x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Maryland
|
|
26-0658752
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
800 Newport Center Drive, Suite 700
Newport Beach, California
|
|
92660
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
Large Accelerated Filer
|
|
¨
|
|
|
Accelerated Filer
|
|
¨
|
Non-Accelerated Filer
|
|
x
|
|
|
Smaller reporting company
|
|
¨
|
|
|
|
|
|
Emerging growth company
|
|
¨
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
None
|
N/A
|
N/A
|
PART I.
|
|||
|
Item 1.
|
||
|
|
||
|
|
||
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||
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|
||
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||
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Item 2.
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||
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Item 3.
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||
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Item 4.
|
||
PART II.
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|||
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Item 1.
|
||
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Item 1A.
|
||
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Item 2.
|
||
|
Item 3.
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||
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Item 4.
|
||
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Item 5.
|
||
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Item 6.
|
||
|
|
June 30, 2019
|
|
December 31, 2018
|
||||
|
|
(unaudited)
|
|
|
||||
Assets
|
|
|
|
|
||||
Real estate:
|
|
|
|
|
||||
Land
|
|
$
|
137,536
|
|
|
$
|
137,536
|
|
Buildings and improvements
|
|
870,072
|
|
|
847,969
|
|
||
Tenant origination and absorption costs
|
|
28,042
|
|
|
30,863
|
|
||
Total real estate held for investment, cost
|
|
1,035,650
|
|
|
1,016,368
|
|
||
Less accumulated depreciation and amortization
|
|
(170,618
|
)
|
|
(154,825
|
)
|
||
Total real estate held for investment, net
|
|
865,032
|
|
|
861,543
|
|
||
Real estate held for sale, net
|
|
—
|
|
|
92,664
|
|
||
Total real estate, net
|
|
865,032
|
|
|
954,207
|
|
||
Cash and cash equivalents
|
|
41,737
|
|
|
57,730
|
|
||
Restricted cash
|
|
15,240
|
|
|
17,957
|
|
||
Rents and other receivables, net
|
|
82,735
|
|
|
89,549
|
|
||
Above-market leases, net
|
|
187
|
|
|
224
|
|
||
Assets related to real estate held for sale
|
|
—
|
|
|
7,962
|
|
||
Prepaid expenses and other assets
|
|
32,059
|
|
|
29,388
|
|
||
Total assets
|
|
$
|
1,036,990
|
|
|
$
|
1,157,017
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
||||
Notes payable:
|
|
|
|
|
||||
Notes payable, net
|
|
$
|
383,343
|
|
|
$
|
373,927
|
|
Notes payable related to real estate held for sale, net
|
|
—
|
|
|
41,281
|
|
||
Total notes payable, net
|
|
383,343
|
|
|
415,208
|
|
||
Accounts payable and accrued liabilities
|
|
50,026
|
|
|
48,903
|
|
||
Due to affiliate
|
|
57
|
|
|
55
|
|
||
Distributions payable
|
|
3,835
|
|
|
3,874
|
|
||
Below-market leases, net
|
|
217
|
|
|
308
|
|
||
Liabilities related to real estate held for sale
|
|
—
|
|
|
6
|
|
||
Other liabilities
|
|
15,786
|
|
|
17,189
|
|
||
Total liabilities
|
|
453,264
|
|
|
485,543
|
|
||
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
||
Redeemable common stock
|
|
7,093
|
|
|
10,000
|
|
||
Stockholders’ equity:
|
|
|
|
|
||||
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding
|
|
—
|
|
|
—
|
|
||
Common stock, $.01 par value; 1,000,000,000 shares authorized, 185,871,023 and 186,464,794 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
|
|
1,859
|
|
|
1,865
|
|
||
Additional paid-in capital
|
|
1,667,903
|
|
|
1,667,897
|
|
||
Cumulative distributions in excess of net income
|
|
(1,093,129
|
)
|
|
(1,008,288
|
)
|
||
Total stockholders’ equity
|
|
576,633
|
|
|
661,474
|
|
||
Total liabilities and stockholders’ equity
|
|
$
|
1,036,990
|
|
|
$
|
1,157,017
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Revenues:
|
|
|
|
|
|
|
|
|
||||||||
Rental income
|
|
$
|
25,792
|
|
|
$
|
32,040
|
|
|
$
|
53,676
|
|
|
$
|
65,167
|
|
Interest income from real estate loans receivable
|
|
—
|
|
|
174
|
|
|
—
|
|
|
434
|
|
||||
Other operating income
|
|
1,882
|
|
|
2,408
|
|
|
3,879
|
|
|
4,697
|
|
||||
Total revenues
|
|
27,674
|
|
|
34,622
|
|
|
57,555
|
|
|
70,298
|
|
||||
Expenses:
|
|
|
|
|
|
|
|
|
||||||||
Operating, maintenance, and management
|
|
8,574
|
|
|
8,081
|
|
|
17,876
|
|
|
16,606
|
|
||||
Real estate taxes and insurance
|
|
4,582
|
|
|
4,428
|
|
|
9,665
|
|
|
9,247
|
|
||||
Asset management fees to affiliate
|
|
2,581
|
|
|
2,730
|
|
|
5,238
|
|
|
5,504
|
|
||||
General and administrative expenses
|
|
1,189
|
|
|
1,224
|
|
|
2,862
|
|
|
3,036
|
|
||||
Depreciation and amortization
|
|
10,218
|
|
|
12,490
|
|
|
22,003
|
|
|
26,350
|
|
||||
Interest expense
|
|
4,363
|
|
|
4,344
|
|
|
8,844
|
|
|
9,319
|
|
||||
Total expenses
|
|
31,507
|
|
|
33,297
|
|
|
66,488
|
|
|
70,062
|
|
||||
Other income:
|
|
|
|
|
|
|
|
|
||||||||
Other interest income
|
|
163
|
|
|
285
|
|
|
363
|
|
|
487
|
|
||||
Loss from extinguishment of debt
|
|
(306
|
)
|
|
(120
|
)
|
|
(306
|
)
|
|
(212
|
)
|
||||
Gain on sale of real estate, net
|
|
30,754
|
|
|
24,884
|
|
|
30,754
|
|
|
24,884
|
|
||||
Total other income
|
|
30,611
|
|
|
25,049
|
|
|
30,811
|
|
|
25,159
|
|
||||
Net income
|
|
$
|
26,778
|
|
|
$
|
26,374
|
|
|
$
|
21,878
|
|
|
$
|
25,395
|
|
Net income per common share, basic and diluted
|
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.12
|
|
|
$
|
0.14
|
|
Weighted-average number of common shares outstanding, basic and diluted
|
|
186,052,556
|
|
|
187,338,104
|
|
|
186,213,813
|
|
|
187,458,720
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Cumulative Distributions and Net Income (Loss)
|
|
Total Stockholders’ Equity
|
|||||||||||
|
|
Shares
|
|
Amounts
|
|
||||||||||||||
Balance, March 31, 2019
|
|
186,188,796
|
|
|
$
|
1,862
|
|
|
$
|
1,667,900
|
|
|
$
|
(1,024,720
|
)
|
|
$
|
645,042
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,778
|
|
|
26,778
|
|
||||
Redemptions of common stock
|
|
(317,773
|
)
|
|
(3
|
)
|
|
(1,537
|
)
|
|
—
|
|
|
(1,540
|
)
|
||||
Transfers from redeemable common stock
|
|
—
|
|
|
—
|
|
|
1,540
|
|
|
—
|
|
|
1,540
|
|
||||
Distributions declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(95,187
|
)
|
|
(95,187
|
)
|
||||
Balance, June 30, 2019
|
|
185,871,023
|
|
|
$
|
1,859
|
|
|
$
|
1,667,903
|
|
|
$
|
(1,093,129
|
)
|
|
$
|
576,633
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Cumulative Distributions and Net Income (Loss)
|
|
Total Stockholders’ Equity
|
|||||||||||
|
|
Shares
|
|
Amounts
|
|
||||||||||||||
Balance, March 31, 2018
|
|
187,405,210
|
|
|
$
|
1,874
|
|
|
$
|
1,673,770
|
|
|
$
|
(1,003,350
|
)
|
|
$
|
672,294
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26,374
|
|
|
26,374
|
|
||||
Redemptions of common stock
|
|
(242,936
|
)
|
|
(2
|
)
|
|
(1,186
|
)
|
|
—
|
|
|
(1,188
|
)
|
||||
Transfers from redeemable common stock
|
|
—
|
|
|
—
|
|
|
1,188
|
|
|
—
|
|
|
1,188
|
|
||||
Distributions declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,420
|
)
|
|
(11,420
|
)
|
||||
Balance, June 30, 2018
|
|
187,162,274
|
|
|
$
|
1,872
|
|
|
$
|
1,673,772
|
|
|
$
|
(988,396
|
)
|
|
$
|
687,248
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Cumulative Distributions and Net Income (Loss)
|
|
Total Stockholders’ Equity
|
|||||||||||
|
|
Shares
|
|
Amounts
|
|
||||||||||||||
Balance, December 31, 2018
|
|
186,464,794
|
|
|
$
|
1,865
|
|
|
$
|
1,667,897
|
|
|
$
|
(1,008,288
|
)
|
|
$
|
661,474
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21,878
|
|
|
21,878
|
|
||||
Redemptions of common stock
|
|
(593,771
|
)
|
|
(6
|
)
|
|
(2,901
|
)
|
|
—
|
|
|
(2,907
|
)
|
||||
Transfers from redeemable common stock
|
|
—
|
|
|
—
|
|
|
2,907
|
|
|
—
|
|
|
2,907
|
|
||||
Distributions declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(106,719
|
)
|
|
(106,719
|
)
|
||||
Balance, June 30, 2019
|
|
185,871,023
|
|
|
$
|
1,859
|
|
|
$
|
1,667,903
|
|
|
$
|
(1,093,129
|
)
|
|
$
|
576,633
|
|
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Cumulative Distributions and Net Income (Loss)
|
|
Total Stockholders’ Equity
|
|||||||||||
|
|
Shares
|
|
Amounts
|
|
||||||||||||||
Balance, December 31, 2017
|
|
187,666,302
|
|
|
$
|
1,877
|
|
|
$
|
1,673,767
|
|
|
$
|
(991,062
|
)
|
|
$
|
684,582
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,395
|
|
|
25,395
|
|
||||
Redemptions of common stock
|
|
(504,028
|
)
|
|
(5
|
)
|
|
(2,460
|
)
|
|
—
|
|
|
(2,465
|
)
|
||||
Transfers from redeemable common stock
|
|
—
|
|
|
—
|
|
|
2,465
|
|
|
—
|
|
|
2,465
|
|
||||
Distributions declared
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22,729
|
)
|
|
(22,729
|
)
|
||||
Balance, June 30, 2018
|
|
187,162,274
|
|
|
$
|
1,872
|
|
|
$
|
1,673,772
|
|
|
$
|
(988,396
|
)
|
|
$
|
687,248
|
|
|
|
Six Months Ended June 30,
|
||||||
|
|
2019
|
|
2018
|
||||
Cash Flows from Operating Activities:
|
|
|
|
|
||||
Net income
|
|
$
|
21,878
|
|
|
$
|
25,395
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Depreciation and amortization
|
|
22,003
|
|
|
26,350
|
|
||
Noncash interest income on real estate-related investments
|
|
—
|
|
|
3
|
|
||
Deferred rent
|
|
3,173
|
|
|
1,959
|
|
||
Bad debt expense
|
|
—
|
|
|
173
|
|
||
Amortization of above- and below-market leases, net
|
|
(56
|
)
|
|
537
|
|
||
Amortization of deferred financing costs
|
|
790
|
|
|
608
|
|
||
Loss from extinguishment of debt
|
|
306
|
|
|
212
|
|
||
Gain on sale of real estate, net
|
|
(30,754
|
)
|
|
(24,884
|
)
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Rents and other receivables
|
|
3,673
|
|
|
(192
|
)
|
||
Prepaid expenses and other assets
|
|
(4,465
|
)
|
|
(2,503
|
)
|
||
Accounts payable and accrued liabilities
|
|
(2,668
|
)
|
|
(85
|
)
|
||
Due to affiliate
|
|
2
|
|
|
(12
|
)
|
||
Other liabilities
|
|
(1,403
|
)
|
|
11,332
|
|
||
Net cash provided by operating activities
|
|
12,479
|
|
|
38,893
|
|
||
Cash Flows from Investing Activities:
|
|
|
|
|
||||
Proceeds from sale of real estate
|
|
130,285
|
|
|
94,015
|
|
||
Improvements to real estate
|
|
(18,848
|
)
|
|
(14,104
|
)
|
||
Principal repayments on real estate loans receivable
|
|
—
|
|
|
13,920
|
|
||
Net cash provided by investing activities
|
|
111,437
|
|
|
93,831
|
|
||
Cash Flows from Financing Activities:
|
|
|
|
|
||||
Proceeds from note payable
|
|
39,000
|
|
|
375,000
|
|
||
Principal payments on notes payable
|
|
(71,336
|
)
|
|
(460,186
|
)
|
||
Payments of deferred financing costs
|
|
(625
|
)
|
|
(2,809
|
)
|
||
Payments to redeem common stock
|
|
(2,907
|
)
|
|
(2,465
|
)
|
||
Distributions paid to common stockholders
|
|
(106,758
|
)
|
|
(23,342
|
)
|
||
Net cash used in financing activities
|
|
(142,626
|
)
|
|
(113,802
|
)
|
||
Net (decrease) increase in cash and cash equivalents and restricted cash
|
|
(18,710
|
)
|
|
18,922
|
|
||
Cash and cash equivalents and restricted cash, beginning of period
|
|
75,687
|
|
|
86,643
|
|
||
Cash and cash equivalents and restricted cash, end of period
|
|
$
|
56,977
|
|
|
$
|
105,565
|
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
|
||||
Interest paid
|
|
$
|
8,180
|
|
|
$
|
8,800
|
|
Supplemental Disclosure of Noncash Transactions:
|
|
|
|
|
||||
Accrued improvements to real estate
|
|
$
|
8,609
|
|
|
$
|
9,811
|
|
Distributions payable
|
|
$
|
3,835
|
|
|
$
|
3,763
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
1.
|
ORGANIZATION
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
•
|
For each month commencing January 2019 through June 2019, the Company’s board of directors declared distributions per common share in the amount of
$0.02062500
per share of common stock to stockholders of record based on a monthly record date.
|
•
|
On June 12, 2019, the Company’s board of directors declared a special distribution in the amount of
$0.45
per share of common stock to stockholders of record as of the close of business on June 17, 2019.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
•
|
whether the lease stipulates how a tenant improvement allowance may be spent;
|
•
|
whether the lessee or lessor supervises the construction and bears the risk of cost overruns;
|
•
|
whether the amount of a tenant improvement allowance is in excess of market rates;
|
•
|
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
|
•
|
whether the tenant improvements are unique to the tenant or general purpose in nature; and
|
•
|
whether the tenant improvements are expected to have any residual value at the end of the lease.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
3.
|
REAL ESTATE HELD FOR INVESTMENT
|
Property
|
|
Date Acquired
|
|
City
|
|
State
|
|
Property Type
|
|
Total Real Estate
at Cost
|
|
Accumulated Depreciation and Amortization
|
|
Total Real Estate, Net
|
||||||
100 & 200 Campus Drive Buildings
|
|
09/09/2008
|
|
Florham Park
|
|
NJ
|
|
Office
|
|
$
|
155,167
|
|
|
$
|
(19,557
|
)
|
|
$
|
135,610
|
|
300-600 Campus Drive Buildings
|
|
10/10/2008
|
|
Florham Park
|
|
NJ
|
|
Office
|
|
162,064
|
|
|
(24,635
|
)
|
|
137,429
|
|
|||
Willow Oaks Corporate Center
|
|
08/26/2009
|
|
Fairfax
|
|
VA
|
|
Office
|
|
115,526
|
|
|
(23,292
|
)
|
|
92,234
|
|
|||
Union Bank Plaza
|
|
09/15/2010
|
|
Los Angeles
|
|
CA
|
|
Office
|
|
193,727
|
|
|
(32,189
|
)
|
|
161,538
|
|
|||
Granite Tower
|
|
12/16/2010
|
|
Denver
|
|
CO
|
|
Office
|
|
140,830
|
|
|
(30,530
|
)
|
|
110,300
|
|
|||
Fountainhead Plaza
|
|
09/13/2011
|
|
Tempe
|
|
AZ
|
|
Office
|
|
119,384
|
|
|
(25,989
|
)
|
|
93,395
|
|
|||
Corporate Technology Centre
|
|
03/28/2013
|
|
San Jose
|
|
CA
|
|
Office
|
|
148,952
|
|
|
(14,426
|
)
|
|
134,526
|
|
|||
|
|
|
|
|
|
|
|
|
|
$
|
1,035,650
|
|
|
$
|
(170,618
|
)
|
|
$
|
865,032
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
Property
|
|
Location
|
|
Rentable
Square Feet
|
|
Total Real Estate, Net
(in thousands)
|
|
Percentage of
Total Assets
|
|
Annualized Base Rent
(in thousands)
(1)
|
|
Average Annualized Base Rent per Sq. Ft.
|
|
Occupancy
|
|||||||||
Union Bank Plaza
|
|
Los Angeles, CA
|
|
701,888
|
|
|
$
|
161,538
|
|
|
15.6
|
%
|
|
$
|
20,752
|
|
|
$
|
37.50
|
|
|
79
|
%
|
300-600 Campus Drive Buildings
|
|
Florham Park, NJ
|
|
578,388
|
|
|
137,429
|
|
|
13.3
|
%
|
|
18,162
|
|
|
33.53
|
|
|
94
|
%
|
|||
100 & 200 Campus Drive Buildings
|
|
Florham Park, NJ
|
|
590,458
|
|
|
135,610
|
|
|
13.1
|
%
|
|
14,041
|
|
|
31.79
|
|
|
75
|
%
|
|||
Corporate Technology Centre
(2)
|
|
San Jose, CA
|
|
415,700
|
|
|
134,526
|
|
|
13.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|||
Granite Tower
|
|
Denver, CO
|
|
591,070
|
|
|
110,300
|
|
|
10.6
|
%
|
|
16,921
|
|
|
33.11
|
|
|
86
|
%
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
July 1, 2019 through December 31, 2019
|
$
|
43,435
|
|
2020
|
91,742
|
|
|
2021
|
87,195
|
|
|
2022
|
76,614
|
|
|
2023
|
69,202
|
|
|
Thereafter
|
321,699
|
|
|
|
$
|
689,887
|
|
Industry
|
|
Number of Tenants
|
|
Annualized Base Rent
(1)
(in thousands)
|
|
Percentage of Annualized Base Rent
|
|||
Finance
|
|
21
|
|
$
|
24,793
|
|
|
28.0
|
%
|
Mining, Oil & Gas Extraction
|
|
3
|
|
13,066
|
|
|
14.7
|
%
|
|
Educational Services
|
|
1
|
|
11,728
|
|
|
13.2
|
%
|
|
Legal Services
|
|
18
|
|
10,300
|
|
|
11.6
|
%
|
|
|
|
|
|
$
|
59,887
|
|
|
67.5
|
%
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
Annualized Base Rent Statistics
|
|
|
|||||||||
Tenant
|
|
Property
|
|
Tenant Industry
|
|
Square Feet
|
|
% of Portfolio
(Net Rentable Sq. Ft.)
|
|
Annualized Base Rent
(in thousands)
(1)
|
|
% of Portfolio Annualized Base Rent
|
|
Annualized Base Rent per Sq. Ft.
|
|
Lease Expiration
|
|||||
Union Bank
|
|
Union Bank Plaza
|
|
Finance
|
|
295,563
|
|
|
10.7%
|
|
$
|
13,687
|
|
|
15.4%
|
|
$
|
46.31
|
|
|
01/31/2022
(2)(3)
|
The University of Phoenix
|
|
Fountainhead Plaza
|
|
Educational Services
|
|
445,957
|
|
|
16.2%
|
|
11,728
|
|
|
13.2%
|
|
26.30
|
|
|
08/31/2023
(4)
|
||
Anadarko Petroleum Corporation
|
|
Granite Tower
|
|
Mining, Oil & Gas Extraction
|
|
360,584
|
|
|
13.1%
|
|
12,168
|
|
|
13.7%
|
|
33.75
|
|
|
04/30/2021 /
04/30/2033
(5)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
4.
|
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
|
|
|
Tenant Origination and
Absorption Costs
|
|
Above-Market
Lease Assets
|
|
Below-Market
Lease Liabilities
|
||||||||||||||||||
|
|
June 30,
2019 |
|
December 31,
2018 |
|
June 30,
2019 |
|
December 31,
2018 |
|
June 30,
2019 |
|
December 31,
2018 |
||||||||||||
Cost
|
|
$
|
28,042
|
|
|
$
|
30,863
|
|
|
$
|
835
|
|
|
$
|
835
|
|
|
$
|
(1,154
|
)
|
|
$
|
(2,635
|
)
|
Accumulated amortization
|
|
(15,870
|
)
|
|
(16,873
|
)
|
|
(648
|
)
|
|
(611
|
)
|
|
937
|
|
|
2,327
|
|
||||||
Net amount
|
|
$
|
12,172
|
|
|
$
|
13,990
|
|
|
$
|
187
|
|
|
$
|
224
|
|
|
$
|
(217
|
)
|
|
$
|
(308
|
)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
5.
|
REAL ESTATE HELD FOR SALE
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Revenues
|
|
|
|
|
|
|
|
|
||||||||
Rental income
|
|
$
|
2,696
|
|
|
$
|
5,794
|
|
|
$
|
7,868
|
|
|
$
|
12,656
|
|
Other operating income
|
|
279
|
|
|
532
|
|
|
793
|
|
|
998
|
|
||||
Total revenues
|
|
2,975
|
|
|
6,326
|
|
|
8,661
|
|
|
13,654
|
|
||||
Expenses
|
|
|
|
|
|
|
|
|
||||||||
Operating, maintenance, and management
|
|
983
|
|
|
1,622
|
|
|
2,583
|
|
|
3,243
|
|
||||
Real estate taxes and insurance
|
|
362
|
|
|
1,000
|
|
|
1,407
|
|
|
2,136
|
|
||||
Asset management fees to affiliate
|
|
165
|
|
|
349
|
|
|
450
|
|
|
786
|
|
||||
General and administrative expenses
|
|
(154
|
)
|
|
21
|
|
|
2
|
|
|
21
|
|
||||
Depreciation and amortization
|
|
—
|
|
|
1,757
|
|
|
1,598
|
|
|
3,986
|
|
||||
Interest expense
|
|
300
|
|
|
609
|
|
|
783
|
|
|
1,485
|
|
||||
Total expenses
|
|
$
|
1,656
|
|
|
$
|
5,358
|
|
|
$
|
6,823
|
|
|
$
|
11,657
|
|
|
June 30, 2019
|
|
December 31, 2018
|
||||
Assets related to real estate held for sale
|
|
|
|
||||
Total real estate, at cost
|
$
|
—
|
|
|
$
|
111,570
|
|
Accumulated depreciation and amortization
|
—
|
|
|
(18,906
|
)
|
||
Real estate held for sale, net
|
—
|
|
|
92,664
|
|
||
Other assets
|
—
|
|
|
7,962
|
|
||
Total assets related to real estate held for sale
|
$
|
—
|
|
|
$
|
100,626
|
|
Liabilities related to real estate held for sale
|
|
|
|
||||
Notes payable, net
|
—
|
|
|
41,281
|
|
||
Other liabilities
|
—
|
|
|
6
|
|
||
Total liabilities related to real estate held for sale
|
$
|
—
|
|
|
$
|
41,287
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
6.
|
NOTES PAYABLE
|
|
|
Book Value as of
June 30,
2019
|
|
Book Value as of
December 31, 2018
|
|
Contractual Interest Rate as of
June 30,
2019
(1)
|
|
Effective Interest Rate
as of
June 30,
2019
(1)
|
|
Payment Type
|
|
Maturity Date
(2)
|
||||
Corporate Technology Centre Mortgage Loan
(3)
|
|
$
|
41,222
|
|
|
$
|
41,868
|
|
|
3.50%
|
|
3.5%
|
|
Principal & Interest
|
|
04/01/2020
|
Portfolio Loan Facility
(4)
|
|
343,310
|
|
|
375,000
|
|
|
One-month LIBOR + 1.45%
|
|
3.9%
|
|
Interest Only
|
|
03/29/2020
|
||
Total notes payable principal outstanding
|
|
$
|
384,532
|
|
|
$
|
416,868
|
|
|
|
|
|
|
|
|
|
Deferred financing costs, net
|
|
(1,189
|
)
|
|
(1,660
|
)
|
|
|
|
|
|
|
|
|
||
Total notes payable, net
|
|
$
|
383,343
|
|
|
$
|
415,208
|
|
|
|
|
|
|
|
|
|
July 1, 2019 through December 31, 2019
|
|
$
|
658
|
|
2020
|
|
383,874
|
|
|
|
|
$
|
384,532
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
7.
|
FAIR VALUE DISCLOSURES
|
•
|
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
|
•
|
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
|
•
|
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.
|
|
|
June 30, 2019
|
|
December 31, 2018
|
||||||||||||||||||||
|
|
Face Value
|
|
Carrying Amount
|
|
Fair Value
|
|
Face Value
|
|
Carrying Amount
|
|
Fair Value
|
||||||||||||
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Notes payable
|
|
$
|
384,532
|
|
|
$
|
383,343
|
|
|
$
|
385,321
|
|
|
$
|
416,868
|
|
|
$
|
415,208
|
|
|
$
|
416,163
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
8.
|
RELATED PARTY TRANSACTIONS
|
|
|
Incurred
|
|
Payable as of
|
||||||||||||||||||||
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
June 30,
|
|
December 31,
|
||||||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||||||
Expensed
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Asset management fees
|
|
$
|
2,581
|
|
|
$
|
2,730
|
|
|
$
|
5,238
|
|
|
$
|
5,504
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reimbursement of operating expenses
(1)
|
|
73
|
|
|
99
|
|
|
153
|
|
|
177
|
|
|
57
|
|
|
55
|
|
||||||
Disposition fees
(2)
|
|
1,334
|
|
|
972
|
|
|
1,334
|
|
|
972
|
|
|
—
|
|
|
—
|
|
||||||
|
|
$
|
3,988
|
|
|
$
|
3,801
|
|
|
$
|
6,725
|
|
|
$
|
6,653
|
|
|
$
|
57
|
|
|
$
|
55
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 1.
|
Financial Statements (continued)
|
9.
|
COMMITMENTS AND CONTINGENCIES
|
10.
|
SUBSEQUENT EVENTS
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
All of our executive officers, one of our directors and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, the entity that acted as our dealer manager and/or other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions.
|
•
|
We pay substantial fees to and expenses of our advisor and its affiliates. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders.
|
•
|
We have used proceeds from financings, when necessary, to fund a portion of our distributions during our operational stage. We currently expect that our distributions will generally be paid from cash flow from operations and funds from operations from current or prior periods, except with respect to distributions paid from the net proceeds from the sale of real estate. We can give no assurance regarding the timing, amount or source of future distributions.
|
•
|
We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders.
|
•
|
Our investments in real estate may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from our properties could decrease. Such events would make it more difficult for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders.
|
•
|
Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to our stockholders.
|
•
|
Our portfolio loan facility bears interest at a variable rate of 145 basis points over one-month LIBOR, and we may incur additional variable rate debt in the future. The interest and related payments on our variable rate debt will vary with the movement of LIBOR or other indexes. Increases in one-month LIBOR or other indexes would increase the amount of our debt payments and could limit our ability to pay distributions to our stockholders.
|
•
|
Our share redemption program provides only for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program document, and, together with redemptions sought in connection with a stockholder’s death, “Special Redemptions”). The dollar amounts available for such redemptions are determined by the board of directors and may be reviewed and adjusted from time to time. Additionally, redemptions are further subject to limitations described in our share redemption program. We currently do not expect to have funds available for ordinary redemptions in the future.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
•
|
Since we have terminated our dividend reinvestment plan, we may have to use a greater proportion of our cash flow from operations and proceeds from the sales of real estate properties to meet cash requirements for general corporate purposes, including, but not limited to, capital expenditures, tenant improvement costs and leasing costs related to our real estate properties; reserves required by financings of our real estate properties; the repayment of debt; and Special Redemptions under our share redemption program. This may reduce cash available for distributions.
|
•
|
During the year ended December 31, 2018, we sold three office buildings that were part of an eight-building office campus and received the repayment on one real estate loan receivable. During the
six
months ended
June 30, 2019
, we sold two office properties. As a result of our disposition activity, our general and administrative expenses, which are not directly related to the size of our portfolio, have increased as a percentage of our cash flow from operations and will continue to increase to the extent we sell additional assets.
|
•
|
Although the Special Committee (defined below) engaged a financial advisor to assist us and the Special Committee with the exploration of strategic alternatives for us, we are not obligated to enter into any particular transaction or any transaction at all. While we anticipate that our exploration of strategic alternatives and marketing of some of our remaining assets for sale will result in additional stockholder liquidity, there is no assurance that this will be the case, nor can we give assurance that it will provide a return to stockholders that equals or exceeds our estimated value per share. We do not expect to provide additional updates regarding our review of strategic alternatives until such time, if any, that we are prepared to announce a material transaction or to conclude the strategic review.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
•
|
$130.3 million of net proceeds from the sale of two office properties; and
|
•
|
$18.9 million used for improvements to real estate.
|
•
|
$106.8 million of cash used for distributions;
|
•
|
$71.3 million of principal payments on notes payable.
|
•
|
$39.0 million of proceeds from notes payable;
|
•
|
$2.9 million of cash used for redemptions of common stock; and
|
•
|
$0.6 million of payments of deferred financing costs.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
|
|
|
|
Payments Due During the Years Ending December 31,
|
||||||||
Contractual Obligations
|
|
Total
|
|
Remainder of 2019
|
|
2020
|
||||||
Outstanding debt obligations
(1)
|
|
$
|
384,532
|
|
|
$
|
658
|
|
|
$
|
383,874
|
|
Interest payments on outstanding debt obligations
(2)
|
|
11,177
|
|
|
7,449
|
|
|
3,728
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
|
|
Three Months Ended June 30,
|
|
Increase (Decrease)
|
|
Percentage Change
|
|
$ Change Due to Dispositions
(1)
|
|
$ Change Due to Properties
Held Throughout
Both Periods
(2)
|
|||||||||||||
|
|
2019
|
|
2018
|
|
|
|
|
|||||||||||||||
Rental income
|
|
$
|
25,792
|
|
|
$
|
32,040
|
|
|
$
|
(6,248
|
)
|
|
(20
|
)%
|
|
$
|
(3,098
|
)
|
|
$
|
(3,150
|
)
|
Interest income from real estate loan receivable
|
|
—
|
|
|
174
|
|
|
(174
|
)
|
|
(100
|
)%
|
|
(174
|
)
|
|
—
|
|
|||||
Other operating income
|
|
1,882
|
|
|
2,408
|
|
|
(526
|
)
|
|
(22
|
)%
|
|
(253
|
)
|
|
(273
|
)
|
|||||
Operating, maintenance and management costs
|
|
8,574
|
|
|
8,081
|
|
|
493
|
|
|
6
|
%
|
|
(639
|
)
|
|
1,132
|
|
|||||
Real estate taxes and insurance
|
|
4,582
|
|
|
4,428
|
|
|
154
|
|
|
3
|
%
|
|
(638
|
)
|
|
792
|
|
|||||
Asset management fees to affiliate
|
|
2,581
|
|
|
2,730
|
|
|
(149
|
)
|
|
(5
|
)%
|
|
(210
|
)
|
|
61
|
|
|||||
General and administrative expenses
|
|
1,189
|
|
|
1,224
|
|
|
(35
|
)
|
|
(3
|
)%
|
|
n/a
|
|
|
n/a
|
|
|||||
Depreciation and amortization
|
|
10,218
|
|
|
12,490
|
|
|
(2,272
|
)
|
|
(18
|
)%
|
|
(1,757
|
)
|
|
(515
|
)
|
|||||
Interest expense
|
|
4,363
|
|
|
4,344
|
|
|
19
|
|
|
—
|
%
|
|
(309
|
)
|
|
328
|
|
|||||
Other interest income
|
|
163
|
|
|
285
|
|
|
(122
|
)
|
|
(43
|
)%
|
|
n/a
|
|
|
n/a
|
|
|||||
Loss from extinguishment of debt
|
|
(306
|
)
|
|
(120
|
)
|
|
(186
|
)
|
|
155
|
%
|
|
(186
|
)
|
|
—
|
|
|||||
Gain on sale of real estate, net
|
|
30,754
|
|
|
24,884
|
|
|
5,870
|
|
|
24
|
%
|
|
5,870
|
|
|
—
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
|
|
Six Months Ended
June 30,
|
|
Increase (Decrease)
|
|
Percentage Change
|
|
$ Change Due to Dispositions
(1)
|
|
$ Change Due to Properties
Held Throughout
Both Periods
(2)
|
|||||||||||||
|
|
2019
|
|
2018
|
|
|
|
|
|||||||||||||||
Rental income
|
|
$
|
53,676
|
|
|
$
|
65,167
|
|
|
$
|
(11,491
|
)
|
|
(18
|
)%
|
|
$
|
(4,788
|
)
|
|
$
|
(6,703
|
)
|
Interest income from real estate loan receivable
|
|
—
|
|
|
434
|
|
|
(434
|
)
|
|
(100
|
)%
|
|
(434
|
)
|
|
—
|
|
|||||
Other operating income
|
|
3,879
|
|
|
4,697
|
|
|
(818
|
)
|
|
(17
|
)%
|
|
(205
|
)
|
|
(613
|
)
|
|||||
Operating, maintenance and management costs
|
|
17,876
|
|
|
16,606
|
|
|
1,270
|
|
|
8
|
%
|
|
(660
|
)
|
|
1,930
|
|
|||||
Real estate taxes and insurance
|
|
9,665
|
|
|
9,247
|
|
|
418
|
|
|
5
|
%
|
|
(729
|
)
|
|
1,147
|
|
|||||
Asset management fees to affiliate
|
|
5,238
|
|
|
5,504
|
|
|
(266
|
)
|
|
(5
|
)%
|
|
(387
|
)
|
|
121
|
|
|||||
General and administrative expenses
|
|
2,862
|
|
|
3,036
|
|
|
(174
|
)
|
|
(6
|
)%
|
|
n/a
|
|
|
n/a
|
|
|||||
Depreciation and amortization
|
|
22,003
|
|
|
26,350
|
|
|
(4,347
|
)
|
|
(16
|
)%
|
|
(2,388
|
)
|
|
(1,959
|
)
|
|||||
Interest expense
|
|
8,844
|
|
|
9,319
|
|
|
(475
|
)
|
|
(5
|
)%
|
|
(702
|
)
|
|
227
|
|
|||||
Other interest income
|
|
363
|
|
|
487
|
|
|
(124
|
)
|
|
(25
|
)%
|
|
n/a
|
|
|
n/a
|
|
|||||
Loss from extinguishment of debt
|
|
(306
|
)
|
|
(212
|
)
|
|
(94
|
)
|
|
44
|
%
|
|
(94
|
)
|
|
—
|
|
|||||
Gain on sale of real estate, net
|
|
30,754
|
|
|
24,884
|
|
|
5,870
|
|
|
24
|
%
|
|
5,870
|
|
|
—
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
•
|
Adjustments for straight-line rent.
These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;
|
•
|
Amortization of above- and below-market leases.
Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since real estate values and market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate; and
|
•
|
Loss from extinguishment of debt
. A loss from extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance.
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
Net income
|
|
$
|
26,778
|
|
|
$
|
26,374
|
|
|
$
|
21,878
|
|
|
$
|
25,395
|
|
Depreciation of real estate assets
|
|
7,985
|
|
|
8,878
|
|
|
17,243
|
|
|
18,026
|
|
||||
Amortization of lease-related costs
|
|
2,233
|
|
|
3,612
|
|
|
4,760
|
|
|
8,324
|
|
||||
Gain on sale of real estate, net
|
|
(30,754
|
)
|
|
(24,884
|
)
|
|
(30,754
|
)
|
|
(24,884
|
)
|
||||
FFO
|
|
6,242
|
|
|
13,980
|
|
|
13,127
|
|
|
26,861
|
|
||||
Straight-line rent and amortization of above- and below-market leases
|
|
1,377
|
|
|
1,442
|
|
|
3,117
|
|
|
2,496
|
|
||||
Amortization of discounts and closing costs
|
|
—
|
|
|
2
|
|
|
—
|
|
|
3
|
|
||||
Loss from extinguishment of debt
|
|
306
|
|
|
120
|
|
|
306
|
|
|
212
|
|
||||
MFFO
|
|
$
|
7,925
|
|
|
$
|
15,544
|
|
|
$
|
16,550
|
|
|
$
|
29,572
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
||||||||||||
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
MFFO by component:
|
|
|
|
|
|
|
|
|
||||||||
Assets held for investment
|
|
$
|
6,534
|
|
|
$
|
13,536
|
|
|
$
|
13,374
|
|
|
$
|
23,781
|
|
Real estate properties sold
|
|
1,391
|
|
|
1,858
|
|
|
3,176
|
|
|
5,406
|
|
||||
Real estate loans receivable paid off
|
|
—
|
|
|
150
|
|
|
—
|
|
|
385
|
|
||||
MFFO
|
|
$
|
7,925
|
|
|
$
|
15,544
|
|
|
$
|
16,550
|
|
|
$
|
29,572
|
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
Period
|
|
Distributions Declared
(1)
|
|
Distributions Declared Per Share
(1)
|
|
Distributions Paid
(2)
|
|
Cash Flow From Operations
|
||||||||
First Quarter 2019
|
|
$
|
11,532
|
|
|
$
|
0.062
|
|
|
$
|
11,564
|
|
|
$
|
6,455
|
|
Second Quarter 2019
|
|
95,187
|
|
|
0.512
|
|
|
95,194
|
|
|
6,024
|
|
||||
|
|
$
|
106,719
|
|
|
$
|
0.574
|
|
|
$
|
106,758
|
|
|
$
|
12,479
|
|
•
|
For each month commencing January 2019 through June 2019, our board of directors declared distributions per common share in the amount of $0.02062500 per share of common stock to stockholders of record based on a monthly record date. These distributions totaled approximately $23.1 million.
|
•
|
On June 12, 2019, our board of directors declared the Special Distribution in the amount of $0.45 per share of common stock to stockholders of record as of the close of business on June 17, 2019. This Special Distribution totaled approximately $83.7 million.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
|
•
|
whether the lease stipulates how a tenant improvement allowance may be spent;
|
•
|
whether the lessee or lessor supervises the construction and bears the risk of cost overruns;
|
•
|
whether the amount of a tenant improvement allowance is in excess of market rates;
|
•
|
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
|
•
|
whether the tenant improvements are unique to the tenant or general purpose in nature; and
|
•
|
whether the tenant improvements are expected to have any residual value at the end of the lease.
|
PART I.
|
FINANCIAL INFORMATION (CONTINUED)
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
Item 4.
|
Controls and Procedures
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
a)
|
During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
|
b)
|
Not applicable.
|
PART II.
|
OTHER INFORMATION (CONTINUED)
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds (continued)
|
c)
|
Our share redemption program provides only for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program and, together with redemptions sought in connection with a stockholder’s death, “Special Redemptions”). Such redemptions are subject to the limitations described in the share redemption program document, including:
|
•
|
During each calendar year, Special Redemptions are limited to an annual dollar amount determined by the board of directors, which may be reviewed during the year and increased or decreased upon ten business days’ notice to our stockholders. We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the Securities and Exchange Commission or (b) in a separate mailing to the stockholders. On December 3, 2018, our board of directors approved the dollar amount limitation for Special Redemptions for calendar year 2019 of $10.0 million in the aggregate (subject to review and adjustment during the year by the board of directors), and further subject to the limitations described in the share redemption program.
|
•
|
During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
|
•
|
We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
|
PART II.
|
OTHER INFORMATION (CONTINUED)
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds (continued)
|
Month
|
|
Total Number
of Shares Redeemed
(1)
|
|
Average Price Paid
Per Share
(2)
|
|
Approximate Dollar Value of Shares
Available That May Yet Be Redeemed
Under the Program
|
|||
January 2019
|
|
87,190
|
|
|
$
|
4.95
|
|
|
(3)
|
February 2019
|
|
80,441
|
|
|
$
|
4.95
|
|
|
(3)
|
March 2019
|
|
108,367
|
|
|
$
|
4.95
|
|
|
(3)
|
April 2019
|
|
150,957
|
|
|
$
|
4.95
|
|
|
(3)
|
May 2019
|
|
94,897
|
|
|
$
|
4.95
|
|
|
(3)
|
June 2019
|
|
71,919
|
|
|
$
|
4.50
|
|
|
(3)
|
Total
|
|
593,771
|
|
|
|
|
|
Item 3.
|
Defaults upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Ex.
|
|
Description
|
|
|
|
|
|
3.1
|
|
||
|
|
|
|
3.2
|
|
||
|
|
|
|
4.1
|
|
||
|
|
|
|
10.1
|
|
||
|
|
|
|
10.2
|
|
||
|
|
|
|
10.3
|
|
||
|
|
|
|
31.1
|
|
||
|
|
|
|
31.2
|
|
||
|
|
|
|
32.1
|
|
||
|
|
|
|
32.2
|
|
||
|
|
|
|
99.1
|
|
||
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
|
|
|
|
|
|
KBS REAL ESTATE INVESTMENT TRUST II, INC.
|
|
|
|
|
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ C
HARLES
J. S
CHREIBER
, J
R
.
|
|
|
|
Charles J. Schreiber, Jr.
|
|
|
|
Chairman of the Board,
Chief Executive Officer and Director
|
|
|
|
(principal executive officer)
|
|
|
|
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ J
EFFREY
K. W
ALDVOGEL
|
|
|
|
Jeffrey K. Waldvogel
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
(principal financial officer)
|
By:
|
KBS Capital Advisors, LLC,
|
By:
|
/s/Tim Helgeson
|
Date:
|
2/6/2019
|
By
|
/s/ Chris Lynne
|
Name:
|
Chris Lynne
|
Title:
|
Chief Financial Officer
|
By
|
/s/ William Molina
|
Name:
|
William Molina
|
Title:
|
V.P., Tax
|
REDUCTION DATE
|
|
NEW BALANCE
|
||
AUGUST 31, 2021
|
|
$
|
7,330,748.00
|
|
AUGUST 31, 2022
|
|
$
|
3,910,014.00
|
|
|
1
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
|
2
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
|
3
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
|
4
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
By:
|
KBS Capital Advisors, LLC,
|
By:
|
/s/Tim Helgeson
|
Date:
|
8/6/2019
|
By
|
/s/ Chris Lynne
|
Name:
|
Chris Lynne
|
Title:
|
Chief Financial Officer
|
|
5
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
By
|
/s/ William Molina
|
Name:
|
William Molina
|
Title:
|
V.P., Tax
|
|
6
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
|
7
|
|
UOPX - Sperling Center, AZ - Twelfth Amendment to Lease
|
EXECUTION VERSION
|
TO:
|
UMB BANK, N.A.
|
|
Date: 07/31/19
|
|
International Trade Services
|
|
|
|
1008 Oak Street, Kansas City, Missouri 64106
|
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust II, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ C
HARLES
J. S
CHREIBER
, J
R
.
|
|
|
|
Charles J. Schreiber, Jr.
|
|
|
|
Chairman of the Board,
Chief Executive Officer and Director
|
|
|
|
(principal executive officer)
|
1.
|
I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust II, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ J
EFFREY
K. W
ALDVOGEL
|
|
|
|
Jeffrey K. Waldvogel
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
(principal financial officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ C
HARLES
J. S
CHREIBER
, J
R
.
|
|
|
|
Charles J. Schreiber, Jr.
|
|
|
|
Chairman of the Board,
Chief Executive Officer and Director
|
|
|
|
(principal executive officer)
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
Date:
|
August 12, 2019
|
By:
|
/
S
/ J
EFFREY
K. W
ALDVOGEL
|
|
|
|
Jeffrey K. Waldvogel
|
|
|
|
Chief Financial Officer, Treasurer and Secretary
|
|
|
|
(principal financial officer)
|