FALSEQ300014824302020December 31P6MP1YP1YP1YP3Y33.33P3YP3Y00014824302020-01-012020-09-30xbrli:shares00014824302020-11-09iso4217:USD00014824302020-09-3000014824302019-12-31iso4217:USDxbrli:shares00014824302020-07-012020-09-3000014824302019-07-012019-09-3000014824302019-01-012019-09-300001482430us-gaap:CommonStockMember2020-06-300001482430us-gaap:AdditionalPaidInCapitalMember2020-06-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-06-300001482430us-gaap:ParentMember2020-06-300001482430us-gaap:NoncontrollingInterestMember2020-06-3000014824302020-06-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-07-012020-09-300001482430us-gaap:ParentMember2020-07-012020-09-300001482430us-gaap:NoncontrollingInterestMember2020-07-012020-09-300001482430us-gaap:CommonStockMember2020-07-012020-09-300001482430us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001482430us-gaap:CommonStockMember2020-09-300001482430us-gaap:AdditionalPaidInCapitalMember2020-09-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-09-300001482430us-gaap:ParentMember2020-09-300001482430us-gaap:NoncontrollingInterestMember2020-09-300001482430us-gaap:CommonStockMember2019-06-300001482430us-gaap:AdditionalPaidInCapitalMember2019-06-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-06-300001482430us-gaap:ParentMember2019-06-300001482430us-gaap:NoncontrollingInterestMember2019-06-3000014824302019-06-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-07-012019-09-300001482430us-gaap:ParentMember2019-07-012019-09-300001482430us-gaap:NoncontrollingInterestMember2019-07-012019-09-300001482430us-gaap:CommonStockMember2019-07-012019-09-300001482430us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001482430us-gaap:CommonStockMember2019-09-300001482430us-gaap:AdditionalPaidInCapitalMember2019-09-300001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-09-300001482430us-gaap:ParentMember2019-09-300001482430us-gaap:NoncontrollingInterestMember2019-09-3000014824302019-09-300001482430us-gaap:CommonStockMember2019-12-310001482430us-gaap:AdditionalPaidInCapitalMember2019-12-310001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-12-310001482430us-gaap:ParentMember2019-12-310001482430us-gaap:NoncontrollingInterestMember2019-12-310001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2020-01-012020-09-300001482430us-gaap:ParentMember2020-01-012020-09-300001482430us-gaap:NoncontrollingInterestMember2020-01-012020-09-300001482430us-gaap:CommonStockMember2020-01-012020-09-300001482430us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001482430us-gaap:CommonStockMember2018-12-310001482430us-gaap:AdditionalPaidInCapitalMember2018-12-310001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2018-12-310001482430us-gaap:ParentMember2018-12-310001482430us-gaap:NoncontrollingInterestMember2018-12-3100014824302018-12-310001482430us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember2019-01-012019-09-300001482430us-gaap:ParentMember2019-01-012019-09-300001482430us-gaap:NoncontrollingInterestMember2019-01-012019-09-300001482430us-gaap:CommonStockMember2019-01-012019-09-300001482430us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-30xbrli:pure0001482430kbsriii:KBSLimitedPartnershipIIIMember2020-01-012020-09-300001482430kbsriii:KbsCapitalAdvisorsLlcMember2010-01-260001482430us-gaap:CommonStockMemberkbsriii:KbsCapitalAdvisorsLlcMember2020-09-30kbsriii:numberOfProperties0001482430srt:OfficeBuildingMember2020-09-300001482430kbsriii:MixeduseOfficeRetailPropertyMember2020-09-30kbsriii:numberOfLoans0001482430us-gaap:CommonStockMember2010-10-262016-05-290001482430us-gaap:CommonStockMember2011-03-242020-09-300001482430us-gaap:PrivatePlacementMember2014-10-032014-10-03kbsriii:numberOfSegments0001482430srt:OfficeBuildingMemberkbsriii:HeldForInvestmentMember2020-09-30utr:sqft0001482430srt:OfficeBuildingMemberkbsriii:DomainGatewayMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:TownCenterMember2020-09-300001482430kbsriii:McewenBuildingMembersrt:OfficeBuildingMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:GatewayTechCenterMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:RbcPlazaMember2020-09-300001482430kbsriii:PrestonCommonsMembersrt:OfficeBuildingMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:SterlingPlazaMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:A201SpearStreetMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:AccentureTowerMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:AnchorCentreMember2020-09-300001482430kbsriii:TenAlmadenMembersrt:OfficeBuildingMember2020-09-300001482430kbsriii:TowersatEmeryvilleMembersrt:OfficeBuildingMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:A3003WashingtonMember2020-09-300001482430kbsriii:ParkPlaceVillageMemberkbsriii:OfficeRetailMember2020-09-300001482430kbsriii:A20117thStreetMembersrt:OfficeBuildingMember2020-09-300001482430kbsriii:FiveOneFiveCongressMembersrt:OfficeBuildingMember2020-09-300001482430kbsriii:TheAlmadenMembersrt:OfficeBuildingMember2020-09-300001482430kbsriii:A3001WashingtonBoulevardMembersrt:OfficeBuildingMember2020-09-300001482430srt:OfficeBuildingMemberkbsriii:CarillonMember2020-09-300001482430kbsriii:AccentureTowerMemberus-gaap:AssetsTotalMember2020-09-300001482430kbsriii:AccentureTowerMemberus-gaap:AssetsTotalMember2020-01-012020-09-30iso4217:USDutr:sqft0001482430srt:MaximumMember2020-09-300001482430srt:WeightedAverageMember2020-09-300001482430us-gaap:OtherLiabilitiesMember2020-09-300001482430us-gaap:OtherLiabilitiesMember2019-12-310001482430kbsriii:OperatingLeaseLeaseIncomeMember2020-07-012020-09-300001482430kbsriii:OperatingLeaseLeaseIncomeMember2020-01-012020-09-300001482430kbsriii:OperatingLeaseLeaseIncomeMember2019-07-012019-09-300001482430kbsriii:OperatingLeaseLeaseIncomeMember2019-01-012019-09-300001482430kbsriii:OperatingMaintenanceAndManagementExpenseMember2019-07-012019-09-300001482430kbsriii:OperatingMaintenanceAndManagementExpenseMember2019-01-012019-09-300001482430kbsriii:OperatingMaintenanceAndManagementExpenseMember2020-07-012020-09-300001482430kbsriii:OperatingMaintenanceAndManagementExpenseMember2020-01-012020-09-30kbsriii:tenant0001482430kbsriii:IndustryFinanceMember2020-09-300001482430kbsriii:IndustryFinanceMember2020-01-012020-09-300001482430kbsriii:IndustryRealEstateMember2020-09-300001482430kbsriii:IndustryRealEstateMember2020-01-012020-09-300001482430stpr:CAus-gaap:AssetsTotalMember2020-01-012020-09-300001482430us-gaap:AssetsTotalMemberstpr:TX2020-01-012020-09-300001482430stpr:ILus-gaap:AssetsTotalMember2020-01-012020-09-30kbsriii:subsidiary0001482430kbsriii:SingaporePortfolioMember2019-07-180001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberkbsriii:SingaporePortfolioMember2019-07-182019-07-180001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberkbsriii:SingaporePortfolioMember2019-07-180001482430us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2020-09-300001482430us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2019-12-310001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-07-012020-09-300001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2019-07-012019-09-300001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-01-012020-09-300001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2019-01-012019-09-300001482430us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberkbsriii:HardwareVillageMembersrt:ApartmentBuildingMember2020-05-0700014824302020-05-072020-05-070001482430us-gaap:FinanceReceivablesMember2020-05-070001482430us-gaap:FinanceReceivablesMember2020-07-310001482430us-gaap:FinanceReceivablesMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-05-072020-07-310001482430us-gaap:FinanceReceivablesMember2020-08-010001482430us-gaap:FinanceReceivablesMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-08-012020-08-010001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:REITPropertiesIIIMember2019-07-192019-07-190001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:REITPropertiesIIIMember2019-07-190001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:REITPropertiesIIIMember2019-08-210001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:REITPropertiesIIIMember2020-09-300001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:SREITMember2020-09-300001482430kbsriii:SREITMember2020-01-012020-09-300001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:SREITMember2020-01-012020-09-3000014824302020-07-192020-09-300001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:SREITMember2020-07-012020-09-300001482430kbsriii:SREITMember2020-09-300001482430kbsriii:SREITMember2019-12-310001482430kbsriii:SREITMember2020-07-012020-09-300001482430kbsriii:SREITMember2019-07-192019-09-300001482430us-gaap:MortgagesMemberkbsriii:AnchorCentreMortgageLoanMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:AnchorCentreMortgageLoanMember2019-12-310001482430us-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMemberkbsriii:AnchorCentreMortgageLoanMember2020-01-012020-09-300001482430us-gaap:MortgagesMemberkbsriii:A20117thStreetMortgageLoanMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:A20117thStreetMortgageLoanMember2019-12-310001482430us-gaap:MortgagesMemberkbsriii:TheAlmadenMortgageLoanMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:TheAlmadenMortgageLoanMember2019-12-310001482430kbsriii:A201SpearStreetMortgageLoanMemberus-gaap:MortgagesMember2020-09-300001482430kbsriii:A201SpearStreetMortgageLoanMemberus-gaap:MortgagesMember2019-12-310001482430kbsriii:A201SpearStreetMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMember2020-01-012020-09-300001482430us-gaap:MortgagesMemberkbsriii:CarillonMortgageLoanMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:CarillonMortgageLoanMember2019-12-310001482430us-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMemberkbsriii:CarillonMortgageLoanMember2020-01-012020-09-300001482430us-gaap:MortgagesMemberkbsriii:PortfolioLoanFacilityMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:PortfolioLoanFacilityMember2019-12-310001482430us-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMemberkbsriii:PortfolioLoanFacilityMember2020-01-012020-09-300001482430kbsriii:PortfolioRevolvingLoanFacilityMemberus-gaap:MortgagesMember2020-09-300001482430kbsriii:PortfolioRevolvingLoanFacilityMemberus-gaap:MortgagesMember2019-12-310001482430kbsriii:PortfolioRevolvingLoanFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMember2020-01-012020-09-300001482430us-gaap:MortgagesMemberkbsriii:A30013003WashingtonMortgageLoanMember2020-09-300001482430us-gaap:MortgagesMemberkbsriii:A30013003WashingtonMortgageLoanMember2019-12-310001482430us-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:MortgagesMemberkbsriii:A30013003WashingtonMortgageLoanMember2020-01-012020-09-30kbsriii:Investments0001482430us-gaap:MortgagesMemberkbsriii:AnchorCentreMortgageLoanMember2020-01-012020-09-300001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMember2020-09-300001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMember2020-09-300001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-09-300001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMemberus-gaap:SubsequentEventMember2020-10-012020-11-130001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMember2020-01-012020-09-300001482430us-gaap:InterestExpenseMember2020-07-012020-09-300001482430us-gaap:InterestExpenseMember2020-01-012020-09-300001482430us-gaap:InterestExpenseMember2019-07-012019-09-300001482430us-gaap:InterestExpenseMember2019-01-012019-09-300001482430us-gaap:ConstructionInProgressMember2019-07-012019-09-300001482430us-gaap:ConstructionInProgressMember2019-01-012019-09-300001482430us-gaap:ConstructionInProgressMember2020-07-012020-09-300001482430us-gaap:ConstructionInProgressMember2020-01-012020-09-300001482430kbsriii:PortfolioRevolvingLoanFacilityMemberus-gaap:SecuredDebtMember2018-10-170001482430us-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMember2020-01-230001482430us-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-01-230001482430kbsriii:A20117thStreetMortgageLoanMember2020-01-232020-01-230001482430us-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMember2020-09-300001482430kbsriii:NonRevolvingCreditFacilityMemberus-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMember2020-09-300001482430us-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMemberus-gaap:RevolvingCreditFacilityMember2020-09-30kbsriii:extension0001482430us-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMember2020-01-232020-01-23kbsriii:numberOfTimes0001482430kbsriii:NonRevolvingCreditFacilityMemberus-gaap:SecuredDebtMemberkbsriii:ModifiedPortfolioRevolvingLoanFacilityMember2020-01-23kbsriii:investment0001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2019-12-310001482430us-gaap:InterestRateSwapMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:NondesignatedMembersrt:MinimumMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:LondonInterbankOfferedRateLIBORMemberus-gaap:NondesignatedMembersrt:MaximumMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2020-01-012020-09-300001482430us-gaap:NondesignatedMemberkbsriii:InterestRateSwapWhichWillBecomeEffectiveIn2020AndMatureIn2023Member2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2020-07-012020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMemberus-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2019-12-310001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMemberus-gaap:OtherLiabilitiesMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMemberus-gaap:OtherLiabilitiesMember2019-12-310001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2019-07-012019-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:NondesignatedMember2019-01-012019-09-300001482430us-gaap:NondesignatedMember2020-07-012020-09-300001482430us-gaap:NondesignatedMember2019-07-012019-09-300001482430us-gaap:NondesignatedMember2020-01-012020-09-300001482430us-gaap:NondesignatedMember2019-01-012019-09-300001482430us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-09-300001482430us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-09-300001482430us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310001482430us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310001482430us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2020-09-300001482430us-gaap:FairValueInputsLevel2Memberus-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001482430us-gaap:InterestRateSwapMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001482430us-gaap:FairValueMeasurementsNonrecurringMember2020-09-300001482430us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-09-300001482430us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-09-300001482430us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-09-300001482430us-gaap:MeasurementInputDiscountRateMember2020-03-310001482430kbsriii:MeasurementInputTerminalCapRateMember2020-03-310001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2020-07-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2019-07-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2020-01-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2019-01-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AssetManagementFeesMember2019-12-310001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2020-07-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2019-07-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2020-01-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2019-01-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:ReimbursementOfOperatingExpensesMember2019-12-310001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2020-07-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2019-07-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2020-01-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2019-01-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:DispositionFeesMember2019-12-310001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2020-07-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2019-07-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2020-01-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2019-01-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2020-09-300001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:AcquisitionFeeonDevelopmentProjectMember2019-12-310001482430kbsriii:AdvisorAndDealerManagerMember2020-07-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMember2019-07-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMember2020-01-012020-09-300001482430kbsriii:AdvisorAndDealerManagerMember2019-01-012019-09-300001482430kbsriii:AdvisorAndDealerManagerMember2020-09-300001482430kbsriii:AdvisorAndDealerManagerMember2019-12-310001482430kbsriii:SingaporePortfolioMember2019-09-300001482430kbsriii:KbsCapitalAdvisorsLlcMember2020-01-012020-09-300001482430kbsriii:KbsCapitalAdvisorsLlcMember2019-01-012019-09-300001482430kbsriii:AssetManagementFeesMember2020-09-300001482430kbsriii:AssetManagementFeesMember2019-12-310001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2015-05-290001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2015-05-292015-05-290001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2019-03-140001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2019-03-142019-03-140001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2020-07-012020-09-300001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2020-01-012020-09-300001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2019-07-012019-09-300001482430srt:AffiliatedEntityMembersrt:SubsidiariesMember2019-01-012019-09-300001482430kbsriii:PurchaserMemberkbsriii:PurchaseandSalesAgreementMember2019-07-180001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:ManagerMember2019-07-180001482430kbsriii:PurchaseandSalesAgreementMemberkbsriii:ManagerMember2019-07-182019-07-180001482430kbsriii:NotToSellPriorToWrittenConsentMemberkbsriii:SREITMemberkbsriii:LindaBren2017TrustMember2019-07-180001482430kbsriii:SREITMemberkbsriii:LindaBren2017TrustMember2019-07-180001482430kbsriii:AdvisorAndDealerManagerMemberkbsriii:GKPHoldingLLCMember2019-11-010001482430kbsriii:KbsCapitalAdvisorsLlcMember2020-09-300001482430us-gaap:DividendPaidMemberus-gaap:SubsequentEventMember2020-10-012020-10-010001482430us-gaap:DividendPaidMemberus-gaap:SubsequentEventMember2020-11-022020-11-020001482430us-gaap:DividendDeclaredMemberus-gaap:SubsequentEventMember2020-11-132020-11-130001482430us-gaap:DividendDeclaredMembersrt:ScenarioForecastMember2020-12-012020-12-310001482430kbsriii:AccentureTowerRevolvingLoanMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMember2020-11-020001482430kbsriii:AccentureTowerRevolvingLoanMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMemberus-gaap:RevolvingCreditFacilityMember2020-11-020001482430kbsriii:PortfolioLoanFacilityMemberus-gaap:SubsequentEventMember2020-11-022020-11-020001482430kbsriii:AccentureTowerRevolvingLoanMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMember2020-11-022020-11-020001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMember2017-11-030001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMemberus-gaap:RevolvingCreditFacilityMember2017-11-030001482430us-gaap:SecuredDebtMemberkbsriii:PortfolioLoanFacilityMember2017-11-032017-11-030001482430kbsriii:ModifiedPortfolioLoanFacilityMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMember2020-11-030001482430kbsriii:ModifiedPortfolioLoanFacilityMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMemberus-gaap:RevolvingCreditFacilityMember2020-11-030001482430kbsriii:ModifiedPortfolioLoanFacilityMemberus-gaap:SecuredDebtMemberus-gaap:SubsequentEventMember2020-11-032020-11-03

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

 

FORM 10-Q

______________________________________________________

(Mark One)

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 000-54687

______________________________________________________

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒

As of November 9, 2020, there were 184,072,237 outstanding shares of common stock of KBS Real Estate Investment Trust III, Inc.

KBS REAL ESTATE INVESTMENT TRUST III, INC.

FORM 10-Q

September 30, 2020

INDEX 

PART I.			FINANCIAL INFORMATION						2
			Item 1.			Financial Statements			2
						Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019			2
						Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019			3
						Consolidated Statements of Equity (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019			4
						Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2020 and 2019			6
						Condensed Notes to Consolidated Financial Statements as of September 30, 2020 (unaudited)			7
			Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
			Item 3.			Quantitative and Qualitative Disclosures about Market Risk			59
			Item 4.			Controls and Procedures			60
PART II.			OTHER INFORMATION						61
			Item 1.			Legal Proceedings			61
			Item 1A.			Risk Factors			61
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			63
			Item 3.			Defaults upon Senior Securities			65
			Item 4.			Mine Safety Disclosures			65
			Item 5.			Other Information			65
			Item 6.			Exhibits			66
SIGNATURES									68

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

See accompanying condensed notes to consolidated financial statements.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2020						2019						2020						2019
Revenues:
Rental income			$	69,159					$	76,348					$	211,385					$	285,198
Interest income from real estate loan receivable			2,029						—						3,236						—
Other operating income			4,315						6,633						14,555						23,670
Total revenues			75,503						82,981						229,176						308,868
Expenses:
Operating, maintenance and management			17,198						22,119						52,553						72,132
Real estate taxes and insurance			14,140						13,813						43,052						49,677
Asset management fees to affiliate			5,311						5,541						15,704						19,412
General and administrative expenses			1,560						1,491						4,756						5,433
Depreciation and amortization			27,879						29,862						82,629						112,902
Interest expense			8,918						20,350						71,460						105,701
Impairment charges on real estate			—						—						19,896						8,706
Total expenses			75,006						93,176						290,050						373,963
Other income (loss):
Other income			—						4,068						—						4,090
Other interest income			13						282						60						546
Equity in income (loss) of an unconsolidated entity			588						(2,556)						(1,408)						(2,556)
Loss from extinguishment of debt			—						(2,033)						(188)						(2,229)
Gain on sale of real estate, net			21						327,311						50,959						327,311
Provision for credit loss			—						—						(680)						—
Total other income, net			622						327,072						48,743						327,162
Net income (loss)			1,119						316,877						(12,131)						262,067
Net loss (income) attributable to noncontrolling interest			—						7						(6,145)						24
Net income (loss) attributable to common stockholders			$	1,119					$	316,884					$	(18,276)					$	262,091
Net income (loss) per common share attributable to common stockholders, basic and diluted			$	0.01					$	1.82					$	(0.10)					$	1.50
Weighted-average number of common shares outstanding, basic and diluted			183,174,688						174,447,810						182,386,530						174,916,229

See accompanying condensed notes to consolidated financial statements.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended September 30, 2020 and 2019 (unaudited)

(dollars in thousands)

						Common Stock												Additional Paid-in Capital						Cumulative Distributions in Excess of Net Income (Loss)												Total Stockholders’ Equity						Noncontrolling Interest						Total Equity
						Shares						Amounts
Balance, June 30, 2020						182,564,608						$	1,826					$	1,600,363					$	(690,983)											$	911,206					$	—					$	911,206
Net income						—						—						—						1,119												1,119						—						1,119
Issuance of common stock						1,052,825						11						11,644						—												11,655						—						11,655
Transfers to redeemable common stock						—						—						(9,311)						—												(9,311)						—						(9,311)
Redemptions of common stock						(201,155)						(3)						(2,340)						—												(2,343)						—						(2,343)
Distributions declared						—						—						—						(27,388)												(27,388)						—						(27,388)
Other offering costs						—						—						(3)						—												(3)						—						(3)
Balance, September 30, 2020						183,416,278						$	1,834					$	1,600,353					$	(717,252)											$	884,935					$	—					$	884,935

						Common Stock												Additional Paid-in Capital						Cumulative Distributions in Excess of Net Income (Loss)												Total Stockholders’ Equity						Noncontrolling Interest						Total Equity
						Shares						Amounts
Balance, June 30, 2019						175,001,561						$	1,750					$	1,550,351					$	(738,263)											$	813,838					$	266					$	814,104
Net income (loss)						—						—						—						316,884												316,884						(7)						316,877
Issuance of common stock						1,116,391						11						12,737						—												12,748						—						12,748
Transfers to redeemable common stock						—						—						(10,864)						—												(10,864)						—						(10,864)
Redemptions of common stock						(3,680,482)						(37)						(42,085)						—												(42,122)						—						(42,122)
Distributions declared						—						—						—						(28,358)												(28,358)						—						(28,358)
Balance, September 30, 2019						172,437,470						$	1,724					$	1,510,139					$	(449,737)											$	1,062,126					$	259					$	1,062,385

See accompanying condensed notes to consolidated financial statements.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

For the Nine Months Ended September 30, 2020 and 2019 (unaudited)

(dollars in thousands)

						Common Stock												Additional Paid-in Capital						Cumulative Distributions in Excess of Net Income (Loss)						Total Stockholders’ Equity						Noncontrolling Interest						Total Equity
						Shares						Amounts
Balance, December 31, 2019						180,970,743						$	1,810					$	1,600,416					$	(617,171)					$	985,055					$	255					$	985,310
Net (loss) income						—						—						—						(18,276)						(18,276)						6,145						(12,131)
Issuance of common stock						3,186,782						32						35,245						—						35,277						—						35,277
Transfers to redeemable common stock						—						—						(26,666)						—						(26,666)						—						(26,666)
Redemptions of common stock						(741,247)						(8)						(8,627)						—						(8,635)						—						(8,635)
Distributions declared						—						—						—						(81,805)						(81,805)						—						(81,805)
Other offering costs						—						—						(15)						—						(15)						—						(15)
Distribution to noncontrolling interest						—						—						—						—						—						(6,400)						(6,400)
Balance, September 30, 2020						183,416,278						$	1,834					$	1,600,353					$	(717,252)					$	884,935					$	—					$	884,935

						Common Stock												Additional Paid-in Capital						Cumulative Distributions in Excess of Net Income (Loss)						Total Stockholders’ Equity						Noncontrolling Interest						Total Equity
						Shares						Amounts
Balance, December 31, 2018						177,523,853						$	1,775					$	1,555,380					$	(626,543)					$	930,612					$	283					$	930,895
Net income (loss)						—						—						—						262,091						262,091						(24)						262,067
Issuance of common stock						3,434,259						34						39,185						—						39,219						—						39,219
Transfers from redeemable common stock						—						—						13,164						—						13,164						—						13,164
Redemptions of common stock						(8,520,642)						(85)						(97,587)						—						(97,672)						—						(97,672)
Distributions declared						—						—						—						(85,285)						(85,285)						—						(85,285)
Other offering costs						—						—						(3)						—						(3)						—						(3)
Balance, September 30, 2019						172,437,470						$	1,724					$	1,510,139					$	(449,737)					$	1,062,126					$	259					$	1,062,385

See accompanying condensed notes to consolidated financial statements.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

						Nine Months Ended September 30,
						2020						2019
Cash Flows from Operating Activities:
Net (loss) income						$	(12,131)					$	262,067
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization						82,629						112,902
Impairment charges on real estate						19,896						8,706
Noncash interest income on real estate loan receivable						(1,172)						—
Provision for credit loss						680						—
Equity in loss of an unconsolidated entity						1,408						2,556
Distribution of operating cash flow from an unconsolidated entity						19,314						—
Deferred rents						(4,041)						(4,245)
Amortization of above- and below-market leases, net						(2,137)						(2,832)
Amortization of deferred financing costs						3,184						4,346
Unrealized losses on derivative instruments						29,484						41,706
Loss from extinguishment of debt						188						2,229
Gain on sale of real estate						(50,959)						(327,311)
Changes in operating assets and liabilities:
Rents and other receivables						(4,532)						(2,206)
Prepaid expenses and other assets						(11,827)						(33,140)
Accounts payable and accrued liabilities						(4,428)						(2,688)
Other liabilities						5,746						(11,124)
Due to (from) affiliates						2,119						(2,583)
Net cash provided by operating activities						73,421						48,383
Cash Flows from Investing Activities:
Improvements to real estate						(70,835)						(57,738)
Proceeds from sale of real estate, net						26,592						931,589
Proceeds from the sale of equity securities						—						16,186
Payments for construction in progress						(3,277)						(19,818)
Origination costs on real estate loan receivable						(120)						—
Payments of post-closing acquisition costs						—						(1,014)
Escrow deposits for tenant improvements						—						972
Insurance proceeds received for property damage						—						867
Net cash (used in) provided by investing activities						(47,640)						871,044
Cash Flows from Financing Activities:
Proceeds from notes payable						104,510						322,590
Principal payments on notes payable						(74,202)						(1,107,218)
Payments of deferred financing costs						(2,811)						(2,508)
Payments to redeem common stock						(8,635)						(97,672)
Payments of prepaid other offering costs						(1,032)						—
Payments of other offering costs						(15)						(3)
Distribution to noncontrolling interest						(6,400)						—
Distributions paid to common stockholders						(46,778)						(46,525)
Net cash used in financing activities						(35,363)						(931,336)
Net decrease in cash, cash equivalents and restricted cash						(9,582)						(11,909)
Cash, cash equivalents and restricted cash, beginning of period						49,272						76,038
Cash, cash equivalents and restricted cash, end of period						$	39,690					$	64,129
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of capitalized interest of $1,711 for the nine months ended September 30, 2019						$	39,293					$	62,199
Supplemental Disclosure of Noncash Investing and Financing Activities:
Equity securities received in connection with the portfolio sale						$	—					$	271,000
Distributions payable						$	9,142					$	9,343
Redeemable common stock payable						$	—					$	11,658
Accrued improvements to real estate						$	14,900					$	23,553
Construction in progress payable						$	—					$	5,011
Acquisition fee related to construction in progress due to affiliate						$	—					$	1,091
Real estate loan receivable provided to purchaser of real estate						$	147,678					$	—
Accrued prepaid other offering costs						$	705					$	58
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan						$	35,277					$	39,219

See accompanying condensed notes to consolidated financial statements.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

(unaudited)

1. ORGANIZATION

KBS Real Estate Investment Trust III, Inc. (the “Company”) was formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011 and it intends to continue to operate in such manner. Substantially all of the Company’s business is conducted through KBS Limited Partnership III (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS REIT Holdings III LLC (“REIT Holdings III”), the limited partner of the Operating Partnership, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings III.

Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor (the “Advisory Agreement”). On January 26, 2010, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of September 30, 2020, the Advisor owned 20,857 shares of the Company’s common stock.

The Company owns a diverse portfolio of real estate investments. As of September 30, 2020, the Company owned 18 office properties, one mixed-use office/retail property and an investment in the equity securities of Prime US REIT, a Singapore real estate investment trust (the “SREIT”), which is accounted for as an investment in an unconsolidated entity under the equity method of accounting. In addition, as of September 30, 2020, the Company had originated one real estate loan receivable secured by a deed of trust.

The Company commenced its initial public offering (the “Offering”) on October 26, 2010. Upon commencing the Offering, the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in the primary Offering on May 29, 2015 and terminated the primary Offering on July 28, 2015.

The Company sold 169,006,162 shares of common stock in the primary Offering for gross proceeds of $1.7 billion. As of September 30, 2020, the Company had also sold 35,640,784 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $367.9 million. Also as of September 30, 2020, the Company had redeemed or repurchased 29,230,344 shares sold in the Offering for $320.1 million.

Additionally, on October 3, 2014, the Company issued 258,462 shares of common stock for $2.4 million in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933.

The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time.

COVID-19 Pandemic

One of the most significant risks and uncertainties facing the Company and the real estate industry generally continues to be the effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business, including how the pandemic is affecting its tenants and its investments in the SREIT and a real estate loan receivable. During the nine months ended September 30, 2020, the Company did not experience significant disruptions in its operations from the COVID-19 pandemic. The Company did, however, recognize an impairment charge on an office/retail property due to the continued deterioration of retail demand at the property which was further impacted by the COVID-19 pandemic. Many of the Company’s tenants have experienced disruptions in their business, some more severely than others. In general, the Company’s retail and restaurant tenants, which comprise approximately 3% of its annualized base rent, have been more severely impacted by the COVID-19 pandemic than its office tenants. In addition, during the second and third quarters, the Company granted rent relief to a number of tenants as a result of the pandemic, but as the impact of the pandemic continues to be felt, these tenants or additional tenants may request rent relief in future periods or become unable to pay rent and therefore, the Company is unable to predict the ultimate impact the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. Further, significant reductions in rental revenue in the future related to the impact of the COVID-19 pandemic may limit the Company’s ability to draw on its revolving credit facilities or exercise extension options due to covenants described in the Company’s loan agreements. The Company is evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor is the Company forgoing its contractual rights under its lease agreements.

The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants and the Company’s investments in the SREIT and a real estate loan receivable depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019, except for the addition of accounting policies for the Company’s real estate loan receivable that was originated in May 2020. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership, their direct and indirect wholly owned subsidiaries, and through May 7, 2020, a joint venture in which the Company held a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements and condensed notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and condensed notes. Actual results could materially differ from those estimates.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2020 and 2019, respectively.

Distributions declared per common share were $0.1625 and $0.4875 in the aggregate for the three and nine months ended September 30, 2019, respectively. Distributions declared per common share were $0.1495 and $0.4485 in the aggregate for the three and nine months ended September 30, 2020, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2019 through September 2019 and January 2020 through September 2020. For each monthly record date for distributions during the period from January 1, 2019 through September 30, 2019, distributions were calculated at a rate of $0.05416667 per share. For each monthly record date for distributions during the period from January 1, 2020 through September 30, 2020, distributions were calculated at a rate of $0.04983333 per share.

Segments

The Company has invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. In addition, the Company considered both quantitative and qualitative thresholds and determined that its investment in a real estate loan receivable does not constitute a reportable segment. Accordingly, the Company aggregated its investments in real estate properties and a real estate loan receivable into one reportable business segment.

Square Footage, Occupancy and Other Measures

Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, used to describe real estate investments included in these condensed notes to the consolidated financial statements are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Revenue Recognition

Real Estate Loan Receivable

Interest income on the Company’s real estate loan receivable is recognized on an accrual basis over the life of the investment using the interest method. Direct loan origination fees and origination or acquisition costs, as well as premiums or discounts, are amortized over the term of the loan as an adjustment to interest income. The Company places loans on non-accrual status when any portion of principal or interest is 90 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. When a loan is placed on non-accrual status, the Company reserves for any outstanding accrued interest receivable through the provision for credit loss and recognizes income on either a cash basis, where interest income is only recorded when received in cash, or on a cost-recovery basis, where all cash receipts are applied against the carrying value of the loan. The Company considers the collectability of the loan’s principal balance in determining whether to recognize income on a cash basis or a cost-recovery basis. The Company will resume the accrual of interest if it determines the collection of interest, according to the contractual terms of the loan, is probable.

Real Estate Loans Receivable

The Company records real estate loans receivable at amortized cost, net of an allowance for credit losses (if any). The amortized cost of a real estate loan receivable is the outstanding unpaid principal balance, net of unamortized acquisition premiums or discounts and unamortized costs and fees directly associated with the origination or acquisition of the loan. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of a real estate loan receivable to present the net amount expected to be collected. This allowance is accounted for under the current expected credit loss (CECL) model and is measured and recorded upon the initial recognition of the real estate loan receivable and is re-measured at each balance sheet date based on changes in facts and circumstances. The allowance is adjusted through “Provision for credit loss” on the Company’s consolidated statements of operations and is increased or decreased based on the re-measurement of the allowance for credit loss at each balance sheet date. If the Company determines that all or a portion of the real estate loan receivable is no longer collectible, the portion that is deemed uncollectible will be written off and the allowance for credit losses reduced. Recoveries of real estate loans receivable that were previously written off are recorded when cash is received.

The Company applies a probability-of-default method to measure the allowance for credit losses which applies the probability of default within a given timeframe by the percentage of the real estate loan receivable not expected to be collected due to default. Additionally, the Company evaluates the potential for adverse changes in the value of the collateral over the contractual life of the real estate loan receivable, the financial condition of the borrower, the probability that it will grant the borrower a concession through modification of the loan terms and other market conditions in calculating the allowance for credit losses.

Failure to properly measure an allowance for credit loss could result in the overstatement of earnings and the carrying value of the real estate loan receivable. Actual losses, if any, could differ significantly from estimated amounts.

Recently Issued Accounting Standards Update

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”) to provide temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (SOFR). Modified contracts that meet the following criteria are eligible for relief from the modification accounting requirements under GAAP: (1) the contract references LIBOR or another rate that is expected to be discontinued due to reference rate reform, (2) the modified terms directly replace or have the potential to replace the reference rate that is expected to be discontinued due to reference rate reform, and (3) any contemporaneous changes to other terms (i.e., those that do not directly replace or have the potential to replace the reference rate) that change or have the potential to change the amount and timing of contractual cash flows must be related to the replacement of the reference rate. For a contract that meets the criteria, the guidance generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. In addition, ASU No. 2020-04 provides various optional expedients for hedging relationships affected by reference rate reform, if certain criteria are met. The amendments in ASU No. 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments for contract modifications by Topic or Industry Subtopic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this update must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. An entity may elect to apply the amendments in ASU No. 2020-04 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through September 30, 2020, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. The Company’s loan agreements, derivative instruments, and certain lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company as the Company has elected to not designate its derivative instruments as a hedge.

In April 2020, the FASB issued a FASB Staff Q&A related to Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Topic 842 Q&A”). The Company adopted the lease accounting standards of Topic 842 beginning January 1, 2019. Under Topic 842, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications. Some contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. If a lease contract provides enforceable rights and obligations for concessions in the contract and no changes are made to that contract, the concessions are not accounted for under the lease modification guidance in Topic 842. If concessions granted by lessors are beyond the enforceable rights and obligations in the contract, entities would generally account for those concessions in accordance with the lease modification guidance in Topic 842. Because of the unprecedented and global nature of the COVID-19 pandemic, the FASB staff is aware that it may be exceedingly challenging for entities to determine whether existing contracts provide enforceable rights and obligations for lease concessions and whether those concessions are consistent with the terms of the contract or are modifications to the contract. As such, the FASB staff believes that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance in Topic 842 to those contracts. This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. The FASB staff expects that reasonable judgment will be exercised in making those determinations. Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original contract. A deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original contract. The staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes are more preferable than the others. Two of those methods are: (1) Account for the concessions as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable, and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize income, and a lessee would continue to recognize expense during the deferral period and (2) Account for the deferred payments as variable lease payments.

In accordance with the Topic 842 Q&A, the Company made the election to account for lease concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the Company as lessor consistent with how those concessions would be accounted for under Topic 842 as though enforceable rights and obligations for those concessions existed. Accordingly, the Company does not analyze each contract to determine whether enforceable rights and obligations for concessions exist in the contract and elected not to apply the lease modification guidance in Topic 842. For deferrals, the Company accounts for the concessions as if no changes to the lease contract were made and continues to recognize rental income during the deferral period. The amount of deferred rent is assessed for collectability at the end of each reporting period. For rental abatements, the Company recognizes negative variable lease income for the forgiven rent, thereby reversing the rental income and rent receivable for the abated period.

The Company has granted a number of lease concessions related to the effects of the COVID-19 pandemic but these lease concessions did not have a material impact to the Company’s consolidated balance sheets as of September 30, 2020 or consolidated statements of operations for the three and nine months ended September 30, 2020. As of September 30, 2020, the Company had entered into lease amendments related to the effects of the COVID-19 pandemic, granting $2.6 million of rent deferrals for the period from March through September 2020, extending the timing of these rental payments to a later period through 2029, and granting $0.9 million in rental abatements. As of September 30, 2020, the Company had $2.4 million of receivables for lease payments that had been deferred as lease concessions related to the effects of the COVID-19 pandemic, of which $0.8 million was reserved for payments not probable of collection, which were included in rent and other receivables, net on the accompanying consolidated balance sheets. For the three and nine months ended September 30, 2020, the Company recorded $0.3 million and $0.9 million, respectively, of rental abatements granted to tenants as a result of the COVID-19 pandemic.

Tenants may request additional lease concessions, in the form of rent deferrals or abatements, for future periods, which may have an impact on the Company’s business, financial condition and results of operations, but the ultimate impact will largely depend on future developments with respect to the continued spread and treatment of the virus, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, which the Company cannot accurately predict.

3. REAL ESTATE

Real Estate Held for Investment

As of September 30, 2020, the Company’s real estate portfolio held for investment was composed of 18 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 7.8 million rentable square feet. As of September 30, 2020, the Company’s real estate portfolio held for investment was collectively 88% occupied. The following table summarizes the Company’s investments in real estate as of September 30, 2020 (in thousands):

(1) Amounts presented are net of impairment charges and write-offs of fully depreciated/amortized assets.

As of September 30, 2020, the following property represented more than 10% of the Company’s total assets:

(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Operating Leases

The Company’s office and office/retail properties are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2020, the leases had remaining terms, excluding options to extend, of up to 16.8 years with a weighted-average remaining term of 4.8 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $8.4 million and $8.8 million as of September 30, 2020 and December 31, 2019, respectively.

During the three and nine months ended September 30, 2020, the Company excluded from rental income $2.8 million and $7.2 million, respectively, related to lease payments that were deemed not probable of collection. During the three and nine months ended September 30, 2019, the Company excluded from rental income $0.4 million and $1.8 million, respectively, related to lease payments that were deemed not probable of collection. During the three and nine months ended September 30, 2019, the Company recorded bad debt recovery of $0.1 million and $0.4 million, respectively, which was included in operating, maintenance and management expense in the accompanying consolidated statements of operations. No bad debt expense or recovery was recorded during the three and nine months ended September 30, 2020.

During the nine months ended September 30, 2020 and 2019, the Company recognized deferred rent from tenants of $4.0 million and $4.2 million, respectively. As of September 30, 2020 and December 31, 2019, the cumulative deferred rent balance was $84.0 million and $80.0 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $20.6 million and $21.0 million of unamortized lease incentives as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, the future minimum rental income from the Company’s properties held for investment under its non-cancelable operating leases was as follows (in thousands):

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

As of September 30, 2020, the Company’s office and office/retail properties were leased to approximately 640 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:

Industry						Number of Tenants						Annualized Base Rent (1) (in thousands)						Percentage of Annualized Base Rent
Finance						125						$	44,816					19.0		%
Real Estate						60						27,101						11.5		%
												$	71,917					30.5		%

_____________________

(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

As of September 30, 2020, no other tenant industries accounted for more than 10% of annualized base rent and no tenant accounted for more than 10% of annualized base rent.

Geographic Concentration Risk

As of September 30, 2020, the Company’s net investments in real estate in California, Texas and Illinois represented 21.1%, 16.2% and 13.6% of the Company’s total assets, respectively.  As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California, Texas and Illinois real estate markets.  Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to pay distributions to stockholders.

Impairment of Real Estate

During the nine months ended September 30, 2020 and 2019, the Company recorded impairment charges of $19.9 million and $8.7 million, respectively, to write down the carrying value of an office/retail property to its estimated fair value as a result of changes in cash flow estimates, including a change to the anticipated hold period of the property, which triggered the future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to the continued lack of demand for the property’s retail component resulting in longer than estimated lease-up periods and lower projected rental rates, mostly due to the impact of the COVID-19 pandemic with respect to the first quarter of 2020. As a result, many retail tenants have requested rent concessions as their businesses have been severely impacted.

4. REAL ESTATE SALES

During the nine months ended September 30, 2020, the Company sold a multifamily apartment complex held through a consolidated joint venture. In connection with the sale, the Company, through an indirect wholly owned subsidiary, provided seller financing to the purchaser by originating a real estate loan receivable. See Note 6, “Real Estate Loan Receivable - Recent Origination - Hardware Village First Mortgage.” During the year ended December 31, 2019, the Company, through 12 wholly owned subsidiaries, sold 11 of its properties (the “Singapore Portfolio”) to various subsidiaries of the SREIT, which was listed on the Singapore Stock Exchange (“SGX”) on July 19, 2019 (the “Singapore Transaction”). The Company sold the Singapore Portfolio to the SREIT on July 18, 2019. The sale price of the Singapore Portfolio was $1.2 billion, before third-party closing costs, closing credits and other costs of approximately $20.0 million and excluding disposition fees paid to the Advisor of $9.5 million.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

The following summary presents the components of real estate held for sale, net as of September 30, 2020 and December 31, 2019 (in thousands). No real estate properties were held for sale as of September 30, 2020:

						September 30, 2020						December 31, 2019
Real estate held for sale, net:
Total real estate, at cost						$	—					$	127,346
Accumulated depreciation and amortization						—						(5,082)
Total real estate held for sale, net						$	—					$	122,264

The results of operations for the multifamily apartment complex held through a consolidated joint venture and the Singapore Portfolio are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to the Singapore Portfolio and the multifamily apartment complex held through a consolidated joint venture for the three and nine months ended September 30, 2020 and 2019 (in thousands):

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

5. TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-

MARKET LEASE LIABILITIES

As of September 30, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

			Tenant Origination and Absorption Costs												Above-Market Lease Assets												Below-Market Lease Liabilities
			September 30, 2020						December 31, 2019						September 30, 2020						December 31, 2019						September 30, 2020						December 31, 2019
Cost			$	84,330					$	95,808					$	1,146					$	2,661					$	(24,572)					$	(25,630)
Accumulated Amortization			(54,044)						(56,886)						(671)						(2,095)						16,951						15,781
Net Amount			$	30,286					$	38,922					$	475					$	566					$	(7,621)					$	(9,849)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):

			Tenant Origination and Absorption Costs												Above-Market Lease Assets												Below-Market Lease Liabilities
			For the Three Months Ended September 30,												For the Three Months Ended September 30,												For the Three Months Ended September 30,
			2020						2019						2020						2019						2020						2019
Amortization			$	(2,409)					$	(3,766)					$	(26)					$	(142)					$	726					$	874

			Tenant Origination and Absorption Costs												Above-Market Lease Assets												Below-Market Lease Liabilities
			For the Nine Months Ended September 30,												For the Nine Months Ended September 30,												For the Nine Months Ended September 30,
			2020						2019						2020						2019						2020						2019
Amortization			$	(7,702)					$	(18,185)					$	(91)					$	(866)					$	2,228					$	3,698

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

6. REAL ESTATE LOAN RECEIVABLE

As of September 30, 2020, the Company, through an indirect wholly owned subsidiary, had originated one real estate loan receivable as follows (dollars in thousands):

Loan Name Location of Related  Property or Collateral

Date Originated

Property Type

Loan Type

Outstanding Principal Balance as of September 30, 2020

Book Value as of September 30, 2020 (1)

Contractual Interest Rate

Annualized Effective Interest Rate (2)

Maturity Date

Hardware Village First Mortgage (3)

Salt Lake City, Utah

05/07/20

Apartment

Mortgage

$150,213

$148,290

(3)

5.34%

05/06/2021

_____________________

(1) Book value represents outstanding principal balance, adjusted for unamortized origination discounts and origination costs and net of an allowance for credit losses. During the nine months ended September 30, 2020, the Company recorded a provision for credit loss of $0.7 million, applying a probability-of-default method to measure the allowance for credit losses.

(2) Annualized effective interest rate is calculated as the actual interest income recognized in 2020, using the interest method, annualized and divided by the average amortized cost basis of the investment during 2020.

(3) See “Recent Origination - Hardware Village First Mortgage.”

The following summarizes the activity related to the real estate loan receivable for the nine months ended September 30, 2020 (in thousands):

For the three and nine months ended September 30, 2020, interest income from the real estate loan receivable consisted of the following (in thousands):

As of September 30, 2020, the Company had $0.5 million of accrued interest receivable included in rents and other receivables, net on the consolidated balance sheet. As of September 30, 2020, the borrower under the Hardware Village First Mortgage was current on its payments.

Recent Origination

Hardware Village First Mortgage

On May 7, 2020, the Company through a consolidated joint venture (the “Hardware Village Joint Venture”) sold a multi-family apartment project (“Hardware Village”) to a buyer unaffiliated with the Hardware Village Joint Venture, the Company or the Advisor for a purchase price of $178.0 million, before third-party closing costs, credits and the disposition fee payable to the Advisor. The purchase price was paid in a combination of approximately $27.8 million in cash and approximately $150.2 million in seller financing provided by an indirect wholly owned subsidiary of the Company (the “Lender”), as described below. The Company’s joint venture partner received a distribution of $6.4 million of the proceeds from the sale, assigned its interest in the Hardware Village Joint Venture to the Company and ceased to be a member of the Hardware Village Joint Venture effective May 7, 2020.

In connection with the sale and seller financing, on May 7, 2020, the buyer entered into a promissory note with the Lender for $150.2 million. The promissory note is secured by a first mortgage on Hardware Village (the “Hardware Village First Mortgage”). For the period commencing on May 7, 2020 through July 31, 2020, interest on the Hardware Village First Mortgage accrued based on the higher of 2.95% and 250 basis points plus one-month LIBOR. For the period commencing on August 1, 2020 and until the maturity date, interest on the Hardware Village First Mortgage accrues based on the higher of 3.95% and 350 basis points plus one-month LIBOR. Monthly payments are interest only, with the outstanding principal due and payable at maturity on May 6, 2021; however, the buyer/borrower can prepay the outstanding principal and any unpaid accrued interest at any time without fee, premium or penalty.

7. INVESTMENT IN AN UNCONSOLIDATED ENTITY

Investment in Prime US REIT

In connection with the Singapore Transaction, on July 19, 2019, the Company, through an indirect wholly owned subsidiary (“REIT Properties III”), acquired 307,953,999 units in the SREIT at a price of $271.0 million, or $0.88 per unit, representing a 33.3% ownership interest in the SREIT. On August 21, 2019, REIT Properties III sold 18,392,100 of its units in the SREIT for $16.2 million pursuant to an over-allotment option granted to the underwriters of the SREIT’s offering, reducing REIT Properties III’s ownership in the SREIT to 31.3% of the outstanding units of the SREIT as of that date. As of September 30, 2020, REIT Properties III held 289,561,899 units of the SREIT which represented 27.4% of the outstanding units of the SREIT. As of September 30, 2020, the aggregate value of the Company’s investment in the units of the SREIT was $238.9 million, which was based on the closing price of the SREIT units on the SGX of $0.83 per unit as of September 30, 2020.

The Company has concluded that based on its 27.4% ownership interest as of September 30, 2020, it exercises significant influence over the operations, financial policies and decision making with respect to its investment in the SREIT. Accordingly, the Company has accounted for its investment in the SREIT under the equity method of accounting as of September 30, 2020. Income is allocated according to the Company’s ownership interest at each month-end and recorded as equity income (loss) from unconsolidated entity. Any dividends received from the SREIT reduces the carrying amount of the investment.

As of September 30, 2020, the carrying value of the Company’s investment in the SREIT was $232.6 million. During the three and nine months ended September 30, 2020, the Company recorded equity in income from an unconsolidated entity of $0.6 million and equity in loss from an unconsolidated entity of $1.4 million, respectively, related to its investment in the SREIT. Equity in loss from an unconsolidated entity for the nine months ended September 30, 2020 included $3.5 million related to the Company’s share of net losses from the SREIT offset by a gain of $2.1 million to reflect the net effect to the Company’s investment as a result of the net proceeds raised by the SREIT in a private offering in February 2020. For the period from July 19, 2019 to September 30, 2019, the Company recorded $2.6 million of equity in loss from an unconsolidated entity related to its investment in the SREIT.

During the three and nine months ended September 30, 2020, the Company received $7.4 million and $19.3 million, respectively, of dividends from its investment in the SREIT, which was recorded as a reduction of the Company’s carrying value of the investment. The Company elected to apply the nature of the distribution approach for purposes of presentation of the dividends on the statement of consolidated cash flows and classified the dividends received as operating activities on the statement of consolidated cash flows as of September 30, 2020. The nature of the distribution approach requires the Company to classify distributions from equity method investments on the basis of the nature of the activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow of operating activities) or a return of investment (classified as a cash inflow from investing activities) when such information is available.

The SREIT reports its financial statements in accordance with the International Financial Reporting Standards and uses the US dollar as its reporting currency, as such, the Company must make certain adjustments to the SREIT’s financial information to reflect U.S. GAAP before applying the equity method of accounting. Summarized financial information for the SREIT in accordance with U.S. GAAP follows (in thousands):

(1) The Company’s share of net income (loss) for the nine months ended September 30, 2020 excludes the $2.1 million gain recorded to reflect the net effect to the Company’s investment as a result of the net proceeds raised by the SREIT in a private offering in February 2020, which was classified in equity in loss from an unconsolidated entity on the consolidated statement of operations.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

8. NOTES PAYABLE

As of September 30, 2020 and December 31, 2019, the Company’s notes payable consisted of the following (dollars in thousands):

						Book Value as of September 30, 2020						Book Value as of December 31, 2019						Contractual Interest Rate as of September 30, 2020 (1)						Effective Interest Rate as of September 30, 2020 (1)						Payment Type						Maturity Date (2)
Anchor Centre Mortgage Loan (3)						$	48,590					$	49,043					One-month LIBOR + 1.50%						1.65%						Principal & Interest						12/1/2020
201 17th Street Mortgage Loan (4)						—						64,750						(4)						(4)						(4)						(4)
The Almaden Mortgage Loan						93,000						93,000						4.20%						4.20%						Interest Only						01/01/2022
201 Spear Street Mortgage Loan						125,000						125,000						One-month LIBOR + 1.45%						1.60%						Interest Only						01/05/2024
Carillon Mortgage Loan						111,000						111,000						One-month LIBOR +1.40%						1.55%						Interest Only						04/11/2024
Portfolio Loan Facility (5)						683,225						684,225						One-month LIBOR + 1.80%						1.95%						Interest Only						11/03/2020
Modified Portfolio Revolving Loan Facility (6)						292,622						196,113						One-month LIBOR + 1.50%						1.65%						Interest Only						03/01/2023
3001 & 3003 Washington Mortgage Loan						143,245						143,245						One-month LIBOR + 1.45%						1.60%						Interest Only (7)						06/01/2024
Total notes payable principal outstanding						1,496,682						1,466,376
Deferred financing costs, net						(4,557)						(6,497)
Total Notes Payable, net						$	1,492,125					$	1,459,879

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2020, consisting of the contractual interest rate and using interest rate indices as of September 30, 2020, where applicable. For information regarding the Company’s derivative instruments, see Note 9, “Derivative Instruments.”

(2) Represents the maturity date as of September 30, 2020; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown.

(3) As of September 30, 2020, the Anchor Centre Mortgage Loan has one six-month extension option to June 1, 2021, subject to conditions contained in the loan modification agreement.

(4) On January 23, 2020, the 201 17th Street Mortgage Loan was paid off and the 201 17th Street property was added to the collateral of the Portfolio Revolving Loan Facility. See below, “- Recent Financing Transaction - Modified Portfolio Revolving Loan Facility.”

(5) As of September 30, 2020, the Portfolio Loan Facility was secured by RBC Plaza, Preston Commons, Sterling Plaza, Towers at Emeryville, Ten Almaden, Town Center and Accenture Tower. As of September 30, 2020, the face amount of the Portfolio Loan Facility was $911.0 million, of which $683.2 million is term debt and $227.8 million is revolving debt. As of September 30, 2020, the outstanding balance under the loan consisted of $683.2 million of term debt. As of September 30, 2020, an additional $227.8 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. Subsequent to September 30, 2020, the Company released Accenture Tower as security from the Portfolio Loan Facility and exercised a one-year extension option to extend the maturity date to November 3, 2021. There is an additional one-year extension option remaining on the Portfolio Loan Facility. See Note 13, “Subsequent Events - Accenture Tower Revolving Loan” and “- Modified Portfolio Loan Facility.”

(6) See below, “- Recent Financing Transaction - Modified Portfolio Revolving Loan Facility.”

(7) Represents the payment type required as of September 30, 2020. Certain future monthly payments due under the loan also include amortizing principal payments. For more information on the Company’s contractual obligations under its notes payable, see the five-year maturity table below.

During the three and nine months ended September 30, 2020, the Company incurred $8.9 million and $71.5 million of interest expense, respectively. During the three and nine months ended September 30, 2019, the Company incurred $20.4 million and $105.7 million of interest expense, respectively. Included in interest expense was: (i) the amortization of deferred financing costs of $1.1 million and $3.2 million for the three and nine months ended September 30, 2020, respectively, and $1.2 million and $4.3 million for the three and nine months ended September 30, 2019, respectively, and (ii) interest expense (including gains and losses) incurred as a result of the Company’s derivative instruments, which increased interest expense by $0.3 million and $38.9 million for the three and nine months ended September 30, 2020, respectively, and $3.3 million and $38.6 million for the three and nine months ended September 30, 2019, respectively. Additionally, the Company capitalized $0.6 million and $1.7 million of interest related to construction in progress during the three and nine months ended September 30, 2019, respectively. No interest was capitalized during the three and nine months ended September 30, 2020. As of September 30, 2020 and December 31, 2019, $4.0 million and $4.5 million of interest expense were payable, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of September 30, 2020 (in thousands):

(1) Subsequent to September 30, 2020, the Company released Accenture Tower as security from the Portfolio Loan Facility and exercised a one-year extension option to extend the maturity date to November 3, 2021. See Note 13, “Subsequent Events - Accenture Tower Revolving Loan” and “- Modified Portfolio Loan Facility.”

The Company’s notes payable contain financial debt covenants. As of September 30, 2020, the Company was in compliance with these debt covenants.

Recent Financing Transaction

Modified Portfolio Revolving Loan Facility

On October 17, 2018, the Company, through indirect wholly owned subsidiaries, entered into a three-year loan facility with U.S. Bank, N.A., as administrative agent (the “Agent”), for a committed amount of up to $215.0 million (the “Portfolio Revolving Loan Facility”).

On January 23, 2020, the Company, through indirect wholly owned subsidiaries (collectively, the “Borrower”), entered into a first modification and additional advance agreement (the “Modified Portfolio Revolving Loan Facility”) with the Agent and the Lenders (defined below) to (i) increase the committed amount by $110.0 million to $325.0 million, subject to certain conditions in the loan agreement, (ii) add 201 17th Street as collateral for the Modified Portfolio Revolving Loan Facility, and (iii) reset the loan term. The Modified Portfolio Revolving Loan Facility is composed of $162.5 million of term debt and $162.5 million of revolving debt. The lenders under the Modified Portfolio Revolving Loan Facility are U.S. Bank, N.A., Regions Bank, Citizens Bank, City National Bank and Associated Bank, N.A. (the “Lenders”).

On January 23, 2020, the Company drew $66.5 million on the Modified Portfolio Revolving Loan Facility of which $64.9 million was used to pay off the 201 17th Street Mortgage Loan and the remaining amount was used to pay origination fees and accrued interest. As of September 30, 2020, a total of $292.6 million was funded under the Modified Portfolio Revolving Loan Facility, of which $162.5 million was term debt and $130.1 million was revolving debt. As of September 30, 2020, an additional $32.4 million of revolving debt is available upon satisfaction of certain conditions set forth in the loan documents. The Modified Portfolio Revolving Loan Facility may be used for working capital, capital expenditures, real property acquisitions and other corporate purposes.

The initial maturity date of the Modified Portfolio Revolving Loan Facility is March 1, 2023, with two 12-month extension options, subject to certain terms, conditions and fees as described in the loan documents. The Modified Portfolio Revolving Loan Facility bears interest at a floating rate of 150 basis points over one-month LIBOR. Monthly payments are interest only with the entire balance and all outstanding interest and fees due at maturity. The Company will have the right to prepay all or a portion of the Modified Portfolio Revolving Loan Facility, subject to certain expenses potentially incurred by the Lender as a result of the prepayment and subject to certain conditions contained in the loan documents. During the term of the Modified Portfolio Revolving Loan Facility, the Company has an option to increase the committed amount of the Modified Portfolio Revolving Loan Facility up to four times with each increase of the committed amount to be at least $15.0 million but no greater than, in the aggregate, an additional $325.0 million so that the committed amount will not exceed $650.0 million, of which 50% would be term debt and 50% would be revolving debt, with the addition of one or more properties to secure the loan, subject to certain terms and conditions contained in the loan documents. In addition, the Modified Portfolio Revolving Loan Facility contains customary representations and warranties, financial and other covenants, events of default and remedies typical for this type of facility. The Modified Portfolio Revolving Loan Facility is secured by 515 Congress, Domain Gateway, the McEwen Building, Gateway Tech Center and 201 17th Street.

KBS REIT Properties III, LLC (“REIT Properties III”), the Company’s wholly owned subsidiary, is providing a guaranty of (i) up to 25% of the committed amount under the Modified Portfolio Revolving Loan Facility, as such amount may be adjusted from time to time pursuant to the terms of the loan documents, (ii) payment of, and agrees to protect, defend, indemnify and hold harmless each Lender for, from and against, any liability, obligation, deficiency, loss, damage, costs and expenses (including reasonable attorney’s fees), and any litigation which may at any time be imposed upon, incurred or suffered by any Lender because of (a) certain intentional acts committed by any Borrower, (b) fraud or intentional misrepresentations by Borrower or REIT Properties III in connection with the loan documents as described in the guaranty agreement, and (c) certain bankruptcy or liquidation proceedings under state or federal law, and (iii) payment for liability that is incurred and related to certain environmental matters.

9. DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivatives for speculative purposes.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

As of September 30, 2020, the Company has entered into 10 interest rate swaps, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of September 30, 2020 and December 31, 2019. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

September 30, 2020

December 31, 2019

Weighted-Average Fix Pay Rate

Weighted-Average Remaining Term in Years

Derivative Instruments

Number of Instruments

Notional Amount

Number of Instruments

Notional Amount

Reference Rate as of September 30, 2020

Derivative instruments not designated as hedging instruments

Interest rate swaps (1)

10

$

1,140,640

11

$

960,963

One-month LIBOR/ Fixed at 1.16% - 2.11%

1.9%

2.1

_____________________

(1) Includes one forward interest rate swap in the amount of $65.0 million, which will become effective in November 2020 and matures in 2023. During the three and nine months ended September 30, 2020, one of the Company’s interest rate swaps matured.

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2020 and December 31, 2019 (dollars in thousands):

												September 30, 2020												December 31, 2019
Derivative Instruments						Balance Sheet Location						Number of Instruments (1)						Fair Value						Number of Instruments						Fair Value
Derivative instruments not designated as hedging instruments
Interest rate swaps						Prepaid expenses and other assets, at fair value						—						$	—					3						$	1,553
Interest rate swaps						Other liabilities, at fair value						10						$	(39,335)					8						$	(11,404)

_____________________

(1) During the three and nine months ended September 30, 2020, one of the Company’s interest rate swaps matured.

The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):

10. FAIR VALUE DISCLOSURES

Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

•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.

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of assets and liabilities for which it is practicable to estimate the fair value:

Cash and cash equivalents, restricted cash, rent and other receivables, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

Real estate loan receivable: The Company’s real estate loan receivable is presented in the accompanying consolidated balance sheets at its amortized cost net of an allowance for credit losses and not at fair value. The fair value of the real estate loan receivable was estimated using an internal valuation model that considered the expected cash flows for the loan, underlying collateral value and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. The Company classifies these inputs as Level 3 inputs.

Notes payable: The fair values of the Company’s notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of a liability in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

The following were the face values, carrying amounts and fair values of the Company’s real estate loan receivable as of September 30, 2020 and of the Company’s notes payable as of September 30, 2020 and December 31, 2019, which carrying amounts generally do not approximate the fair values (in thousands):