer manager and officers and employees of our affiliates to attend retail seminars conducted by broker-dealers, legal fees of our dealer manager and promotional items. They could also include reimbursement to our dealer manager for wholesaling compensation expenses, though we do not currently intend to reimburse our dealer manager for such expenses. We currently estimate that these expenses would cost approximately $3.5 million to $5.0 million per year.

Revised Advisory Fee Structure

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As part of the Proposed NAV REIT Conversion, we currently expect to replace the current asset management fee with a fixed component of our new advisory fee, payable monthly in arrears, that accrues monthly in an amount equal to 1/12th of 1.25% of our aggregate company NAV for such month, as determined before the impact of accrued asset management fees, accrued incentive/performance fees, accrued ongoing distribution fees paid to broker-dealers with respect to new sales of shares (i.e., ongoing class-specific fees) and accrued distributions owed to our stockholders. The impact of this change will depend on a number of factors, including our leverage and the value of our assets compared to the purchase price (both of which will be taken into account with the new fee structure, unlike the old fee structure), and is therefore impossible to predict over the long term, but we do not expect the change to be significant in the near term. By way of example only, if the aggregate NAV of our company for the nine months ended September 30, 2017 were equal to the estimated net asset value of our company as of September 30, 2016, calculated in accordance with the estimated value per share approved by our board of directors on December 8, 2016, this fixed component of the new advisory fee would have been approximately $880,000 per month. By comparison, the existing asset management fee incurred by us for the nine months ended September 30, 2017 was approximately $935,000 per month.

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We intend to eliminate this fee as part of the Proposed NAV REIT Conversion. However, because we would no longer pay a fee for disposition services, we would expect to reimburse our advisor for our allocable portion of the salaries, benefits and overhead of personnel providing these services to us. This may represent significant savings, depending on our future disposition activity.

As part of the Proposed NAV REIT Conversion, because we would no longer pay acquisition or origination fees or disposition fees to our advisor, we would expect to reimburse our advisor for our allocable portion of the salaries, benefits and overhead of personnel providing these services to us.

Revised Incentive Fee

Description of Current Incentive Fee

Pursuant to our advisory agreement currently in effect with the advisor, the advisor is due a subordinated participation in our net cash flows (the “Subordinated Participation in Net Cash Flows”) if, after our stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption program, and (ii) a 7.0% per year cumulative, noncompounded return on such net invested capital, the advisor is entitled to receive 15.0% of our net cash flows, whether from continuing operations, net sale proceeds or otherwise. Net sales proceeds means the net cash proceeds realized by us after deduction of all expenses incurred in connection with a sale, including disposition fees paid to the advisor. The 7.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 7.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 7.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 7.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to participate in our net cash flows. In fact, if the advisor is entitled to

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participate in our net cash flows, the returns of our stockholders will differ, and some may be less than a 7.0% per year cumulative, noncompounded return. This fee is payable only if we are not listed on an exchange.

Alternatively, pursuant to our advisory agreement currently in effect with the advisor, the advisor is due a subordinated incentive listing fee (the “Subordinated Participation Listing Fee”) upon a listing of our common stock on a national securities exchange equal to 15.0% of the amount by which (i) the market value of our outstanding stock plus distributions paid by us (including distributions that may constitute a return of capital for federal income tax purposes) prior to listing exceeds (ii) the sum of our stockholders’ net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption plan, and the amount of cash flow necessary to generate a 7.0% per year cumulative, noncompounded return on such amount. The 7.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 7.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 7.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 7.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to receive the listing fee. In fact, if our advisor is entitled to the listing fee, the returns of our stockholders will differ, and some may be less than a 7.0% per year cumulative, noncompounded return.

Neither the Subordinated Participation in Net Cash Flows nor the Subordinated Participation Listing Fee are currently payable to our advisor, and there is no guarantee that they will ever be payable. Most likely, we would need to list our shares on a national securities exchange or liquidate substantially all of our assets for these fees to be payable, and we would have to have provided the requisite returns for our stockholders at such time as well. Solely for purposes of determining the estimated value per share approved by our board of directors on December 7, 2017, the advisor calculated the potential liability related to the Subordinated Participation in Net Cash Flows based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. The advisor estimated the fair value of this liability to be $28.4 million or $0.54 per share as of the valuation date, and included the impact of this liability in its calculation of our estimated value per share.

Reasons for Proposing Changes to Incentive Fee Structure

The triggering events for the incentive fee structure currently in effect with our advisor are generally expected to occur, if ever, upon a listing of our shares of stock on a national securities exchange or a significant distribution of cash in connection with a sale of all or a substantial amount of our assets. These triggering events are inconsistent with a perpetual-life NAV REIT that intends to provide liquidity to its stockholders through a share redemption program and/or periodic self-tender offers. Therefore, in order to properly align our advisor’s incentive fee compensation structure with our proposed perpetual-life strategy, we intend to revise the incentive fee structure. Commencing with the launch of our first public offering as a perpetual-life NAV REIT, we intend to implement an annual incentive fee formula that would require us to pay our advisor an incentive fee for any given year if certain performance thresholds were met for that year. With respect to our historical performance period from inception through launch of our first public offering as a perpetual-life NAV REIT, we believe it is appropriate to accelerate the payment of the historical incentive fee so that it does not depend on the currently-existing triggering events. Because the acceleration of this fee is not something we intended to do when we launched our initial public offering, we believe it is appropriate to ask the stockholders for their approval of this acceleration. Therefore, in Proposal 4, we are asking our stockholders to approve the acceleration of the payment of incentive compensation to our advisor on terms substantially consistent with the terms substantially in “—Proposed Acceleration of Payment of Current Incentive Fee” below.

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Proposed Acceleration of Payment of Current Incentive Fee

We currently intend to accelerate the payment of incentive compensation to the advisor upon the conversion to an NAV REIT by agreeing to pay our advisor, in connection with our conversion to an NAV REIT, an amount equal to the estimated value of the Subordinated Participation in Net Cash Flows based on a hypothetical liquidation of our assets and liabilities at their then-current estimated values used in our NAV calculation, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. Following this transaction, the Subordinated Participation in Net Cash Flows and the Subordinated Participation Listing Fee would be terminated with respect to future periods.

We expect this acceleration payment would be made in the form of restricted stock units (“RSUs”) with terms that are still under consideration, but are currently expected to be structured as follows:

In Proposal 4 of this proxy statement, we are asking our stockholders to approve the acceleration of payment of current incentive fee described in the two paragraphs above. This proposal will not take effect unless Proposal 3 (the proposed charter amendment) is also approved. Please see “Proposal 4. Acceleration of Incentive Compensation” for more information.

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Proposed Incentive Fee Going Forward

In addition, going forward, commencing upon our conversion to an NAV REIT, we currently intend to replace the incentive fees described above with a new annual performance component to our advisory fee. The performance component of the advisory fee is currently expected to be calculated on the basis of the overall investment return provided to stockholders in any calendar year such that the advisor will receive the lesser of (1) 15% of (a) the annual total return amount less (b) any loss carryforward, and (2) the amount equal to (x) the annual total return amount, less (y) any loss carryforward, less (z) the amount needed to achieve an annual total return amount equal to 7% of the NAV per share at the beginning of such year (the “Hurdle Amount”). The foregoing calculations would be calculated on a per share basis and multiplied by the weighted-average number of shares outstanding during the year. Accordingly, if the annual total return amount exceeds the Hurdle Amount plus the amount of any loss carryforward, then the advisor will earn a performance component equal to 100% of such excess until the advisor has received 15% of the annual total return amount that is in excess of the loss carryforward, and thereafter receives 15% of the annual total return amount in excess of that.

The “annual total return amount” referred to above means all distributions paid or accrued per share plus any change in NAV per share since the end of the prior calendar year, adjusted to exclude the negative impact on annual total return resulting from our payment or obligation to pay, or distribute, as applicable, the performance component of the advisory fee as well as ongoing class-specific fees payable to our dealer manager in connection with the sale of new share classes. The “loss carryforward” referred to above will track any negative annual total return amounts from prior years and offset the positive annual total return amount for purposes of the calculation of the performance component of the advisory fee. The loss carryforward will initially be zero. Therefore, payment of the performance component of the advisory fee (1) will be contingent upon the annual total return to stockholders exceeding the 7% return, (2) will vary in amount based on our actual performance and (3) cannot cause the overall return to stockholders for the year to be reduced below 7%.

As a result, the performance component will not be directly tied to the performance of the shares you own, the class of shares you own or the time period during which you own your shares. Because of certain class-specific fees that we intend to apply to the new classes sold in our ongoing public offerings, which will differ among classes, we do not expect the overall return of each class of shares to ever be the same. However, if and when the incentive fee is payable, the expense will be allocated among all holders of shares ratably according to the NAV of their shares, regardless of the different returns achieved by different classes of shares during the year. Further, stockholders who redeem their shares during a given year may redeem their shares at a lower NAV per share as a result of an accrual for the estimated performance component of the advisory fee, even if no performance component is ultimately payable to our advisor at the end of such calendar year. In addition, so long as the weighted-average NAV per share remains above certain threshold levels, our advisor’s ability to earn the incentive fee in any year will not be affected by our performance in prior years, and our advisor will not be obligated to return any portion of advisory fees paid for any year based on our subsequent performance.

Though still under consideration, we expect this new annual performance component would be paid in the form of RSUs with terms similar to those described above, except with 50% of the RSUs vesting and settling after one year and the other 50% vesting and settling after two years.

Charter Amendment

As part of the Proposed NAV REIT Conversion, we are also proposing the deletion of Section 5.11 of our charter, which we believe is inconsistent with the pursuit of a perpetual-life strategy as an NAV REIT. This proposal will not take effect unless Proposal 4 (the proposal to approve the acceleration of the payment of incentive compensation to the advisor) is also approved. Please see “Proposal 3. Charter Amendment” for more information.

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Special Committee Process

In order to address any conflicts of interest that may exist in connection with the proposed acceleration of the payment of the incentive fee, revising the incentive fee going forward and amending other fees payable to the advisor under the advisory agreement in connection with our Proposed NAV REIT Conversion (the “Proposed Advisor Fee Changes”), on August 25, 2016, our board of directors designated a special committee (the “Special Committee”), consisting of all of the independent directors of our company, with the exclusive power and authority of the board of directors to (i) review and evaluate the terms and conditions and determine the advisability of the Proposed Advisor Fee Changes, (ii) if the Special Committee deems it appropriate, negotiate the terms and conditions of the Proposed Advisor Fee Changes and the terms and conditions of any definitive agreements in connection therewith, (iii) determine whether the Proposed Advisor Fee Changes are fair to and in the best interests of our company and our stockholders, (iv) recommend to the entire board of directors what action, if any, should be taken by us with respect to the Proposed Advisor Fee Changes, (v) engage in such other activities related to or arising in connection with the Proposed Advisor Fee Changes as the Special Committee deems necessary, appropriate or advisable, and (vi) provide reports and/or recommendations to the board of directors in regard to such matters at such time as the Special Committee shall deem appropriate and consistent with its activities. In conducting its review, the Special Committee was authorized to retain, has retained, at our expense, its own independent legal counsel and independent financial advisor.

The Special Committee has also requested that, once the proposed amount of the accelerated payment of the incentive fee has been determined by us, its independent financial advisor render the Fairness Opinion, regarding whether the Proposed Advisor Fee Changes, when taken together and considered as a whole, without any one single factor necessarily being dispositive, are fair to our company from a financial point of view. The Fairness Opinion, if received, is expected to be delivered immediately prior to the implementation of the Proposed NAV REIT Conversion, solely for the use of the Special Committee (in its capacity as such) in connection with its final evaluation of the Proposed NAV REIT Conversion (and may not be relied upon or used by any other person or entity or for any other purpose).

There can be no assurance as to what conclusions will be reached in the Fairness Opinion or whether the Fairness Opinion will be ultimately rendered. The Fairness Opinion will be subject to various assumptions, qualifications and limitations on the review undertaken, and will not constitute advice or a recommendation to the Special Committee or any person or entity with respect to how to act or vote with respect to any matter relating to the Proposed NAV REIT Conversion.

The Special Committee met in person or telephonically 19 times between August 25, 2016 and September 14, 2017 to consider the Proposed Advisor Fee Changes and other aspects of the Proposed NAV REIT Conversion. During this time, the Special Committee consulted with its independent legal counsel and independent financial advisor. On September 14, 2017, after considering a number of factors and other information, the Special Committee unanimously (i) approved, subject to the Special Committee’s receipt and review of the Fairness Opinion, the terms of the Proposed NAV REIT Conversion as described in this proxy statement, including the proposed charter amendment and the Proposed Advisor Fee Changes, as being advisable and in the best interests of the company and our stockholders, (ii) found, subject to the Special Committee’s receipt and review of the Fairness Opinion, the terms of the Proposed NAV REIT Conversion to be fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties, and (iii) recommended that the board of directors take all action necessary to pursue the Proposed NAV REIT Conversion on the terms proposed, subject to the Special Committee’s approval of the final terms of the NAV REIT Conversion prior to its implementation, which approval is subject to the Special Committee’s receipt and review of the Fairness Opinion. The board of directors (including all of the members of the conflicts committee) then approved the related matters to be considered at the 2017 annual meeting of stockholders, provided that the implementation of the proposed charter amendment and the proposed acceleration of the payment of incentive compensation to the advisor remain subject to further approval of the Special Committee, which in turn remains subject to the Special Committee’s receipt and review of the Fairness Opinion, which can

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only be delivered after the proposed amount of the accelerated payment of the incentive fee has been determined by us. If received, the Fairness Opinion is expected to be delivered immediately prior to the implementation of the Proposed NAV REIT Conversion.

Risks of the Proposed NAV REIT Conversion

The following are the principal risks associated with the Proposed NAV REIT Conversion.

Our NAV REIT strategy may not result in increased liquidity for our stockholders.

Although we intend, as part of our NAV REIT strategy, to adopt a revised share redemption program that allows us to redeem a greater percentage of our shares each year than our current share redemption program, we cannot provide assurances that we will do so. We may decide for market, regulatory or other reasons to have a more limited share redemption program or conduct periodic self-tender offers on terms that we believe are appropriate.

We will not be required to purchase any particular number of shares, at any particular frequency or at any particular pricing, pursuant to our share redemption program or pursuant to periodic self-tender offers. Our board of directors will be permitted to modify, suspend or terminate our share redemption program at any time.

We may not have sufficient funding to satisfy the demand for liquidity. Our primary source for funding is currently expected to be a portion of the net proceeds from our new ongoing public offerings, but we cannot guarantee that the net proceeds raised will be sufficient to satisfy the demand for liquidity and our other capital needs, such as capital expenditures and funds for new investments. Excluding redemption requests made upon a stockholder’s death, “qualifying disability” or “determination of incompetence,” for the past three quarters we have not had sufficient funding to satisfy all redemption requests. In the fourth quarter of 2016, first quarter of 2017 and second quarter of 2017, we rejected requests to redeem 1,013,619, 1,865,329 and 2,573,827 shares, respectively, or approximately 69%, 90% and 92%, respectively, of the ordinary redemption requests received pursuant to our share redemption program, due to insufficient funding. However, on October 12, 2017, we completed a self-tender offer for our shares at a price of $14.07 per share, pursuant to which we purchased 4,688,671 shares, or approximately 83% of the 5,678,837 shares properly tendered, and rejected approximately 990,166, or approximately 17% of the 5,678,837 shares properly tendered. If future redemption requests exceed the amount of funding available under our share redemption program and any additional funding made available under one or more self-tender offers, the number of rejected redemption or repurchase requests will increase over time.

You will be dependent on the board of directors to adopt and oversee valuation procedures to determine the NAV of our shares; the prices at which we sell and redeem our shares will be based on the NAV per share determined in accordance with these valuation procedures.

In connection with our NAV REIT strategy, our board of directors intends to adopt valuation procedures to determine a monthly NAV per share. However, we may compute the NAV less frequently than monthly, such as quarterly. In addition, the procedures, methods and assumptions used to determine the NAV will be solely in our discretion and subject to change, will not be subject to U.S. Generally Accepted Accounting Principles (“GAAP”) and will not be subject to independent audit. No rule or regulation requires that we calculate our NAV in a certain way. Our board of directors has not finalized these procedures and once they do, our board of directors may adopt changes to the valuation procedures. The valuation procedures we adopt may be different from those used in our prior estimated value per share calculations.

The prices at which we sell shares in our offerings and repurchase shares under our share redemption program and/or self-tender offers will not be market-based prices. We currently intend for those prices to be based on our monthly NAV per share. If our NAV calculations are too high, we may overpay for shares that we

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redeem, which would harm our remaining stockholders. If our NAV calculations are too low, we may dilute our existing stockholders when we sell new shares and we may underpay stockholders that sell their shares to us. There will be no market prices for our shares and you will be entirely dependent on us to determine an appropriate monthly NAV per share, which may not correspond to realizable value upon a sale of our assets.

Our NAV REIT strategy will result in additional expenses.

Our NAV REIT strategy will involve continuous, ongoing public offerings that will require registration with the SEC under federal securities laws and with each state in which we offer shares. Maintaining such offerings will result in offering expenses such as legal, accounting, printing, mailing and filing fees, charges of our transfer agent, charges of our advisor and/or transfer agent for administrative services related to the issuance of shares, reimbursement of bona fide due diligence expenses of broker-dealers, reimbursement of our advisor for costs in connection with preparing supplemental sales materials, the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees payable to participating broker-dealers hosting retail seminars and travel, meal and lodging costs for registered persons associated with our dealer manager and officers and employees of our affiliates to attend retail seminars conducted by broker-dealers, legal fees of our dealer manager and promotional items. We also expect to incur additional expenses in connection with calculating a monthly NAV per share. Although we expect to reinvest the majority of the proceeds from the Singapore Transaction in new investments, we also expect to distribute a significant portion of the proceeds to our stockholders, which will reduce the size of our company and therefore make ongoing expenses as an NAV REIT more burdensome.

New investors in our new offerings may have divergent interests from investors in our initial public offering.

We conducted our initial public offering of common stock from November 2009 through November 2012. Our investors in the initial public offering have now held their shares between approximately five and eight years. When (and if) we launch a new public offering as an NAV REIT, they will have held their shares for an even longer period. New investors in our company may place a greater priority on funding for new investments than for liquidity or other purposes. They may be more supportive of our NAV REIT strategy than our original investors. Divergent interests of our stockholders may affect decisions by our board of directors or management, and may impact stockholder votes on various matters.

We may not raise a meaningful amount of capital in our ongoing offerings as an NAV REIT.

We currently intend to use the proceeds from our offerings as an NAV REIT, net of the fees and other expenses we pay in connection with the offerings: (1) to make additional investments in accordance with our investment strategy and policies with the intention of growing the portfolio; (2) to provide increased liquidity to our stockholders in excess of what is currently offered; and (3) for other general corporate purposes (which may include repayment of our debt or any other corporate purposes we deem appropriate). However, we may not raise a meaningful amount of capital in our ongoing offerings as an NAV REIT, which would mean that we would not have as much money for any of these purposes. In particular, we may face challenges raising additional capital if we are not able to satisfy our stockholders’ redemption requests on a regular basis. In addition, we may face challenges raising additional capital unless and until we reinvest the proceeds from the Singapore Transaction in attractive replacement assets.

We may suffer from delays in locating suitable investments with the capital we raise in our ongoing offerings as a perpetual-life company.

As described above, we intend to use a portion of the net proceeds from our offerings as an NAV REIT to make additional investments in accordance with our investment strategy and policies with the intention of growing the portfolio. However, we could suffer from delays in locating suitable investments. The more shares we sell in our offerings, the more difficult it may be to invest the net offering proceeds promptly and on attractive

21

terms. Our reliance on our advisor, and the real estate and debt finance professionals that our advisor retains to identify suitable investments for us at times when such persons are simultaneously seeking to identify suitable investments for other KBS-sponsored programs or KBS-advised investors could also delay the investment of the proceeds of this offering. Currently, two public KBS-sponsored programs (KBS Strategic Opportunity REIT II, Inc. and KBS Growth & Income REIT, Inc.), as well as five private KBS-sponsored programs, are raising and/or investing capital, and our sponsors may also sponsor or advise future public or private programs or accounts in the future while our offering as an NAV REIT are ongoing. In particular, KBS Strategic Opportunity REIT II, Inc., which we refer to as “KBS Strategic Opportunity REIT II,” is focused on opportunistic real estate and real estate-related investments that are similar to our targeted investments. Until KBS Strategic Opportunity REIT II has fully invested the proceeds from its offering stage, and to the extent that an investment opportunity meets the cash flow requirements, operating needs, diversification goals and overall portfolio mix of KBS Strategic Opportunity REIT II, we expect KBS Capital Advisors to direct the investment opportunity to KBS Strategic Opportunity REIT II. Further, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Delays we encounter in the selection, acquisition and development of income-producing properties or the acquisition or origination of other real estate investments would likely limit our ability to pay distributions to our stockholders and may reduce their overall returns.

We may pay lower dividends as an NAV REIT than we otherwise would.

As an NAV REIT, we may pay lower dividends than we otherwise would, because as a perpetual-life NAV REIT (1) we may have a greater interest in retaining the capital for new investments, increased liquidity or other general purposes and (2) we may have a greater interest in keeping our NAV stable or rising.

Our NAV REIT strategy may increase the compensation to our advisor and its affiliates.

As described above, we intend to accelerate the payment of the Subordinated Participation in Net Cash Flows to our advisor, and implement a new annual performance component to our advisory fee. Our advisor will benefit from these changes because (a) the value of the current incentive fee could go down in the future and (b) there is value in receiving compensation sooner rather than later. The new fee structure also puts a greater emphasis on our performance and, accordingly, would result in greater compensation to our advisor as a percentage of our NAV if we perform sufficiently well. Furthermore if we succeed in raising additional capital and growing our company, we would expect the fees paid to our advisor and its affiliates to increase because of our larger size. We believe these changes help align the interests of our advisor and our stockholders in growing our company and performing well. The bottom line future impact to our stockholders of the proposed compensation changes is difficult to predict because it is subject to a number of factors, such as the amount of capital we raise in our public offerings, the number of acquisitions and dispositions that we make, and our performance.

Our directors and management face conflicts of interest in the pursuit of an NAV REIT strategy.

All of our executive officers, some of our directors and other key real estate and debt finance professionals are also officers, directors, managers, or key professionals of and/or holders of a direct or indirect controlling interest in our advisor, KBS Capital Markets Group LLC, who we intend to hire as our dealer manager for our future public offerings, and other affiliated KBS entities. Peter M. Bren, Keith D. Hall, Peter McMillan III and Charles J. Schreiber are our sponsors and indirectly own and control our advisor. Our advisor is also the external advisor to other public KBS-sponsored programs. Messrs. Bren, Hall, McMillan and Schreiber are executive officers and/or directors of other public KBS-sponsored programs. In addition, Messrs. Bren and Schreiber and their team of real estate professionals are also key real estate professionals at KBS Realty Advisors LLC and its affiliates, the advisors to the private KBS-sponsored programs and the investment advisors to KBS-advised investors. Messrs. Bren, Hall, McMillan and Schreiber, and their teams of real estate and debt finance professionals may also sponsor or advise future programs or accounts in the future. Some of the material

22

conflicts that our advisor and its affiliates face in connection with our pursuit of a perpetual-life strategy include the following:

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CERTAIN INFORMATION ABOUT MANAGEMENT

The Board of Directors

We operate under the direction of the board of directors. The board of directors oversees our operations and makes all major decisions concerning our business. During 2016, the board of directors held 11 meetings, participated in 5 joint meetings with the conflicts committee and acted by unanimous written consent on 5 occasions. For biographical information regarding our directors, see “ – Executive Officers and Directors.”

There are two permanent committees of the board of directors: the audit committee and the conflicts committee. Information regarding each of these committees is set forth below. We also created a special committee in connection with the Proposed NAV REIT Conversion. For information regarding the special committee, see “Proposed NAV REIT Conversion—Special Committee Process.”

Board Leadership Structure

The board of directors is composed of two of our sponsors, Keith D. Hall and Peter McMillan III, and three independent directors. The board composition and the corporate governance provisions in our charter ensure strong oversight by independent directors. The board of directors’ two permanent committees, the audit committee and the conflicts committee, are composed entirely of independent directors. Since our inception in 2008, we have operated under a board leadership structure with separate roles for our Chairman of the Board and our Chief Executive Officer. Our board of directors is led by Mr. McMillan, who has served as Chairman of the Board since 2008. Mr. McMillan, as the Chairman of the Board, is responsible for presiding over the meetings of the board of directors and the annual meetings of stockholders, generally setting the agendas for board meetings (subject to the requests of other directors) and providing information to the other directors in advance of meetings and between meetings. Mr. Hall, as our Chief Executive Officer, is responsible for the general management of the business, financial affairs and day-to-day operations of our company. We believe it is beneficial to have a Chairman of the Board whose focus is to lead the board and facilitate communication among directors and management. We believe this structure, of not combining the roles of the Chairman of the Board and the Chief Executive Officer, is the best governance model for our company and our stockholders. We do not currently have a policy requiring the appointment of a lead independent director as all of our independent directors are actively involved in board meetings.

The Role of the Board of Directors in our Risk Oversight Process

Our executive officers and our advisor are responsible for the day-to-day management of risks faced by the company, while the board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. No less than quarterly, the entire board of directors reviews information regarding the company’s liquidity, credit, operations, regulatory compliance and compliance with covenants in our material agreements, as well as the risks associated with each. In addition, each year the board of directors reviews significant variances between our current portfolio business plan and our original underwriting analysis and each quarter the directors review significant variances between our current results and our projections from the prior quarter, review all significant changes to our projections for future periods and discuss risks related to our portfolio. The audit committee oversees risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements. The conflicts committee manages risks associated with the independence of the independent directors and potential conflicts of interest involving our advisor and its affiliates. Although each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board of directors is regularly informed through committee reports about such risks as well as through regular reports directly from the executive officers responsible for oversight of particular risks within the company.

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Director Independence

Although our shares are not listed for trading on any national securities exchange, a majority of the directors, and all of the members of the audit committee and the conflicts committee, are “independent” as defined by the New York Stock Exchange. The board of directors determined that each of William M. Petak, Eric J. Smith and Kenneth G. Yee satisfies the bright-line criteria and that none has a relationship with us that would interfere with such person’s ability to exercise independent judgment as a member of the board of directors. None of these directors has ever served as (or is related to) an employee of ours or any of our predecessors or acquired companies or received or earned any compensation from us or any such other entities except for compensation directly related to service as a director of us. Therefore, we believe that all of these directors are independent directors.

The Audit Committee

General

The audit committee’s function is to assist the board of directors in fulfilling its responsibilities by overseeing (i) our accounting and financial reporting processes, (ii) the integrity of our financial statements, (iii) our compliance with legal and regulatory requirements, (iv) our independent auditors’ qualifications, performance and independence, and (v) the performance of our internal audit function. The audit committee fulfills these responsibilities primarily by carrying out the activities enumerated in the audit committee charter. The audit committee approved the audit committee charter in August 2010. The audit committee charter is available on our website at www.kbsstrategicopportunityreit.com.

The members of the audit committee are Kenneth G. Yee (Chairman), William M. Petak and Eric J. Smith. All of the members of the audit committee are “independent” as defined by the New York Stock Exchange. The board of directors has determined that all members of the audit committee have significant financial and/or accounting experience, and the board of directors has determined that Mr. Yee satisfies the SEC’s requirements for an “audit committee financial expert.” During 2016, the audit committee held 5 meetings.

Independent Registered Public Accounting Firm

During the year ended December 31, 2016, Ernst & Young LLP served as our independent registered public accounting firm and provided certain tax and other services. Ernst & Young has served as our independent registered public accounting firm since our formation. We expect that Ernst & Young representatives will be present at the annual meeting and they will have the opportunity to make a statement if they desire to do so. In addition, we expect that the Ernst & Young representatives will be available to respond to appropriate questions posed by stockholders. The audit committee has engaged Ernst & Young as our independent auditors to audit our financial statements for the year ending December 31, 2017. The audit committee may, however, select new auditors at any time in the future in its discretion if it deems such decision to be in our best interests. Any such decision would be disclosed to our stockholders in accordance with applicable securities laws.

Pre-Approval Policies

In order to ensure that the provision of such services does not impair the auditors’ independence, the audit committee charter imposes a duty on the audit committee to pre-approve all auditing services performed for us by our independent auditors, as well as all permitted non-audit services. In determining whether or not to pre-approve services, the audit committee considers whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit committee may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by our independent auditors, provided any such approval is presented to and approved by the full audit committee at its next scheduled meeting.

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For the years ended December 31, 2016 and 2015, all services rendered by Ernst & Young were pre-approved in accordance with the policies and procedures described above.

Principal Independent Registered Public Accounting Firm Fees

The audit committee reviewed the audit and non-audit services performed by Ernst & Young, as well as the fees charged by Ernst & Young for such services. In its review of the non-audit service fees, the audit committee considered whether the provision of such services is compatible with maintaining the independence of Ernst & Young. The aggregate fees billed to us for professional accounting services, including the audit of our annual financial statements by Ernst & Young for the years ended December 31, 2016 and 2015, are set forth in the table below.

For purposes of the preceding table, Ernst & Young’s professional fees are classified as follows:

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

 

 

KBS STRATEGIC OPPORTUNITY REIT, INC.

For All

Withhold All

For  All Except

*To  Withhold authority  to vote for any individual nominee(s), mark the “For All  Except” box and write the number of the nominee(s) on the line below.

The Board of Directors recommends a vote FOR all nominees listed in Proposal 1.

☐

☐

☐

1.

Election of Directors

01) Keith D. Hall

02) Peter McMillan III

03) William M. Petak

04) Eric J. Smith 05) Kenneth G. Yee

The Board of Directors recommends a vote FOR Proposal 4 as described in the proxy statement.

For

Against

Abstain

The Board of Directors recommends a vote FOR Proposal 2 as described in the proxy statement.

For

Against

Abstain

4.

To approve the acceleration of the payment of incentive compensation to KBS Capital Advisors LLC, the company’s external advisor, in the form of restricted stock units. This proposal will not take effect unless Proposal 3 above is also approved.

☐

☐

☐

2.

The ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm for the year ending December 31, 2017.

☐

☐

☐

The Board of Directors recommends a vote FOR Proposal 5 as described in the proxy statement.

For

Against

Abstain

The Board of Directors recommends a vote FOR Proposal 3 as described in the proxy statement.

For

Against

Abstain

5.

To permit the chairman of the annual meeting to adjourn the annual meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals if there are not sufficient votes for the proposals.

☐

☐

☐

3.

To remove Section 5.11 from the company’s charter. This proposal will not take effect unless Proposal 4 below is also approved.

☐

☐

☐

Please sign exactly as your name appears on this proxy card. When shares of common stock are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by general partner or other authorized person.

Signature [PLEASE SIGN WITHIN BOX]

Date

Signature (Joint Owners)

Date

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PROXY FOR ANNUAL MEETING OF STOCKHOLDERS

KBS STRATEGIC OPPORTUNITY REIT, INC.

MARCH 14, 2018

9:00 a.m. (PDT)

At

Offices of KBS

800 Newport Center Drive, First Floor, Suite 140 Conference Center

Newport Beach, California 92660

Your Vote is Important!

 

 

— — — — — — — — — — — —  — — — — — — — — — — — — — — — — — — — —  — — — — — — — — — — — — 

E34919-P00334

 

 

KBS Strategic Opportunity REIT, Inc.

800 NEWPORT CENTER DRIVE • FIRST FLOOR • SUITE 140 CONFERENCE CENTER

NEWPORT BEACH • CALIFORNIA 92660

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned stockholder hereby appoints Keith D. Hall, Peter McMillan III, David E. Snyder and Stacie K. Yamane, and each of them, as proxy and attorney-in-fact, each with the power to appoint his or her substitute, on behalf and in the name of the undersigned, to represent the undersigned at the annual meeting of stockholders of KBS STRATEGIC OPPORTUNITY REIT, INC. to be held on March 14, 2018, and at any adjournments or postponements thereof, and to vote all shares of common stock that the undersigned would be entitled to vote if personally present, as indicated on the reverse side of this card. The undersigned acknowledges receipt of the notice of annual meeting of stockholders, the proxy statement and the annual report.

This proxy, when properly executed, will be voted in the manner directed herein by the undersigned stockholder. If no direction is made, this proxy will be voted “FOR” all nominees listed and “FOR” Proposals 2 through 5. The proxies are authorized to vote upon such other matters as may properly come before the annual meeting or any adjournments or postponements thereof in accordance with the recommendation of the board of directors or, in the absence of such a recommendation, in their discretion, including, but not limited to, the power and authority to adjourn the annual meeting to a date not more than 120 days after the record date in the event that a quorum is not obtained by the March 14, 2018 meeting date.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders: The following materials are available at www.proxyvote.com: Notice and Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2016.

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YOUR VOTE IS CRITICAL. PLEASE SUBMIT YOUR PROXY VOTE PROMPTLY. Reduce corporate expenses by submitting your vote by Internet at ww w .p r oxyvote.com or by calling the toll free number on the voting form included in the enclosed materials.

 

		Read Enclosed Materials
		Enclosed is the following information for the Annual Meeting of Stockholders:
		•  Annual Report
		•  Proxy Statement that describes the proposals to be voted upon
		•  Voting form for each registration.*
		* You may have more than one voting form included in your packet because you have multiple registrations. Please be sure to vote all proxies in your packet.
		Vote by Mail
		Mark, sign and date your voting form and return it in the postage-paid return envelope.
		or Vote by Telephone*
		Please call the toll free number listed on your voting form. Have your control number listed on the voting form ready and follow the simple instructions.
		or Vote by Internet*
		Visit www.proxyvote.com and follow the online instructions to cast your vote. Your control number is located on the voting form.
		* If you voted by telephone or the Internet, you do not need to mail back the voting form.
		For Assistance
		If you have any questions or need assistance with completing your voting form, please call our proxy solicitor, Broadridge Financial Solutions, Inc., at (888) 554-9413. Representatives are available Monday through Friday 9:00 a.m. to 10:00 p.m. (Eastern).

Thank you!

We appreciate your participation and support. Again, please be sure to vote!

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Selected Questions and Answers Regarding Proxy Statement

Dear Stockholder:

We have furnished you with a proxy statement for our 2017 annual meeting of stockholders. The following are selected questions and answers regarding the matters being proposed at the annual meeting. Please refer to the proxy statement for additional information.

 

Q:	Why is the board in favor of a perpetual-life “NAV REIT” strategy?

 

A:

Our board of directors and management team believe significant opportunities currently exist and have been monitoring the real estate and equity markets closely in order to find the best opportunities possible to maximize the return to our stockholders and provide additional liquidity for our stockholders. We currently believe the best opportunity for us to achieve these objectives is to pursue a strategy as a non-listed, perpetual-life “NAV REIT” that offers and sells new shares of our common stock continuously through a number of distribution channels in ongoing public offerings, and seeks to provide increased liquidity to current and future stockholders through an expansion of our current share redemption program and/or periodic self-tender offers. With regard to maximizing returns, we have seen significant appreciation in the portfolio to date and we believe there are still many opportunities in the marketplace to achieve strong stockholder returns. Therefore, we believe it is in the company’s and stockholder’s interests to raise additional capital and make new investments. Furthermore, we believe a number of our existing investments are still in the process of maturing and reaching their maximum value. With respect to liquidity, we believe that a number of sources of capital (including but not limited to cash from operations, a portion of the proceeds from ongoing offerings, and proceeds from asset sales) can be used to offer additional liquidity to stockholders that desire it through an expanded share redemption program and/or periodic tender offers.

 

 

 

Q:	How is conversion to a perpetual-life, NAV REIT expected to provide additional liquidity to stockholders?

 

A:

As an NAV REIT, we believe we can (a) offer an expanded share redemption program, (b) have additional capital to fund redemptions, and (c) provide more frequent net asset value or “NAV” per share calculations, which will provide stockholders with more information when making liquidity decisions and also allow more frequent and fair pricing under our share redemption program. As an NAV REIT, we intend to revise our share redemption program to allow us to make monthly redemptions with an aggregate value of up to 5% of our NAV each quarter. This would be a significant increase in maximum capacity compared to our current share redemption program, which limits redemptions of shares during any calendar year to no more than 5% of the weighted average number of shares outstanding during the prior calendar year. Our current share redemption program is also limited by funding restrictions that prevent us from redeeming the maximum number of shares permitted under the program. Because the actual level of redemptions under our share redemption program as an NAV REIT would also depend on our ability to fund redemptions and our other capital needs, we may not be able to make redemptions up to the maximum capacity permitted by the program. However, our intention is to increase our stockholders’ access to liquidity through an expansion of our current share redemption program and/or through self-tender offers.

 

 

 

Q:	How will the Singapore Transaction affect the Proposed NAV REIT Conversion?

 

A:	As we have previously disclosed, on November 8, 2017, we sold 11 of our properties (the “Singapore Portfolio”) to various subsidiaries of Keppel-KBS US REIT, a newly formed Singapore real estate

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investment trust (the “SREIT”) that was listed on the Singapore Stock Exchange (the “Singapore Transaction”). The sale price of the Singapore Portfolio was $804 million, before third-party closing costs and excluding any disposition fees payable to our external advisor. In connection with the Singapore Transaction, we repaid $401.7 million of outstanding debt secured by the properties in the Singapore Portfolio. We also used approximately $52.5 million of the proceeds to acquire units in the SREIT representing a 9.5% ownership interest.

Although we can offer no assurances, we expect that the Singapore Transaction will improve our chances to successfully raise capital as an NAV REIT. First, the Singapore Transaction has made additional capital available to us that we may use to offer additional liquidity to our stockholders through our share redemption program and/or tender offers prior to the Proposed NAV REIT Conversion. We believe we will have greater success as an NAV REIT if we are able to eliminate any pent-up demand for redemptions prior to the conversion. Second, we expect to reinvest a majority of the proceeds from the Singapore Transaction in assets that are more consistent with our opportunistic strategy and objectives compared to the stabilized assets we sold in the Singapore Transaction.

 

 

 

Q:	What may I vote on at the annual meeting?

 

A:	You may vote on:

 

(1)

the election of the nominees to serve on the board of directors;

(2)

the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2017;

(3)

the removal of Section 5.11 from our charter (this proposal will not take effect unless Proposal 4 below is also approved);

(4)

the approval of the acceleration of the payment of incentive compensation to our advisor, in the form of restricted stock units (this proposal will not take effect unless Proposal 3 above is also approved);

(5)

permitting the chairman of the annual meeting to adjourn the annual meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals if there are not sufficient votes for the proposals; and

(6)

such other business as may properly come before the annual meeting and any adjournment or postponement thereof.

 

 

 

Q:	How does the board of directors recommend I vote on the proposals?

 

A:	The board of directors recommends that you vote:

 

(1)

FOR each of the nominees for election as director who is named in this proxy statement;

(2)

FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2017;

(3)

FOR the removal of Section 5.11 from our charter;

(4)

FOR the proposal to approve the acceleration of the payment of incentive compensation to our advisor, in the form of restricted stock units; and

(5)

FOR the proposal to permit the chairman of the annual meeting to adjourn the annual meeting to solicit additional proxies if necessary.

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Q:	What does Section 5.11 of the charter provide and why is the board recommending that stockholders approve its removal from the charter?

 

A:	Section 5.11 of our charter requires that, if we do not list our shares of common stock on a national securities exchange by July 31, 2019, we either:

 

•

seek stockholder approval of the liquidation of the company; or

•

if a majority of the conflicts committee determines that liquidation is not then in the best interests of our stockholders, postpone the decision of whether to liquidate the company.

This section further states that if a majority of the conflicts committee does determine that liquidation is not then in the best interests of our stockholders, the conflicts committee must revisit the issue of liquidation at least annually. The conflicts committee is a committee of our board of directors consisting solely of all of our independent directors, that is, all of our directors who are not affiliated with KBS Capital Advisors LLC, our external advisor.

We believe that the continued inclusion of Section 5.11 in our charter may create confusion for existing and new investors if we are pursuing a perpetual-life company strategy. We believe that its continued inclusion may create doubts as to our long-term commitment to the perpetual-life strategy. In addition, complying with Section 5.11 is likely to create an annual burden on the time and focus of our board of directors and conflicts committee and may create significant additional expenses, in particular if the board of directors solicits input from financial advisors. For these reasons, our board of directors believes we are more likely to succeed with a perpetual-life strategy if we remove Section 5.11 from the charter, and has proposed its removal. In order to remove Section 5.11 from the charter, we need the approval of our stockholders. This proposal will not take effect unless the proposal to approve the acceleration of the payment of incentive compensation to our advisor is also approved.

 

 

 

Q:	Why is the board recommending that stockholders approve the acceleration of the payment of incentive compensation to our advisor?

 

A:

The triggering events for the incentive fee structure currently in effect with our advisor are generally expected to occur, if ever, upon a listing of our shares of stock on a national securities exchange or a significant distribution of cash in connection with a sale of all or a substantial amount of our assets. These triggering events are inconsistent with a perpetual-life NAV REIT that intends to provide liquidity to its stockholders through a share redemption program and/or periodic self-tender offers. Therefore, in order to properly align our advisor’s incentive fee compensation structure with our proposed perpetual-life strategy, we intend to revise the incentive fee structure. Commencing with the launch of our first public offering as a perpetual-life NAV REIT, we intend to implement an annual incentive fee formula that would require us to pay our advisor an incentive fee for any given year if certain performance thresholds were met for that year. With respect to our historical performance period from inception through launch of our first public offering as a perpetual-life NAV REIT, we believe it is appropriate to accelerate the payment of the historical incentive fee so that it does not depend on the currently-existing triggering events. Because the acceleration of this fee is not something we intended to do when we launched our initial public offering, we believe it is appropriate to ask the stockholders for their approval of this acceleration. Therefore, we are asking our stockholders to approve the acceleration of the payment of incentive compensation to our advisor. This proposal will not take effect unless the proposal to amend our charter is also approved .

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We expect this acceleration payment would be made in the form of restricted stock units (“RSUs”) with terms that are still under consideration, but are currently expected to be structured as follows:

 

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Each RSU awarded would represent the right to receive one share of our common stock.

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The RSUs would be awarded on or near the launch of a public offering as an NAV REIT.

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The number of RSUs awarded would equal the number of our shares of common stock, valued at the then-current NAV per share at the time of the award (i.e., the NAV per share at the time of our conversion to an NAV REIT), with a value equal to the estimated value of the Subordinated Participation in Net Cash Flows based on a hypothetical liquidation of our assets and liabilities at their then-current estimated values used in the NAV calculation, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties. The foregoing would be calculated by our advisor in its good faith and approved by the Special Committee (described below).

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100% of the RSUs awarded would vest and be paid in shares after two years, provided the advisor is not terminated for “cause” during that time (where “cause” means fraud, criminal conduct if the advisor would have reasonable cause to believe that the conduct was unlawful, willful misconduct, or an uncured material breach of the advisory agreement). Both we and the advisor would have certain rights to accelerate vesting in certain situations, such as a change of control of our company.

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For each RSU awarded, our advisor would have the right to be paid with one share of our common stock, upon vesting, and could elect to receive up to 50% of the payment in cash rather than shares, with the cash payment determined based on the then-current value of our shares. The main reason we would permit the advisor to take a portion in cash is to pay its taxes.

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Dividend equivalents would accrue on the RSUs. In other words, they would earn dividends as if they were shares of common stock.

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The shares the advisor receives pursuant to this agreement would not be eligible for redemption under our share redemption program unless the company has satisfied all redemption requests from other stockholders received at that time; this restriction may be lifted in certain situations, such as upon a change of control of our company.

 

 

 

Q:	Will the acceleration of the payment of incentive compensation to our advisor affect the net asset value of my shares?

 

A:

No. The acceleration of the payment of incentive compensation to our advisor will not affect the net asset value of our shares of common stock because our net asset value calculation has always included the potential liability related to the incentive fee. Therefore, the acceleration of the incentive compensation to our advisor will not impact the net asset value per share compared to what the value would be if this payment was not made.

 

 

 

Q:

Does elimination of section 5.11 and pursuit of a perpetual-life NAV REIT strategy mean you will never seek a liquidity event or consider other strategies to create value for stockholders, or sources of stockholder liquidity other than the share redemption program and/or periodic self-tender offers?

 

A:

No. With or without Section 5.11, our board of directors is always mindful of our various strategic alternatives and will always be willing to change strategies if it concludes that it is in the best interests of our stockholders to do so. These strategic alternatives can consist of any number of options including a public listing of our shares on a national stock exchange, selling assets individually, and /or selling the entire portfolio in a single transaction to a third-party.

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Q:	If the stockholders vote against either Proposal 3 (the removal of Section 5.11 from the charter) or Proposal 4 (the acceleration of the payment of incentive compensation to the advisor), will the company still pursue a perpetual-life NAV REIT strategy?

 

A:

Removal of Section 5.11 from the charter is not required in order for the company to pursue a perpetual-life NAV REIT strategy. However, we believe we are more likely to succeed with the strategy if we remove Section 5.11 of the charter. Similarly, stockholder approval of acceleration of the payment of incentive compensation to our advisor is not required in order for the company to pursue a perpetual-life NAV REIT strategy. However, we believe the change is appropriate in connection with the pursuit of a perpetual-life NAV REIT strategy. For this reason, neither Proposal 3 nor Proposal 4 will take effect unless both are approved by our stockholders. If our stockholders vote against either Proposal 3 or Proposal 4, our board of directors will meet to determine whether to continue with a perpetual-life NAV REIT strategy or what other reasonably available alternatives to pursue in the best interest of the company and our stockholders, including, without limitation, continuing to operate under the current business plan.

 

 

 

Q:	Have the independent directors approved the pursuit of a perpetual-life NAV REIT, the proposal to remove Section 5.11 of the charter and the proposal to accelerate the payment of incentive compensation to the advisor?

 

A:

A Special Committee of our board of directors comprised of all our independent directors has approved the pursuit of a perpetual-life NAV REIT, which includes submitting to stockholders for their approval the proposal to remove Section 5.11 of the charter and the proposal to accelerate the payment of incentive compensation to the advisor. However, implementation of the proposed charter amendment and the proposed acceleration of the payment of incentive compensation to the advisor remain subject to further approval of the Special Committee, which in turn remains subject to the Special Committee’s receipt and review of a fairness opinion from its independent financial advisor as to the fairness of the acceleration of the payment of incentive compensation to the advisor and the revised fee structure for our advisor in connection with the Proposed NAV REIT Conversion (the “Fairness Opinion”), which can only be delivered after the proposed amount of the accelerated payment of the incentive fee has been determined by us. If received, the Fairness Opinion is expected to be delivered immediately prior to the implementation of the Proposed NAV REIT Conversion.

Cautionary Statement Regarding Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in those acts. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission (the “SEC”). We make no representations or warranties (expressed or implied) about the accuracy of any such forward-looking statements contained in this proxy statement, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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Any such forward-looking statements are subject to risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual conditions, our ability to accurately anticipate results expressed in such forward-looking statements, including our ability to generate positive cash flows from operations, make distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered. See Item 1A in our Annual Report on Form 10-K filed with the SEC on March 10, 2017 for a discussion of some of the risks and uncertainties, although not all risks and uncertainties, that could cause actual results to differ materially from those presented in our forward-looking statements. In addition, see “Proposed NAV REIT Conversion” in the proxy statement for the 2017 annual meeting for risks specific to the proposed conversion to an NAV REIT.