Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
 
FORM 10-Q
______________________________________________________
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
o
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 333-207471
______________________________________________________
 
KBS GROWTH & INCOME REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
______________________________________________________
Maryland
 
47-2778257
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
800 Newport Center Drive, Suite 700
Newport Beach, California
 
92660
(Address of Principal Executive Offices)
 
(Zip Code)
(949) 417-6500
(Registrant’s Telephone Number, Including Area Code)
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   x     No   o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   x    No   o
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. (Check one):
Large Accelerated Filer
 
o
 
  
Accelerated Filer
  
o
Non-Accelerated Filer
 
o
(Do not check if a smaller reporting company)
  
Smaller reporting company
  
x
 
 
 
 
 
Emerging growth company
 
x
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.     x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   o     No   x
As of August 4, 2017 , there were 9,133,432 outstanding shares of Class A common stock and 277,119 outstanding shares of Class T common stock of KBS Growth & Income REIT, Inc.

Table of Contents


INDEX TO FINANCIAL STATEMENTS
KBS GROWTH & INCOME REIT, INC.
FORM 10-Q
June 30, 2017
INDEX
 
PART I.
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
PART II.
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.




1
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements



KBS GROWTH & INCOME REIT, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
June 30, 2017
 
December 31, 2016
 
(unaudited)
 
 
Assets
 
 
 
Real estate:
 
 
 
Land
$
22,909

 
$
22,909

Building and improvements
106,561

 
105,435

Tenant origination and absorption costs
13,408

 
13,528

Total real estate, cost
142,878

 
141,872

Less accumulated depreciation and amortization
(6,645
)
 
(3,292
)
Total real estate, net
136,233

 
138,580

Cash and cash equivalents
8,803

 
15,666

Rent and other receivables
1,329

 
956

Above-market leases, net
195

 
210

Prepaid expenses and other assets, net
528

 
501

Total assets
$
147,088

 
$
155,913

Liabilities and stockholders’ equity
 
 
 
Notes payable, net
$
72,372

 
$
81,375

Accounts payable and accrued liabilities
2,343

 
2,023

Due to affiliates
1,402

 
1,434

Distributions payable
382

 
377

Below-market leases, net
4,255

 
5,029

Other liabilities
1,262

 
1,254

Total liabilities
82,016

 
91,492

Commitments and contingencies (Note 8)


 


Redeemable common stock
2,926

 
1,791

Stockholders’ equity
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding
—

 
—

Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 9,079,039 and 8,846,164 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
91

 
88

Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 274,871 shares and 94,018 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
3

 
1

Additional paid-in capital
74,869

 
71,992

Cumulative distributions and net losses
(12,817
)
 
(9,451
)
Total stockholders’ equity
62,146

 
62,630

Total liabilities and stockholders’ equity
$
147,088

 
$
155,913

See accompanying condensed notes to consolidated financial statements.


2
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)


KBS GROWTH & INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share amounts)
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Rental income
$
3,290

 
$
589

 
$
6,526

 
$
1,157

Tenant reimbursements
877

 
51

 
1,656

 
79

Other operating income
20

 
—

 
38

 
—

Total revenues
4,187

 
640

 
8,220

 
1,236

Expenses:
 
 
 
 
 
 
 
Operating, maintenance, and management
878

 
186

 
1,623

 
337

Property management fees and expenses to affiliate
31

 
10

 
60

 
17

Real estate taxes and insurance
513

 
74

 
970

 
143

Asset management fees to affiliate
—

 
39

 
214

 
59

Real estate acquisition fees to affiliate
—

 
1,383

 
—

 
1,383

Real estate acquisition fees and expenses
—

 
229

 
—

 
229

General and administrative expenses
422

 
367

 
763

 
586

Depreciation and amortization
1,822

 
218

 
3,540

 
445

Interest expense
757

 
95

 
1,500

 
273

Total expenses
4,423

 
2,601

 
8,670

 
3,472

Other income (loss):
 
 
 
 
 
 
 
Interest and other income
18

 
54

 
35

 
74

Loss from extinguishment of debt
(206
)
 
—

 
(206
)
 
—

Total other (loss) income
(188
)
 
54

 
(171
)
 
74

Net loss
$
(424
)
 
$
(1,907
)
 
$
(621
)
 
$
(2,162
)
 
 
 
 
 
 
 
 
Class A Common Stock:
 
 
 
 
 
 
 
Net loss
$
(406
)
 
$
(1,906
)
 
$
(596
)
 
$
(2,161
)
Net loss per common share, basic and diluted
$
(0.04
)
 
$
(0.23
)
 
$
(0.07
)
 
$
(0.36
)
Weighted-average number of common shares outstanding basic and diluted
9,068,437

 
8,168,760

 
9,013,145

 
5,931,364

 
 
 
 
 
 
 
 
Class T Common Stock:
 
 
 
 
 
 
 
Net loss
$
(18
)
 
$
(1
)
 
$
(25
)
 
$
(1
)
Net loss per common share, basic and diluted
$
(0.07
)
 
$
(0.36
)
 
$
(0.11
)
 
$
(0.61
)
Weighted-average number of common shares outstanding basic and diluted
261,382

 
1,543

 
213,814

 
1,543

See accompanying condensed notes to consolidated financial statements.


3
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)


KBS GROWTH & INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Year Ended December 31, 2016 and the Six Months Ended June 30, 2017 (unaudited)
(dollars in thousands)
 
Common Stock
 
Additional
Paid-in Capital
 
Cumulative Distributions and Net Losses
 
Total Stockholders’ Equity
Class A
 
Class T
Shares
 
Amounts
 
Shares
 
Amounts
Balance, December 31, 2015
2,216,821

 
$
22

 
—

 
$
—

 
$
17,079

 
$
(995
)
 
$
16,106

Net loss
—

 
—

 
—

 
—

 
—

 
(4,089
)
 
(4,089
)
Issuance of common stock
6,559,574

 
65

 
93,918

 
1

 
60,532

 
—

 
60,598

Transfers to redeemable common stock
—

 
—

 
—

 
—

 
(1,738
)
 
—

 
(1,738
)
Stock dividends issued
69,769

 
1

 
100

 
—

 
711

 
(712
)
 
—

Distributions declared
—

 
—

 
—

 
—

 
—

 
(3,655
)
 
(3,655
)
Commissions on stock sales, related dealer manager fees and stockholder servicing fees to affiliate
—

 
—

 
—

 
—

 
(4,200
)
 
—

 
(4,200
)
Other offering costs to affiliate
—

 
—

 
—

 
—

 
(392
)
 
—

 
(392
)
Balance, December 31, 2016
8,846,164

 
88

 
94,018

 
1

 
71,992

 
(9,451
)
 
62,630

Net loss
—

 
—

 
—

 
—

 
—

 
(621
)
 
(621
)
Issuance of common stock
195,615

 
2

 
179,869

 
2

 
3,717

 
—

 
3,721

Transfers to redeemable common stock
—

 
—

 
—

 
—

 
(1,135
)
 
—

 
(1,135
)
Redemptions of common stock
(7,602
)
 
—

 
—

 
—

 
(64
)
 
—

 
(64
)
Stock dividends issued
44,862

 
1

 
984

 
—

 
475

 
(476
)
 
—

Distributions declared
—

 
—

 
—

 
—

 
—

 
(2,269
)
 
(2,269
)
Commissions on stock sales, related dealer manager fees and stockholder servicing fees to affiliate
—

 
—

 
—

 
—

 
(102
)
 
—

 
(102
)
Other offering costs
—

 
—

 
—

 
—

 
(14
)
 
—

 
(14
)
Balance, June 30, 2017
9,079,039

 
$
91

 
274,871

 
$
3

 
$
74,869

 
$
(12,817
)
 
$
62,146

See accompanying condensed notes to consolidated financial statements.

4
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)


KBS GROWTH & INCOME REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
Net loss
$
(621
)
 
$
(2,162
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
3,540

 
445

Property damage loss
—

 
134

Deferred rents
(315
)
 
(120
)
Bad debt expense recovery
(13
)
 
—

Amortization of above and below-market leases
(759
)
 
(10
)
Amortization of deferred financing costs
253

 
31

Loss from extinguishment of debt
206

 
—

Changes in operating assets and liabilities:
 
 
 
Rents and other receivables
(90
)
 
71

Prepaid expenses and other assets
62

 
(93
)
Accounts payable and accrued liabilities
(656
)
 
33

Due from affiliate
—

 
(4
)
Due to affiliates
(11
)
 
1,194

Other liabilities
8

 
493

Net cash provided by operating activities
1,604

 
12

Cash Flows from Investing Activities:
 
 
 
Acquisition of real estate
—

 
(68,432
)
Improvements to real estate
(310
)
 
(51
)
Net cash used in investing activities
(310
)
 
(68,483
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from notes payable
1,950

 
41,026

Principal payments on notes payable
(11,260
)
 
(5,125
)
Payments of deferred financing costs
(103
)
 
(612
)
Cash distribution advance from affiliate
—

 
1,140

Proceeds from issuance of common stock
2,522

 
57,407

Payments to redeem common stock
(64
)
 
—

Payments of commissions on stock sales, related dealer manager fees to affiliate and other offering costs
(137
)
 
(5,208
)
Distributions paid to common stockholders
(1,065
)
 
(540
)
Net cash (used in) provided by financing activities
(8,157
)
 
88,088

Net (decrease) increase in cash and cash equivalents
(6,863
)
 
19,617

Cash and cash equivalents, beginning of period
15,666

 
12,893

Cash and cash equivalents, end of period
$
8,803

 
$
32,510

Supplemental Disclosure of Cash Flow Information
 
 
 
Interest paid
$
1,245

 
$
273

Supplemental Disclosure of Noncash Investing and Financing Activities:
 
 
 
Stock dividends issued
$
476

 
$
257

Increase in cash distributions payable
$
5

 
$
267

Dividends paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan
$
1,199

 
$
637

Liabilities assumed in connection with real estate acquisitions
$
—

 
$
114

Increase in accrued improvements to real estate
$
914

 
$
—

Write-off of deferred financing costs
$
(206
)
 
$
—

See accompanying condensed notes to consolidated financial statements.

5
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2017
(unaudited)



1.
ORGANIZATION
KBS Growth & Income REIT, Inc. (the “Company”) was formed on January 12, 2015 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2015. Substantially all of the Company’s business is conducted through KBS Growth & Income Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on January 14, 2015. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Growth & Income REIT Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on January 14, 2015, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings.
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 between the Company and the Advisor initially entered into on June 11, 2015, and amended at various times thereafter (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of core real estate properties. On January 27, 2015, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. On June 11, 2015, these outstanding shares of common stock were designated Class A shares of common stock.
As of June 30, 2017 , the Company had invested in three office properties. The Company intends to invest in a diverse portfolio of core real estate properties and real estate-related assets, including the acquisition of commercial properties and the acquisition and origination of real estate-related assets. The Company considers core properties to be existing properties with at least 80% occupancy. Based on the current market outlook, the Company expects its core focus in the U.S. office sector to reflect a value-creating core strategy, which is also known as a core-plus strategy. The real estate-related assets in which the Company may invest include mortgage, mezzanine, bridge and other loans, debt and derivative securities related to real estate assets, including mortgage-backed securities, and equity securities such as common stocks, preferred stocks and convertible preferred securities of other REITs and real estate companies.
The Company commenced a private placement offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), on June 11, 2015, pursuant to which the Company offered a maximum of $105,000,000 of shares of its Class A common stock for sale to certain accredited investors (the “Private Offering”), of which $5,000,000 of Class A shares were offered pursuant to the Company’s distribution reinvestment plan. The Company ceased offering shares in the primary portion of the Private Offering on April 27, 2016 and processed subscriptions for the primary Private Offering dated on or prior to April 27, 2016 through May 30, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager of the Private Offering pursuant to a dealer manager agreement dated June 11, 2015 (the “Private Offering Dealer Manager Agreement”). The Dealer Manager was responsible for marketing the Company’s shares in the Private Offering.
On February 4, 2015, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register an initial public offering of its common stock to offer a maximum of $1,500,000,000 in shares of common stock for sale to the public in the primary offering, consisting of two classes of shares: Class A and Class T (the “Primary Offering”). The Company also registered a maximum of $800,000,000 in both classes of shares of its common stock pursuant to the Company’s distribution reinvestment plan (the “DRP Offering” and, together with the Primary Offering, the “Public Offering”). The SEC declared the Company’s registration statement effective on April 28, 2016 and the Company retained the Dealer Manager to serve as the dealer manager of the Public Offering pursuant to a dealer manager agreement dated April 28, 2016 (the “Public Offering Dealer Manager Agreement”). The Dealer Manager was responsible for marketing the Company’s shares in the Public Offering.
The Company terminated the Primary Offering effective June 30, 2017 and expects to launch a private offering solely to accredited investors pursuant to Rule 506(c) of Regulation D of the Securities Act in the third quarter of 2017. The Company can give no assurance regarding the success of such private offering.


6
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

The Company continues to offer shares of common stock pursuant to the DRP Offering. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue the DRP Offering. The Company may terminate the DRP Offering at any time.
The Company sold 8,548,972 shares of Class A common stock for gross offering proceeds of $76.8 million in the Private Offering, including 74,744 shares of Class A common stock under its distribution reinvestment plan for gross offering proceeds of $0.7 million . The Company sold 358,017 and 273,787 shares of Class A and Class T common stock in the Primary Offering for aggregate gross offering proceeds of $6.3 million . As of June 30, 2017, the Company had sold 236,839 and 3,372 shares of Class A and Class T common stock in the DRP Offering for aggregate gross offering proceeds of $2.4 million . Also as of June 30, 2017, the Company had redeemed  7,602 Class A shares for  $64,655 .
Additionally, on August 11, 2015, two of the individuals who own and control the Company’s sponsor, Charles J. Schreiber, Jr. (who also acts as chief executive officer, the chairman of the board and a director of the Company) and Peter M. Bren (who also acts as president and director of the Company), purchased 21,181.2380 and 21,181.2390 shares of Class A common stock, respectively, each for an aggregate purchase price of $172,500 or $8.144 per share. The per share purchase price reflects an 8.5% discount to the $8.90 offering price in the Private Offering in effect on the date of their purchase because selling commissions and dealer manager fees were not paid in connection with the sales. Mr. Bren’s investment was made on behalf of and for the account of three of his children, and he has disclaimed beneficial ownership of the shares. The Company issued these shares in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act.
As described above, the Company intends to use substantially all of the net proceeds from its private and public offerings to invest in a diverse portfolio of core real estate properties and real estate-related assets.
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, 2016 . 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, 2016 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“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 six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31,  2017 .
The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, and their direct and indirect wholly owned subsidiaries.  All significant intercompany balances and transactions are eliminated in consolidation. 

7
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Use of Estimates
The preparation of the consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Segments
The Company had invested in three office properties as of June 30, 2017 . Substantially all of the Company’s revenue and net loss is from real estate, and therefore, the Company currently operates in one reportable segment.
Per Share Data
Basic net income (loss) per share of common stock is calculated by dividing net income (loss) 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 for the six months ended June 30, 2017 and 2016 , respectively. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued during the period presented and subsequent to June 30, 2017 but before the issuance of the consolidated financial statements are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. 
The Company has declared and issued stock dividends on shares of the Company’s common stock during the three and six months ended June 30, 2017 and 2016 as follows:
Three Months Ended June 30,
 
Amount Declared per Share Outstanding (1)
 
Total Shares Issued
2016
 
0.00249316 shares
 
19,087
2017
 
0.00249999 shares
 
23,160
Six Months Ended June 30,
 
Amount Declared per Share Outstanding (1)
 
Total Shares Issued
2016
 
0.00495892 shares
 
26,061
2017
 
0.00499998 shares
 
45,846
_____________________
(1) Stock dividends have been declared on a monthly basis and the amount declared per share outstanding assumes each share was issued and outstanding each date that was a record date for stock dividends during the periods presented. Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.
During the three and six months ended June 30, 2017 , aggregate cash distributions declared per share of Class A common stock were $0.12465726 and $0.24794466 , assuming the share was issued and outstanding each date that was a record date for distributions during the period. During the three and six months ended June 30, 2017 , aggregate cash distributions declared per share of Class T common stock were $0.10005293 and $0.19885548 , assuming the share was issued and outstanding each date that was a record date for distributions during the period. During the three and six months ended June 30, 2016 , aggregate cash distributions declared per share of Class A common stock were $0.12465726 and $0.24794466 , assuming the share was issued and outstanding each date that was a record date for distributions during the period. No shares of Class T common stock were outstanding during the three and six months ended June 30, 2016 . For each day that was a record date for distributions during the three and six months ended June 30, 2017 and 2016 , distributions were calculated at a rate of (i) $0.00136986 per share per day, less (ii) the applicable daily class-specific stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date. Each day during the six months ended June 30, 2017 and the periods from January 1, 2016 through February 28, 2016 and March 1, 2016 through June 30, 2016 was a record date for distributions.

8
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

In accordance with FASB ASC Topic 260-10-45, Earnings Per Share , the Company uses the two-class method to calculate earnings per share. Basic earnings per share is calculated based on dividends declared (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends declared during the period. The undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. The Company does not have any participating securities outstanding other than Class A Common Stock and Class T Common Stock during the periods presented.
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss
 
$
(424
)
 
$
(1,907
)
 
$
(621
)
 
$
(2,162
)
Less: Class A Common Stock cash distributions declared
 
1,128

 
1,005

 
2,226

 
1,445

Less: Class T Common Stock cash distributions declared
 
26

 
—

 
42

 
—

Undistributed net loss
 
$
(1,578
)
 
$
(2,912
)
 
$
(2,889
)
 
$
(3,607
)
Class A Common Stock:
 
 
 
 
 
 
 
 
Undistributed net loss
 
$
(1,534
)
 
$
(2,911
)
 
$
(2,822
)
 
$
(3,606
)
Class A Common Stock cash distributions declared
 
1,128

 
1,005

 
2,226

 
1,445

Net loss
 
$
(406
)
 
$
(1,906
)
 
$
(596
)
 
$
(2,161
)
Net loss per common share, basic and diluted
 
$
(0.04
)
 
$
(0.23
)
 
$
(0.07
)
 
$
(0.36
)
Weighted-average number of common shares outstanding, basic and diluted
 
9,068,437

 
8,168,760

 
9,013,145

 
5,931,364

Class T Common Stock:
 
 
 
 
 
 
 
 
Undistributed net loss
 
$
(44
)
 
$
(1
)
 
$
(67
)
 
$
(1
)
Class T Common Stock cash distributions declared
 
26

 
—

 
42

 
—

Net loss
 
$
(18
)
 
$
(1
)
 
$
(25
)
 
$
(1
)
Net loss per common share, basic and diluted
 
$
(0.07
)
 
$
(0.36
)
 
$
(0.11
)
 
$
(0.61
)
Weighted-average number of common shares outstanding, basic and diluted
 
261,382

 
1,543

 
213,814

 
1,543

Square Footage, Occupancy and Other Measures
 Any references to square footage, occupancy or annualized base rent 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.

9
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Recently Issued Accounting Standards Update
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.  ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification.  ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted.  In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The primary source of revenue for the Company is generated through leasing arrangements, which are excluded from this standard. The Company’s revenues that may be impacted by this standard primarily include other operating income and other ancillary income earned at its properties. In 2016, other operating income and other ancillary income were approximately 2% of consolidated revenue. The Company continues to evaluate the impact that the standard will have on its consolidated financial statements. The Company expects to adopt the standard using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the adoption.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”).  The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments.  ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected.  ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements.  ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early application of certain provisions of the standard is permitted for financial statements that have not been previously issued.  The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements.

10
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments (“ASU No. 2016-13”).  ASU No. 2016-13 affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.  The amendments in ASU No. 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.  ASU No. 2016-13 also amends the impairment model for available-for-sale securities.  An entity will recognize an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as is currently required.  ASU No. 2016-13 also requires new disclosures.  For financial assets measured at amortized cost, an entity will be required to disclose information about how it developed its allowance for credit losses, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes.  For financing receivables and net investments in leases measured at amortized cost, an entity will be required to further disaggregate the information it currently discloses about the credit quality of these assets by year of the asset’s origination for as many as five annual periods. For available for sale securities, an entity will be required to provide a roll-forward of the allowance for credit losses and an aging analysis for securities that are past due.  ASU No. 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  The Company is still evaluating the impact of adopting ASU No. 2016-13 on its financial statements, but does not expect the adoption of ASU No. 2016-13 to have a material impact on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”).  ASU No. 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.  The amendments in ASU No. 2016-15 provide guidance on eight specific cash flow issues, including the following that are or may be relevant to the Company: (a) Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; (b) Cash payments relating to contingent consideration made soon after an acquisition’s consummation date (i.e., approximately three months or less) should be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities; (c) Cash payments received from the settlement of insurance claims should be classified on the basis of the nature of the loss (or each component loss, if an entity receives a lump-sum settlement);  (d) Relating to distributions received from equity method investments, ASU No. 2016-15 provides an accounting policy election for classifying distributions received from equity method investments. Such amounts can be classified using a (1) cumulative earnings approach, or (2) nature of distribution approach. Under the cumulative earnings approach, an investor would compare the distributions received to its cumulative equity method earnings since inception.  Any distributions received up to the amount of cumulative equity earnings would be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities. Alternatively, an investor can choose to classify the distributions based on the nature of activities of the investee that generated the distribution. If the necessary information is subsequently not available for an investee to determine the nature of the activities, the entity should use the cumulative earnings approach for that investee and report a change in accounting principle on a retrospective basis; (e) In the absence of specific guidance, an entity should classify each separately identifiable cash source and use on the basis of the nature of the underlying cash flows. For cash flows with aspects of more than one class that cannot be separated, the classification should be based on the activity that is likely to be the predominant source or use of cash flow.  ASU No. 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The Company is still evaluating the impact of adopting ASU No. 2016-15 on its financial statements, but does not expect the adoption of ASU No. 2016-15 to have a material impact on its financial statements.

11
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU No. 2016-18”). ASU No. 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, restricted cash and restricted cash equivalents.  Therefore, amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.  ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  The Company elected to early adopt ASU No. 2016-18 for the reporting period ended December 31, 2016 and it was applied retrospectively. As a result of the adoption of ASU No. 2016-18, the Company will not present the changes within restricted cash in the consolidated statements of cash flows.  
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU No. 2017-01”) to add guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  ASU No. 2017-01 provides a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.  If the screen is not met, ASU No. 2017-01 (1) requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) removes the evaluation of whether a market participant could replace missing elements.  ASU No. 2017-01 provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs.  Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs.  ASU No. 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years.  Early adoption is permitted.  The amendments can be applied to transactions occurring before the guidance was issued (January 5, 2017) as long as the applicable financial statements have not been issued.  The Company elected to early adopt ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, the Company’s acquisitions of investment properties beginning January 1, 2017 could qualify as asset acquisitions (as opposed to business combinations).  Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed as incurred.

12
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

3.
REAL ESTATE
As of June 30, 2017 , the Company owned three office properties containing 528,504 rentable square feet, which were collectively 95% occupied. The following table provides summary information regarding the properties owned by the Company as of June 30, 2017 (in thousands):
Property
 
Date Acquired
 
City
 
State
 
Property Type
 
Total Real Estate at Cost
 
Accumulated Depreciation
and Amortization
 
Total Real Estate, Net
Von Karman Tech Center
 
08/12/2015
 
Irvine
 
CA
 
Office
 
$
21,366

 
$
(1,633
)
 
$
19,733

Commonwealth Building
 
06/30/2016
 
Portland
 
OR
 
Office
 
74,905

 
(3,523
)
 
71,382

The Offices at Greenhouse
 
11/14/2016
 
Houston
 
TX
 
Office
 
46,607

 
(1,489
)
 
45,118

 
 
 
 
 
 
 
 
 
 
$
142,878

 
$
(6,645
)
 
$
136,233

As of June 30, 2017 , the following properties represented more than 10% of the Company’s total assets:
Property
 
Location
 
Rentable
Square Feet
 
Total Real Estate, Net
(in thousands)
 
Percentage of
Total Assets
 
Annualized Base Rent
(in thousands) (1)
 
Average Annualized Base Rent per sq. ft.
 
Occupancy
Von Karman Tech Center
 
Irvine, CA
 
101,161

 
$
19,733

 
13.4
%
 
$
2,277

 
$
22.51

 
100.0
%
Commonwealth Building
 
Portland, OR
 
224,122

 
71,382

 
48.5
%
 
5,186

 
25.23

 
91.7
%
The Offices at Greenhouse
 
Houston, TX
 
203,221

 
45,118

 
30.7
%
 
3,807

 
19.68

 
95.2
%
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of June 30, 2017 , 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 real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of June 30, 2017 , the leases had remaining terms, excluding options to extend, of up to 9.1 years with a weighted-average remaining term of 4.7  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 $0.6 million and $0.6 million as of June 30, 2017 and December 31, 2016 .
During the six months ended June 30, 2017 and 2016 , the Company recognized deferred rent from tenants, net of lease incentive amortization, of $0.3 million and $0.1 million , respectively. As of June 30, 2017 and December 31, 2016 , the cumulative deferred rent balance was $1.3 million and $0.9 million , respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.2 million and $0.2 million of unamortized lease incentives as of June 30, 2017 and December 31, 2016 , respectively.

13
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

As of June 30, 2017 , the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):
July 1, 2017 through December 31, 2017
$
5,249

2018
10,180

2019
9,746

2020
9,218

2021
7,833

Thereafter
15,427

 
$
57,653

As of June 30, 2017 , the Company had a concentration of credit risk related to AECOM, a tenant in The Offices at Greenhouse in the engineering industry, which represented 26% of the Company’s annualized base rent. The tenant individually occupied 140,922 rentable square feet or approximately 27% of the total rentable square feet of the Company’s real estate portfolio. Of the 140,922 rentable square feet, 5,195 rentable square feet expires on July 24, 2019, with two three -year extension options, and 135,727 rentable square feet expires on December 31, 2024 , with two five -year extension options. As of June 30, 2017 , the annualized base rent for this tenant was approximately $3.0 million or $21.39 per square foot. No other tenant represented more than 10% of the Company’s annualized base rent.
As of June 30, 2017 , the Company’s real estate properties were leased to approximately 40 tenants over a diverse range of industries. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:
Industry
 
Number of Tenants
 
Annualized Base Rent (1)
(in thousands)
 
Percentage of Annualized Base Rent
Professional, scientific and technical
 
8
 
$
4,806

 
41.9
%
Information technology
 
3
 
1,320

 
11.5
%
_____________________
(1) Annualized base rent represents annualized contractual base rental income as of June 30, 2017 , 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 June 30, 2017 , no other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time.

14
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

4.
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES
As of June 30, 2017 and December 31, 2016 , 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
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
Cost
$
13,408

 
$
13,528

 
$
213

 
$
214

 
$
(5,596
)
 
$
(5,727
)
Accumulated Amortization
(2,468
)
 
(1,253
)
 
(18
)
 
(4
)
 
1,341

 
698

Net Amount
$
10,940

 
$
12,275

 
$
195

 
$
210

 
$
(4,255
)
 
$
(5,029
)
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 six months ended June 30, 2017 and 2016 were as follows (in thousands):
 
 
Tenant Origination and
Absorption Costs
 
Above-Market
Lease Assets
 
Below-Market
Lease Liabilities
 
 
For the Three Months Ended June 30,
 
For the Three Months Ended June 30,
 
For the Three Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Amortization
 
$
(703
)
 
$
(91
)
 
$
(7
)
 
$
—

 
$
423

 
$
4

 
 
Tenant Origination and
Absorption Costs
 
Above-Market
Lease Assets
 
Below-Market
Lease Liabilities
 
 
For the Six Months Ended June 30,
 
For the Six Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Amortization
 
$
(1,336
)
 
$
(187
)
 
$
(15
)
 
$
—

 
$
774

 
$
10


15
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

5.
NOTES PAYABLE
As of June 30, 2017 , the Company’s notes payable consisted of the following (dollars in thousands):
 
 
Book Value as of June 30, 2017
 
Book Value as of December 31, 2016
 
Contractual
Interest Rate as of
June 30, 2017 (1)
 
Effective Interest Rate at
June 30, 2017 (1)
 
Payment Type  
 
Maturity Date (2)
Von Karman Tech Center Mortgage Loan (3)
 
$
—

 
$
11,260

 
(3)  
 
(3)  
 
(3)  
 
(3)  
Commonwealth Building Mortgage Loan (4)
 
41,000

 
41,000

 
One-month LIBOR + 2.15%
 
3.21%
 
Interest Only
 
07/01/2021
Term Loan (5)
 
32,500

 
30,550

 
One-month LIBOR + 2.35%
 
3.41%
 
Interest Only
 
11/14/2019
Unsecured Revolving Credit Facility (6)
 
—

 
—

 
(6)  
 
(6)  
 
(6)  
 
01/08/2018
Notes payable principal outstanding
 
73,500

 
82,810

 
 
 
 
 
 
 
 
Deferred financing costs, net
 
(1,128
)
 
(1,435
)
 
 
 
 
 
 
 
 
Notes payable, net
 
$
72,372

 
$
81,375

 
 
 
 
 
 
 
 
_____________________
(1) Contractual interest rate represents the interest rate in effect under the loan as of June 30, 2017 . Effective interest rate is calculated as the actual interest rate in effect at June 30, 2017 , using interest rate indices at June 30, 2017 , where applicable.
(2) Represents the maturity date as of June 30, 2017 ; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown.
(3) On May 9, 2017 , the Company paid off the Von Karman Tech Center Mortgage Loan and Von Karman Tech Center was added to the Term Loan as a collateral property. See footnote (5) below.
(4) As of June 30, 2017 , $41.0 million of term debt was outstanding and $6.4 million remained available for future disbursements, subject to certain terms and conditions set forth in the loan documents.
(5) The face amount of the Term Loan is $65.0 million , of which $32.5 million is term commitment and $32.5 million is revolving commitment. As of June 30, 2017 , the Term Loan was secured by The Offices at Greenhouse and Von Karman Tech Center. As of June 30, 2017 , the outstanding balance under the Term Loan was $32.5 million of term commitment, which bears interest at a rate of 235 basis points over one-month LIBOR. Also, as of June 30, 2017 , $13.0 million of the revolving commitment was immediately available and an additional $19.5 million of revolving commitment remained available for future disbursement, subject to certain terms and conditions set forth in the loan documents.
(6) The Unsecured Revolving Credit Facility bears interest at a floating rate of 275 basis points plus the greater of zero percent and one-month LIBOR.  Monthly payments are initially interest only. However, if the Company does not meet the equity raised requirement of $30.0 million or greater for the three-month period ending October 1, 2017, it will be required to pay the minimum principal amortization payments in four equal installments on or before October 6, 2017 , November 8, 2017 , December 8, 2017 and January 8, 2018 . As of June 30, 2017 , all of the $10.0 million Unsecured Revolving Credit Facility remained available for future disbursements, subject to certain terms and conditions set forth in the loan documents.
During the three and six months ended June 30, 2017 , the Company incurred $0.8 million and $1.5 million of interest expense, respectively. During the three and six months ended June 30, 2016 , the Company incurred $0.1 million and $0.3 million of interest expense, respectively. As of June 30, 2017 and December 31, 2016 , $0.2 million and $0.2 million of interest expense were payable, respectively. Included in interest expense during the three and six months ended June 30, 2017 was $0.1 million and $0.3 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and six months ended June 30, 2016 was $15,485 and $30,971 of amortization of deferred financing costs, respectively.

16
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of June 30, 2017 (in thousands):
July 1, 2017 through December 31, 2017
 
$
—

2018
 
—

2019
 
32,500

2020
 
—

2021
 
41,000

Thereafter
 
—

 
 
$
73,500

The Company’s notes payable contain financial debt covenants. As of June 30, 2017 , the Company was in compliance with these debt covenants.
6.
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, as defined under GAAP, is 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 financial instrument for which it is practicable to estimate the fair value:
Cash and cash equivalents, rent and other receivables, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items.

17
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Notes payable: The fair value of the Company’s notes payable is 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 liabilities 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 notes payable as of June 30, 2017 and December 31, 2016 , which carrying amounts generally do not approximate the fair values (in thousands):
 
 
June 30, 2017
 
December 31, 2016
 
 
Face Value
 
Carrying Amount
 
Fair Value
 
Face Value
 
Carrying Amount
 
Fair Value
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable  
 
$
73,500

 
$
72,372

 
$
73,487

 
$
82,810

 
$
81,375

 
$
82,443

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.
7.
RELATED-PARTY TRANSACTIONS
Pursuant to the Advisory Agreement, the Private Offering Dealer Manager Agreement and the Public Offering Dealer Manager Agreement, the Company is or was obligated to pay the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Private Offering and the Public Offering, the investment of funds in real estate and real estate-related investments, management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). The Company was also obligated to reimburse the Advisor and Dealer Manager for certain organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, and the Company is obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company. In addition, the Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement.
In addition, in connection with certain property acquisitions, the Company, through indirect wholly owned subsidiaries, has entered into separate Property Management Agreements (defined below) with KBS Management Group, LLC, an affiliate of the Advisor (the “Co-Manager”).
The Company has also entered into a fee reimbursement agreement with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the DTCC Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform.
The Advisor also serves as the advisor for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc. and KBS Strategic Opportunity REIT II, Inc. The Dealer Manager also serves as the dealer manager for KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc. and KBS Strategic Opportunity REIT II, Inc.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

The Company, together with KBS REIT I, KBS Real Estate Investment Trust II, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT II, Inc., the Dealer Manager, the Advisor and other KBS affiliated entities, entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage are shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program and is billed directly to each entity. The allocation of these shared coverage costs is proportionate to the pricing by the insurance marketplace for the first tiers of directors and officers liability coverage purchased individually by each REIT. The Advisor’s and the Dealer Manager’s portion of the shared lower tiers’ cost is proportionate to the respective entities’ prior cost for the errors and omissions insurance. In June 2017, the Company renewed its participation in the program, and the program is effective through June 30, 2018. As KBS REIT I is implementing its plan of liquidation, at renewal in June 2017, KBS REIT I elected to cease participation in the program and obtain separate insurance coverage.
During the six months ended June 30, 2017 and 2016 , no other business transactions occurred between the Company and KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust II, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc., KBS Legacy Partners Apartment REIT, Inc. and KBS Strategic Opportunity REIT II, Inc.
Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and six months ended June 30, 2017 and 2016 , respectively, and any related amounts payable as of June 30, 2017 and December 31, 2016 (in thousands).
 
Incurred
 
Payable as of
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
 
2017
 
2016
 
2017
 
2016
 
June 30, 2017
 
December 31, 2016
Expensed
 
 
 
 
 
 
 
 
 
 
 
Asset management fees (1)
$
—

 
$
39

 
$
214

 
$
59

 
$
—

 
$
—

Reimbursement of operating expenses (2)
50

 
32

 
104

 
85

 
16

 
17

Property management fees (3)
31

 
10

 
60

 
17

 
6

 
16

Real estate acquisition fees
—

 
1,383

 
—

 
1,383

 
—

 
—

Other Arrangement
 
 
 
 
 
 
 
 
 
 
 
Advisor advance for cash distributions (4)
—

 
681

 
—

 
1,140

 
1,338

 
1,338

Additional Paid-in Capital
 
 
 
 
 
 
 
 
 
 
 
Selling commissions
17

 
1,153

 
78

 
2,986

 
—

 
—

Dealer manager fees
15

 
392

 
50

 
1,105

 
—

 
—

Stockholder servicing fees (5)
(77
)
 
—

 
(26
)
 
—

 
—

 
37

Reimbursable other offering costs (6)
(9
)
 
33

 
14

 
358

 
42

 
26

 
$
27

 
$
3,723

 
$
494

 
$
7,133

 
$
1,402

 
$
1,434

_____________________
(1) During the three months ended June 30, 2017, the Company incurred $0.2 million of asset management fees, all of which were waived by the Advisor.
(2) See “Reimbursable Operating Expenses” below.
(3) See “Real Estate Property Co-Management Agreement” below.
(4) See “Advance from the Advisor” below.
(5) The Public Offering was terminated effective June 30, 2017. Pursuant to the terms of the Class T shares as set forth in the Articles Supplementary and Multiple Class Plan of the Company, the Company ceased accruing for stockholder servicing fees after June 30, 2017 and reversed the amounts previously accrued.
(6) See “Organization and Offering Costs” below.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Reimbursable Operating Expenses
Reimbursable operating expenses primarily related to directors and officers liability insurance, legal fees, state and local taxes, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $49,399 and $101,741 for the three and six months ended June 30, 2017 , respectively and $34,731 and $37,278 for the three and six months ended June 30, 2016 , and were the only type of employee costs reimbursed under the Advisory Agreement for the three and six months ended June 30, 2017 and 2016 , respectively. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.
Commencing with the quarter ended December 31, 2016 , the Advisor must reimburse the Company the amount by which the Company’s aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. 
The Company’s conflicts committee determined that the relationship of the Company’s total operating expenses and its net assets was justified for each of the four fiscal quarters ended June 30, 2017 given the costs of operating a public company and the early stage of the Company’s operations and approved total operating expenses in excess of the operating expense reimbursement obligation in the second quarter of 2017.
Advance from the Advisor
The Advisor advanced funds to the Company, which are non-interest bearing, for distribution record dates through the period ended May 31, 2016. The Company is only obligated to repay the Advisor for its advance if and to the extent that:
(i)
the Company’s modified funds from operations (“MFFO”), as such term is defined by the Investment Program Association and interpreted by the Company, for the immediately preceding month exceeds the amount of cash distributions declared for record dates of such prior month (an “MFFO Surplus”), and the Company will pay the Advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or
(ii)
Excess proceeds from third-party financings are available (“Excess Proceeds”), provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the advance shall be determined by the conflicts committee in its sole discretion.
In determining whether Excess Proceeds are available to repay the advance, the Company’s conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Real Estate Property Co-Management Agreements
In connection with its property acquisitions, the Company, through separate, indirect, wholly-owned subsidiaries, entered into separate property management agreements (each, a “Property Management Agreement”) with the Co-Manager for each of its properties. Under each Property Management Agreement, the Co-Manager will provide certain management services related to these properties in addition to those provided by the third-party property managers. In exchange for these services, the Company will pay the Co-Manager a monthly fee equal to a percentage of the rent, payable and actually collected for the month from each of the properties. Each Property Management Agreement has an initial term of one year and will be deemed renewed for successive one -year periods provided it is not terminated. Each party may terminate the Property Management Agreement without cause on 30 days’ written notice to the other party and may terminate each Property Management Agreement for cause on 5 days’ written notice to the other party upon the occurrence of certain events as detailed in each Property Management Agreement.
Property Name
 
Effective Date
 
Annual Fee Percentage
Von Karman Tech Center
 
07/31/2015
 
1.50%
Commonwealth Building
 
07/01/2016
 
1.25%
The Offices at Greenhouse
 
11/14/2016
 
0.25%
Organization and Offering Costs
Offering costs include all expenses incurred in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company.
With respect to the Public Offering, the Advisor and the Dealer Manager generally paid the organization and offering expenses of the Company incurred in the Primary Offering (other than selling commissions, dealer manager fees and stockholder servicing fees) directly and the Company reimbursed the Advisor and the Dealer Manager for the commercially reasonable organization and other offering expenses they incurred on behalf of the Company in connection with the Primary Offering subject to the following limitations.
No reimbursements made by the Company to the Advisor or the Dealer Manager may cause total organization and offering expenses incurred by the Company (including selling commissions, dealer manager fees, the stockholder servicing fee and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from the Primary Offering and the DRP Offering as of the date of reimbursement.
The Company reimbursed the Advisor, the Dealer Manager and its affiliates for up to 1% of gross proceeds raised in the Primary Offering. The Advisor, the Dealer Manager and their affiliates are responsible for all organization and other offering expenses (which excludes selling commissions, dealer manager fees and stockholder servicing fees) paid related to the Primary Offering to the extent they exceeded 1% of gross proceeds raised in the Primary Offering. The Company did not reimburse the Dealer Manager for wholesaling compensation expenses.
During the Private Offering, there was no limit on the amount of organization and offering costs the Company could incur, and the Company was obligated to reimburse the Advisor and its affiliates for all organization and offering costs (excluding wholesaling compensation expenses) paid by them on behalf of the Company.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Through June 30, 2017 , the Advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on the Company’s behalf in connection with the Public Offering of approximately $4.6 million . As of June 30, 2017 , the Company had recorded $39,208 of organization and other offering expenses related to the Public Offering, which amounts represent the Company's maximum liability for organization and other offering costs as of June 30, 2017 based on the limitations described above. As June 30, 2017 , the Company had recorded $1.5 million of organization and other offering costs related to the Private Offering. Organization costs were expensed as incurred and offering costs are deferred and charged to stockholders’ equity as such amounts were reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross proceeds of the applicable offering.
8.
COMMITMENTS AND CONTINGENCIES
Economic Dependency
The Company depends on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, origination, acquisition and disposition of investments; management of the daily operations of the Company’s investment portfolio; and other general and administrative responsibilities. In the event that the Advisor is unable to provide such services, the Company will be required to obtain such services from other sources.
Legal Matters
From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s property, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.
9.
SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the consolidated financial statements are issued.
Cash Distributions Paid
On July 5, 2017 , the Company paid cash distributions of $0.4 million and $9,073 , which related to Class A and Class T cash distributions, respectively, declared for daily record dates for each day in the period from June 1, 2017 through June 30, 2017 . On August 1, 2017 , the Company paid cash distributions of $0.4 million and $11,709 , which related to Class A and Class T cash distributions, respectively, declared for daily record dates for each day in the period from July 1, 2017 through July 31, 2017 .
Stock Dividends Issued
On July 6, 2017 , the Company issued 7,566 shares of Class A common stock and 229 shares of Class T common stock in connection with stock dividends declared for each share of common stock outstanding on June 30, 2017 . On August 2, 2017 , the Company issued 7,589 shares of Class A common stock and 230 shares of Class T common stock in connection with stock dividends declared for each share of common stock outstanding on July 31, 2017 .

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 1. Financial Statements (continued)
KBS GROWTH & INCOME REIT, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 2017
(unaudited)

Distributions and Dividends Authorized
On July 7, 2017 , the Company’s board of directors authorized cash distributions on the outstanding shares of all classes of the Company’s common stock based on daily record dates for the period from August 1, 2017 through August 31, 2017 , which the Company expects to pay in September 2017 . Investors may choose to receive cash distributions or purchase additional shares through the Company’s distribution reinvestment plan. Distributions for this period will be calculated based on stockholders of record each day during this period at a rate of $0.00136986  per share per day.
On August 9, 2017 , the Company’s board of directors authorized cash distributions on the outstanding shares of all classes of the Company’s common stock based on daily record dates for the period from September 1, 2017 through September 30, 2017 , which the Company expects to pay in October 2017 , and the period from October 1, 2017 through October 31, 2017 , which the Company expects to pay in November 2017 . Investors may choose to receive cash distributions or purchase additional shares through the Company’s distribution reinvestment plan. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00131849  per share per day.
On July 7, 2017 , the Company’s board of directors authorized stock dividends of 0.00083333 shares of common stock on each outstanding share of common stock to all stockholders of record as of the close of business on August 31, 2017 , which the Company expects to issue in September 2017 . Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.
Amended and Restated Advisory Agreement
On August 9, 2017, the Company entered an amended and restated advisory agreement with the Advisor. The material changes to the amended and restated advisory agreement are as follows: elimination of the payment of an acquisition fee to the Advisor; changes to the calculation of the Company’s asset management fee as described below; and undertaking that the Advisor will pay all organization and offering expenses related to the Company’s proposed private offering pursuant to Rule 506(c) of Regulation D under the Securities Act. As amended, the Company’s asset management fee will be a monthly fee equal to one-twelfth of 1.0% of the cost of the Company’s investments. The cost of the Company’s investments will include any portion of the investment that is debt financed and excludes any acquisition and origination fees paid to the Advisor.
Amended and Restated Distribution Reinvestment Plan
Also on August 9, 2017, the board of directors adopted an amended and restated distribution reinvestment plan to change the price at which shares are purchased pursuant to the Company’s distribution reinvestment plan and remove certain provisions that are no longer applicable. There were no other changes to the plan.
Effective August 20, 2017, pursuant to the Company’s distribution reinvestment plan, participants in the distribution reinvestment plan will acquire shares of the Company’s common stock at a price equal to the estimated NAV per share. As such, commencing on the next distribution reinvestment plan purchase date, which is September 1, 2017, participants will acquire shares of the Company’s common stock pursuant to its distribution reinvestment plan at a price of $8.75 per share.



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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Growth & Income REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Growth & Income REIT, Inc., a Maryland corporation, and, as required by context, KBS Growth & Income Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Growth & Income REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
•
We commenced investment operations on August 12, 2015 in connection with our first investment and we have a limited operating history. We are dependent on our advisor to identify suitable investments and to manage our investments.
•
All of our executive officers, our affiliated directors and other key real estate and debt finance professionals are also officers, affiliated directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager, our affiliated property manager and/or other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s and its affiliates’ compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in action or inaction that is not in the best interests of our stockholders.
•
Because investment opportunities that are suitable for us may also be suitable for other KBS-sponsored programs or KBS-advised investors, our advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.
•
Our advisor and its affiliates receive fees in connection with transactions involving the management of our investments. These fees are based on the cost of the investment, and not based on the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us and increases our stockholders’ risk of loss. In addition, we have paid substantial fees to and expenses of our advisor, our dealer manager, their affiliates and participating broker-dealers, in connection with our now-terminated initial public offering, which payments increase the risk that our stockholders will not earn a profit on their investment. We may also pay significant fees during our listing/liquidation stage.
•
We were unable to raise substantial funds in the primary portion of our initial public offering, which we terminated effective June 30, 2017. If we are unable to raise substantial funds during our offering stage, which may include any subsequent offerings of securities other than under our distribution reinvestment plan, we may not be able to acquire a diverse portfolio of real estate investments, which may cause the value of an investment in us to vary more widely with the performance of specific assets and cause our general and administrative expenses to constitute a greater percentage of our revenue. Raising fewer proceeds during our offering stage, therefore, could increase the risk that our stockholders will lose money in their investment.
•
We may fund distributions from any source, including, without limitation, offering proceeds or borrowings (which may constitute a return of capital). Until the proceeds from our offering stage are fully invested and from time to time during our operational stage, we expect to use proceeds from financings, either from our advisor or a third-party, to fund at least a portion of distributions in anticipation of cash flow to be received in later periods. We may also fund distributions from the sale of assets or from the maturity, payoff or settlement of debt investments. As of June 30, 2017 , some of our distributions paid have been funded with advances from our advisor and debt financing. Distributions funded from sources other than our cash flow from operations will result in dilution to subsequent investors, reduce funds available for investment in assets and may reduce the overall return to our stockholders.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

•
If we are unable to locate investments with attractive yields while we are investing the proceeds raised in our offering stage, our distributions and the long-term returns of our investors may be lower.
•
Our policies do not limit us from incurring debt until our aggregate borrowings would exceed 300% of our net assets (before deducting depreciation and other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt such that our aggregate borrowings would exceed this limit. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment.
•
We depend on tenants for the revenue generated by any real estate investments we make and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from any properties we acquire could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet any debt service obligations we have incurred and limiting our ability to pay distributions to our stockholders.
•
Any real estate investments we make may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from real estate properties and assets directly securing any real estate-related investments we acquire or originate could decrease. Such events would make it more difficult for the borrowers under such investments to meet their payment obligations. These events could in turn make it more difficult for us to meet debt service obligations and limit our ability to pay distributions to our stockholders.
•
We cannot predict with any certainty how much, if any, of our distribution reinvestment plan proceeds will be available for general corporate purposes including, but not limited to: the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to any real estate properties we acquire; reserves required by any financings of real estate investments; funding obligations under any real estate loan receivable; the acquisition or origination of real estate investments, which would include payment of acquisition or origination fees to our advisor; and the repayment of debt. If such funds are not available from our distribution reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.
•
Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to our stockholders.
•
We have debt obligations with variable interest rates and may incur additional variable rate debt in the future. The interest and related payments will vary with the movement of LIBOR or other indexes. Increases in the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.
All forward-looking statements should be read in light of the risks identified herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, all filed with the Securities and Exchange Commission (the “SEC”).
Overview
We were formed on January 12, 2015 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2015 and we intend to continue to operate in such a manner. Substantially all of our business is conducted through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is externally managed by our advisor pursuant to an advisory agreement. KBS Capital Advisors manages our operations and our portfolio of core real estate properties. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. Our advisor acquired 20,000 shares of our Class A common stock for an initial investment of $200,000. We have no paid employees.

25
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

We commenced a private placement offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), on June 11, 2015, pursuant to which we offered a maximum of $105,000,000 of shares of our Class A common stock for sale to certain accredited investors, of which $5,000,000 of Class A shares were being offered pursuant to our distribution reinvestment plan. We ceased offering shares in the primary portion of our private offering on April 27, 2016 and processed subscriptions for the primary portion of the private offering dated on or prior to April 27, 2016 through May 30, 2016. KBS Capital Markets Group LLC, an affiliate of our advisor, served as the dealer manager of the offering pursuant to a dealer manager agreement and was responsible for marketing our shares in the offering.
We had sold 8,548,972 shares of our Class A common stock for gross offering proceeds of $76.8 million in our private offering, including 74,744 shares of our Class A common stock under our distribution reinvestment plan for gross offering proceeds of $0.7 million .
Additionally, on August 11, 2015, two of the individuals who own and control our sponsor, Charles J. Schreiber, Jr. (who also acts as our chief executive officer and chairman of the board and as a director) and Peter M. Bren (who also acts as our president and a director), purchased 21,181.2380 and 21,181.2390 shares of our Class A common stock, respectively, each for an aggregate purchase price of $172,500 or $8.144 per share. The per share purchase price reflects an 8.5% discount to the $8.90 offering price in our private offering in effect on the date of their purchase because selling commissions and dealer manager fees were not paid in connection with the sales. Mr. Bren’s investment was made on behalf of and for the account of three of his children, and he has disclaimed beneficial ownership of the shares. We issued these shares in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act.
On February 4, 2015, we filed a registration statement on Form S-11 with the SEC to register an initial public offering to offer a maximum of $1,500,000,000 in shares of common stock for sale to the public in the primary offering, consisting of two classes of shares: Class A and Class T. We are also offering a maximum of $800,000,000 in both classes of shares of our common stock pursuant to our distribution reinvestment plan. The SEC declared our registration effective on April 28, 2016 and we retained KBS Capital Markets Group LLC to serve as the dealer manager of the initial public offering. The dealer manager was responsible for marketing our shares in the initial public offering.
We terminated our primary initial public offering effective June 30, 2017 and expect to launch a private offering solely to accredited investors pursuant to Rule 506(c) of Regulation D of the Securities Act in the third quarter of 2017. We can give no assurance regarding the success of such private offering. We are continuing to offer shares of common stock pursuant to our distribution reinvestment plan offering.
As of June 30, 2017 , we had sold 358,017 and 273,787 shares of Class A and Class T common stock in the public offering, respectively, for aggregate gross offering proceeds of $6.3 million , including 236,839 and 3,372 shares of Class A and Class T common stock under our distribution reinvestment plan, respectively, for aggregate gross offering proceeds of $2.4 million . Also as of June 30, 2017, we had redeemed  7,602 Class A shares for $64,655 .
We intend to use substantially all of the net proceeds from our offerings to invest in a diverse portfolio of core real estate properties and real estate-related assets. We consider core properties to be existing properties with at least 80% occupancy. Based on the current market outlook, we expect our core focus in the U.S. office sector to reflect a value-creating core strategy, which is also known as a core-plus strategy. The real estate-related assets in which we may invest include mortgage, mezzanine, bridge and other loans, debt and derivative securities related to real estate assets, including mortgage-backed securities, and equity securities such as common stocks, preferred stocks and convertible preferred securities of other REITs and real estate companies. As of June 30, 2017 , we owned three office properties.
KBS Capital Advisors makes recommendations on all investments to our board of directors. All proposed real estate investments must be approved by at least a majority of our board of directors, including a majority of the conflicts committee. Unless otherwise provided by our charter, the conflicts committee may approve a proposed real estate investment without action by the full board of directors if the approving members of the conflicts committee constitute at least a majority of the board of directors.

26
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

We elected to be taxed as a REIT under the Internal Revenue Code, beginning with the taxable year ended December 31, 2015. If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Such an event could materially and adversely affect our net income and cash available for distribution to our stockholders. However, we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2015, and we will continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter.
Market Outlook – Real Estate and Real Estate Finance Markets
The following discussion is based on management’s beliefs, observations and expectations with respect to the real estate and real estate finance markets.
Current economic data and financial market developments suggest that the global economy is improving, although at a slow and uneven pace. European economic growth has recently picked up, with improving employment data in most of the European Union countries. The U.K. and China remain areas of concern. The U.K. is working through its BREXIT process, whereas the Chinese economy has shown signs of stabilization, but is still struggling with uncertainty in its banking system in relation to bad loans. Against this backdrop, the central banks of the world’s major industrialized economies are beginning to back away from their strong monetary accommodation. Quantitative easing in Japan and Europe is slowing, but the liquidity generated from these programs continues to impact the global capital markets.
At a duration of 97 months (as of the end of second quarter 2017), the current business cycle, which commenced in June 2009, is the fourth longest in U.S. history, including the post-World War II cycle that lasted 58 months. In June of 2017, the U.S. Federal Reserve (the “FED”) increased interest rates for the fourth time in three years. Expectations are now mixed for further rate increases, as signs of inflation have been weakening. The FED is still hoping to normalize the level of interest rates in the United States. However, little in the U.S. macroeconomic data suggests that the economy is growing too rapidly or that inflation is accelerating. Real gross domestic product (“GDP”) growth has averaged approximately 2% per year over the past two years, and job growth has averaged about 1.7% over the same period. Personal income growth has started to pick up and unemployment statistics indicate that labor force conditions are finally showing real improvements. Uncertainty surrounding the new administration’s budget, plans to revamp the Affordable Care Act, the future of the Chair of the FED, and the continued weakness in retailers, all may adversely impact business and consumer confidence.
The U.S. commercial real estate market continues to benefit from inflows of foreign capital, albeit at a slowing rate. With a backdrop of global political conflict, and stabilizing international economic conditions, the U.S. dollar’s position as a haven currency took a hit as the dollar’s value against other major global currencies declined for most of the second quarter. An easing in demand for U.S. commercial real estate is reflected in the slowing of transaction volumes. The industrial property sector is the lone standout, as internet sales volumes continue to increase the demand for warehouses and logistics-related assets. Traditional sources of capital are favoring a “risk-off” approach, as capital flows have shifted equity towards debt, or secured, investing. Commercial real estate returns are increasingly being driven by property income (yield), as opposed to price appreciation through cap rate compression.
Lenders with long memories remain disciplined in their underwriting of investments. For balance sheet lenders, such as banks and insurance companies, underwriting standards for commercial real estate have tightened. This has resulted in lower loan-to-value and higher debt coverage ratios. CMBS originations also have been limited as lenders are attempting to adjust to new securitization rules which require issuers to maintain an ongoing equity stake in pooled transactions. These trends have led to increased uncertainty in the level and cost of debt for commercial properties, and in turn has injected some volatility into commercial real estate markets.
A major factor contributing to the strength of the real estate cycle is the difficulty of securing construction financing. Lack of construction financing is effectively keeping an oversupply of commercial real estate, which is typical late in a real estate cycle, from emerging. Bank regulators and new risk-based capital guidelines have enforced discipline in lending, which has helped reduce new construction.

27
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Impact on Our Real Estate Investments
The volatility in the global financial markets and political environment continues to cause a level of uncertainty in our outlook for the performance of the U.S. commercial real estate markets. Both the investing and leasing environments are highly competitive. While foreign capital continues to flow into U.S. real estate markets, albeit at a slower rate, concerns regarding the political, regulatory and economic environments has introduced uncertainty into the markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows. Historically low interest rates could help offset some of the impact of these potential decreases in operating cash flow for properties financed with variable rate mortgages; however, interest rates in the United States have started to increase. The FED raised interest rates four times between the period December 2015 and June 2017. The real estate and finance markets anticipate further rate increases as long as the economy remains strong, but a flattening U.S. treasury yield curve is signaling a weakening in economic conditions, and highlights the degree of uncertainty surrounding the near-term U.S. economic prospects. Management continuously reviews our debt financing strategies to optimize the cost of our debt exposure.
Impact on Our Financing Activities
In light of the risks associated with potentially volatile operating cash flows from some of our real estate properties, and the possible increase in the cost of financing due to higher interest rates, we may have difficulty refinancing some of our debt obligations prior to or at maturity or we may not be able to refinance these obligations at terms as favorable as the terms of our existing indebtedness. Short-term interest rates in the United States have increased, but the certainty regarding future increases has diminished. Market conditions can change quickly, potentially negatively impacting the value of our investments.
Liquidity and Capital Resources
We are dependent upon the net proceeds from our offering stage to conduct our proposed operations. We will obtain the capital required to make real estate and real estate-related investments and conduct our operations from the proceeds of our offering stage, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of June 30, 2017 , we had raised approximately $83.1 million in gross offering proceeds from the sale of shares of our common stock in our private offering, separate private transactions and initial public offering. We terminated our primary initial public offering effective June 30, 2017 and expect to launch a private offering solely to accredited investors pursuant to Rule 506(c) of Regulation D of the Securities Act in the third quarter of 2017. We can give no assurance regarding the success of such private offering. We continue to offer shares of common stock under our distribution reinvestment plan.
If we are unable to raise substantial funds during our offering stage, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate more significantly with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds during our offering stage. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and cash flow and limiting our ability to make distributions to our stockholders. We expect to establish a modest working capital reserve from our offering proceeds for maintenance and repairs of real properties, as we expect the vast majority of leases for the properties we acquire will provide for tenant reimbursement of operating expenses. However, to the extent that we have insufficient funds for such purposes, we may establish additional reserves from gross offering proceeds, out of cash flow from operations or net cash proceeds from the sale of properties.
As of June 30, 2017 , we owned three office properties that were 95%  occupied. We acquired these investments with the proceeds from the sale of our common stock in the private offering and debt financing, including a bridge loan from our advisor that we have since repaid. Operating cash needs during the six months ended June 30, 2017 were met through cash flow generated by our real estate investments and with proceeds from our private offering and initial public offering.
Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from real estate investments will be primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures.

28
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our advisor advanced funds to us, which are non-interest bearing, for distribution record dates through the period ended May 31, 2016. We are only obligated to repay our advisor for its advance if and to the extent that:
(i)
Our modified funds from operations (“MFFO”), as such term is defined by the Investment Program Association and interpreted by us, for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “MFFO Surplus”), and we will pay our advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or
(ii)
Excess proceeds from third-party financings are available (“Excess Proceeds”), provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the advance shall be determined by the conflicts committee in its sole discretion.
In determining whether Excess Proceeds are available to repay the advance, our conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance.
We expect that once we have fully invested the proceeds raised during our offering stage, our debt financing and other liabilities will be between 35% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). Though this is our target leverage, our charter does not limit us from incurring debt until our aggregate borrowings would exceed 300% of our net assets (before deducting depreciation and other non-cash reserves), though we may exceed this limit under certain circumstances. To the extent financing in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. As of June 30, 2017 , our aggregate borrowings were approximately 53% of our net assets before deducting depreciation and other non-cash reserves.
In addition to making investments in accordance with our investment objectives, we have used a portion of our capital resources to make certain payments to our advisor, our dealer manager and our affiliated property manager. These payments include payments to our dealer manager for selling commissions, the dealer manager fee and the stockholder servicing fee, and payments to the dealer manager and our advisor for reimbursement of certain organization and other offering expenses. See “—Organization and Offering Costs” below.
We will make payments to our advisor in connection with the management of our assets and costs incurred by our advisor in providing services to us. Through August 8, 2017, the asset management fee payable to our advisor was a monthly fee equal to one-twelfth of 1.6% of the cost of our investments, less any debt secured by or attributable to our investments. As of August 9, 2017, the asset management fee will be a monthly fee payable to our advisor in an amount equal to one-twelfth of 1.0% of the cost of our investments including the portion of the investment that is debt financed. The cost of our real property investments is calculated as the amount paid or allocated to acquire the real property, plus budgeted capital improvement costs for the development, construction or improvements to the property once such funds are disbursed pursuant to a final approved budget and fees and expenses related to the acquisition, but excluding acquisition fees paid or payable to our advisor. The cost of our real estate-related investments and any investments other than real property is calculated as the lesser of: (x) the amount paid or allocated to acquire or fund the investment, including fees and expenses related to the acquisition or origination (but excluding acquisition or origination fees paid or payable to our advisor), and (y) the outstanding principal amount of such investment, including fees and expenses related to the acquisition or funding of such investment (but excluding acquisition or origination fees paid or payable to our advisor). In the case of investments made through joint ventures, the asset management fee is determined based on our proportionate share of the underlying investment. Our advisor agreed to waive asset management fees for the second and third quarters of 2017.
We also pay fees to the Co-Manager, an affiliate of our advisor, pursuant to property management agreements with the Co-Manager, for certain property management services at our properties.
We elected to be taxed as a REIT and to operate as a REIT beginning with our taxable year ended December 31, 2015. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare cash distributions based on daily record dates and pay cash distributions on a monthly basis. During our offering stage, we also intend to authorize and declare stock dividends based on monthly record dates and to issue stock dividends on a monthly basis. We have not established a minimum distribution level.

29
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended June 30, 2017 did not exceed the charter-imposed limitation.
Cash Flows from Operating Activities
As of June 30, 2017 , we owned three office properties. During the six  months ended June 30, 2017 , net cash provided by operating activities was $1.6 million . We expect that our cash flows from operating activities will increase in future periods to the extent we make additional acquisitions of real estate and real estate-related investments and the related operations of such investments.
Cash Flows from Investing Activities
Net cash used in investing activities was $0.3 million for the six months ended June 30, 2017 and consisted of cash for improvements to real estate.
Cash Flows from Financing Activities
During the six months ended June 30, 2017 , net cash used in financing activities was $8.2 million and consisted primarily of the following:
•
$9.4 million of net cash used in debt financing as a result of principal payments on notes payable of $11.3 million and payments of deferred financing costs of $0.1 million, partially offset by proceeds from notes payable of $2.0 million;
•
$2.4 million of net cash provided by offering proceeds related to our public offering, net of payments of commissions, dealer manager fees and other organization and offering costs of $0.1 million; and
•
$1.1 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $1.2 million.
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of June 30, 2017 (in thousands).
 
 
 
 
Payments Due During the Years Ending December 31,
Contractual Obligations
 
Total
 
Remainder of 2017
 
2018-2019
 
2020-2021
 
Thereafter
Outstanding debt obligations (1)
 
$
73,500

 
$
—

 
$
32,500

 
$
41,000

 
$
—

Interest payments on outstanding debt obligations (2)
 
7,904

 
1,222

 
4,706

 
1,976

 
—

_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amount, maturity date and contractual interest rate in effect as of June 30, 2017 . We incurred interest expense of $1.2 million, excluding amortization of deferred financing costs totaling $0.3 million during the six months ended June 30, 2017 .
Results of Operations
Overview
We conducted a primary initial public offering from April 28, 2016 through June 30, 2017 and are continuing to offer shares in our distribution reinvestment plan offering. Prior to this, we conducted a private placement offering exempt from registration under the Securities Act, that commenced on June 11, 2015. We ceased offering shares in the primary portion of the private offering on April 27, 2016 and processed subscriptions for the primary portion of the private offering dated on or prior to April 27, 2016 through May 30, 2016. Our results of operations as of June 30, 2017 are not indicative of those expected in future periods as we commenced investment operations on August 12, 2015 in connection with our first investment and have since been raising money in and investing the proceeds from our offerings. As of June 30, 2016 , we owned two office properties. We acquired one office property after June 30, 2016 and owned three office properties as of June 30, 2017 . The results of operations presented for the three months ended June 30, 2017 and 2016 are not directly comparable due to our acquisition activity. In general, we expect that our income and expenses related to our portfolio will increase in future periods to the extent we make additional acquisitions of real estate investments.

30
Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparison of the three months ended June 30, 2017 versus the three months ended June 30, 2016
 
 
For the Three Months Ended June 30,
 
Increase
(Decrease)
 
Percentage Change
 
$ Change Due to Acquisitions (1)
 
$ Change Due to Property 
Held Throughout
Both Periods (2)
 
 
2017
 
2016
 
 
 
 
Rental income
 
$
3,290

 
$
589

 
$
2,701

 
459
 %
 
$
2,699

 
$
2

Tenant reimbursements
 
877

 
51

 
826

 
1,620
 %
 
793

 
33

Other operating income
 
20

 
—

 
20

 
100
 %
 
18

 
2

Operating, maintenance and management costs
 
878

 
186

 
692

 
372
 %
 
703

 
(11
)
Property management fees
 
31

 
10

 
21

 
210
 %
 
22

 
(1
)
Real estate taxes and insurance
 
513

 
74

 
439

 
593
 %
 
439

 
—

Asset management fees to affiliate
 
—

 
39

 
(39
)
 
(100
)%
 
—

 
(39
)
Real estate acquisition fees to affiliate
 
—

 
1,383

 
(1,383
)
 
(100
)%
 
n/a

 
n/a

Real estate acquisition fees and expenses
 
—

 
229

 
(229
)
 
(100
)%
 
n/a

 
n/a

General and administrative expenses
 
422

 
367

 
55

 
15
 %
 
n/a

 
n/a

Depreciation and amortization
 
1,822

 
218

 
1,604

 
736
 %
 
1,602

 
2

Interest expense
 
757

 
95

 
662

 
697
 %
 
616

 
46

Interest and other income
 
18

 
54

 
(36
)
 
(67
)%
 
—

 
(36
)
Loss from extinguishment of debt
 
(206
)
 
—

 
(206
)
 
(100
)%
 
—

 
(206
)
_____________________
(1) Represents the dollar amount increase for the three months ended June 30, 2017 compared to the three months ended June 30, 2016 related to real estate investments acquired on or after April 1, 2016 .
(2) Represents the dollar amount increase (decrease) for the three months ended June 30, 2017 compared to the three months ended June 30, 2016 with
respect to the real estate investment owned by us throughout both periods presented.
Rental income and tenant reimbursements increased from $0.6 million for the three months ended June 30, 2016 to $4.2 million for the three months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect that rental income and tenant reimbursements to increase in future periods to the extent we make additional acquisitions of real estate investments.
Operating, maintenance, and management costs increased from $0.2 million for the three months ended June 30, 2016 to $0.9 million for the three months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect operating, maintenance, and management expenses to increase in future periods to the extent we make additional acquisitions of real estate investments.
Real estate taxes and insurance increased from $0.1 million for the three months ended June 30, 2016 to $0.5 million for the three months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect real estate taxes and insurance to increase in future periods as a result of inflation and to the extent we make additional acquisitions of real estate investments.
Asset management fees to affiliate for the three months ended June 30, 2016 was $39,000 for this period. Asset management fees to our affiliate for the three months ended June 30, 2017 was $0.2 million, all of which were waived by our advisor. We amended our advisory agreement on August 9, 2017 to change how asset management fees are calculated. We expect asset management fees to increase in future periods as a result of this change and also to the extent we make additional real estate investments.
Real estate acquisition fees and expenses to affiliate and non-affiliates were $1.6 million for the three months ended June 30, 2016 . During the three months ended June 30, 2016 , we acquired one real estate property for $68.5 million. During the three months ended June 30, 2017 , we did not acquire any real estate properties. We amended our advisory agreement on August 9, 2017 to eliminate the payment of an acquisition fee to our advisor. We do not expect to incur real estate acquisition fees to affiliates going forward. In addition, we adopted ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, our acquisitions of real estate properties beginning January 1, 2017 qualified as asset acquisitions as opposed to business combinations.  Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Depreciation and amortization increased from $0.2 million for the three months ended June 30, 2016 to $1.8 million for the three months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods to the extent we make additional acquisitions of real estate investments.
Interest expense increased from $0.1 million for the three months ended June 30, 2016 to $0.8 million for the three months ended June 30, 2017 . Included in interest expense is the amortization of deferred financing costs of $15,485 and $0.1 million for the three months ended June 30, 2016 and 2017 , respectively. The increase in interest expense is primarily due to increased borrowings in connection with the acquisition of real estate, resulting in an increase in the average loan balance. We expect interest expense to increase in future periods as a result of anticipated borrowings to the extent we make additional acquisitions of real estate investments.
During the three months ended June 30, 2017 , we recognized a loss from extinguishment of debt of $0.2 million related to the write-off of unamortized deferred financing costs as a result of the pay-off of the Von Karman Tech Center Mortgage Loan on May 9, 2017.
Comparison of the six months ended June 30, 2017 versus the six months ended June 30, 2016
 
 
For the Six Months Ended June 30,
 
Increase
(Decrease)
 
Percentage Change
 
$ Change Due to Acquisitions (1)
 
$ Change Due to Property 
Held Throughout
Both Periods (2)
 
 
2017
 
2016
 
 
 
 
Rental income
 
$
6,526

 
$
1,157

 
$
5,369

 
464
 %
 
$
5,361

 
$
8

Tenant reimbursements
 
1,656

 
79

 
1,577

 
1,996
 %
 
1,507

 
70

Other operating income
 
38

 
—

 
38

 
100
 %
 
36

 
2

Operating, maintenance and management costs
 
1,623

 
337

 
1,286

 
382
 %
 
1,336

 
(50
)
Property management fees
 
60

 
17

 
43

 
253
 %
 
43

 
—

Real estate taxes and insurance
 
970

 
143

 
827

 
578
 %
 
832

 
(5
)
Asset management fees to affiliate
 
214

 
59

 
155

 
263
 %
 
174

 
(19
)
Real estate acquisition fees to affiliate
 
—

 
1,383

 
(1,383
)
 
(100
)%
 
n/a

 
n/a

Real estate acquisition fees and expenses
 
—

 
229

 
(229
)
 
(100
)%
 
n/a

 
n/a

General and administrative expenses
 
763

 
586

 
177

 
30
 %
 
n/a

 
n/a

Depreciation and amortization
 
3,540

 
445

 
3,095

 
696
 %
 
3,098

 
(3
)
Interest expense
 
1,500

 
273

 
1,227

 
449
 %
 
1,244

 
(17
)
Interest and other income
 
35

 
74

 
(39
)
 
(53
)%
 
—

 
(39
)
Loss from extinguishment of debt
 
(206
)
 
—

 
(206
)

(100
)%

—

 
(206
)
_____________________
(1) Represents the dollar amount increase for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 related to real estate investments acquired on or after January 1, 2016 .
(2) Represents the dollar amount increase (decrease) for the six months ended June 30, 2017 compared to the six months ended June 30, 2016 with
respect to the real estate investment owned by us throughout both periods presented.
Rental income and tenant reimbursements increased from $1.2 million for the six months ended June 30, 2016 to $8.2 million for the six months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect rental income and tenant reimbursements to increase in future periods to the extent we make additional acquisitions of real estate investments.
Operating, maintenance, and management costs increased from $0.3 million for the six months ended June 30, 2016 to $1.6 million for the six months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect operating, maintenance, and management expenses to increase in future periods to the extent we make additional acquisitions of real estate investments.
Real estate taxes and insurance increased from $0.1 million for the six months ended June 30, 2016 to $1.0 million for the six months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect real estate taxes and insurance to increase in future periods to the extent we make additional acquisitions of real estate investments.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Asset management fees to affiliate increased from $59,000 for the six months ended June 30, 2016 to $0.2 million for the six months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. Our advisor agreed to waive $0.2 million of asset management fees for the second quarter of 2017. We amended our advisory agreement on August 9, 2017 to change how asset management fees are calculated. We expect asset management fees to increase in future periods as a result of this change and also to the extent we make additional real estate investments.
Real estate acquisition fees and expenses to affiliate and non-affiliates were $1.6 million for the six months ended June 30, 2016 . During the six months ended June 30, 2016 , we acquired one real estate property for $68.5 million. During the six months ended June 30, 2017 , we did not acquire any real estate properties. We amended our advisory agreement August 9, 2017 to eliminate the payment of an acquisition fee to our advisor. We do not expect to incur real estate acquisition fees to affiliates going forward. In addition, we adopted ASU No. 2017-01 for the reporting period beginning January 1, 2017.  As a result of the adoption of ASU No. 2017-01, our acquisitions of real estate properties beginning January 1, 2017 could qualify as asset acquisitions as opposed to business combinations.  Transaction costs associated with asset acquisitions are capitalized, while transaction costs associated with business combinations will continue to be expensed.
General and administrative expenses increased from $0.6 million for the six months ended June 30, 2016 to $0.8 million for the six months ended June 30, 2017 . These general and administrative costs consisted primarily of portfolio legal fees, board of directors fees, external auditor fees and internal audit compensation. We expect general and administrative costs to increase in future periods to the extent we make additional acquisitions of real estate investments.
Depreciation and amortization increased from $0.4 million for the six months ended June 30, 2016 to $3.5 million for the six months ended June 30, 2017 , primarily as a result of the growth in our real estate portfolio. We expect depreciation and amortization to increase in future periods to the extent we make additional acquisitions of real estate investments.
Interest expense increased from $0.3 million for the six months ended June 30, 2016 to $1.5 million for the six months ended June 30, 2017 . Included in interest expense is the amortization of deferred financing costs of $30,971 and $0.3 million for the six months ended June 30, 2016 and 2017 , respectively. The increase in interest expense is primarily due to increased borrowings in connection with the acquisition of real estate, resulting in an increase in the average loan balance. We expect interest expense to increase in the future as a result of anticipated borrowings in future periods to the extent we make additional acquisitions of real estate investments.
During the six months ended June 30, 2017 , we recognized a loss from extinguishment of debt of $0.2 million related to the write-off of unamortized deferred financing costs as a result of the pay-off of the Von Karman Tech Center Mortgage Loan on May 9, 2017.
Funds from Operations and Modified Funds from Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses MFFO as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the IPA in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.
We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO.  Management believes that, by excluding acquisition costs (to the extent such costs have been recorded as operating expenses) as well as non-cash items such as straight line rental revenue, MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance.  MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.  MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.
FFO and MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, loss from extinguishment of debt and acquisition fees and expenses are the most significant adjustments for the periods presented.  We have excluded these items based on the following economic considerations:
•
Adjustments for straight-line rent.  These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease.  We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;
•
Amortization of above- and below-market leases.   Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue.  Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;
•
Loss from extinguishment of debt .  A loss from extinguishment of debt represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement.  We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance; and
•
Acquisition fees and expenses. Prior to our early adoption of ASU No. 2017-01 on January 1, 2017, acquisition fees and expenses related to the acquisition of real estate were expensed. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis. Additionally, acquisition fees and expenses have been funded from the proceeds from our private and public offerings, net proceeds from our distribution reinvestment plan, and from debt financings, and not from our operations. We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance.
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculation of MFFO, for the three and six months ended June 30, 2017 and 2016 , respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss
 
$
(424
)
 
$
(1,907
)
 
$
(621
)
 
$
(2,162
)
Depreciation of real estate assets
 
626

 
49

 
1,247

 
97

Amortization of lease-related costs
 
1,196

 
169

 
2,293

 
348

FFO
 
1,398

 
(1,689
)
 
2,919

 
(1,717
)
Straight-line rent and amortization of above- and below-market leases
 
(544
)
 
(68
)
 
(1,074
)
 
(130
)
Loss from extinguishment of debt
 
206

 
—

 
206

 
—

Real estate acquisition fees to affiliate
 
—

 
1,383

 
—

 
1,383

Real estate acquisition fees and expenses
 
—

 
229

 
—

 
229

MFFO
 
$
1,060

 
$
(145
)
 
$
2,051

 
$
(235
)
FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.
Organization and Offering Costs
Offering costs include all expenses incurred in connection with the private offering and the public offering. Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

With respect to the public offering, our advisor and dealer manager generally paid our organization and offering expenses incurred in the primary portion of our initial public offering (other than selling commissions, dealer manager fees and stockholder servicing fees) directly and we reimbursed our advisor and the dealer manager for the commercially reasonable organization and other offering expenses they incurred on behalf of us in connection with the primary portion of our initial public offering subject to the following limitations.
No reimbursements made by is to our advisor or the dealer manager may cause total organization and offering expenses incurred by us (including selling commissions, dealer manager fees, the stockholder servicing fee and all other items of organization and offering expenses) to exceed 15% of the aggregate gross proceeds from our initial public offering as of the date of reimbursement.
We will reimburse our advisor, the dealer manager and their affiliates for up to 1.0% of gross proceeds raised in the primary portion of our initial public offering. Our advisor, the dealer manager, and their affiliates will be responsible for all organization and other offering expenses (which excludes selling commissions, dealer manager fees and stockholder servicing fees) related to the primary portion of our initial public offering to the extent they exceed 1.0% of gross proceeds raised in the primary portion of our initial public offering. We do not reimburse the dealer manager for wholesaling compensation expenses.
During the private offering, there was no limit on the amount of organization and offering costs we could incur and we were obligated to reimburse our advisor, our dealer manager or their affiliates, as applicable, for organization and offering costs (excluding wholesaling compensation expenses) paid by them on behalf of us. As of June 30, 2017 , we had recorded $1.5 million of offering costs (other than selling commissions and dealer manager fees) related to our private offering, all of which have been reimbursed to our advisor or its affiliates as of June 30, 2017 .
Through June 30, 2017 , our advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on our behalf in connection with the initial public offering of approximately $4.6 million . As of June 30, 2017 , we had recorded $39,208 of organization and other offering expenses related to the initial public offering, which amounts represent our maximum liability for organization and other offering costs as of June 30, 2017 based on the limitations described above.
Distributions
During our offering stage, when we may raise capital more quickly than we acquire income producing assets, and from time to time during our operational stage, we may not pay distributions solely from our cash flows from operations, in which case distributions may be paid in whole or in part from debt financing, including advances from our advisor, if necessary. Distributions declared, distributions paid and cash flows from operations were as follows for the first and second quarters of 2017 (in thousands, except per share amounts):
 
 
Cash Distributions Declared  (1)
 
Cash Distribution Declared Per Class A Share  (1) (2)
 
Cash Distribution Declared Per Class T Share  (1) (2)
 
 Cash Distributions Paid  (3)
 
Cash Flows from Operations
Period
 
 
 
 
Cash
 
Reinvested
 
Total
 
First Quarter 2017
 
$
1,115

 
$
0.123

 
$
0.099

 
$
516

 
$
588

 
$
1,104

 
$
83

Second Quarter 2017
 
1,154

 
0.125

 
0.100

 
549

 
611

 
1,160

 
1,521

 
 
$
2,269

 
$
0.248

 
$
0.199

 
$
1,065

 
$
1,199

 
$
2,264

 
$
1,604

_____________________
(1) Distributions for the periods from January 1,  2017 through June 30, 2017 were based on daily record dates and were calculated based on stockholders of record each day during this period at a rate of (i) $0.00136986 per share per day, less (ii) the applicable daily class-specific stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on each respective record date.
(2) Assumes Class A and Class T shares were issued and outstanding each day that was a record date for distributions during the period presented.
(3) Distributions are paid on a monthly basis. In general, distributions for all record dates of a given month are paid on or about the first business day of the following month .
For the six months ended June 30, 2017 , we paid aggregate distributions of $2.3 million , including $1.1 million of distributions paid in cash and $1.2 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the six months ended June 30, 2017 was $0.6 million. FFO for the six months ended June 30, 2017 was $2.9 million and cash flows from operations for the six months ended June 30, 2017 was $1.6 million . See the reconciliation of FFO to net loss above. We funded our total distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with $1.3 million of cash flows from operations and $1.0 million of debt financing.

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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

From inception through June 30, 2017 , we paid cumulative distributions of $5.8 million and our cumulative net loss during the same period was $5.5 million. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.
In addition, during the six months ended June 30, 2017 , our board of directors declared stock dividends for each month based on a single record date at the end of each month in an amount that would equal a 1% annualized stock dividend per share of common stock if paid each month for a year. Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.
Going forward we expect our board of directors to continue to authorize and declare cash distributions based on daily record dates and to pay these distributions on a monthly basis. Cash distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage rate of return for cash distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.
Over the long-term, we expect that a greater percentage of our distributions will be paid from cash flow from operations and FFO (except with respect to distributions related to sales of our assets and distributions related to the repayment of principal under real estate-related investments). Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward - Looking Statements,” “Market Outlook - Real Estate and Real Estate Finance Markets,” “Liquidity and Capital Resources” and “Results of Operations” herein and the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC. Those factors include: our ability to raise capital to make additional investments; the future operating performance of our current and future real estate investments in the existing real estate and financial environment; our advisor’s ability to identify additional real estate investments that are suitable to execute our investment objectives; the success and economic viability of our tenants; to the extent we make investments in real estate loans, the ability of our borrowers and their sponsors to make their debt service payments and/or to repay their loans upon maturity; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on any variable rate debt obligations we incur; and the level of participation in our distribution reinvestment plan. In the event our FFO and/or cash flow from operations decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operations.
Critical Accounting Policies
Our consolidated interim financial statements and condensed notes thereto have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. There have been no significant changes to our policies during 2017.
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Estimated Net Asset Value Per Share
On August 9, 2017, our board of directors approved an estimated net asset value (“NAV”) per share of our common stock of $8.75 based on the estimated value of our assets less the estimated value of our liabilities, or NAV, divided by the number of shares outstanding, all as of June 30, 2017. For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of our estimated NAV per share as of June 30, 2017, see the Current Report on Form 8-K filed with the SEC on August 10, 2017, and incorporated herein by reference.

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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash Distributions Paid
On July 5, 2017 , we paid cash distributions of $0.4 million and $9,073 , which related to Class A and Class T cash distributions, respectively, declared for daily record dates for each day in the period from June 1, 2017 through June 30, 2017 . On August 1, 2017 , we paid cash distributions of $0.4 million and $11,709 , which related to Class A and Class T cash distributions, respectively, declared for daily record dates for each day in the period from July 1, 2017 through July 31, 2017 .
Stock Dividends Issued
On July 6, 2017 , we issued 7,566 shares of Class A common stock and 229 shares of Class T common stock in connection with stock dividends declared for each share of common stock outstanding on June 30, 2017 . On August 2, 2017 , we issued 7,589 shares of Class A common stock and 230 shares of Class T common stock in connection with stock dividends declared for each share of common stock outstanding on July 31, 2017 .
Distributions and Dividends Authorized
On July 7, 2017 , our board of directors authorized cash distributions on the outstanding shares of all classes of our common stock based on daily record dates for the period from August 1, 2017 through August 31, 2017 , which we expect to pay in September 2017 . Investors may choose to receive cash distributions or purchase additional shares through our distribution reinvestment plan. Distributions for this period will be calculated based on stockholders of record each day during this period at a rate of $0.00136986  per share per day.
On August 9, 2017 , our board of directors authorized cash distributions on the outstanding shares of all classes of our common stock based on daily record dates for the period from September 1, 2017 through September 30, 2017 , which we expect to pay in October 2017 , and the period from October 1, 2017 through October 31, 2017 , which we expect to pay in November 2017 . Investors may choose to receive cash distributions or purchase additional shares through our distribution reinvestment plan. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00131849  per share per day.
On July 7, 2017 , our board of directors authorized stock dividends of 0.00083333 shares of common stock on each outstanding share of common stock to all stockholders of record as of the close of business on August 31, 2017 , which we expect to issue in September 2017 . Stock dividends are issued in the same class of shares as the shares for which such stockholder received the stock dividend.
Amended and Restated Advisory Agreement
On August 9, 2017, we entered an amended and restated advisory agreement with our advisor. The material changes to the amended and restated advisory agreement are as follows: elimination of the payment of an acquisition fee to our advisor; changes to the calculation of our asset management fee as described below; and undertaking that our advisor will pay all organization and offering expenses related to our proposed private offering pursuant to Rule 506(c) of Regulation D under the Securities Act. As amended, our asset management fee will be a monthly fee equal to one-twelfth of 1.0% of the cost of our investments. The cost of our investments will include any portion of the investment that is debt financed and excludes any acquisition and origination fees paid to our advisor.
Amended and Restated Distribution Reinvestment Plan
Also on August 9, 2017, our board of directors adopted an amended and restated distribution reinvestment plan to change the price at which shares are purchased pursuant to our distribution reinvestment plan and remove certain provisions that are no longer applicable. There were no other changes to our plan.
Effective August 20, 2017, pursuant to our distribution reinvestment plan, participants in the distribution reinvestment plan will acquire shares of our common stock at a price equal to the estimated NAV per share. As such, commencing on the next distribution reinvestment plan purchase date, which is September 1, 2017, participants will acquire shares of our common stock pursuant to our distribution reinvestment plan at a price of $8.75 per share.





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Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We will also be exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage and other loans. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that variable rate exposure is kept at an acceptable level or we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest‑bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.
We expect to borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect future earnings or cash flows on fixed rate debt or fixed rate real estate loans receivable unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of fixed rate instruments. At June 30, 2017 , we did not have any fixed rate debt or fixed rate real estate loans receivable outstanding.
Conversely, movements in interest rates on variable rate debt and loans receivable would change future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of variable rate instruments. At June 30, 2017 , we were exposed to market risks related to fluctuations in interest rates on $73.5 million of variable rate debt outstanding. Based on interest rates as of June 30, 2017 , if interest rates were 100 basis points higher or lower during the 12 months ending June 30, 2018, interest expense on our variable rate debt would increase or decrease by $0.7 million.
The weighted average interest rate of our variable rate debt at June 30, 2017 was 3.3%.  The interest rate represents the actual interest rate in effect at June 30, 2017 (consisting of the contractual interest rate), using interest rate indices as of June 30, 2017 where applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
We have not evaluated any change in our internal control over financial reporting that occurred during our last fiscal quarter due to a transition period established by the rules of the Securities and Exchange Commission for newly public companies. We expect to issue management’s first assessment regarding internal control over financial reporting for the year ending December 31, 2017 and to evaluate any changes in our internal controls over financial reporting in each quarterly and annual report thereafter.


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Table of Contents
PART II. OTHER INFORMATION



Item 1.    Legal Proceedings
None.
Item 1A. Risk Factors
Please see the risks discussed below and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016.
We have paid distributions from advances from our advisor and debt financing. In the future we may continue to pay distributions from financings, including an advance from our advisor, and we may not pay distributions solely from our cash flow from operations. To the extent we pay distributions from sources other than our cash flows from operations, we will have less funds available for investment in assets, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.
We expect to have little, if any, cash flow from operations available for distribution until we make substantial investments, and we therefore expect that portions of distributions made during our first few years of operations will be considered a return of capital. During our offering stage, when we may raise capital more quickly than we acquire income-producing assets, and for some period after our offering stage, we may not be able to pay distributions solely from our cash flow from operations, in which case distributions may be paid in whole or in part from debt financing, including advances from our advisor. Our distributions paid through June 30, 2017 have been paid from cash flow from operating activities, advances from our advisor and debt financing and we expect that in the future we may not pay distributions solely from our cash flow from operations.
We may fund distributions from any source, including, without limitation, offering proceeds or borrowings (which may constitute a return of capital). We may also fund such distributions from the sale of assets or from the maturity, payoff or settlement of debt investments. If we fund distributions from borrowings, our interest expense and other financing costs, as well as the repayment of such borrowings, will reduce our earnings and cash flow from operations available for distribution in future periods. If we fund distributions from the sale of assets or the maturity, payoff or settlement of debt investments, this will affect our ability to generate cash flow from operations in future periods. To the extent that we pay distributions from sources other than our cash flow from operations, we will have fewer funds available with which to make real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operations, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. There is no limit on the amount of distributions we may fund from sources other than from cash flow from operations.
For the six months ended June 30, 2017 , we paid aggregate distributions of $2.3 million , including $1.1 million of distributions paid in cash and $1.2 million of distributions reinvested through our distribution reinvestment plan. We funded our total distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with $1.3 million of cash flows from operations and $1.0 million of debt financing. For the six months ended June 30, 2017 , our cash flows from operations to distributions paid coverage ratio was 71% and our funds from operations to distributions paid coverage ratio was 129%.
See Part I, Item II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Funds from Operations and Modified Funds from Operations” and “- Distributions” herein.

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Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds


a)
During the period covered by this Form 10-Q, no equity securities that were not registered under the Securities Act were sold.
b)
On April 28, 2016, our Registration Statement on Form S-11 (File No. 333-207471), covering a public offering of up to $1,500,000,000 in shares of common stock in our primary offering and up to $800,000,000 in shares of common stock in our distribution reinvestment plan offering was declared effective under the Securities Act. Our shares of common stock consist of two classes of shares: Class A shares and Class T shares. We commenced our initial public offering on April 28, 2016 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. In our now-terminated primary initial public offering, we offered Class A shares at $10.39 per share and Class T shares at $10.00 per share, with discounts available to certain categories of investors. We offered shares under our distribution reinvestment plan at $9.40 per share.
We terminated the primary portion of our initial public offering effective June 30, 2017. We continue to offer shares of common stock under our distribution reinvestment plan. In some states, we will need to renew the registration statement annually or file a new registration statement to continue our distribution reinvestment plan offering. We may terminate our distribution reinvestment plan offering at any time.
As of June 30, 2017, we sold 358,017 and 273,787 shares of Class A and Class T common stock in our now-terminated primary initial public offering for aggregate gross offering proceeds of $6.3 million . Also of June 30, 2017, we had sold 236,839 and 3,372 shares of Class A and Class T common stock in our distribution reinvestment plan offering for aggregate gross offering proceeds of $2.4 million .
As of June 30, 2017, we had incurred selling commissions, dealer manager fees and organization and other offering costs in connection with our initial public offering in the amounts set forth below. We paid selling commissions and dealer manager fees to KBS Capital Markets Group, and KBS Capital Markets Group reallowed all selling commissions and a portion of the dealer manager fees to participating broker-dealers. In addition, we reimburse KBS Capital Advisors and KBS Capital Markets Group for certain offering expenses as described in our most recent prospectus, as amended and supplemented.
 
 
Amount
 
 
Type of Expense Amount
 
(in thousands)
 
Estimated/Actual
Selling commissions and dealer manager fees (1)
 
$
199

 
Actual
Organization and other offering costs (excluding selling commissions, dealer manager fees and stockholder servicing fees) (2)
 
39

 
Actual
Total expenses for the issuer's account
 
$
238

 
 
Percentage of offering proceeds used to pay or reimburse affiliates for the expenses above
 
3.8%
 
Actual
_____________________
(1) Except as described in the “Plan of Distribution” section of our prospectus, as amended and supplemented, an annual stockholder servicing fee of 1.0% of the purchase price per share (ignoring any discounts that may be available to certain categories of purchasers) for the Class T shares sold in our now-terminated primary initial public offering was paid to our dealer manager and accrued daily and was paid monthly in arrears for up to the fourth anniversary of the issuance of the Class T share.  Our dealer manager reallowed all of the stockholder servicing fee paid to it. The stockholder servicing fee was an ongoing fee that was not paid at the time of purchase and was not intended to be a principal use of offering proceeds; it is therefore excluded from the table above. As of June 30, 2017 , we had incurred approximately $12,000 in stockholder servicing fees, which is the estimated amount of the stockholder servicing fee payable with respect to all Class T shares sold in the primary portion of our initial public offering as of June 30, 2017 . We ceased accruing for stockholder servicing fees after to June 30, 2017 pursuant to the terms of the Class T shares following the termination of the primary initial public offering.
(2) KBS Capital Advisors and its affiliates generally paid our organization and other offering expenses incurred in the primary portion of our initial public offering directly and we reimbursed KBS Capital Advisors and its affiliates for the commercially reasonable organization and other offering expenses they incurred on our behalf in connection with the primary portion of our initial public offering subject to the following limitation.
We reimbursed our advisor, the dealer manager and their affiliates for up to 1.0% of gross proceeds raised in the primary portion of our initial public offering. Our advisor, the dealer manager, and their affiliates are responsible for all organization and other offering expenses (which excludes selling commissions, dealer manager fees and stockholder servicing fees) related to the primary portion of our initial public offering to the extent they exceed 1.0% of gross proceeds raised in the primary portion of our initial public offering. The amount included above represents our maximum liability for organization and other offering costs based on the limits described. As of June 30, 2017 , KBS Capital Advisors and its affiliates had incurred an additional $4.6 million in organization and other offering costs on our behalf in connection with our initial public offering.
From the commencement of our initial public offering through its June 30, 2017 termination, the net offering proceeds to us, after deducting the total expenses incurred as described above, were approximately $6.1 million, including net offering proceeds from our distribution reinvestment plan of $2.4 million.


41
Table of Contents
PART II. OTHER INFORMATION (CONTINUED)
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

We expect to use substantially all of the net proceeds from our now-terminated private offering and initial public offering to acquire and manage a diverse portfolio of core real estate properties and real estate-related assets, including the acquisition of commercial properties and the acquisition and origination of real estate-related assets. We expect to use substantially all of the net proceeds from the sale of shares under our distribution reinvestment plan for general corporate purposes, including, but not limited to: the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to our real estate properties; reserves required by any financings of our real estate investments; funding obligations under any of our real estate loans receivable; the acquisition or origination of real estate investments, which would include payment of acquisition and origination fees to our advisor; and the repayment of debt.
As of June 30, 2017 , we had used the net proceeds from our now-terminated private and initial public offerings and debt financing to invest $139.7 million in three office properties, including $3.3 million of acquisition fees and expenses and closing costs.
c)
We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.
Pursuant to the share redemption program, as amended to date, there are several limitations on our ability to redeem shares:
•
Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held his or her shares for one year.
•
During any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders.
•
During any calendar year, we may redeem no more than 5% of the weighted‑average number of shares outstanding during the prior calendar year.
•
We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
We will redeem shares submitted in connection with an ordinary redemption at 95.0% of our most recent estimated NAV per share as of the applicable redemption date.
For purposes of determining whether a redeeming stockholder has held the share submitted for redemption for at least one year, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to the distribution reinvestment plan or received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the distribution reinvestment plan shares or stock dividend shares relate.
Upon a transfer of shares any pending redemption requests with respect to such transferred shares will be canceled as of the date the transfer is accepted by the Company.  Stockholders wishing to continue to have a redemption request related to any transferred shares considered by the Company must resubmit their redemption request.
On August 9, 2017 our board of directors approved an estimated NAV per share of our common stock of $8.75 based on the estimated value of our assets less the estimated value of our liabilities, or NAV, divided by the number of shares outstanding, all as of June 30, 2017. For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of our estimated NAV per share as of June 30, 2017, see the Current Report on Form 8-K filed with the SEC on August 10, 2017, and incorporated herein by reference. We expect to update the estimated NAV annually in December.


42
PART II. OTHER INFORMATION (CONTINUED)
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds (continued)

In several respects the Company treats redemptions sought upon a stockholder’s death, qualifying disability or determination of incompetence differently from other redemptions:
•
there is no one-year holding requirement; and
•
the redemption price will be the estimated NAV per share as of the redemption date.
We may amend, suspend or terminate the program upon 30 days’ notice to our stockholders, provided that we may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice. We may provide this notice by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC, or by a separate mailing to our stockholders.
During the six months ended June 30, 2017 , we fulfilled all redemption requests eligible for redemption under our share redemption program and received in good order. We funded redemptions under our share redemption program with the net proceeds from our distribution reinvestment plan, and we redeemed shares pursuant to our share redemption program as follows:
Month
 
Total Number of
Shares Redeemed
 
Average Price Paid
Per Share  (1)
 
Approximate Dollar Value of Shares
Available That May Yet Be  Redeemed
Under the Program
January 2017
 
—

 
$
—

 
(2)  
February 2017
 
—

 
$
—

 
(2)  
March 2017
 
—

 
$
—

 
(2)  
April 2017
 
3,047

 
$
8.50

 
(2)  
May 2017
 
4,555

 
$
8.51

 
(2)  
June 2017
 
—

 
$
—

 
(2)  
Total
 
7,602

 
 
 
 
_____________________
(1) The prices at which we redeem shares under the program are as set forth above.
(2) We limit the dollar value of shares that may be redeemed under the program as described above. One of these limitations is that during each calendar year, our share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the redemption of shares upon ten business days’ notice to our stockholders. During the six months ended June 30, 2017 , we redeemed $0.1 million of shares of common stock and $1.7 million was available for redemptions of shares eligible for redemption for the remainder of 2017.
Item 3.    Defaults upon Senior Securities
None.
Item 4.    Mine Safety Disclosures
None.
Item 5.    Other Information
Amended and Restated Advisory Agreement
On August 9, 2017, we entered an amended and restated advisory agreement with our advisor. The material changes to the amended and restated advisory agreement are as follows: elimination of the payment of an acquisition fee to our advisor; changes to the calculation of our asset management fee as described below; and undertaking that our advisor will pay all organization and offering expenses related to our proposed private offering pursuant to Rule 506(c) of Regulation D under the Securities Act. As amended, our asset management fee will be a monthly fee equal to one-twelfth of 1.0% of the cost of our investments. The cost of our investments will include any portion of the investment that is debt financed and excludes any acquisition and origination fees paid to our Advisor.

43
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits


Ex.
  
Description
 
 
 
3.1
  
Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 filed October 16, 2015
 
 
 
3.2
  
Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 filed October 16, 2015
 
 
 
3.3
 
Articles Supplementary for Class T Shares, incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-11 filed April 20, 2016
 
 
 
4.1
  
Form of Subscription Agreement, incorporated by reference to Appendix A to the Company’s prospectus dated April 28, 2016 and filed May 3, 2016
 
 
 
4.2
 
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-11 filed October 16, 2015
 
 
 
4.3
 
Amended and Restated Distribution Reinvestment Plan, dated August 9, 2017
 
 
 
4.4
 
Multiple Class Plan, effective as of April 11, 2016, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-11 filed April 20, 2016
 
 
 
4.5
 
Amended and Restated Escrow Agreement, by and between the Company, KBS Capital Markets Group LLC and UMB Bank, N.A. dated as of March 18, 2016, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-11 filed March 25, 2016
 
 
 
10.1
 
Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated as of April 27, 2017, incorporated by reference to Exhibit 10.45 to Post-Effective Amendment No. 6 to the Company’s Registration Statement (Form S-11 No. 333-207471), filed April 28, 2017
 
 
 
10.2
 
Agreement Regarding Payment of Certain Items of Compensation and Expenses Related to the Offering of Class A Shares Through an Online Distribution Channel by and among the Company, KBS Capital Advisors LLC, and KBS Capital Markets Group LLC dated as of April 27, 2017
 
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
32.1
  
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
32.2
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
99.1
 
Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-11 filed March 25, 2016
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase

44


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
 
KBS GROWTH & INCOME REIT, INC.
 
 
 
 
Date:
August 10, 2017
By:
/ S / C HARLES  J. S CHREIBER , J R .        
 
 
Charles J. Schreiber, Jr.
 
 
 
Chairman of the Board,
Chief Executive Officer and Director
 
 
 
(principal executive officer)
 
 
 
 
Date:
August 10, 2017
By:
/ S / J EFFREY  K. W ALDVOGEL         
 
 
 
Jeffrey K. Waldvogel
 
 
Chief Financial Officer
 
 
 
(principal financial officer)


45

Exhibit 4.3
THIRD AMENDED AND RESTATED
DISTRIBUTION REINVESTMENT PLAN
Adopted August 9, 2017

KBS Growth & Income REIT, Inc., a Maryland corporation (the “ Company ”), has adopted a third amended and restated Distribution Reinvestment Plan (the “ DRP ”), the terms and conditions of which are set forth below. Capitalized terms shall have the same meaning as set forth in the Company’s charter, as amended and supplemented, unless otherwise defined herein.
1. Amount of Shares Issuable . Up to an aggregate of $800,000,000 of any combination of shares of Class A Common Stock and Class T Common Stock (the “ Shares ”) is authorized for issuance under the DRP.
2. Participants . “ Participants ” are holders of the Company’s shares of any class of Common Stock who elect to participate in the DRP regardless of the offering in which such Participant acquired their shares.
3. Distribution Reinvestment . Exclusive of distributions that the Company’s board of directors designates as ineligible for reinvestment through this DRP, the Company will apply that portion (as designated by a Participant) of the distributions (“ Distributions ”) declared and paid in respect of a Participant’s shares of any class of Common Stock to the purchase of additional Shares for such Participant. Purchases will be in the same class of Shares as the shares for which such Participant received the distributions that are being reinvested. The Company will not pay selling commissions or dealer manager fees on the Shares purchased in the DRP.
4. Procedures for Participation . Qualifying stockholders may elect to become Participants or to increase participation in the DRP by completing and executing the Subscription Agreement, an enrollment form or any other Company-approved authorization form as may be available from the Company, the dealer manager or participating broker-dealers. Participation in the DRP will begin with the next Distribution payable after receipt of a Participant’s subscription agreement, enrollment form or other Company approved authorization form.
5. Purchase of Shares .
(a)    Shares will be purchased on the date that the Company makes a Distribution. Distributions will be paid upon the terms as authorized and declared by the Company’s board of directors.
(b)    Participants will acquire the Shares at a price equal to the estimated net asset value per share, as estimated by the Company’s board of directors from time to time.
(c)    Participants in the DRP may purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to purchase Shares under the DRP to the extent such purchase would cause it to exceed limits set forth in the Company’s charter, as amended.
6. Taxation of Distributions . The reinvestment of Distributions in the DRP does not relieve Participants of any taxes that may be payable as a result of those Distributions and their reinvestment pursuant to the terms of this DRP.
7. Share Certificates . The Shares issuable under the DRP shall be uncertificated until the board of directors determines otherwise.

B-1

8. Voting of DRP Shares . In connection with any matter requiring the vote of the Company’s stockholders, each Participant will be entitled to vote all Shares, including fractional Shares, acquired by the Participant through the DRP.
9. Reports . Within 90 days after the end of the calendar year, the Company shall provide each Participant with (a) an individualized report on the Participant’s investment, including the purchase date(s), purchase price and number of shares owned, as well as the amount of Distributions received during the prior year; and (b) all material information regarding the DRP and the effect of reinvesting distributions, including the tax consequences thereof. The Company shall provide such information reasonably requested by the dealer manager or a participating broker-dealer, in order for the dealer manager or participating broker-dealer to meet its obligations to deliver written notification to Participants of the information required by Rule 10b-10(b) promulgated under the Securities Exchange Act of 1934.
10. Termination by Participant . A Participant may terminate participation in the DRP at any time by delivering to the Company a written notice. To be effective for any Distribution, such notice must be received by the Company at least four business days prior to the last business day of the month to which the distribution relates. Notwithstanding the preceding sentence, if the Company announces, whether in a mailing to stockholders, a public filing with the SEC or otherwise, a new purchase price for Shares under the DRP, then a Participant shall have no less than two business days after the date of such announcement to notify the Company in writing of Participant’s termination of participation in the DRP and Participant’s termination will be effective for the next date Shares are purchased under the DRP. Any transfer of shares by a Participant will terminate participation in the DRP with respect to the transferred shares. Upon termination of DRP participation, Distributions will be distributed to the stockholder in cash.
11. Amendment or Termination of DRP by the Company . The Company may amend or terminate the DRP for any reason at any time upon ten days’ notice to the Participants. The Company may provide notice by including such information (a) in a Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the SEC, or (b) in a separate mailing to Participants.
12. Liability of the Company . The Company shall not be liable for any act done in good faith, or for any good faith omission to act.
13. Governing Law . The DRP shall be governed by the laws of the State of Maryland.


B-2


Exhibit 10.1












ADVISORY AGREEMENT
between
KBS GROWTH & INCOME REIT, INC.
and
KBS CAPITAL ADVISORS LLC





April 27, 2017









TABLE OF CONTENTS
 
 
Page
 
 
 
ARTICLE 1 – DEFINITIONS
1
ARTICLE 2 – APPOINTMENT
9
ARTICLE 3 – DUTIES OF THE ADVISOR
9
 
3.01 Organizational and Offering Services
10
 
3.02 Acquisition Services
10
 
3.03 Asset Management Services
10
 
3.04 Stockholder Services
13
 
3.05 Other Services
13
ARTICLE 4 – AUTHORITY OF ADVISOR
13
 
4.01 General
13
 
4.02 Powers of the Advisor
14
 
4.03 Approval by the Board
14
 
4.04 Modification or Revocation of Authority of Advisor
14
ARTICLE 5 – BANK ACCOUNTS
14
ARTICLE 6 – RECORDS AND FINANCIAL STATEMENTS
14
ARTICLE 7 – LIMITATION ON ACTIVITIES
15
ARTICLE 8 – FEES
15
 
8.01 Acquisition Fees
15
 
8.02 Origination Fees
16
 
8.03 Asset Management Fees
17
 
8.04 Disposition Fees
17
 
8.05 Subscription Processing Fees
18
 
8.06 Subordinated Share of Cash Flows
18
 
8.07 Subordinated Incentive Fee
18
 
8.08 Changes to Fee Structure
19
ARTICLE 9 – EXPENSES
19
 
9.01 General
19
 
9.02 Timing of and Limitations on Reimbursements
20
ARTICLE 10 – VOTING AGREEMENT
21
ARTICLE 11 – RELATIONSHIP OF ADVISOR AND COMPANY, OTHER ACTIVITIES OF THE ADVISOR
21
 
11.01 Relationship
21
 
11.02 Time Commitment
22
 
11.03 Investment Opportunities and Allocation
22
ARTICLE 12 – THE KBS NAME
23
ARTICLE 13 – TERM AND TERMINATION OF THE AGREEMENT
23
 
13.01 Term
23
 
13.02 Termination by Either Party
23
 
13.03 Payments on Termination and Survival of Certain Rights and Obligations
23
ARTICLE 14 – ASSIGNMENT
24
ARTICLE 15 – INDEMNIFICATION AND LIMITATION OF LIABILITY
24
 
15.01 Indemnification
24
 
15.02 Limitation on Indemnification
25

i




 
15.03 Limitation on Payment of Expenses
25
ARTICLE 16 – MISCELLANEOUS
25
 
16.01 Notices
25
 
16.02 Modification
26
 
16.03 Severability
26
 
16.04 Construction
26
 
16.05 Entire Agreement
26
 
16.06 Waiver
26
 
16.07 Gender
26
 
16.08 Titles Not to Affect Interpretation
26
 
16.09 Counterparts
26
ARTICLE 17 – ADVANCE
27













ii



ADVISORY AGREEMENT
This Advisory Agreement, dated as of April 27, 2017 (the “ Agreement ”), is between KBS Growth & Income REIT, Inc., a Maryland corporation (the “ Company ”), and KBS Capital Advisors LLC, a Delaware limited liability company (the “ Advisor ”).
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the board of directors of the Company (the “ Board ”), all as provided herein; and
WHEREAS, the Advisor is willing to undertake to render such services, subject to the supervision of the Board, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE 1

DEFINITIONS
The following defined terms used in this Agreement shall have the meanings specified below:
“ Acquiror ” shall have the meaning set forth in the definition of “Merger” below.
“ Acquisition Expenses ” means any and all expenses, excluding the fees payable to the Advisor pursuant to Section 8.01 and Section 8.02, incurred by the Company, the Advisor or any Affiliate of either in connection with the selection, acquisition or development of any property, loan or other potential investment, whether or not acquired or originated, as applicable, including, without limitation, legal fees and expenses, travel and communication expenses, costs of appraisals, nonrefundable option payments on properties or other investments not acquired, accounting fees and expenses, title insurance premiums and miscellaneous expenses related to the selection, acquisition or development of any property, loan or other potential investment.
“ Acquisition Fees ” means the fee payable to the Advisor pursuant to Section 8.01 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Property or other Permitted Investment or the purchase, development or construction of any Property by the Company. Included in the computation of such fees or commissions shall be any real estate commission, selection fee, Development Fee, Construction Fee, nonrecurring management fee, loan fees or points or any fee of a similar nature, however designated. Excluded shall be Development Fees and Construction Fees paid to Persons not Affiliated with the Advisor in connection with the actual development and construction of a Property.
“ Advance ” shall have the meaning set forth in Article 17.

1



“ Advisor ” means (i) KBS Capital Advisors LLC, a Delaware limited liability company, or (ii) any successor advisor to the Company.
“ Affiliate ” or “ Affiliated ” An Affiliate of another Person includes any of the following: (i) any Person directly or indirectly controlling, controlled by, or under common control with such other Person; (ii) any Person directly or indirectly owning, controlling, or holding with the power to vote 10% or more of the outstanding voting securities of such other Person; (iii) any legal entity for which such Person acts as an executive officer, director, trustee, or general partner; (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held, with power to vote, by such other Person; and (v) any executive officer, director, trustee, or general partner of such other Person. An entity shall not be deemed to control or be under common control with an Advisor-sponsored program unless (i) the entity owns 10% or more of the voting equity interests of such program or (ii) a majority of the board of directors (or equivalent governing body) of such program is composed of Affiliates of the entity.
“ Appraised Value ” means the value according to an appraisal made by an Independent Appraiser.
“ Articles of Incorporation ” means the Articles of Incorporation of the Company under Title 2 of the Corporations and Associations Article of the Annotated Code of Maryland, as amended from time to time.
“ Asset Management Fee ” shall have the meaning set forth in Section 8.03.
“ Average Invested Assets ” means, for a specified period, the average of the aggregate book value of the assets of the Company invested, directly or indirectly, in Properties, Loans and other Permitted Investments secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, computed by taking the average of such values at the end of each month during such period.
“ Average Issue Price ” means the weighted average price at which shares were purchased in the primary portion of an Offering which shall be calculated as of the end of the month preceding the date upon which the calculation is being made.
“ Board of Directors ” or “ Board ” means the persons holding such office, as of any particular time, under the Articles of Incorporation of the Company, whether they be the Directors named therein or additional or successor Directors.
“ Bylaws ” means the bylaws of the Company, as amended from time to time.
“ Cash from Financings ” means the net cash proceeds realized by the Company from the financing of Properties, Loans or other Permitted Investments or from the refinancing of any Company indebtedness (after deduction of all expenses incurred in connection therewith).
“ Cash from Sales and Settlements ” means the net cash proceeds realized by the Company (i) from the sale, exchange or other disposition of any of its assets or any portion thereof after deduction of all expenses incurred in connection therewith and (ii) from the prepayment,

2



maturity, workout or other settlement of any Loan or Permitted Investment or portion thereof after deduction of all expenses incurred in connection therewith. In the case of a transaction described in clause (i) (C) of the definition of “Sale” and (i)(B) of the definition of “Settlement,” Cash from Sales and Settlements means the proceeds of any such transaction actually distributed to the Company from the Joint Venture or partnership. Cash from Sales and Settlements shall not include Cash from Financings.
“ Cash from Sales, Settlements and Financings ” means the total sum of Cash from Sales and Settlements and Cash from Financings.
“ Code ” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto. Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.
“ Company ” means KBS Growth & Income REIT, Inc., a corporation organized under the laws of the State of Maryland.
“ Competitive Real Estate Commission ” means a real estate or brokerage commission for the purchase or sale of property that is reasonable, customary, and competitive in light of the size, type, and location of the property.
“ Conflicts Committee ” shall have the meaning set forth in the Company’s Articles of Incorporation.
“ Construction Fee ” means a fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.
“ Contract Sales Price ” means the purchase price to be paid in connection with the sale of a Property, Loan or other Permitted Investment less any concessions agreed to in connection with the sale which may include but are not limited to credits for future building or tenant improvements, credits for future free rent given to tenants, credits for future lease up assumptions, or other future rental concessions; or, in the case of a discounted payoff of a Loan, the total funds received by the Company in connection with the payoff, less any expenses related thereto.
“ Cost of Loans and other Permitted Investments ” means the sum of the cost of all Loans and Permitted Investments held, directly or indirectly, by the Company or the Partnership, calculated each month on an ongoing basis, and calculated as follows for each investment: the lesser of (i) the amount actually paid or allocated to acquire, originate or fund the Loan or Permitted Investment, including the fees and expenses associated with the acquisition, origination or funding of such Loan or Permitted Investment (but excluding any Acquisition Fees or Origination Fees paid or payable to the Advisor or its Affiliates under this Agreement), and (ii) the outstanding principal amount of such Loan or Permitted Investment, including the fees and expenses associated with the acquisition, origination or funding of such Loan or Permitted Investment (but excluding any Acquisition Fees or Origination Fees paid or payable to the Advisor or its Affiliates under this Agreement), as of the time of calculation. With respect to any

3



Loan or Permitted Investment held by the Company or the Partnership through a Joint Venture or partnership of which it is, directly or indirectly, a co-venturer or partner, such amount shall be the Company’s proportionate share thereof. The Cost of Loans and other Permitted Investments shall be reduced by any debt financing secured by, or attributable to, such investments.
“ Cost of Real Estate Investments ” means the sum of (i) with respect to Properties wholly owned, directly or indirectly, by the Company, the amount actually paid or allocated to the purchase of Properties, including the fees and expenses associated with the purchase of such Properties (but excluding any Acquisition Fees paid or payable to the Advisor or its Affiliates under this Agreement), plus budgeted capital improvement costs for the development, construction or improvement of Properties once such funds are disbursed pursuant to a final approved budget and (ii) in the case of Properties owned by any Joint Venture or partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or a partner, the portion of the amount actually paid or allocated to the purchase of Properties, including the fees and expenses associated with the purchase of such Properties (but excluding any Acquisition Fees paid or payable to the Advisor or its Affiliates under this Agreement), plus budgeted capital improvement costs for the development, construction or improvement of Properties once such funds are disbursed pursuant to a final approved budget, that is attributable to the Company’s investment in the Joint Venture or partnership. The Cost of Real Estate Investments shall be reduced by any debt financing secured by, or attributable to, the Properties.
“ Dealer Manager ” means (i) KBS Capital Markets Group LLC, a Delaware limited liability company, or (ii) any successor dealer manager to the Company.
“ Development Fee ” means a fee for the packaging of a Property, including negotiating and approving plans, and undertaking to assist in obtaining zoning and necessary variances and necessary financing for the Property, either initially or at a later date.
“ Director ” means a member of the Board of Directors of the Company.
“ Disposition Fee ” shall have the meaning set forth in Section 8.04.
“ Distributions ” means any distributions (which shall not include stock dividends) of money or other property by the Company to owners of Shares, including distributions that may constitute a return of capital for federal income tax purposes.
“ Excess Proceeds ” shall have the meaning set forth in Article 17.
“ GAAP ” means accounting principles generally accepted in the United States.
“ Gross Investment Amount ” means the amount calculated by multiplying the total number of Shares purchased by Stockholders by the issue price, reduced by the total number of shares repurchased by the Company (excluding the number of shares issued as stock dividends and subsequently repurchased by the Company) multiplied by the Average Issue Price.
“ Gross Proceeds ” means the aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.

4



“ Independent Appraiser ” means a person or entity with no material current or prior business or personal relationship with the Advisor or the Directors, who is engaged to a substantial extent in the business of rendering opinions regarding the value of assets of the type held by the Company, and who is a qualified appraiser of real estate as determined by the Board. Membership in a nationally recognized appraisal society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence of such qualification.
“ Joint Venture ” means any joint venture, limited liability company or other Affiliate of the Company that owns, in whole or in part, on behalf of the Company any Properties, Loans or other Permitted Investments.
“ Listed ” or “ Listing ” shall have the meaning set forth in the Company’s Articles of Incorporation.
“ Loans ” means mortgage loans and other types of debt financing investments made by the Company or the Partnership, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, and including, without limitation, mezzanine loans, B-notes, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests, and participations in such loans.
“ Market Value ” shall have the meaning set forth in Section 8.07(i).
“ Merger ” means any business combination, merger, reorganization or share exchange involving the Company or its subsidiaries into or with another corporation or other legal person (the “ Acquiror ”) and as a result of such transaction, less than 51% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by those who were Stockholders immediately prior to such transaction (other than the Acquiror or its Affiliates if they owned Shares immediately prior to such transaction).
“ Merger Consideration Amount ” means (i) in the case of a Merger in which the consideration consists solely of cash, the total consideration to be received by holders of Shares outstanding immediately prior to the closing of the Merger, (ii) in the case of a Merger in which the consideration consists of securities traded on a national securities exchange, the product of (x) the number of shares of such securities received by the Stockholders at the closing of the Merger and (y) the market value of such securities, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 consecutive days during which such securities are traded, with such 30-day period ending on the trading day prior to the closing date of the Merger, (iii) in the case of a Merger in which the consideration consist of securities that are not traded on a national securities exchange, the aggregate the fair market value (as of the most recent practicable date) of the securities to be received by the Stockholders as estimated by an independent expert chosen by the Board of Directors, and (iv) in the case of a Merger in which the consideration is some combination of that described above, the sum of clauses (i) through (iii), as applicable.
“ MFFO ” shall have the meaning set forth in Article 17.

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“ MFFO Surplus ” shall have the meaning set forth in Article 17.
“ NASAA Guidelines ” means the NASAA Statement of Policy Regarding Real Estate Investment Trusts as in effect on the date hereof.
“ Net Income ” means, for any period, the total revenues applicable to such period, less the total expenses applicable to such period excluding additions to reserves for depreciation, bad debts or other similar non-cash reserves; provided, however, Net Income for purposes of calculating total allowable Operating Expenses (as defined herein) shall exclude the gain from the sale of the Company’s assets.
“ Offering ” means a Private Offering or Public Offering.
“ Operating Cash Flow ” means Operating Revenue Cash Flows minus the sum of (i) Operating Expenses, (ii) all principal and interest payments on indebtedness and other sums paid to lenders, (iii) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (iv) taxes, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Origination Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, origination, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.
“ Operating Expenses ” means all costs and expenses incurred by the Company, as determined under GAAP, that in any way are related to the operation of the Company or to Company business, including fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and tax incurred in connection with the issuance, distribution, transfer, registration and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad loan reserves, (v) incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines and (vi) Acquisition Fees, Origination Fees, Acquisition Expenses, real estate commissions on the resale of real property, and other expenses connected with the acquisition, origination, disposition, and ownership of real estate interests, loans or other property (other than commissions on the sale of assets other than real property), such as the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property.
“ Operating Revenue Cash Flows ” means the Company’s cash flow from ownership and/or operation of (i) Properties, (ii) Loans, (iii) Permitted Investments, (iv) short-term investments, and (v) interests in Properties, Loans and Permitted Investments owned by any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner.
“ Organization and Offering Expenses ” means all expenses incurred by or on behalf of the Company in connection with or in preparing the Company for an Offering and including, to the

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extent applicable, the qualification, registration and regulatory filings of the Offering and the marketing and distribution of the Shares, whether incurred before or after the date of this Agreement, which may include but are not limited to, total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); any expense allowance granted by the Company to the underwriter or any reimbursement of expenses of the underwriter by the Company; expenses for printing, engraving and mailing; compensation of employees while engaged in sales activity; charges of transfer agents, registrars, trustees, escrow holders, depositaries and experts; and expenses of qualification of the sale of the securities under Federal and State laws, including taxes and fees, accountants’ and attorneys’ fees.
“ Origination Fees ” means the fee payable to the Advisor pursuant to Section 8.02 plus all other fees and commissions, excluding Acquisition Expenses, paid by any Person to any Person in connection with making or investing in any Loan by the Company.
“ Partnership ” means KBS Growth & Income Limited Partnership, a Delaware limited partnership formed to own and operate Properties, Loans and other Permitted Investments on behalf of the Company.
“ Permitted Investments ” means all investments (other than Properties, Loans and short-term investments acquired for purposes of cash management) in which the Company may acquire an interest, either directly or indirectly, including through ownership interests in a Joint Venture or partnership, pursuant to its Articles of Incorporation, Bylaws and the investment objectives and policies adopted by the Board from time to time.
“ Person ” means an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity, or any government or any agency or political subdivision thereof, and also includes a group as that term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
“ Private Offering ” means an offering of Shares pursuant to an exemption from registration under the Securities Act of 1933, as amended.
“ Property ” or “ Properties ” means any real property or properties transferred or conveyed to the Company or the Partnership, either directly or indirectly, and/or any real property or properties transferred or conveyed to a Joint Venture or partnership in which the Company is, directly or indirectly, a co-venturer or partner.
“ Property Manager ” means an entity that has been retained to perform and carry out, at one or more of the Properties, property-management services, excluding persons, entities or independent contractors retained or hired to perform facility management or other services or tasks at a particular Property, the costs for which are passed through to and ultimately paid by the tenant at such Property.
“ Public Offering ” means the public offering of Shares pursuant to the effective Registration Statement filed under the Securities Act of 1933 (file no. 333-207471), as amended.

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“ REIT ” means a “real estate investment trust” under Sections 856 through 860 of the Code.
“ Sale ” means any transaction or series of related transactions whereby: (A) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including the transfer of any Property that is the subject of a ground lease, and including any event with respect to any Property, Loan or other Permitted Investment that gives rise to a significant amount of insurance proceeds or condemnation awards, and including the issuance by one of the Company’s subsidiaries of any asset-backed securities as part of a securitization transaction; (B) the Company or the Partnership sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Partnership in any Joint Venture or partnership in which it is, directly or indirectly, a co-venturer or partner; or (C) any Joint Venture or partnership (in which the Company or the Partnership is, directly or indirectly, a co-venturer or partner) sells, grants, transfers, conveys, or relinquishes its ownership of any Property, Loan or other Permitted Investment or portion thereof, including any event with respect to any Property, Loan or other Permitted Investment that gives rise to insurance claims or condemnation awards, and including the issuance by such Joint Venture or partnership or one of its subsidiaries of any asset-backed securities as part of a securitization transaction.
“ SEC ” means the United States Securities and Exchange Commission.
“ Settlement ” means the prepayment, maturity, workout or other settlement of any Loan or other Permitted Investment or portion thereof owned, directly or indirectly, by (A) the Company or the Partnership or (B) any Joint Venture or any partnership in which the Company or the Partnership is, directly or indirectly, a partner.
“ Shares ” means the shares of common stock of the Company, par value $.01 per share.
“ Stockholders ” means the registered holders of the Shares.
“ Stockholders’ 6% Return ” means, as of any date, an aggregate amount equal to a 6% cumulative, non-compounded, annual return on Gross Investment Amount (calculated like simple interest on a daily basis based on a three hundred sixty-five day year). For purposes of calculating the Stockholders’ 6% Return, Gross Investment Amount shall be determined for each day during the period for which the Stockholders’ 6% Return is being calculated, including a daily adjustment to reflect shares repurchased by the Company (excluding shares issued as stock dividends and subsequently repurchased by the Company), and shall be calculated net of (1) Distributions of Cash from Sales and Settlements, (2) Distributions of Operating Cash Flow to the extent such Distributions of Operating Cash Flow provide a cumulative, non-compounded, annual return in excess of 6%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year and (3) Distributions of Cash from Financings, except to the extent such Distributions would be required to supplement Distributions of Operating Cash Flow in order to achieve a cumulative, non-compounded, annual return of 6%, as such amounts are computed on a daily basis based on a three hundred sixty-five day year.
“ Subordinated Incentive Fee ” means the fee payable to the Advisor under certain circumstances, as calculated in Section 8.07.

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“ Subordinated Performance Fee Due Upon Termination ” means a fee payable in the form of a promissory note (the “ Performance Fee Note ”) in a principal amount equal to (1) 15% of the amount, if any, by which (a) the Appraised Value of the Company’s Properties at the Termination Date, less amounts of all third-party indebtedness secured by the Company’s Properties, plus the fair market value of all other Loans and Permitted Investments of the Company at the Termination Date, less amounts of third-party indebtedness related to such Loans and Permitted Investments, plus the fair market value of the Company’s other assets and liabilities, plus total Distributions through the Termination Date exceeds (b) the Gross Investment Amount plus total Distributions required to be made to the stockholders in order to pay the Stockholders’ 6% Return from inception through the Termination Date. After the Termination Date, the Company shall repay the Performance Fee Note at such time as the Company completes the first Sale or Settlement after the date Stockholders have received Distributions in an aggregate amount equal to the sum of the Stockholders’ 6% Return and the Gross Investment Amount (the “Performance Fee Trigger Date”) and which Performance Fee will be paid using Cash from Sales and Settlements. If the Cash from Sales and Settlements from the first Sale or Settlement after the Performance Fee Trigger Date is insufficient to pay the Performance Fee Note in full, then the Performance Fee Note shall be paid in part from the Cash from Sales and Settlement from the first Sale or Settlement, and in part from the Cash from Sales and Settlements from each successive Sale or Settlement until the Performance Fee Note is repaid in full. If the Performance Fee Note has not been paid in full within five years from the Termination Date, then upon the Performance Fee Trigger Date, the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the average closing price of the Shares over the ten trading days immediately preceding the date of such election if the Shares are Listed at such time. If the Shares are not Listed at the time of the Performance Fee Trigger Date, the Advisor, its successors or assigns, may elect to convert the balance of the fee into Shares at a price per Share equal to the fair market value for the Shares as determined by the Board of Directors based upon the Appraised Value of Company’s Properties on the date of election plus the fair market value of all other Loans and Permitted Investments of the Company on the date of election.
“ Subordinated Share of Cash Flows ” has the meaning set forth in Section 8.06.
“ Subscription Processing Fee ” has the meaning set forth in Section 8.05.
“ Termination Date ” means the date of termination of the Agreement determined in accordance with Article 12 hereof.
“ 2%/25% Guidelines ” means the requirement pursuant to the NASAA Guidelines that, in any period of four consecutive fiscal quarters, total Operating Expenses not exceed the greater of 2% of the Company’s Average Invested Assets during such 12-month period or 25% of the Company’s Net Income over the same 12-month period.
ARTICLE 2

APPOINTMENT
The Company hereby appoints the Advisor to serve as its advisor and asset manager on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.

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ARTICLE 3

DUTIES OF THE ADVISOR
The Advisor is responsible for managing, operating, directing and supervising the operations and administration of the Company and its assets. The Advisor undertakes to use its best efforts to present to the Company potential investment opportunities, to make investment decisions on behalf of the Company, subject to limitations in the Company’s Articles of Incorporation, the direction and oversight of the Board and Section 4.03 hereof, and to provide the Company with a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. Subject to the limitations set forth in this Agreement, including Article 4 hereof, and the continuing and exclusive authority of the Board over the management of the Company, the Advisor shall, either directly or by engaging an Affiliate or third party, perform the following duties:
3.01     Organizational and Offering Services . The Advisor shall perform all services related to the organization of the Company or any Offering, other than services that (i) are to be performed by the Dealer Manager, (ii) the Company elects to perform directly or (iii) would require the Advisor to register as a broker-dealer with the SEC or any state.
3.02     Acquisition Services .
(i)    Serve as the Company’s investment and financial advisor and provide relevant market research and economic and statistical data in connection with the Company’s assets and investment objectives and policies;
(ii)    Subject to Section 4 hereof and the investment objectives and policies of the Company: (a) locate, analyze and select potential investments; (b) structure and negotiate the terms and conditions of transactions pursuant to which investments in Properties, Loans and other Permitted Investments will be made; (c) acquire, originate and dispose of Properties, Loans and other Permitted Investments on behalf of the Company; (d) arrange for financing and refinancing and make other changes in the asset or capital structure of investments in Properties, Loans and other Permitted Investments; and (e) enter into leases, service contracts and other agreements for Properties, Loans and other Permitted Investments;
(iii)    Perform due diligence on prospective investments and create due diligence reports summarizing the results of such work;
(iv)    Prepare reports regarding prospective investments that include recommendations and supporting documentation necessary for the Directors to evaluate the proposed investments;
(v)    Obtain reports (which may be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of contemplated investments of the Company;
(vi)    Deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with the Company’s investments; and

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(vii)    Negotiate and execute approved investments and other transactions, including prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments.
3.03     Asset Management Services .
(i)    Real Estate and Related Services:
(a)    Investigate, select and, on behalf of the Company, engage and conduct business with (including enter contracts with) such Persons as the Advisor deems necessary to the proper performance of its obligations as set forth in this Agreement, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, developers, construction companies, Property Managers and any and all Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services;
(b)    Negotiate and service the Company’s debt facilities and other financings;
(c)    Monitor applicable markets and obtain reports (which may be prepared by the Advisor or its Affiliates) where appropriate, concerning the value of investments of the Company;
(d)    Monitor and evaluate the performance of each asset of the Company and the Company’s overall portfolio of assets, provide daily management services to the Company and perform and supervise the various management and operational functions related to the Company’s investments;
(e)    Formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of Properties, Loans and other Permitted Investments on an overall portfolio basis;
(f)    Consult with the Company’s officers and the Board and assist the Board in the formulation and implementation of the Company’s financial policies, and, as necessary, furnish the Board with advice and recommendations with respect to the making of investments consistent with the investment objectives and policies of the Company and in connection with any borrowings proposed to be undertaken by the Company;
(g)    Oversee the performance by the Property Managers of their duties, including collection and proper deposits of rental payments and payment of Property expenses and maintenance;
(h)    Conduct periodic on-site property visits to some or all (as the Advisor deems reasonably necessary) of the Properties to inspect the physical

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condition of the Properties and to evaluate the performance of the Property Managers;
(i)    Review, analyze and comment upon the operating budgets, capital budgets and leasing plans prepared and submitted by each Property Manager and aggregate these property budgets into the Company’s overall budget;
(j)    Coordinate and manage relationships between the Company and any co-venturers or partners; and
(k)    Consult with the Company’s officers and the Board and provide assistance with the evaluation and approval of potential asset dispositions, sales and refinancings.
(ii)    Accounting and Other Administrative Services:
(a)    Provide the day-to-day management of the Company and perform and supervise the various administrative functions reasonably necessary for the management of the Company;
(b)    From time to time, or at any time reasonably requested by the Board, make reports to the Board on the Advisor’s performance of services to the Company under this Agreement;
(c)    Make reports to the Conflicts Committee each quarter of the investments that have been made by other programs sponsored by the Advisor or any of its Affiliates, including KBS Realty Advisors LLC, as well as any investments that have been made by the Advisor or any of its Affiliates directly;
(d)    Provide or arrange for any administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to the Company’s business and operations;
(e)    Provide financial and operational planning services;
(f)    Maintain accounting and other record-keeping functions at the Company and investment levels, including information concerning the activities of the Company as shall be required to prepare and to file all periodic financial reports, tax returns and any other information required to be filed with the SEC, the Internal Revenue Service and any other regulatory agency;
(g)    Maintain and preserve all appropriate books and records of the Company;
(h)    Provide tax and compliance services and coordinate with appropriate third parties, including the Company’s independent auditors and other consultants, on related tax matters;

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(i)    Provide the Company with all necessary cash management services;
(j)    Manage and coordinate with the transfer agent the distribution process and payments to Stockholders;
(k)    Consult with the Company’s officers and the Board and assist the Board in evaluating and obtaining adequate insurance coverage based upon risk management determinations;
(l)    Provide the Company’s officers and the Board with timely updates related to the overall regulatory environment affecting the Company, as well as managing compliance with such matters, including but not limited to compliance with the Sarbanes-Oxley Act of 2002;
(m)    Consult with the Company’s officers and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;
(n)    Perform all reporting, record keeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law, including federal and state securities laws and the Sarbanes-Oxley Act of 2002;
(o)    Notify the Board of all proposed material transactions before they are completed; and
(p)    Do all things necessary to assure its ability to render the services described in this Agreement.
3.04     Stockholder Services . Manage services for and communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications;
(i)    Oversee the performance of the transfer agent and registrar;
(ii)    Establish technology infrastructure to assist in providing Stockholder support and service; and
(iii)    Consistent with Section 3.01, the Advisor shall perform the various subscription processing services reasonably necessary for the admission of new Stockholders.
3.05     Other Services . Except as provided in Article 7, the Advisor shall perform any other services reasonably requested by the Company (acting through the Conflicts Committee).

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ARTICLE 4

AUTHORITY OF ADVISOR
4.01     General . All rights and powers to manage and control the day-to-day business and affairs of the Company shall be vested in the Advisor. The Advisor shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company to such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as it may deem appropriate. Any authority delegated by the Advisor to any other Person shall be subject to the limitations on the rights and powers of the Advisor specifically set forth in this Agreement or the Articles of Incorporation.
4.02     Powers of the Advisor . Subject to the express limitations set forth in this Agreement and the continuing and exclusive authority of the Board over the management of the Company, the power to direct the management, operation and policies of the Company, including making, financing and disposing of investments, shall be vested in the Advisor, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Company to carry out any and all of the objectives and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.
4.03     Approval by the Board . Notwithstanding the foregoing, the Advisor may not take any action on behalf of the Company without the prior approval of the Board or duly authorized committees thereof if the Articles of Incorporation or Maryland General Corporation Law require the prior approval of the Board. If the Board or a committee of the Board must approve a proposed investment, financing or disposition or chooses to do so, the Advisor will deliver to the Board or committee, as applicable, all documents required by it to evaluate such investment, financing or disposition.
4.04     Modification or Revocation of Authority of Advisor . The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority or approvals set forth in Article 3 and this Article 4 hereof; provided, however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company prior to the date of receipt by the Advisor of such notification.
ARTICLE 5

BANK ACCOUNTS
The Advisor may establish and maintain one or more bank accounts in the name of the Company and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve, provided that no funds shall be commingled with the funds of the Advisor. The Advisor shall from time to time render appropriate accountings of such collections and payments to the Board and the independent auditors of the Company.

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ARTICLE 6

RECORDS AND FINANCIAL STATEMENTS
The Advisor, in the conduct of its responsibilities to the Company, shall maintain adequate and separate books and records for the Company’s operations in accordance with GAAP, which shall be supported by sufficient documentation to ascertain that such books and records are properly and accurately recorded. Such books and records shall be the property of the Company and shall be available for inspection by the Board and by counsel, auditors and other authorized agents of the Company, at any time or from time to time during normal business hours. Such books and records shall include all information necessary to calculate and audit the fees or reimbursements paid under this Agreement. The Advisor shall utilize procedures to attempt to ensure such control over accounting and financial transactions as is reasonably required to protect the Company’s assets from theft, error or fraudulent activity. All financial statements that the Advisor delivers to the Company shall be prepared on an accrual basis in accordance with GAAP, except for special financial reports that by their nature require a deviation from GAAP. The Advisor shall liaise with the Company’s officers and independent auditors and shall provide such officers and auditors with the reports and other information that the Company so requests.
ARTICLE 7

LIMITATION ON ACTIVITIES
Notwithstanding any provision in this Agreement to the contrary, the Advisor shall not take any action that, in its sole judgment made in good faith, would (i) adversely affect the ability of the Company to qualify or continue to qualify as a REIT under the Code, (ii) subject the Company to regulation under the Investment Company Act of 1940, as amended, (iii) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, its Shares or its other securities, (iv) require the Advisor to register as a broker-dealer with the SEC or any state, or (v) violate the Articles of Incorporation or Bylaws. In the event an action that would violate (i) through (v) of the preceding sentence but such action has been ordered by the Board, the Advisor shall notify the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given.
ARTICLE 8

FEES
8.01     Acquisition Fees . As compensation for the investigation, selection and acquisition (by purchase, investment or exchange) of Properties and other Permitted Investments, the Company shall pay an Acquisition Fee to the Advisor for each such investment. With respect to the acquisition of a Property to be wholly owned by the Company, the Acquisition Fee payable to the Advisor shall equal 2.0% of the sum of the amount actually paid or allocated to the purchase, development, construction or improvement of such Property, including any Acquisition Expenses associated with the purchase of such Property, and the amount of any debt attributable to such Property, plus significant (as determined in the sole discretion of the Advisor) capital improvement costs budgeted as of the date of acquisition related to the development, construction or improvement of such Property. With respect to other wholly owned

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Permitted Investments, the Acquisition Fee payable to the Advisor shall equal 2.0% of the cost of such Permitted Investment, including any Acquisition Expenses associated with the purchase of such investment, and the amount of any debt attributable to such Permitted Investment, plus significant (as determined in the sole discretion of the Advisor) capital improvement costs budgeted as of the date of acquisition related to the development, construction or improvement of such Permitted Investment. With respect to the acquisition of a Property or other Permitted Investment through any Joint Venture or any partnership in which the Company is, directly or indirectly, a co-venturer or partner, the Acquisition Fee payable to the Advisor shall equal 2.0% of the portion of the amount actually paid or allocated to the purchase, development, construction or improvement of the Property or other Permitted Investment, including any Acquisition Expenses associated with the purchase of such Property or Permitted Investment and the amount of any debt attributable to such Property or Permitted Investment, plus significant (as determined in the sole discretion of the Advisor) capital improvement costs budgeted as of the date of acquisition related to the development, construction or improvement of such Property or Permitted Investment that is attributable to the Company’s investment in the Joint Venture or partnership. Notwithstanding anything herein to the contrary, the payment of Acquisition Fees by the Company shall be subject to the limitations contained in the Company’s Articles of Incorporation. The Advisor shall submit an invoice to the Company on or about the closing or closings of each acquisition, accompanied by a computation of the Acquisition Fee. The Acquisition Fee payable to the Advisor shall be paid at the closing of the acquisition upon receipt of the invoice by the Company. The Company will not pay an Acquisition Fee to the Advisor with respect to any transaction in which the Company is required to pay an Origination Fee to the Advisor pursuant to the provisions of Section 8.02 below. Notwithstanding the foregoing, Acquisition Fees calculated based on capital improvement costs budgeted as of the date of acquisition shall be paid at the time funds are disbursed pursuant to a final approved budget upon receipt of an invoice by the Company. Further, the Acquisition Fee may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Acquisition Fee not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine.
8.02     Origination Fees . As compensation for the investigation, selection, sourcing and acquisition or origination of Loans, the Company shall pay an Origination Fee to the Advisor for each such acquisition or origination. With respect to the acquisition or origination of a Loan to be wholly owned by the Company, the Origination Fee payable to the Advisor shall equal 2.0% of the amount to be funded (including any future funding of a Loan) by the Company to acquire or originate the Loan, including any Acquisition Expenses associated with the acquisition or origination of such Loan, and the amount of any debt attributable to such Loan. With respect to the acquisition or origination of a Loan through any Joint Venture or any partnership in which the Company is, directly or indirectly, a co-venturer or partner, the Origination Fee payable to the Advisor shall equal 2.0% of the portion of the amount to be funded (including any future funding of a Loan) by the Company to acquire or originate the Loan, including any Acquisition Expenses associated with the acquisition or origination of such Loan, and the amount of any debt attributable to such Loan that is attributable to the Company’s investment in the Joint Venture or partnership. The Company will not pay an Origination Fee to the Advisor with respect to any transaction pursuant to which the Company is required to pay the Advisor an Acquisition Fee. Notwithstanding anything herein to the contrary, the payment of Origination Fees by the Company shall be subject to the limitations on Acquisition Fees contained in (and defined in) the

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Company’s Articles of Incorporation. The Advisor shall submit an invoice to the Company following the closing or closings of each Loan, accompanied by a computation of the Origination Fee. The Origination Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. The Origination Fee may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Origination Fee not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine.
8.03     Asset Management Fees .
(i)    Except as provided in Section 8.03(ii) hereof, the Company shall pay the Advisor as compensation for the services described in Section 3.03 hereof a monthly fee (the “ Asset Management Fee ”) in an amount equal to one-twelfth of 1.6% of the sum of the Cost of Real Estate Investments and the Cost of Loans and other Permitted Investments. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the Asset Management Fee for the applicable period. The Asset Management Fee shall be payable on the last day of such month, or the first business day following the last day of such month. The Asset Management Fee may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Asset Management Fees not taken as to any period shall be deferred without interest and may be paid in such other fiscal period as the Advisor shall determine.
(ii)    Notwithstanding anything contained in Section 8.03(i) to the contrary, a Property, Loan or other Permitted Investment that has suffered an impairment in value, reduction in cash flow or other negative circumstances may either be excluded from the calculation of the Cost of Real Estate Investments or the Cost of Loans and other Permitted Investments or included in such calculation at a reduced value that is recommended by the Advisor and the Company’s management and then approved by a majority of the members of the Conflicts Committee, and the resulting change in the Asset Management Fee with respect to such investment will be applicable upon the earlier to occur of the date on which (i) such investment is sold, (ii) such investment is surrendered to a Person other than the Company, its direct or indirect wholly owned subsidiary or a Joint Venture or partnership in which the Company has an interest, (iii) the Advisor determines that it will no longer pursue collection or other remedies related to such investment, or (iv) the Advisor recommends a revised fee arrangement with respect to such investment.
8.04     Disposition Fees . If the Advisor or any of its Affiliates provide a substantial amount of services (as determined by the Conflicts Committee) in connection with a Sale, which includes the sale of a single asset or the sale of all or a portion of the Company’s assets through a portfolio sale, merger, or other business combination transaction, the Advisor or such Affiliate shall receive a fee at the closing (the “ Disposition Fee ”). For a Sale with a Contract Sales Price less than or equal to $1.5 billion, the Disposition Fee will equal 1.5% of the Contract Sales Price. For a Sale with a Contract Sales Price greater than $1.5 billion, the Disposition Fee will equal the sum of $22.5 million (which amount is 1.5% of $1.5 billion), plus 1.1% of the amount of the Contract Sales Price in excess of $1.5 billion. The payment of any Disposition Fee by the Company shall be subject to the limitations contained in the Company’s Charter. Any Disposition Fee payable under this Section 8.03 may be paid in addition to commissions paid to

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non-Affiliates, provided that the total commissions (including such Disposition Fee) paid to all Persons by the Company for each Sale shall not exceed an amount equal to the lesser of (i) 6.0% of the aggregate Contract Sales Price of each Property, Loan or other Permitted Investment or (ii) the Competitive Real Estate Commission for each Property, Loan or other Permitted Investment. Substantial assistance in connection with the Sale of a Property includes the Advisor’s preparation of an investment package for the Property (including a new investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by the Advisor in connection with a Sale. The Advisor shall submit an invoice to the Company on or about the closing or closings of each disposition, accompanied by a computation of the Disposition Fee. Generally, the Disposition Fee payable to the Advisor shall be paid at the closing of the transaction upon receipt of the invoice by the Company. However, the Disposition Fee may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Disposition Fees not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine.
8.05     Subscription Processing Fee . The Company shall pay the Advisor as compensation for the services described in Section 3.04(iv) hereof a monthly fee (the “ Subscription Processing Fee ”) in an amount equal to $35 per subscription agreement for Shares received and processed by the Advisor. The Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subscription Processing Fee for the applicable period. Generally, the Subscription Processing Fee payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. However, the Subscription Processing Fee may not be taken, in whole or in part, as to any period in the sole discretion of the Advisor. All or any portion of the Subscription Processing Fees not taken as to any period shall be deferred without interest and may be paid in such other period as the Advisor shall determine. The Subscription Processing Fee is an Organization and Offering Expense of the Company and is subject to the limitations on Organization and Offering Expenses in Article 9 hereof.
8.06     Subordinated Share of Cash Flows . The Subordinated Share of Cash Flows shall be payable to the Advisor in an amount equal to 15% of Operating Cash Flow and Cash from Sales, Settlements and Financings remaining after the Stockholders have received Distributions in an aggregate amount equal to the sum of:
a.    the Stockholders’ 6% Return and
b.    Gross Investment Amount.
Following Listing, no Subordinated Share of Cash Flows will be paid to the Advisor.
If the Subordinated Share of Cash Flows is payable to the Advisor, the Advisor shall submit a monthly invoice to the Company, accompanied by a computation of the total amount of the Subordinated Share of Cash Flows for the applicable period. Generally, the Subordinated Share of Cash Flows payable to the Advisor shall be paid on the last day of such month, or the first business day following the last day of such month. For the avoidance of doubt, to the extent the payment of the Subordinated Share of Cash Flows is funded other than from Cash From Sales and Settlements, such amounts shall be included in Operating Expenses and subject to the 2%/25% Guidelines.

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8.07     Subordinated Incentive Fee .
(i)    Upon Listing, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15.0% of the amount by which (i) the market value of the outstanding Shares of the Company, measured by taking the average closing price or the average of the bid and asked price, as the case may be, over a period of 30 days during which the Shares are traded, with such period beginning 180 days after Listing (the “ Market Value ”), plus the total of all Distributions paid to Stockholders from the Company’s inception until the date that Market Value is determined, exceeds (ii) the sum of (A) Gross Investment Amount and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 6% Return from inception through the date Market Value is determined. The Company shall have the option to pay such fee in the form of cash, Shares, a promissory note or any combination of the foregoing. In the event the Subordinated Incentive Fee is paid to the Advisor following Listing, no other performance fee will be paid to the Advisor.
(ii)    Upon a Merger, the Advisor shall be entitled to the Subordinated Incentive Fee in an amount equal to 15.0% of the amount by which (i) the Merger Consideration Amount, plus the total of all Distributions paid to Stockholders from the Company’s inception until the date of the closing of the Merger, plus all Distributions declared prior to the Merger but to be paid after the Merger, exceeds (ii) the sum of (A) Gross Investment Amount and (B) the total Distributions required to be paid to the Stockholders in order to pay the Stockholders’ 6% Return from inception through the date of the closing of the Merger. The Company shall have the option to pay such fee in the form of cash or Shares or any combination thereof. In the event the Subordinated Incentive Fee is paid to the Advisor in connection with a Merger, no other performance fee will be paid to the Advisor.
8.08     Changes to Fee Structure . In the event of Listing, the Company and the Advisor shall negotiate in good faith to establish a fee structure appropriate for a perpetual-life entity.
ARTICLE 9
EXPENSES
9.01     General . In addition to the compensation paid to the Advisor pursuant to Article 8 hereof, the Company shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its Affiliates on behalf of the Company or in connection with the services provided to the Company pursuant to this Agreement, including, but not limited to:
(i)    Organization and Offering Expenses related to the Private Offering that commenced on June 11, 2015, provided that no reimbursement shall be made for wholesaling compensation expense;
(ii)    Organization and Offering Expenses related to the Public Offering provided that:
(a)    the Company shall not make any reimbursements for wholesaling compensation expense;

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(b)    the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total amount spent by the Company on Organization and Offering Expenses in the Public Offering to exceed 15% of the Gross Proceeds raised in the Public Offering as of the date of the reimbursement;
(c)    other than Organization and Offering Expenses related to Shares sold through an online distribution channel in the primary portion of the Public Offering, the Company will directly pay selling commissions, the dealer manager fees and the stockholder servicing fee related to Shares sold in the primary portion of the Public Offering;
(d)    except as provided in Section 9.01(c), the Advisor and its Affiliates will pay Organization and Offering Expenses in the primary portion of the Public Offering directly, and in addition to amounts paid by the Company pursuant to Section 9.01(c), the Company will reimburse the Advisor and its Affiliates for additional Organization and Offering Expenses in the primary portion of the Public Offering up to 1% of the Gross Proceeds raised in the primary portion of the Public Offering, excluding Gross Proceeds raised in the primary portion of the Public Offering through an online distribution channel. Notwithstanding the preceding sentence, from time to time the Company may directly pay Organization and Offering Expenses, provided that an officer of the Company believes such amount would be required to be reimbursed to the Advisor had the Advisor paid the costs directly pursuant to this Section 9.01(d); and
(e)    with respect to Organization and Offering Expenses related to Shares sold through an online distribution channel in the primary portion of a Public Offering, the Advisor and its Affiliates shall be responsible for all such Organization and Offering Expenses;
(iii)    Acquisition Fees, Origination Fees and Acquisition Expenses incurred in connection with the selection and acquisition of Properties, Loans and other Permitted Investments, including such expenses incurred related to assets pursued or considered but not ultimately acquired by the Company, provided that, notwithstanding anything herein to the contrary, the payment of Acquisition Fees, Origination Fees and Acquisition Expenses by the Company shall be subject to the limitations contained in the Company’s Articles of Incorporation;
(iv)    The actual out-of-pocket cost of goods and services used by the Company and obtained from entities not Affiliated with the Advisor;
(v)    Interest and other costs for borrowed money, including discounts, points and other similar fees;
(vi)    Taxes and assessments on income or Properties, taxes as an expense of doing business and any other taxes otherwise imposed on the Company and its business, assets or income;

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(vii)    Out-of-pocket costs associated with insurance required in connection with the business of the Company or by its officers and Directors;
(viii)    Expenses of managing, improving, developing, operating and selling Properties, Loans and other Permitted Investments owned, directly or indirectly, by the Company, as well as expenses of other transactions relating to such Properties, Loans and other Permitted Investments, including but not limited to prepayments, maturities, workouts and other settlements of Loans and other Permitted Investments;
(ix)    All out-of-pocket expenses in connection with payments to the Board and meetings of the Board and Stockholders;
(x)    Personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in Article 3 hereof, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services, provided that, (a) other than reimbursement of travel and communication expenses, no reimbursement shall be made for the cost of such employees of the Advisor or its Affiliates to the extent that such employees perform services for which the Advisor receives Acquisition Fees, Origination Fees or Disposition Fees and (b) no reimbursement shall be made for the salaries and benefits the Advisor or its Affiliates may pay to the Company’s executive officers;
(xi)    Out-of-pocket expenses of providing services for and maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;
(xii)    Audit, accounting and legal fees, and other fees for professional services relating to the operations of the Company and all such fees incurred at the request, or on behalf of, the Board, the Conflicts Committee or any other committee of the Board;
(xiii)    Out-of-pocket costs for the Company to comply with all applicable laws, regulations and ordinances;
(xiv)    Expenses connected with payments of Distributions and stock dividends made or caused to be made by the Company to the Stockholders;
(xv)    Expenses of organizing, redomesticating, merging, liquidating or dissolving the Company or of amending the Articles of Incorporation or the Bylaws; and
(xvi)    All other out-of-pocket costs incurred by the Advisor in performing its duties hereunder.
9.02     Timing of and Additional Limitations on Reimbursements .
(i)    Expenses incurred by the Advisor on behalf of the Company and reimbursable pursuant to this Article 9 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the

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Company during each quarter and shall deliver such statement to the Company within 45 days after the end of each quarter.
(ii)    Commencing with the quarter ending December 31, 2016, the following limitation on Operating Expenses shall apply: The Company shall not reimburse the Advisor at the end of any fiscal quarter for Operating Expenses that in the four consecutive fiscal quarters then ended (the “ Expense Year ”) exceed (the “ Excess Amount ”) the greater of 2% of Average Invested Assets or 25% of Net Income (the “ 2%/25% Guidelines ”) for such year unless the Conflicts Committee determines that such excess was justified, based on unusual and nonrecurring factors that the Conflicts Committee deems sufficient. If the Conflicts Committee does not approve such excess as being so justified, any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company. If the Conflicts Committee determines such excess was justified, then, within 60 days after the end of any fiscal quarter of the Company for which total reimbursed Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Advisor, at the direction of the Conflicts Committee, shall cause such fact to be disclosed to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in the next quarterly report of the Company or by filing a Current Report on Form 8-K with the SEC within 60 days of such quarter end), together with an explanation of the factors the Conflicts Committee considered in determining that such excess expenses were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board. All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a consistent basis.
ARTICLE 10

VOTING AGREEMENT
The Advisor agrees that, with respect to any Shares now or hereinafter owned by it, the Advisor will not vote or consent on matters submitted to the stockholders of the Company regarding (i) the removal of the Advisor or any Affiliate of the Advisor, and (ii) any transaction between the Company and the Advisor or any of its Affiliates. This voting restriction shall survive until such time that the Advisor is both no longer serving as such and is no longer an Affiliate of the Company.
ARTICLE 11

RELATIONSHIP OF ADVISOR AND COMPANY;

OTHER ACTIVITIES OF THE ADVISOR
11.01     Relationship . The Company and the Advisor are not partners or joint venturers with each other, and nothing in this Agreement shall be construed to make them such partners or joint venturers. Nothing herein contained shall prevent the Advisor from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates. Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or equityholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person. The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein. The Advisor shall promptly disclose to the Board the existence of

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any condition or circumstance, existing or anticipated, of which it has knowledge, that creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other Person.
11.02     Time Commitment . The Advisor shall, and shall cause its Affiliates and their respective employees, officers and agents to, devote to the Company such time as shall be reasonably necessary to conduct the business and affairs of the Company in an appropriate manner consistent with the terms of this Agreement. The Company acknowledges that the Advisor and its Affiliates and their respective employees, officers and agents may also engage in activities unrelated to the Company and may provide services to Persons other than the Company or any of its Affiliates.
11.03     Investment Opportunities and Allocation . The Advisor shall be required to use commercially reasonable efforts to present a continuing and suitable investment program to the Company that is consistent with the investment policies and objectives of the Company, but neither the Advisor nor any Affiliate of the Advisor shall be obligated generally to present any particular investment opportunity to the Company even if the opportunity is of character that, if presented to the Company, could be taken by the Company. In the event an investment opportunity is located that may be suitable for the Company and other programs advised by the Advisor or any of its Affiliates, including KBS Realty Advisors, the Advisor, in its sole discretion, will have to determine the program or investor for which the investment opportunity is most suitable based on the investment objectives, portfolio and criteria of each program or investor. This determination must be made in a manner that is fair without favoring any other program or investor. The factors that the Advisor shall consider when determining the program or investor for which an investment opportunity would be the most suitable are the following:
•
the investment objectives and criteria of each program or investor;
•
the cash requirements of each program or investor;
•
the effect of the investment on the diversification of each program’s or investor’s portfolio by type of investment, risk of investment, type of commercial property, geographic location of properties, and tenants of properties and, in the case of debt-related investments, the characteristics of the underlying property;
•
the policy of each program or investor relating to leverage;
•
the anticipated cash flow of the property or asset to be acquired;
•
the income tax effects of the purchase on each program or investor;
•
the size of the investment; and
•
the amount of funds available to each program or investor and the length of time such funds have been available for investment.
If a subsequent event or development, such as a delay in the closing of a property or investment or a delay in the construction of a property, causes any investment, in the opinion of the Advisor, to be more appropriate for another program or investor, they may offer the investment to another program or investor. It shall be the duty of the Board to ensure that the allocation method described above is applied fairly to the Company.

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ARTICLE 12
THE KBS NAME
The Advisor and its Affiliates have a proprietary interest in the name “KBS.” The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive royalty-free right and license to use the name “KBS” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of written request from the Advisor, cease to conduct business under or use the name “KBS” or any derivative thereof and the Company shall change its name and the names of any of its subsidiaries to a name that does not contain the name “KBS” or any other word or words that might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any of its Affiliates. At such time, the Company will also make any changes to any trademarks, servicemarks or other marks necessary to remove any references to the word “KBS.” Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having “KBS” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company.
ARTICLE 13

TERM AND TERMINATION OF THE AGREEMENT
13.01     Term . This Agreement shall have an initial term of one year from the date hereof and may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties. The Company (acting through the Conflicts Committee) will evaluate the performance of the Advisor annually before renewing this Agreement, and each such renewal shall be for a term of no more than one year. Any such renewal must be approved by the Conflicts Committee.
13.02     Termination by Either Party . This Agreement may be terminated upon 60 days written notice without cause or penalty by either the Company (acting through the Conflicts Committee) or the Advisor. The provisions of Articles 1, 10, 12, 13, 15, 16 and 17 shall survive termination of this Agreement.
13.03     Payments on Termination and Survival of Certain Rights and Obligations . Payments to the Advisor pursuant to this Section 13.03 shall be subject to the 2%/25% Guidelines to the extent applicable.
(i)    After the Termination Date, the Advisor shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company within 30 days after the effective date of such termination (A) all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement and (B) the Subordinated Performance Fee Upon Termination, provided that no Subordinated Performance Fee Upon Termination will be paid if the Company has paid or is obligated to pay the Subordinated Incentive Fee. If at the Termination Date, the Advisor will be entitled to the Subordinated Performance Fee Upon Termination upon the Performance Fee Trigger Date, then the Company agrees that until the Subordinated Performance Fee

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Upon Termination is paid, if ever, the Company will not pay to any subsequent external advisor that is not affiliated with KBS Capital Advisors LLC (1) any fee or other compensation based on a participation in the Company’s cash flow from operation activities, cash flows from investing activities and cash flows from financing activities (each as defined by GAAP) or any fee or compensation based on an increase in the value of the Company or its assets or (2) any fee or compensation upon a Merger or Listing.
(ii)    The Advisor shall promptly upon termination:
(a)    pay over to the Company all money collected pursuant to this Agreement, if any, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(b)    deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(c)    deliver to the Board all assets and documents of the Company then in the custody of the Advisor; and
(d)    cooperate with the Company to provide an orderly transition of advisory functions.
(iii)    Notwithstanding anything contained in this Section 13.03 to the contrary, the obligations of the Company and the Advisor set forth in Article 17 of this Agreement shall survive the termination of this Agreement.
ARTICLE 14
ASSIGNMENT
This Agreement may be assigned by the Advisor to an Affiliate with the consent of the Conflicts Committee. The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board or the Conflicts Committee. This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization that is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound by this Agreement.
ARTICLE 15
INDEMNIFICATION AND LIMITATION OF LIABILITY
15.01     Indemnification . Except as prohibited by the restrictions provided in this Section 15.01, Section 15.02 and Section 15.03, the Company shall indemnify, defend and hold harmless the Advisor and its Affiliates, including their respective officers, directors, equity holders,

25



partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance. Any indemnification of the Advisor may be made only out of the net assets of the Company and not from Stockholders.
Notwithstanding the foregoing, the Company shall not indemnify the Advisor or its Affiliates for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; or (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.
15.02     Limitation on Indemnification . Notwithstanding the foregoing, the Company shall not provide for indemnification of the Advisor or its Affiliates for any liability or loss suffered by any of them, nor shall any of them be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:
(i)    The Advisor or its Affiliates have determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Company.
(ii)    The Advisor or its Affiliates were acting on behalf of or performing services for the Company.
(iii)    Such liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates.
15.03     Limitation on Payment of Expenses . The Company shall pay or reimburse reasonable legal expenses and other costs incurred by the Advisor or its Affiliates in advance of the final disposition of a proceeding only if (in addition to the procedures required by the Maryland General Corporation Law, as amended from time to time) all of the following are satisfied: (i) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company, (ii) the legal proceeding was initiated by a third party who is not a stockholder or, if by a stockholder acting in his or her capacity as such, a court of competent jurisdiction approves such advancement and (iii) the Advisor or its Affiliates undertake to repay the amount paid or reimbursed by the Company, together with the applicable legal rate of interest thereon, if it is ultimately determined that the particular indemnitee is not entitled to indemnification.

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ARTICLE 16
MISCELLANEOUS
16.01     Notices . Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Articles of Incorporation, the Bylaws or is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight mail or other overnight delivery service to the addresses set forth herein:
To the Company or the Board:
KBS Growth & Income REIT, Inc.
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
To the Advisor:
KBS Capital Advisors LLC
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 16.01.
16.02     Modification . This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or permitted assigns.
16.03     Severability . The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
16.04     Construction . The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware.
16.05     Entire Agreement . This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
16.06     Waiver . Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any

27



waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
16.07     Gender . Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
16.08     Titles Not to Affect Interpretation . The titles of Articles and Sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
16.09     Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
ARTICLE 17
ADVANCE
Notwithstanding anything contained in Article 9 of the Agreement to the contrary, the Advisor hereby agrees to advance funds to the Company equal to the cumulative amount of cash distributions declared by the Company for distribution record dates through the period ended May 31, 2016 and to advance funds to the Company, to the extent and in the amount requested by the Company, equal to an amount up to the cumulative amount of cash distributions declared by the Company for distribution record dates for the period from June 1, 2016 to June 30, 2016 (such amounts advanced, the “Advance”).
The Advisor further agrees that the Company will only be obligated to repay the Advisor for the Advance if and to the extent that:
(i)
the Company’s modified funds from operations (“ MFFO ”), as such term is defined by the Investment Program Association and interpreted by the Company, for the immediately preceding month exceeds the amount of cash distributions declared for record dates of such prior month (an “ MFFO Surplus ”), and the Company shall pay the Advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the Advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or
(ii)
the Advance may be repaid from excess proceeds (“ Excess Proceeds ”) from the Company’s third-party financings, provided that the amount of any such Excess Proceeds that may be used to repay the principal

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amount outstanding under the Advance shall be determined by the Conflicts Committee of the Company in its sole discretion.
The Advisor understands and agrees that no interest shall accrue on the Advance. To the extent payment of any amount is due to the Advisor hereunder, the Company shall pay the Advisor no later than the last business day of the month in which the amount of such payment is determined, or the first business day of the following month.

[The remainder of this page is intentionally left blank.
Signature page follows.]



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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.


KBS GROWTH & INCOME REIT, INC.

By:
/s/ Charles J. Schreiber, Jr.
Charles J. Schreiber, Jr., Chief Executive Officer


KBS CAPITAL ADVISORS LLC

By:
PBren Investments, L.P., a Manager

By:
PBren Investments, LLC, as general partner

By:
/s/ Peter M. Bren
Peter M. Bren, Manager

By:
Schreiber Real Estate Investments, L.P., a Manager

By: Schreiber Investments, LLC, as general partner

By:
/s/ Charles J. Schreiber, Jr.
Charles J. Schreiber, Jr., Manager




30


Exhibit 10.2
AGREEMENT REGARDING PAYMENT OF CERTAIN ITEMS OF COMPENSATION AND EXPENSES RELATED TO THE OFFERING OF CLASS A SHARES
THROUGH AN ONLINE DISTRIBUTION CHANNEL
    This agreement dated as of April 27, 2017 (the “ Agreement ”) is entered by and among KBS Growth & Income REIT, Inc., a Maryland corporation (the “ Company ”), KBS Capital Advisors LLC, a Delaware limited liability company (the “Advisor” ), and KBS Capital Markets Group LLC, a California limited liability company (the “Dealer Manager” ).
WHEREAS, the Company has registered for public sale (the “Offering” ) up to $1,500,000,000 of shares of its common stock, $.01 par value per share, in any combination of shares of Class A common stock and Class T common stock in its primary public offering (the “Primary Offering” ) and up to $800,000,000 of shares of common stock pursuant to its distribution reinvestment plan (the “DRP” ), with the right to reallocate shares between the Primary Offering and the DRP, pursuant to a registration statement (Reg. No. 333-207471) filed with the Securities and Exchange Commission;
WHEREAS, the Company has entered into an advisory agreement dated April 27, 2017, as amended, restated and renewed from time to time (the “Advisory Agreement” ), with the Advisor that provides that the Advisor and its Affiliates shall be responsible for the payment of all Organization and Offering Expenses (as defined in the Advisory Agreement) with respect to shares of Class A common stock sold by the Company through an online distribution channel in the Primary Offering, as described in the Advisory Agreement;
WHEREAS, the Company has entered into the dealer manager agreement dated April 28, 2016, as amended and restated from time to time (the “Dealer Manager Agreement” ), with the Dealer Manager that sets forth the underwriting compensation and expenses to be paid by the Company to the Dealer Manager in connection with the Offering;
WHEREAS, the Company, the Advisor and the Dealer Manager wish to acknowledge and agree that the Advisor will be responsible for the payment of all Organization and Offering Expenses related to the sale of shares of Class A common stock in the Offering through an online distribution channel, including any underwriting compensation and expenses otherwise payable or reimbursable by the Company to the Dealer Manager pursuant to Section 5.3 of the Dealer Manager Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company, the Advisor and the Dealer Manager hereby acknowledge and agree as follows:
1.        Organization and Offering Expenses Related to the Online Distribution Channel
Notwithstanding anything contained in Section 5.3 of the Dealer Manager Agreement with respect to the Company’s obligation to pay underwriting compensation to the Dealer Manager and pay or reimburse the Dealer Manager for bona fide invoiced due diligence expenses in connection with the Offering, the Advisor will be solely responsible for the payment of all such underwriting compensation and for the payment or reimbursement of bona fide invoiced due diligence expenses to the Dealer Manager in connection with the sale of shares of Class A of common stock in the Offering through an online distribution channel. The Company will not be liable or responsible to the Dealer Manager or to


any broker dealer for the direct payment of underwriting compensation or for the payment or reimbursement of bona fide invoiced due diligence expenses in connection with the sale of shares of Class A of common stock in the Offering through an online distribution channel; it is the sole and exclusive responsibility of the Advisor for such payments to the Dealer Manager. Notwithstanding the above, at its discretion, the Advisor may act as agent of the Dealer Manager by making direct payment of underwriting compensation to a Dealer (as defined in the Dealer Manager Agreement) in connection with the sale of shares of Class A common stock in the Offering through an online distribution channel without incurring any liability therefor.
2.    Ratification of Advisory Agreement and Dealer Manager Agreement
Except as set forth in Section 1 above, the Advisory Agreement and Dealer Manager Agreement shall remain in full force and effect and are hereby ratified and confirmed by the respective parties thereto in all respects.


Signature page follows.




IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

KBS GROWTH & INCOME REIT, INC.

By:
/s/ Charles J. Schreiber, Jr.
Charles J. Schreiber, Jr., Chief Executive Officer


KBS CAPITAL ADVISORS LLC

By:
PBren Investment, L.P., a Manager

By:
PBren Investments, LLC, as general partner

By:
/s/ Peter M. Bren
Peter M. Bren, Manager

By:
Schreiber Real Estate Investments, L.P., a Manager

By: Schreiber Investments, LLC, as general partner

By:
/s/ Charles J. Schreiber, Jr.
Charles J. Schreiber, Jr., Manager


KBS CAPITAL MARKETS GROUP LLC

By:
/s/ Hans Henselman
Hans Henselman, Chief Operating Officer, Chief Compliance Officer




Exhibit 31.1
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Charles J. Schreiber, Jr., certify that:
1.
I have reviewed this quarterly report on Form 10-Q of KBS Growth & Income REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [language omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986] and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
[Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34‑47986];
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
August 10, 2017
By:
/ S / C HARLES  J. S CHREIBER , J R .     
 
 
 
Charles J. Schreiber, Jr.
 
 
 
Chairman of the Board,
Chief Executive Officer and Director
 
 
 
(principal executive officer)







Exhibit 31.2
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey K. Waldvogel, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of KBS Growth & Income REIT, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [language omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986] and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
[Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34‑47986];
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
August 10, 2017
By:
/ S / J EFFREY  K. W ALDVOGEL      
 
 
 
Jeffrey K. Waldvogel
 
 
 
Chief Financial Officer
 
 
 
(principal financial officer)







Exhibit 32.1
Certification pursuant to 18 U.S.C. Section 1350,
as Adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of KBS Growth & Income REIT, Inc. (the “Registrant”) for the quarter ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Charles J. Schreiber Jr., Chief Executive Officer and Director of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:
August 10, 2017
By:
/ S / C HARLES  J. S CHREIBER , J R .    
 
 
 
Charles J. Schreiber, Jr.
 
 
 
Chairman of the Board,
Chief Executive Officer and Director
 
 
 
(principal executive officer)
 







Exhibit 32.2
Certification pursuant to 18 U.S.C. Section 1350,
as Adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of KBS Growth & Income REIT, Inc. (the “Registrant”) for the quarter ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jeffrey K. Waldvogel, the Chief Financial Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge and belief:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date:
August 10, 2017
By:
/ S / J EFFREY  K. W ALDVOGEL 
 
 
 
Jeffrey K. Waldvogel
 
 
 
Chief Financial Officer
 
 
 
(principal financial officer)