x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 27-1627696 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
800 Newport Center Drive, Suite 700 Newport Beach, California | 92660 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | x | Smaller reporting company | ¨ | |||
Emerging growth company | ¨ |
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. | |||
September 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Real estate: | ||||||||
Land | $ | 393,434 | $ | 390,685 | ||||
Buildings and improvements | 2,788,881 | 2,680,838 | ||||||
Construction in progress | 29,721 | 67,826 | ||||||
Tenant origination and absorption costs | 212,737 | 230,576 | ||||||
Total real estate held for investment, cost | 3,424,773 | 3,369,925 | ||||||
Less accumulated depreciation and amortization | (508,654 | ) | (435,808 | ) | ||||
Total real estate held for investment, net | 2,916,119 | 2,934,117 | ||||||
Real estate held for sale, net | — | 28,017 | ||||||
Total real estate, net | 2,916,119 | 2,962,134 | ||||||
Cash and cash equivalents | 78,186 | 65,486 | ||||||
Investment in unconsolidated joint venture | 34,662 | 33,997 | ||||||
Rents and other receivables, net | 96,496 | 79,317 | ||||||
Above-market leases, net | 4,563 | 5,861 | ||||||
Assets related to real estate held for sale, net | — | 1,786 | ||||||
Prepaid expenses and other assets | 107,213 | 72,226 | ||||||
Total assets | $ | 3,237,239 | $ | 3,220,807 | ||||
Liabilities and equity | ||||||||
Notes payable, net | ||||||||
Notes payable related to real estate held for investment, net | $ | 2,068,199 | $ | 1,920,138 | ||||
Note payable related to real estate held for sale, net | — | 21,648 | ||||||
Total notes payable, net | 2,068,199 | 1,941,786 | ||||||
Accounts payable and accrued liabilities | 79,328 | 71,012 | ||||||
Due to affiliate | 6,271 | 3,239 | ||||||
Distributions payable | 9,424 | 9,982 | ||||||
Below-market leases, net | 18,930 | 24,610 | ||||||
Liabilities related to real estate held for sale, net | — | 50 | ||||||
Redeemable common stock payable | 10,353 | 18,870 | ||||||
Other liabilities | 24,218 | 30,935 | ||||||
Total liabilities | 2,216,723 | 2,100,484 | ||||||
Commitments and contingencies (Note 10) | ||||||||
Redeemable common stock | 40,618 | 40,915 | ||||||
Equity | ||||||||
KBS Real Estate Investment Trust III, Inc. stockholders’ equity | ||||||||
Preferred stock, $.01 par value per share; 10,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $.01 par value per share; 1,000,000,000 shares authorized, 176,422,788 and 180,864,707 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 1,764 | 1,809 | ||||||
Additional paid-in capital | 1,548,370 | 1,591,640 | ||||||
Cumulative distributions and net losses | (570,536 | ) | (514,451 | ) | ||||
Accumulated other comprehensive income | — | 110 | ||||||
Total KBS Real Estate Investment Trust III, Inc. stockholders’ equity | 979,598 | 1,079,108 | ||||||
Noncontrolling interest | 300 | 300 | ||||||
Total equity | 979,898 | 1,079,408 | ||||||
Total liabilities and equity | $ | 3,237,239 | $ | 3,220,807 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 80,086 | $ | 77,798 | $ | 238,422 | $ | 236,200 | |||||||
Tenant reimbursements | 20,185 | 19,063 | 61,297 | 57,652 | |||||||||||
Other operating income | 5,874 | 5,697 | 18,181 | 17,124 | |||||||||||
Total revenues | 106,145 | 102,558 | 317,900 | 310,976 | |||||||||||
Expenses: | |||||||||||||||
Operating, maintenance and management | 26,397 | 25,293 | 73,852 | 70,765 | |||||||||||
Real estate taxes and insurance | 16,898 | 16,460 | 52,158 | 48,721 | |||||||||||
Asset management fees to affiliate | 6,830 | 6,587 | 20,188 | 19,223 | |||||||||||
General and administrative expenses | 3,166 | 983 | 6,701 | 3,324 | |||||||||||
Depreciation and amortization | 40,824 | 41,151 | 118,831 | 124,370 | |||||||||||
Interest expense | 16,584 | 15,460 | 29,911 | 45,257 | |||||||||||
Total expenses | 110,699 | 105,934 | 301,641 | 311,660 | |||||||||||
Other income (loss): | |||||||||||||||
Other income | 3 | — | 1,879 | 650 | |||||||||||
Other interest income | 108 | 23 | 204 | 73 | |||||||||||
Equity in income (loss) of unconsolidated joint venture | 373 | — | 25 | (1 | ) | ||||||||||
Gain on sale of real estate, net | — | — | 11,942 | — | |||||||||||
Total other income, net | 484 | 23 | 14,050 | 722 | |||||||||||
Net (loss) income | (4,070 | ) | (3,353 | ) | 30,309 | 38 | |||||||||
Net loss attributable to noncontrolling interest | — | 202 | — | 229 | |||||||||||
Net (loss) income attributable to common stockholders | $ | (4,070 | ) | $ | (3,151 | ) | $ | 30,309 | $ | 267 | |||||
Net (loss) income per common share attributable to common stockholders, basic and diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | 0.17 | $ | — | |||||
Weighted-average number of common shares outstanding, basic and diluted | 176,040,649 | 180,975,877 | 177,729,817 | 181,320,425 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net (loss) income | $ | (4,070 | ) | $ | (3,151 | ) | $ | 30,309 | $ | 267 | |||||
Other comprehensive (loss) income: | |||||||||||||||
Unrealized income on derivative instruments designated as cash flow hedges | 5 | 13 | 88 | 602 | |||||||||||
Reclassification adjustment realized in net income (effective portion) | (90 | ) | 253 | (198 | ) | 1,717 | |||||||||
Total other comprehensive (loss) income | (85 | ) | 266 | (110 | ) | 2,319 | |||||||||
Total comprehensive (loss) income | (4,155 | ) | (2,885 | ) | 30,199 | 2,586 | |||||||||
Total comprehensive loss attributable to noncontrolling interest | — | 202 | — | 229 | |||||||||||
Total comprehensive (loss) income attributable to common stockholders | $ | (4,155 | ) | $ | (2,683 | ) | $ | 30,199 | $ | 2,815 |
Common Stock | Additional Paid-in Capital | Cumulative Distributions and Net Income (Losses) | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||
Shares | Amounts | ||||||||||||||||||||||||||||||
Balance, December 31, 2016 | 180,890,572 | $ | 1,809 | $ | 1,591,652 | $ | (398,087 | ) | $ | (2,298 | ) | $ | 1,193,076 | $ | 300 | $ | 1,193,376 | ||||||||||||||
Net income | — | — | — | 1,374 | — | 1,374 | — | 1,374 | |||||||||||||||||||||||
Other comprehensive income | — | — | — | — | 2,408 | 2,408 | — | 2,408 | |||||||||||||||||||||||
Issuance of common stock | 5,919,223 | 59 | 59,726 | — | — | 59,785 | — | 59,785 | |||||||||||||||||||||||
Transfers from redeemable common stock | — | — | 2,086 | — | — | 2,086 | — | 2,086 | |||||||||||||||||||||||
Redemptions of common stock | (5,945,088 | ) | (59 | ) | (61,812 | ) | — | — | (61,871 | ) | — | (61,871 | ) | ||||||||||||||||||
Distributions declared | — | — | — | (117,738 | ) | — | (117,738 | ) | — | (117,738 | ) | ||||||||||||||||||||
Other offering costs | — | — | (12 | ) | — | — | (12 | ) | — | (12 | ) | ||||||||||||||||||||
Balance, December 31, 2017 | 180,864,707 | $ | 1,809 | $ | 1,591,640 | $ | (514,451 | ) | $ | 110 | $ | 1,079,108 | $ | 300 | $ | 1,079,408 | |||||||||||||||
Net income | — | — | — | 30,309 | — | 30,309 | — | 30,309 | |||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (110 | ) | (110 | ) | — | (110 | ) | ||||||||||||||||||||
Issuance of common stock | 3,806,525 | 38 | 42,405 | — | — | 42,443 | — | 42,443 | |||||||||||||||||||||||
Transfers from redeemable common stock | — | — | 8,813 | — | — | 8,813 | — | 8,813 | |||||||||||||||||||||||
Redemptions of common stock | (8,248,444 | ) | (83 | ) | (94,486 | ) | — | — | (94,569 | ) | — | (94,569 | ) | ||||||||||||||||||
Distributions declared | — | — | — | (86,394 | ) | — | (86,394 | ) | — | (86,394 | ) | ||||||||||||||||||||
Other offering costs | — | — | (2 | ) | — | — | (2 | ) | — | (2 | ) | ||||||||||||||||||||
Balance, September 30, 2018 | 176,422,788 | $ | 1,764 | $ | 1,548,370 | $ | (570,536 | ) | $ | — | $ | 979,598 | $ | 300 | $ | 979,898 |
Nine Months Ended September 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 30,309 | $ | 38 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 118,831 | 124,370 | ||||||
Equity in (income) loss of unconsolidated joint venture | (25 | ) | 1 | |||||
Deferred rents | (6,932 | ) | (8,527 | ) | ||||
Loss due to property damage | — | 371 | ||||||
Bad debt expense | 768 | 1,065 | ||||||
Amortization of above- and below-market leases, net | (4,360 | ) | (5,189 | ) | ||||
Amortization of deferred financing costs | 4,693 | 3,537 | ||||||
Unrealized gains on derivative instruments | (30,102 | ) | (2,579 | ) | ||||
Gain on sale of real estate | (11,942 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Rents and other receivables | (10,983 | ) | (4,168 | ) | ||||
Prepaid expenses and other assets | (19,295 | ) | (18,881 | ) | ||||
Accounts payable and accrued liabilities | 10,534 | 5,709 | ||||||
Other liabilities | (5,023 | ) | (5,145 | ) | ||||
Due to affiliates | 2,535 | (37 | ) | |||||
Net cash provided by operating activities | 79,008 | 90,565 | ||||||
Cash Flows from Investing Activities: | ||||||||
Improvements to real estate | (70,754 | ) | (54,070 | ) | ||||
Proceeds from sale of real estate, net | 41,649 | — | ||||||
Payments for construction in progress | (24,979 | ) | (32,967 | ) | ||||
Investment in unconsolidated joint venture | (426 | ) | (33,421 | ) | ||||
Escrow deposits for tenant improvements | 1,111 | (3,762 | ) | |||||
Insurance proceeds received for property damage | 4,629 | — | ||||||
Net cash used in investing activities | (48,770 | ) | (124,220 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from notes payable | 162,035 | 107,385 | ||||||
Principal payments on notes payable | (40,327 | ) | (1,893 | ) | ||||
Payments of deferred financing costs | (166 | ) | (1,264 | ) | ||||
Payments to redeem common stock | (94,569 | ) | (54,669 | ) | ||||
Payments of other offering costs | (2 | ) | (1 | ) | ||||
Distributions paid to common stockholders | (44,509 | ) | (43,396 | ) | ||||
Net cash (used in) provided by financing activities | (17,538 | ) | 6,162 | |||||
Net increase (decrease) in cash and cash equivalents | 12,700 | (27,493 | ) | |||||
Cash and cash equivalents, beginning of period | 65,486 | 72,068 | ||||||
Cash and cash equivalents, end of period | $ | 78,186 | $ | 44,575 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Interest paid, net of capitalized interest of $2,452 and $1,543 for the nine months ended September 30, 2018 and 2017, respectively | $ | 54,623 | $ | 43,101 | ||||
Supplemental Disclosure of Noncash Investing and Financing Activities: | ||||||||
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan | $ | 42,443 | $ | 45,098 | ||||
Increase in accrued improvements to real estate | $ | — | $ | 8,149 | ||||
Increase in construction in progress payable | $ | 2,533 | $ | 856 | ||||
Increase in acquisition fee related to construction in progress due to affiliate | $ | 303 | $ | 234 | ||||
Increase in acquisition fee on unconsolidated joint venture due to affiliate | $ | 194 | $ | 173 |
1. | ORGANIZATION |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3. | REAL ESTATE |
Property | Date Acquired | City | State | Property Type | Total Real Estate, at Cost | Accumulated Depreciation and Amortization | Total Real Estate, Net | |||||||||||||
Domain Gateway | 09/29/2011 | Austin | TX | Office | $ | 49,177 | $ | (15,150 | ) | $ | 34,027 | |||||||||
Town Center | 03/27/2012 | Plano | TX | Office | 116,280 | (27,923 | ) | 88,357 | ||||||||||||
McEwen Building | 04/30/2012 | Franklin | TN | Office | 37,130 | (8,181 | ) | 28,949 | ||||||||||||
Gateway Tech Center | 05/09/2012 | Salt Lake City | UT | Office | 25,422 | (6,300 | ) | 19,122 | ||||||||||||
Tower on Lake Carolyn | 12/21/2012 | Irving | TX | Office | 52,829 | (11,403 | ) | 41,426 | ||||||||||||
RBC Plaza | 01/31/2013 | Minneapolis | MN | Office | 153,425 | (36,417 | ) | 117,008 | ||||||||||||
One Washingtonian Center | 06/19/2013 | Gaithersburg | MD | Office | 91,953 | (18,130 | ) | 73,823 | ||||||||||||
Preston Commons | 06/19/2013 | Dallas | TX | Office | 117,737 | (22,638 | ) | 95,099 | ||||||||||||
Sterling Plaza | 06/19/2013 | Dallas | TX | Office | 79,076 | (12,750 | ) | 66,326 | ||||||||||||
201 Spear Street | 12/03/2013 | San Francisco | CA | Office | 142,663 | (14,838 | ) | 127,825 | ||||||||||||
500 West Madison | 12/16/2013 | Chicago | IL | Office | 435,174 | (67,343 | ) | 367,831 | ||||||||||||
222 Main | 02/27/2014 | Salt Lake City | UT | Office | 165,437 | (29,473 | ) | 135,964 | ||||||||||||
Anchor Centre | 05/22/2014 | Phoenix | AZ | Office | 96,085 | (15,380 | ) | 80,705 | ||||||||||||
171 17th Street | 08/25/2014 | Atlanta | GA | Office | 133,339 | (26,009 | ) | 107,330 | ||||||||||||
Reston Square | 12/03/2014 | Reston | VA | Office | 46,579 | (8,111 | ) | 38,468 | ||||||||||||
Ten Almaden | 12/05/2014 | San Jose | CA | Office | 124,435 | (16,618 | ) | 107,817 | ||||||||||||
Towers at Emeryville | 12/23/2014 | Emeryville | CA | Office | 273,887 | (30,730 | ) | 243,157 | ||||||||||||
101 South Hanley | 12/24/2014 | St. Louis | MO | Office | 72,320 | (11,040 | ) | 61,280 | ||||||||||||
3003 Washington Boulevard | 12/30/2014 | Arlington | VA | Office | 151,150 | (19,003 | ) | 132,147 | ||||||||||||
Village Center Station | 05/20/2015 | Greenwood Village | CO | Office | 75,035 | (9,863 | ) | 65,172 | ||||||||||||
Park Place Village | 06/18/2015 | Leawood | KS | Office/Retail | 127,930 | (16,836 | ) | 111,094 | ||||||||||||
201 17th Street | 06/23/2015 | Atlanta | GA | Office | 102,679 | (13,756 | ) | 88,923 | ||||||||||||
Promenade I & II at Eilan | 07/14/2015 | San Antonio | TX | Office | 62,646 | (8,918 | ) | 53,728 | ||||||||||||
CrossPoint at Valley Forge | 08/18/2015 | Wayne | PA | Office | 90,352 | (11,051 | ) | 79,301 | ||||||||||||
515 Congress | 08/31/2015 | Austin | TX | Office | 120,654 | (13,309 | ) | 107,345 | ||||||||||||
The Almaden | 09/23/2015 | San Jose | CA | Office | 169,116 | (15,813 | ) | 153,303 | ||||||||||||
3001 Washington Boulevard | 11/06/2015 | Arlington | VA | Office | 60,560 | (4,511 | ) | 56,049 | ||||||||||||
Carillon | 01/15/2016 | Charlotte | NC | Office | 153,514 | (16,534 | ) | 136,980 | ||||||||||||
Hardware Village (1) | 08/26/2016 | Salt Lake City | UT | Development/Apartment | 98,189 | (626 | ) | 97,563 | ||||||||||||
$ | 3,424,773 | $ | (508,654 | ) | $ | 2,916,119 |
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 | ||||||||||||||||
500 West Madison | Chicago, IL | 1,457,724 | $ | 367,831 | 11.4 | % | $ | 33,080 | $ | 28.59 | 79.4 | % |
October 1, 2018 through December 31, 2018 | $ | 75,926 | |
2019 | 295,053 | ||
2020 | 271,651 | ||
2021 | 246,040 | ||
2022 | 213,601 | ||
Thereafter | 664,928 | ||
$ | 1,767,199 |
Industry | Number of Tenants | Annualized Base Rent (1) (in thousands) | Percentage of Annualized Base Rent | ||||||
Finance | 151 | $ | 62,011 | 19.8 | % |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues | ||||||||||||||||
Rental income | $ | — | $ | 1,135 | $ | 1,802 | $ | 3,375 | ||||||||
Tenant reimbursements and other operating income | — | 41 | 110 | 112 | ||||||||||||
Total revenues | $ | — | $ | 1,176 | $ | 1,912 | $ | 3,487 | ||||||||
Expenses | ||||||||||||||||
Operating, maintenance, and management | $ | — | $ | 464 | $ | 463 | $ | 1,086 | ||||||||
Real estate taxes and insurance | — | 131 | 213 | 348 | ||||||||||||
Asset management fees to affiliate | — | 67 | 105 | 198 | ||||||||||||
Depreciation and amortization | — | 543 | — | 1,605 | ||||||||||||
Interest expense | — | 176 | 320 | 483 | ||||||||||||
Total expenses | $ | — | $ | 1,381 | $ | 1,101 | $ | 3,720 |
September 30, 2018 | December 31, 2017 | ||||||
Assets related to real estate held for sale | |||||||
Total real estate, at cost | $ | — | $ | 33,575 | |||
Accumulated depreciation and amortization | — | (5,558 | ) | ||||
Real estate held for sale, net | — | 28,017 | |||||
Other assets | — | 1,786 | |||||
Total assets related to real estate held for sale | $ | — | $ | 29,803 | |||
Liabilities related to real estate held for sale | |||||||
Notes payable, net | — | 21,648 | |||||
Other liabilities | — | 50 | |||||
Total liabilities related to real estate held for sale | $ | — | $ | 21,698 |
4. | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | |||||||||||||||||||||
September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | September 30, 2018 | December 31, 2017 | ||||||||||||||||||
Cost | $ | 212,737 | $ | 230,576 | $ | 11,916 | $ | 12,301 | $ | (41,270 | ) | $ | (47,459 | ) | |||||||||
Accumulated Amortization | (114,422 | ) | (108,078 | ) | (7,353 | ) | (6,440 | ) | 22,340 | 22,849 | |||||||||||||
Net Amount | $ | 98,315 | $ | 122,498 | $ | 4,563 | $ | 5,861 | $ | (18,930 | ) | $ | (24,610 | ) |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | |||||||||||||||||||||
For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Three Months Ended September 30, | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Amortization | $ | (8,184 | ) | $ | (10,202 | ) | $ | (430 | ) | $ | (527 | ) | $ | 2,203 | $ | 2,184 |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | |||||||||||||||||||||
For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Amortization | $ | (24,182 | ) | $ | (32,321 | ) | $ | (1,325 | ) | $ | (1,774 | ) | $ | 5,685 | $ | 6,963 |
5. | INVESTMENT IN UNCONSOLIDATED JOINT VENTURE |
September 30, 2018 | ||||
Assets: | ||||
Real estate, net | $ | 104,774 | ||
Cash and cash equivalents | 3,630 | |||
Other assets | 4,631 | |||
Total assets | $ | 113,035 | ||
Liabilities and equity: | ||||
Accounts payable | $ | 2,338 | ||
Notes payable, net | 66,358 | |||
Other liabilities | 1,191 | |||
Members’ capital | 43,148 | |||
Total liabilities and equity | $ | 113,035 |
Nine Months Ended September 30, 2018 | ||||
Revenues | $ | 3,083 | ||
Expenses: | ||||
Operating, maintenance, and management | 20 | |||
Depreciation and amortization | 1,925 | |||
Interest expense | 1,100 | |||
Total expenses | 3,045 | |||
Other expenses | $ | 5 | ||
Net income | $ | 33 | ||
Company’s equity in income of unconsolidated joint venture | $ | 25 |
6. | NOTES PAYABLE |
Book Value as of September 30, 2018 | Book Value as of December 31, 2017 | Contractual Interest Rate as of September 30, 2018 (1) | Effective Interest Rate as of September 30, 2018 (1) | Payment Type | Maturity Date (2) | |||||||||||
Portfolio Loan (3) | $ | 188,460 | $ | 188,460 | One-month LIBOR + 1.90% | 4.00% | Interest Only | 06/01/2019 | ||||||||
222 Main Mortgage Loan | 98,016 | 99,471 | 3.97% | 3.97% | Principal & Interest | 03/01/2021 | ||||||||||
Anchor Centre Mortgage Loan | 49,799 | 50,000 | One-month LIBOR + 1.50% | 3.60% | Principal & Interest | 06/01/2019 | ||||||||||
171 17th Street Mortgage Loan | 84,668 | 85,292 | One-month LIBOR + 1.45% | 3.55% | Principal & Interest | 09/01/2019 | ||||||||||
Reston Square Mortgage Loan | 29,567 | 29,800 | One-month LIBOR + 1.50% | 3.80% | Principal & Interest | 02/01/2019 | ||||||||||
101 South Hanley Mortgage Loan | 42,401 | 40,557 | One-month LIBOR + 1.55% | 3.87% | Principal & Interest | 01/01/2020 | ||||||||||
3003 Washington Boulevard Mortgage Loan | 90,378 | 90,378 | One-month LIBOR + 1.55% | 3.55% | Interest Only | 02/01/2020 | ||||||||||
Rocklin Corporate Center Mortgage Loan (4) | — | 21,689 | (4) | (4) | (4) | (4) | ||||||||||
201 17th Street Mortgage Loan | 64,428 | 64,428 | One-month LIBOR + 1.40% | 3.54% | Interest Only | 08/01/2019 | ||||||||||
CrossPoint at Valley Forge Mortgage Loan | 51,000 | 51,000 | One-month LIBOR + 1.50% | 3.33% | Interest Only(5) | 09/01/2022 | ||||||||||
The Almaden Mortgage Loan | 93,000 | 93,000 | 4.20% | 4.20% | Interest Only | 01/01/2022 | ||||||||||
Promenade I & II at Eilan Mortgage Loan | 37,300 | 37,300 | One-month LIBOR + 1.75% | 3.57% | Interest Only | 10/01/2022 | ||||||||||
515 Congress Mortgage Loan (6) | 69,842 | 68,381 | One-month LIBOR + 1.70% | 3.63% | Interest Only | 11/01/2020 | ||||||||||
201 Spear Street Mortgage Loan | 100,000 | 100,000 | One-month LIBOR + 1.66% | 3.77% | Interest Only | 01/01/2019 | ||||||||||
Carillon Mortgage Loan | 92,197 | 90,248 | One-month LIBOR + 1.65% | 3.39% | Interest Only | 02/01/2020 | ||||||||||
3001 Washington Boulevard Mortgage Loan | 30,229 | 28,404 | One-month LIBOR + 1.60% | 3.14% | Interest Only | 02/01/2019 | ||||||||||
Hardware Village Loan Facility (7) | 43,842 | 21,011 | One-month LIBOR + 3.25% | 5.36% | Interest Only | 02/23/2020 | ||||||||||
Portfolio Loan Facility (8) | 913,500 | 797,500 | One-month LIBOR + 1.80% | 3.82% | Interest Only | 11/03/2020 | ||||||||||
Total notes payable principal outstanding | 2,078,627 | 1,956,919 | ||||||||||||||
Deferred financing costs, net | (10,428 | ) | (15,133 | ) | ||||||||||||
Total notes payable, net | $ | 2,068,199 | $ | 1,941,786 |
October 1, 2018 through December 31, 2018 | $ | 1,074 | ||
2019 | 549,285 | |||
2020 | 1,253,722 | |||
2021 | 93,956 | |||
2022 | 180,590 | |||
$ | 2,078,627 |
7. | DERIVATIVE INSTRUMENTS |
September 30, 2018 | December 31, 2017 | Weighted-Average Fix Pay Rate | Weighted-Average Remaining Term in Years | |||||||||||||||
Derivative Instruments | Number of Instruments | Notional Amount | Number of Instruments | Notional Amount | Reference Rate as of September 30, 2018 | |||||||||||||
Derivative instruments designated as hedging instruments | ||||||||||||||||||
Interest rate swaps | — | $ | — | 2 | $ | 118,400 | (1) | (1) | (1) | |||||||||
Derivative instruments not designated as hedging instruments | ||||||||||||||||||
Interest rate swaps | 14 | $ | 1,209,147 | 16 | $ | 1,209,643 | One-month LIBOR/ Fixed at 1.39% - 2.37% | 2.03% | 3.2 | |||||||||
Interest rate cap | 1 | $ | 100,000 | — | $ | — | One-month LIBOR/ Fixed at 3.00% | 3.00% | 0.3 |
September 30, 2018 | December 31, 2017 | |||||||||||||
Derivative Instruments | Balance Sheet Location | Number of Instruments | Fair Value | Number of Instruments | Fair Value | |||||||||
Derivative instruments designated as hedging instruments | ||||||||||||||
Interest rate swaps | Prepaid expenses and other assets, at fair value | — | $ | — | 1 | $ | 128 | |||||||
Interest rate swaps | Other liabilities, at fair value | — | $ | — | 1 | $ | (18 | ) | ||||||
Derivative instruments not designated as hedging instruments | ||||||||||||||
Interest rate swaps | Prepaid expenses and other assets, at fair value | 14 | $ | 34,819 | 10 | $ | 6,386 | |||||||
Interest rate cap | Prepaid expenses and other assets, at fair value | 1 | $ | — | — | $ | — | |||||||
Interest rate swaps | Other liabilities, at fair value | — | $ | — | 6 | $ | (1,677 | ) |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Income statement related | |||||||||||||||
Derivatives designated as hedging instruments | |||||||||||||||
Amount of (income) expense recognized on interest rate swaps (effective portion) | $ | (90 | ) | $ | 253 | $ | (198 | ) | $ | 1,717 | |||||
(90 | ) | 253 | (198 | ) | 1,717 | ||||||||||
Derivatives not designated as hedging instruments | |||||||||||||||
Realized (gain) loss recognized on interest rate swaps | (186 | ) | 1,108 | 1,123 | 3,966 | ||||||||||
Unrealized gain on interest rate swaps | (4,784 | ) | (1,004 | ) | (30,110 | ) | (2,579 | ) | |||||||
Fair value loss on interest rate cap | 8 | — | 8 | — | |||||||||||
(4,962 | ) | 104 | (28,979 | ) | 1,387 | ||||||||||
(Decrease) increase in interest expense as a result of derivatives | $ | (5,052 | ) | $ | 357 | $ | (29,177 | ) | $ | 3,104 | |||||
Other comprehensive income related | |||||||||||||||
Unrealized (losses) income on derivative instruments | $ | 5 | $ | 13 | $ | 88 | $ | 602 |
8. | FAIR VALUE DISCLOSURES |
• | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
• | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
• | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
September 30, 2018 | December 31, 2017 | |||||||||||||||||||||||
Face Value | Carrying Amount | Fair Value | Face Value | Carrying Amount | Fair Value | |||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Notes payable | $ | 2,078,627 | $ | 2,068,199 | $ | 2,084,290 | $ | 1,956,919 | $ | 1,941,786 | $ | 1,950,965 |
Fair Value Measurements Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Recurring Basis: | ||||||||||||||||
Asset derivatives - interest rate swaps | $ | 34,819 | $ | — | $ | 34,819 | $ | — | ||||||||
Asset derivatives - interest rate cap | $ | — | $ | — | $ | — | $ | — |
9. | RELATED PARTY TRANSACTIONS |
Incurred | Payable as of | ||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | December 31, | ||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
Expensed | |||||||||||||||||||||||
Asset management fees | $ | 6,830 | $ | 6,587 | $ | 20,188 | $ | 19,223 | $ | 2,232 | $ | 2,262 | |||||||||||
Reimbursement of operating expenses (1) (2) | 1,862 | 59 | 2,964 | 255 | 2,686 | 121 | |||||||||||||||||
Disposition fees (3) | — | — | 429 | — | — | — | |||||||||||||||||
Capitalized | |||||||||||||||||||||||
Acquisition fee on development project | 124 | 64 | 303 | 234 | 869 | 566 | |||||||||||||||||
Acquisition fee on unconsolidated joint venture | 32 | 120 | 194 | 497 | 484 | 290 | |||||||||||||||||
Asset management fee on development project | — | — | — | 48 | — | — | |||||||||||||||||
Asset management fee on unconsolidated joint venture | — | — | — | 14 | — | — | |||||||||||||||||
$ | 8,848 | $ | 6,830 | $ | 24,078 | $ | 20,271 | $ | 6,271 | $ | 3,239 |
10. | COMMITMENTS AND CONTINGENCIES |
11. | SUBSEQUENT EVENTS |
• | We are dependent on KBS Capital Advisors LLC (“KBS Capital Advisors”), our advisor, to identify investments, to manage our investments and for the disposition of 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 and/or other KBS-affiliated entities. As a result, our executive officers, our affiliated directors, some of our key real estate and debt finance professionals, our advisor and its affiliates 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. Furthermore, these individuals may become employees of another KBS-sponsored program in an internalization transaction or, if we internalize our advisor, may not become our employees as a result of their relationship with other KBS-sponsored programs. These conflicts could result in action or inaction that is not in the best interests of our stockholders. |
• | Our advisor and its affiliates receive fees in connection with transactions involving the purchase or origination, management and disposition of our investments. Acquisition and asset management fees are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our advisor to recommend riskier transactions to us. We may also pay significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our stockholders first enjoying agreed-upon investment returns, the investment return thresholds may be reduced subject to approval by our conflicts committee and to other limitations in our charter. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders. |
• | Our charter permits us to pay distributions from any source, including offering proceeds or borrowings (which may constitute a return of capital), and our charter does not limit the amount of funds we may use from any source to pay such distributions. From time to time during our operational stage, we may use proceeds from third party financings to fund at least a portion of distributions in anticipation of cash flow to be received in later periods. We may also fund such distributions from the sale of assets or from the maturity, payoff or settlement of any real estate-related investments, to the extent we make any such additional investments. If we pay distributions from sources other than our cash flow from operations, the overall return to our stockholders may be reduced. |
• | We may incur debt until our total liabilities would exceed 75% of the cost of our tangible 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 total liabilities 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 an investment in us. |
• | We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders. |
• | 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. |
• | We cannot predict with any certainty how much, if any, of our dividend 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 our real estate properties; reserves required by any financings of our real estate investments; the acquisition or origination of real estate investments, which include payment of acquisition or origination fees to our advisor; and the repayment of debt. If such funds are not available from our dividend 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 stockholders. In addition, our real estate investments 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. |
• | Our charter does not require us to liquidate our assets and dissolve by a specified date, nor does our charter require our directors to list our shares for trading by a specified date. No public market currently exists for our shares of common stock, and we have no plans at this time to list our shares on a national securities exchange. Until our shares are listed, if ever, our stockholders may not sell their shares unless the buyer meets the applicable suitability and minimum purchase standards. Any sale must comply with applicable state and federal securities laws. In addition, our charter prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from purchasing our shares. Our shares cannot be readily sold and, if our stockholders are able to sell their shares, they would likely have to sell them at a substantial discount from the price our stockholders paid to acquire the shares and from our estimated value per share. |
• | Because of the limitations on the dollar amount of shares that may be redeemed under our share redemption program and the number of shares that may be redeemed during a calendar year, it is not likely that we will be able to redeem shares submitted as ordinary redemptions for the remainder of 2018. During any calendar year, we may redeem (i) only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year unless our board of directors authorizes additional funds for redemption and (ii) no more than 5% of the weighted average number of shares outstanding during the prior calendar year. |
• | Cash flow generated by our real estate investments; |
• | Debt financings (including amounts currently available under existing loan facilities); |
• | Proceeds from the sale of our real estate properties; and |
• | Proceeds from common stock issued under our dividend reinvestment plan. |
• | $70.7 million used for improvements to real estate; |
• | $41.6 million of net proceeds from the sale of real estate; |
• | $25.0 million used for construction in progress related to Hardware Village (defined below); |
• | $4.6 million of insurance proceeds received for property damage; |
• | $1.1 million of escrow deposits received for tenant improvements; and |
• | $0.4 million used for investments in an unconsolidated joint venture. |
• | $121.5 million of net cash provided by debt financing as a result of proceeds from notes payable of $162.0 million, partially offset by principal payments on notes payable of $40.3 million and payments of deferred financing costs of $0.2 million; |
• | $94.5 million of cash used for redemptions of common stock; and |
• | $44.5 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $42.4 million. |
Payments Due During the Years Ended December 31, | ||||||||||||||||||||
Contractual Obligations | Total | Remainder of 2018 | 2019-2020 | 2021-2022 | Thereafter | |||||||||||||||
Outstanding debt obligations (1) | $ | 2,078,627 | $ | 1,074 | $ | 1,803,007 | $ | 274,546 | $ | — | ||||||||||
Interest payments on outstanding debt obligations (2) | 138,726 | 19,916 | 109,117 | 9,693 | — | |||||||||||||||
Development obligations | 19,109 | (3) | (3) | — | — |
Three Months Ended September 30, | Increase (Decrease) | Percentage Change | $ Changes Due to Properties Completed and Disposed (1) | $ Change Due to Properties Held Throughout Both Periods (2) | |||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
Rental income | $ | 80,086 | $ | 77,798 | $ | 2,288 | 3 | % | $ | (1,071 | ) | $ | 3,359 | ||||||||||
Tenant reimbursements | 20,185 | 19,063 | 1,122 | 6 | % | (41 | ) | 1,163 | |||||||||||||||
Other operating income | 5,874 | 5,697 | 177 | 3 | % | — | 177 | ||||||||||||||||
Operating, maintenance and management costs | 26,397 | 25,293 | 1,104 | 4 | % | (87 | ) | 1,191 | |||||||||||||||
Real estate taxes and insurance | 16,898 | 16,460 | 438 | 3 | % | (37 | ) | 475 | |||||||||||||||
Asset management fees to affiliate | 6,830 | 6,587 | 243 | 4 | % | (67 | ) | 310 | |||||||||||||||
General and administrative expenses | 3,166 | 983 | 2,183 | 222 | % | n/a | n/a | ||||||||||||||||
Depreciation and amortization | 40,824 | 41,151 | (327 | ) | (1 | )% | 83 | (410 | ) | ||||||||||||||
Interest expense | 16,584 | 15,460 | 1,124 | 7 | % | 284 | 840 | ||||||||||||||||
Other income | 3 | — | 3 | (100 | )% | — | 3 | ||||||||||||||||
Other interest income | 108 | 23 | 85 | 370 | % | n/a | n/a | ||||||||||||||||
Equity in income of unconsolidated joint venture | 373 | — | 373 | (100 | )% | — | 373 |
Nine Months Ended September 30, | Increase (Decrease) | Percentage Change | $ Changes Due to Properties Completed and Disposed (1) | $ Change Due to Properties Held Throughout Both Periods (2) | |||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||
Rental income | $ | 238,422 | $ | 236,200 | $ | 2,222 | 1 | % | $ | (1,505 | ) | $ | 3,727 | ||||||||||
Tenant reimbursements | 61,297 | 57,652 | 3,645 | 6 | % | (25 | ) | 3,670 | |||||||||||||||
Other operating income | 18,181 | 17,124 | 1,057 | 6 | % | 23 | 1,034 | ||||||||||||||||
Operating, maintenance and management costs | 73,852 | 70,765 | 3,087 | 4 | % | (92 | ) | 3,179 | |||||||||||||||
Real estate taxes and insurance | 52,158 | 48,721 | 3,437 | 7 | % | (36 | ) | 3,473 | |||||||||||||||
Asset management fees to affiliate | 20,188 | 19,223 | 965 | 5 | % | (93 | ) | 1,058 | |||||||||||||||
General and administrative expenses | 6,701 | 3,324 | 3,377 | 102 | % | n/a | n/a | ||||||||||||||||
Depreciation and amortization | 118,831 | 124,370 | (5,539 | ) | (4 | )% | (979 | ) | (4,560 | ) | |||||||||||||
Interest expense | 29,911 | 45,257 | (15,346 | ) | (34 | )% | 294 | (15,640 | ) | ||||||||||||||
Other income | 1,879 | 650 | 1,229 | 189 | % | — | 1,229 | ||||||||||||||||
Other interest income | 204 | 73 | 131 | 179 | % | n/a | n/a | ||||||||||||||||
Equity in income (loss) of unconsolidated joint venture | 25 | (1 | ) | 26 | (2,600 | )% | — | 26 | |||||||||||||||
Gain on sale of real estate, net | 11,942 | — | 11,942 | 100 | % | 11,942 | — |
• | 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; |
• | Unrealized (gains) losses on derivative instruments. These adjustments include unrealized (gains) losses from mark-to-market adjustments on interest rate swaps. The change in fair value of interest rate swaps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements; and |
• | Adjustments relating to contingent purchase price obligations. These are adjustments relating to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income. We believe that the elimination of the contingent purchase price consideration adjustment, included in other income for GAAP purposes, is appropriate because the adjustment is a non-cash adjustment that is not reflective of our ongoing operating performance. |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net (loss) income attributable to common stockholders | $ | (4,070 | ) | $ | (3,151 | ) | $ | 30,309 | $ | 267 | ||||||
Depreciation of real estate assets | 24,778 | 21,729 | 71,382 | 63,793 | ||||||||||||
Amortization of lease-related costs | 16,046 | 19,422 | 47,449 | 60,577 | ||||||||||||
Gain on sale of real estate, net | — | — | (11,942 | ) | — | |||||||||||
Adjustment for investment in unconsolidated joint venture (1) | 866 | — | 1,444 | — | ||||||||||||
FFO attributable to common stockholders (2) | 37,620 | 38,000 | 138,642 | 124,637 | ||||||||||||
Straight-line rent and amortization of above- and below-market leases, net | (3,407 | ) | (4,140 | ) | (10,956 | ) | (13,176 | ) | ||||||||
Unrealized gains on derivative instruments | (4,777 | ) | (1,004 | ) | (30,102 | ) | (2,579 | ) | ||||||||
Adjustment relating to contingent purchase price obligation | — | — | (1,575 | ) | — | |||||||||||
Adjustment for investment in unconsolidated joint venture (1) | (134 | ) | — | (134 | ) | — | ||||||||||
MFFO attributable to common stockholders (1) | $ | 29,302 | $ | 32,856 | $ | 95,875 | $ | 108,882 |
Distributions Declared (1) | Distributions Declared Per Share (1) (2) | Distributions Paid (3) | Cash Flow from Operating Activities | |||||||||||||||||||||
Period | Cash | Reinvested | Total | |||||||||||||||||||||
First Quarter 2018 | $ | 28,773 | $ | 0.160 | $ | 14,646 | $ | 14,273 | $ | 28,919 | $ | 11,108 | ||||||||||||
Second Quarter 2018 | 28,778 | 0.162 | 14,887 | 14,228 | 29,115 | 42,035 | ||||||||||||||||||
Third Quarter 2018 | 28,843 | 0.164 | 14,976 | 13,942 | 28,918 | 25,865 | ||||||||||||||||||
$ | 86,394 | $ | 0.486 | $ | 44,509 | $ | 42,443 | $ | 86,952 | $ | 79,008 |
(1) | Distributions for the period from January 1, 2018 through September 30, 2018 were based on daily record dates and were calculated at a rate of $0.00178082 per share per day. |
(2) | Assumes share was issued and outstanding each day during the period presented. |
(3) | Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid on or about the first business day of the following month. |
a) | During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933. |
b) | Not applicable. |
c) | We have a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. The restrictions of our share redemption program will severely limit our stockholders’ ability to sell their shares should they require liquidity and will limit our stockholders’ ability to recover an amount equal to our estimated value per share. The following is a description of our share redemption program. |
• | Unless the shares are being redeemed in connection with Special Redemptions, we may not redeem shares unless the stockholder has held the 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 dividend reinvestment plan during the prior calendar year. Notwithstanding anything contained in our share redemption program to the contrary, 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. For information with respect to additional funding for calendar year 2018, see note (3) to the table below. In addition, on May 8, 2018, our board of directors approved the Fourth Amended and Restated Share Redemption Program (the “Fourth SRP”), which was effective June 8, 2018. The Fourth SRP provides that during any calendar year subsequent to calendar year 2018, once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions. |
• | During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year. |
• | We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. |
• | For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated value per share as of the applicable redemption date; |
• | For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated value per share as of the applicable redemption date; |
• | For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated value per share as of the applicable redemption date; and |
• | For those shares held by the redeeming stockholder for at least four years, 100% of our most recent estimated value per share as of the applicable redemption date. |
Month | Total Number of Shares Redeemed (1) | Average Price Paid Per Share (2) | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program | ||||||
January 2018 | 2,551,890 | $ | 11.58 | (3) | |||||
February 2018 | 1,297,844 | $ | 11.62 | (3) | |||||
March 2018 | 1,301,776 | $ | 11.64 | (3) | |||||
April 2018 | — | $ | — | (3) | |||||
May 2018 | 182,974 | $ | 11.73 | (3) | |||||
June 2018 | 2,688,263 | $ | 11.16 | (3) | |||||
July 2018 | 26,909 | $ | 11.73 | (3) | |||||
August 2018 | 68,744 | $ | 11.71 | (3) | |||||
September 2018 | 16,615 | $ | 11.73 | (3) | |||||
Total | 8,135,015 |
Ex. | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
99.1 | ||
99.2 | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
KBS REAL ESTATE INVESTMENT TRUST III, INC. | |||
Date: | November 7, 2018 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director | |||
(principal executive officer) | |||
Date: | November 7, 2018 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) |
1. | I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust III, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 7, 2018 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director | |||
(principal executive officer) |
1. | I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust III, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 7, 2018 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | November 7, 2018 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director | |||
(principal executive officer) |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | November 7, 2018 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Nov. 02, 2018 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Entity Registrant Name | KBS Real Estate Investment Trust III, Inc. | |
Entity Central Index Key | 0001482430 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 177,207,876 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued (in shares) | 176,422,788 | 180,864,707 |
Common stock, shares outstanding (in shares) | 176,422,788 | 180,864,707 |
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues: | ||||
Rental income | $ 80,086 | $ 77,798 | $ 238,422 | $ 236,200 |
Tenant reimbursements | 20,185 | 19,063 | 61,297 | 57,652 |
Other operating income | 5,874 | 5,697 | 18,181 | 17,124 |
Total revenues | 106,145 | 102,558 | 317,900 | 310,976 |
Expenses: | ||||
Operating, maintenance and management | 26,397 | 25,293 | 73,852 | 70,765 |
Real estate taxes and insurance | 16,898 | 16,460 | 52,158 | 48,721 |
Asset management fees to affiliate | 6,830 | 6,587 | 20,188 | 19,223 |
General and administrative expenses | 3,166 | 983 | 6,701 | 3,324 |
Depreciation and amortization | 40,824 | 41,151 | 118,831 | 124,370 |
Interest expense | 16,584 | 15,460 | 29,911 | 45,257 |
Total expenses | 110,699 | 105,934 | 301,641 | 311,660 |
Other income (loss): | ||||
Other income | 3 | 0 | 1,879 | 650 |
Other interest income | 108 | 23 | 204 | 73 |
Equity in income (loss) of unconsolidated joint venture | 373 | 0 | 25 | (1) |
Gain on sale of real estate, net | 0 | 0 | 11,942 | 0 |
Total other income, net | 484 | 23 | 14,050 | 722 |
Net (loss) income | (4,070) | (3,353) | 30,309 | 38 |
Net loss attributable to noncontrolling interest | 0 | 202 | 0 | 229 |
Net (loss) income attributable to common stockholders | $ (4,070) | $ (3,151) | $ 30,309 | $ 267 |
Net (loss) income per common share, basic and diluted (in dollars per share) | $ (0.02) | $ (0.02) | $ 0.17 | $ 0.00 |
Weighted-average number of common shares outstanding, basic and diluted (in shares) | 176,040,649 | 180,975,877 | 177,729,817 | 181,320,425 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net (loss) income | $ (4,070) | $ (3,151) | $ 30,309 | $ 267 |
Other comprehensive (loss) income: | ||||
Unrealized income on derivative instruments designated as cash flow hedges | 5 | 13 | 88 | 602 |
Reclassification adjustment realized in net income (effective portion) | (90) | 253 | (198) | 1,717 |
Total other comprehensive (loss) income | (85) | 266 | (110) | 2,319 |
Total comprehensive (loss) income | (4,155) | (2,885) | 30,199 | 2,586 |
Total comprehensive loss attributable to noncontrolling interest | 0 | 202 | 0 | 229 |
Total comprehensive (loss) income attributable to common stockholders | $ (4,155) | $ (2,683) | $ 30,199 | $ 2,815 |
CONSOLIDATED STATEMENTS OF EQUITY - USD ($) $ in Thousands |
Total |
Total Stockholders’ Equity |
Common Stock |
Additional Paid-in Capital |
Cumulative Distributions and Net Income (Losses) |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interest |
---|---|---|---|---|---|---|---|
Balance (in shares) at Dec. 31, 2016 | 180,890,572 | ||||||
Balance at Dec. 31, 2016 | $ 1,193,376 | $ 1,193,076 | $ 1,809 | $ 1,591,652 | $ (398,087) | $ (2,298) | $ 300 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net income | 1,374 | 1,374 | 1,374 | ||||
Other comprehensive income (loss) | 2,408 | 2,408 | 2,408 | ||||
Issuance of common stock (in shares) | 5,919,223 | ||||||
Issuance of common stock | 59,785 | 59,785 | $ 59 | 59,726 | |||
Transfers from redeemable common stock | 2,086 | 2,086 | 2,086 | ||||
Redemptions of common stock (in shares) | (5,945,088) | ||||||
Redemptions of common stock | (61,871) | (61,871) | $ (59) | (61,812) | |||
Distributions declared | (117,738) | (117,738) | (117,738) | ||||
Other offering costs | $ (12) | (12) | (12) | ||||
Balance (in shares) at Dec. 31, 2017 | 180,864,707 | 180,864,707 | |||||
Balance at Dec. 31, 2017 | $ 1,079,408 | 1,079,108 | $ 1,809 | 1,591,640 | (514,451) | 110 | 300 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net income | 30,309 | 30,309 | 30,309 | 0 | |||
Other comprehensive income (loss) | (110) | (110) | (110) | ||||
Issuance of common stock (in shares) | 3,806,525 | ||||||
Issuance of common stock | 42,443 | 42,443 | $ 38 | 42,405 | |||
Transfers from redeemable common stock | 8,813 | 8,813 | 8,813 | ||||
Redemptions of common stock (in shares) | (8,248,444) | ||||||
Redemptions of common stock | (94,569) | (94,569) | $ (83) | (94,486) | |||
Distributions declared | (86,394) | (86,394) | (86,394) | ||||
Other offering costs | $ (2) | (2) | (2) | ||||
Balance (in shares) at Sep. 30, 2018 | 176,422,788 | 176,422,788 | |||||
Balance at Sep. 30, 2018 | $ 979,898 | $ 979,598 | $ 1,764 | $ 1,548,370 | $ (570,536) | $ 0 | $ 300 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (unaudited) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Statement of Cash Flows [Abstract] | ||
Interest capitalized | $ 2,452 | $ 1,543 |
ORGANIZATION |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION | ORGANIZATION KBS Real Estate Investment Trust III, Inc. (the “Company”) was formed on December 22, 2009 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2011 and it intends to continue to operate in such manner. Substantially all of the Company’s business is conducted through KBS Limited Partnership III (the “Operating Partnership”), a Delaware limited partnership. The Company is the sole general partner of and owns a 0.1% partnership interest in the Operating Partnership. KBS REIT Holdings III LLC (“REIT Holdings III”), the limited partner of the Operating Partnership, owns the remaining 99.9% interest in the Operating Partnership and is its sole limited partner. The Company is the sole member and manager of REIT Holdings III. Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor (the “Advisory Agreement”). On January 26, 2010, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of September 30, 2018, the Advisor owned 20,000 shares of the Company’s common stock. The Company owns a diverse portfolio of real estate investments. As of September 30, 2018, the Company owned 27 office properties and one mixed-use office/retail property and had made an investment in an unconsolidated joint venture to develop and operate an office/retail property. Additionally, as of September 30, 2018, the Company had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction. The Company commenced its initial public offering (the “Offering”) on October 26, 2010. Upon commencing the Offering, the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Company, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in the primary Offering on May 29, 2015 and terminated the primary Offering on July 28, 2015. The Company sold 169,006,162 shares of common stock in the primary Offering for gross proceeds of $1.7 billion. As of September 30, 2018, the Company had also sold 26,698,976 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $267.2 million. Also as of September 30, 2018, the Company had redeemed 19,560,813 shares sold in the Offering for $209.0 million. Additionally, on October 3, 2014, the Company issued 258,462 shares of common stock for $2.4 million in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933. The Company continues to offer shares of common stock under its dividend reinvestment plan. In some states, the Company will need to renew the registration statement annually or file a new registration statement to continue its dividend reinvestment plan offering. The Company may terminate its dividend reinvestment plan offering at any time. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, 2017, except for the Company’s adoption of the revenue recognition standards issued by the Financial Accounting Standards Board (“FASB”) effective on January 1, 2018. 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, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). Principles of Consolidation and Basis of Presentation The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the FASB Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership, their direct and indirect wholly owned subsidiaries, and a joint venture in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements and condensed notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and condensed notes. Actual results could materially differ from those estimates. Revenue Recognition Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company’s adoption. Under the modified retrospective approach, an entity may also elect to apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018. A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. The Company elected to apply this standard only to contracts that were not completed as of January 1, 2018. Based on the Company’s evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the three and nine months ended September 30, 2018, tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $2.2 million and $5.7 million, respectively, and were included in tenant reimbursements on the accompanying statements of operations. Sales of Real Estate Prior to January 1, 2018, gains on real estate sold were recognized using the full accrual method at closing when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient and other profit recognition criteria had been satisfied. Gain on sales of real estate may have been deferred in whole or in part until the requirements for gain recognition had been met. Effective January 1, 2018, the Company adopted the guidance of ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. Per Share Data Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2018 and 2017, respectively. Distributions declared per common share were $0.164 and $0.486 for the three and nine months ended September 30, 2018, respectively. Distributions declared per common share were $0.164 and $0.486 for the three and nine months ended September 30, 2017, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and nine months ended September 30, 2018 and 2017, respectively. For each day that was a record date for distributions during the three and nine months ended September 30, 2018 and 2017, distributions were calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2017 through September 30, 2017 and January 1, 2018 through September 30, 2018 was a record date for distributions. Segments The Company has invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. As of September 30, 2018, the Company aggregated its investments in real estate properties into one reportable business segment. Square Footage, Occupancy and Other Measures Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, or amounts derived from such measures, used to describe real estate investments included in these condensed notes to consolidated financial statements are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board. Recently Issued Accounting Standards Update 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. ASU No. 2016-02 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. Upon adoption of ASU No. 2016-02, the Company expects to adopt the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company will 1) not reassess whether any expired or existing contracts are or contain leases, 2) not reassess the lease classification for any expired or existing lease, and 3) not reassess initial direct costs for any existing leases. The Company does not expect to elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, the Company expects to adopt the practical expedient for land easements to not assess whether existing or expired land easements that were not previously accounted for as leases under the current lease accounting standards of Topic 840 are or contain a lease under Topic 842. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU No. 2018-11”), which provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met. Upon adoption of the lease accounting standard under Topic 842, the Company expects to adopt this practical expedient, specifically related to its tenant reimbursements which would otherwise be accounted for under the new revenue recognition standard. The Company believes the two conditions have been met for tenant reimbursements as 1) the timing and pattern of transfer of the nonlease components and associated lease components are the same and 2) the lease component would be classified as an operating lease. In addition, ASU No. 2018-11 provides an additional optional transition method to allow entities to apply the new lease accounting standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease accounting standard will continue to be reported under the current lease accounting standards of Topic 840. The Company expects to adopt this transition method upon adoption of the lease accounting standard of Topic 842 on January 1, 2019. The Company is currently evaluating the impact of adopting the new lease accounting standards on its consolidated financial statements. The Company is in process of creating an inventory of its leases where the Company may be a lessee to assess the potential impact to the Company’s financial statements upon adoption of the new lease accounting standards. 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 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impact of adopting ASU No. 2018-13 on its financial statements. |
REAL ESTATE |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REAL ESTATE | REAL ESTATE Real Estate Held for Investment As of September 30, 2018, the Company’s real estate portfolio held for investment was composed of 27 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 10.9 million rentable square feet. In addition, the Company had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project, which is currently under construction. As of September 30, 2018, the Company’s real estate portfolio was collectively 93% occupied. The following table summarizes the Company’s investments in real estate as of September 30, 2018 (in thousands):
___________________ (1) On August 26, 2016, the Company, through an indirect wholly-owned subsidiary, entered into a joint venture (the “Hardware Village Joint Venture”) to develop and subsequently operate a multifamily apartment complex, located on the developable land at Gateway Tech Center. The Company owns a 99.24% equity interest in the joint venture. In July 2018, one of the two buildings consisting of 265 units was placed into service. As of September 30, 2018, the following property represented more than 10% of the Company’s total assets:
(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2018, 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 September 30, 2018, the leases had remaining terms, excluding options to extend, of up to 13.6 years with a weighted-average remaining term of 4.4 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 $10.8 million and $11.5 million as of September 30, 2018 and December 31, 2017, respectively. During the nine months ended September 30, 2018 and 2017, the Company recognized deferred rent from tenants of $6.9 million and $8.5 million, respectively. As of September 30, 2018 and December 31, 2017, the cumulative deferred rent balance was $88.7 million and $74.4 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $15.7 million and $9.3 million of unamortized lease incentives as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018, the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):
As of September 30, 2018, the Company’s real estate properties were leased to approximately 850 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:
(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2018, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term. As of September 30, 2018, no other tenant industries accounted for more than 10% of annualized base rent and no tenant accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. Geographic Concentration Risk As of September 30, 2018, the Company’s net investments in real estate in California, Texas and Illinois represented 20%, 15% and 11% of the Company’s total assets, respectively. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the California, Texas and Illinois real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to pay distributions to stockholders. Property Damage In December 2017, 222 Main located in Salt Lake City, Utah suffered physical damages due to a broken sprinkler pipe. The Company’s insurance policy provides coverage for property damage and business interruption subject to a deductible of up to $5,000 per incident. Based on management’s estimates, the Company recognized an estimated aggregate loss due to damages of $7.9 million during the year ended December 31, 2017, which was reduced by $7.9 million of estimated insurance recoveries related to such damages, which the Company determined were probable of collection. The aggregate net loss of $5,000 due to damages during the year ended December 31, 2017 was classified as operating, maintenance and management expenses in the Company’s consolidated statement of operations for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the SEC and relates to the Company’s insurance deductible. During the nine months ended September 30, 2018, the Company received $4.6 million in insurance recoveries relating to the property damage. In addition, the Company reduced the estimated aggregate loss due to damages and the estimated insurance recoveries related to such damages by $2.4 million. During the nine months ended September 30, 2018, the Company recorded $0.6 million of business interruption insurance recovery, which is included in rental income on the accompanying consolidated statements of operations. During the nine months ended September 30, 2018, the Company received $1.3 million of business interruption insurance recovery, consisting of $0.7 million of revenue related to the year ended December 31, 2017 and $0.6 million of revenue related to the period from January through May 2018. As of September 30, 2018, the Company recorded $0.9 million of insurance recoveries receivable, which is included in prepaid expenses and other assets on the accompanying consolidated balance sheet. Real Estate Sales In accordance with ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU No. 2014-08”), results of operations from properties that are classified as held for sale in the ordinary course of business would generally be included in continuing operations on the Company’s consolidated statements of operations. During the nine months ended September 30, 2018, the Company disposed of one office property. During the year ended December 31, 2017, the Company did not dispose of any real estate properties. On November 6, 2014, the Company, through an indirect wholly owned subsidiary, acquired an office property containing 220,020 rentable square feet located on approximately 13.9 acres of land in Rocklin, California (“Rocklin Corporate Center”). On May 25, 2018, the Company sold Rocklin Corporate Center to a purchaser unaffiliated with the Company or the Advisor for $42.9 million before closing costs and credits. The carrying value of Rocklin Corporate Center as of the disposition date was $29.7 million, which was net of $6.0 million of accumulated depreciation and amortization. The Company recognized a gain on sale of $11.9 million related to the disposition of Rocklin Corporate Center. The results of operations for the property sold during the nine months ended September 30, 2018 and gain on sale as of September 30, 2018 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to this property for the three and nine months ended September 30, 2018 and 2017 (in thousands):
The following summary presents the major components of assets and liabilities related to real estate held for sale as of December 31, 2017 (in thousands). No real estate properties were held for sale as of September 30, 2018.
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TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES |
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Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES As of September 30, 2018 and December 31, 2017, 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):
Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2018 and 2017 were as follows (in thousands):
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INVESTMENT IN UNCONSOLIDATED JOINT VENTURE |
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE | INVESTMENT IN UNCONSOLIDATED JOINT VENTURE On March 3, 2017, the Company, through an indirect wholly owned subsidiary, acquired a 75% equity interest in an existing company and created a joint venture (the “Village Center Station II Joint Venture”) with an unaffiliated developer, Shea Village Center Station II, LLC (the “Developer”) to develop and subsequently operate a 12-story office building and an adjacent two-story office/retail building in the Denver submarket of Greenwood Village, Colorado (together, “Village Center Station II”). The total cost of the development was approximately $111.2 million and the Company’s initial capital contribution to the Village Center Station II Joint Venture was $32.3 million. The Village Center Station II Joint Venture funded the construction of Village Center Station II with capital contributions from its members and proceeds from a construction loan for borrowings of up to $78.5 million. As of September 30, 2018, $66.4 million had been drawn under the construction loan. The Company has concluded that the Village Center Station II Joint Venture qualifies as a Variable Interest Entity (“VIE”) and determined that it is not the primary beneficiary of this VIE and to account for its investment in the project under the equity method of accounting. The construction of Village Center Station II was substantially completed in May 2018. The Developer has an option, provided the put conditions have been satisfied, the most significant of which is completion of the project, to require the Company to purchase its 25% equity interest. If the Developer does not make such request, the Company has the right to purchase the Developer’s 25% equity interest. In October 2018, the Company purchased the Developer’s 25% equity interest for $28.2 million. As of September 30, 2018, the book value of the Company’s investment in the Village Center Station II Joint Venture was $34.7 million which includes $2.3 million of acquisition costs and capitalized interest incurred directly by the Company. As of September 30, 2018, the Company’s maximum loss exposure related to its investment in the Village Center Station II Joint Venture is equal to the carrying value of its $34.7 million investment. Summarized financial information for the Village Center Station II Joint Venture is as follows (in thousands):
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NOTES PAYABLE | NOTES PAYABLE As of September 30, 2018 and December 31, 2017, the Company’s notes payable consisted of the following (dollars in thousands):
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2018. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps and caps, if applicable), using interest rate indices as of September 30, 2018, where applicable. For further information regarding the Company's derivative instruments, see Note 7, “Derivative Instruments.” (2) Represents the maturity date as of September 30, 2018; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown. (3) As of September 30, 2018, the Portfolio Loan was secured by Domain Gateway, the McEwen Building, Gateway Tech Center, the Tower on Lake Carolyn, Park Place Village and Village Center Station. The face amount of the Portfolio Loan is $255.0 million, of which $127.5 million is term debt and $127.5 million is revolving debt. As of September 30, 2018, the outstanding balance under the loan consisted of $127.5 million of term debt and $61.0 million of revolving debt. As of September 30, 2018, an additional $65.5 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. The remaining $1.0 million of revolving debt is available for future disbursements upon the Company meeting certain financial coverage ratios and subject to certain conditions set forth in the loan agreement. During the remaining term of the Portfolio Loan, the Company has an option, which may be exercised up to two times, to increase the loan amount to a maximum of $350.0 million, of which 50% would be term debt and 50% would be revolving debt, with the addition of one or more properties to secure the Portfolio Loan, subject to certain conditions contained in the loan documents. Subsequent to September 30, 2018, the Company entered into a portfolio revolving loan facility in the amount of up to $215.0 million, of which $104.0 million was used to pay down the Portfolio Loan and Domain Gateway, the McEwen Building and Gateway Tech Center were released as security under the Portfolio Loan. See Note 11, “Subsequent Events - Financing Subsequent to September 30, 2018 - Portfolio Revolving Loan Facility and Portfolio Loan.” (4) On May 25, 2018, in connection with the disposition of Rocklin Corporate Center, the Company paid off the Rocklin Corporate Center Mortgage Loan. (5) Represents the payment type required under the loan as of September 30, 2018. Certain future monthly payments due under the loan also include amortizing principal payments. For more information on the Company’s contractual obligations under its notes payable, see the five-year maturity table below. (6) Subsequent to September 30, 2018, the Company entered into a portfolio revolving loan facility in the amount of up to $215.0 million, of which $69.8 million was used to pay off the 515 Congress Mortgage Loan. See Note 11, “Subsequent Events - Financing Subsequent to September 30, 2018 - Portfolio Revolving Loan Facility.” (7) As of September 30, 2018, $43.8 million had been disbursed and $30.2 million remained available for future disbursements, subject to certain conditions contained in the loan documents. (8) As of September 30, 2018, the Portfolio Loan Facility was secured by RBC Plaza, Preston Commons, Sterling Plaza, One Washingtonian Center, Towers at Emeryville, Ten Almaden, Town Center and 500 West Madison. The face amount of the Portfolio Loan Facility is $1.01 billion, of which $757.5 million is term debt and $252.5 million is revolving debt. As of September 30, 2018, the outstanding balance under the loan consisted of $757.5 million of term debt and $156.0 million of revolving debt. As of September 30, 2018, an additional $96.5 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. During the remaining term of the Portfolio Loan Facility, the Company has an option to increase the loan amount by up to an additional $400.0 million in increments of $25.0 million, to a maximum of $1.41 billion, of which 75% would be term debt and 25% would be revolving debt, subject to certain conditions contained in the loan documents. During the three and nine months ended September 30, 2018, the Company incurred $16.6 million and $29.9 million of interest expense, respectively. During the three and nine months ended September 30, 2017, the Company incurred $15.5 million and $45.3 million of interest expense, respectively. Included in interest expense was: (i) the amortization of deferred financing costs of $1.6 million and $4.9 million for the three and nine months ended September 30, 2018, respectively, and $1.3 million and $3.8 million for the three and nine months ended September 30, 2017, respectively, and (ii) interest expense (including gains and losses) incurred as a result of the Company’s derivative instruments, which reduced interest expense by $5.1 million and $29.2 million for the three and nine months ended September 30, 2018, respectively, and increased interest expense by $0.4 million and $3.1 million for the three and nine months ended September 30, 2017, respectively. Additionally, the Company capitalized $0.3 million and $2.5 million of interest related to construction in progress during the three and nine months ended September 30, 2018, respectively, and $0.7 million and $1.5 million of interest related to construction in progress during the three and nine months ended September 30, 2017, respectively. As of September 30, 2018 and December 31, 2017, $6.6 million and $6.1 million of interest expense were payable, respectively. The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of September 30, 2018 (in thousands):
The Company’s notes payable contain financial debt covenants. As of September 30, 2018, the Company was in compliance with these debt covenants. |
DERIVATIVE INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivatives for speculative purposes. The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. The Company enters into interest rate caps to mitigate its exposure to rising interest rates on its variable rate notes payable. The values of interest rate caps are primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of interest rate caps. As the remaining life of an interest rate cap decreases, the value of the instrument will generally decrease towards zero. The following table summarizes the notional amount and other information related to the Company’s interest rate swaps and cap as of September 30, 2018 and December 31, 2017. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):
_____________________ (1) Both interest rate swaps designated as hedging instruments matured during the nine months ended September 30, 2018. The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2018 and December 31, 2017 (dollars in thousands):
The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income (loss) on the accompanying consolidated statements of comprehensive income (loss) and as other comprehensive income on the accompanying consolidated statements of equity. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flows. The change in fair value of the ineffective portion is recognized directly in earnings. With respect to swap agreements that are terminated for which it remains probable that the original hedged forecasted transactions (i.e., LIBOR-based debt service payments) will occur, the loss related to the termination of these swap agreements is included in accumulated other comprehensive income (loss) and is reclassified into earnings over the period of the original forecasted hedged transaction. The change in fair value of a derivative instrument that is not designated as a cash flow hedge is recorded as interest expense in the accompanying consolidated statements of operations. The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):
During the three and nine months ended September 30, 2018 and 2017, there was no ineffective portion related to the change in fair value of the derivative instruments designated as cash flow hedges. |
FAIR VALUE DISCLOSURES |
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FAIR VALUE DISCLOSURES | FAIR VALUE DISCLOSURES Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company is required to measure other non-financial and financial assets at fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of assets and liabilities for which it is practicable to estimate the fair value: Cash and cash equivalents, rent and other receivables, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items. Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk. The fair value of interest rate caps (floors) are determined using the market standard methodology of discounting the future expected cash payments (receipts) which would occur if variable interest rates rise above (below) the strike rate of the caps (floors). The variable interest rates used in the calculation of projected payments (receipts) on the cap (floors) are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities. Notes payable: The fair values of the Company’s notes payable are estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of a liability in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs. The following were the face values, carrying amounts and fair values of the Company’s notes payable as of September 30, 2018 and December 31, 2017, which carrying amounts generally do not approximate the fair values (in thousands):
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. Low levels of transaction volume for certain financial instruments have made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different. As of September 30, 2018, the Company measured the following assets at fair value (in thousands):
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RELATED PARTY TRANSACTIONS |
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RELATED PARTY TRANSACTIONS | RELATED PARTY TRANSACTIONS The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager. These agreements entitled the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering and reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and entitle the Advisor to specified fees upon the provision of certain services with regard to the investment of funds in real estate investments, the management of those investments, among other services, and the disposition of investments, as well as entitle the Advisor and/or the Dealer Manager to reimbursement of offering costs related to the dividend reinvestment plan incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in 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. 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 and Dealer Manager also serve or served as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc. (“KBS REIT I”), KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”), KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”) and KBS Growth & Income REIT, Inc. (“KBS Growth & Income REIT”). On January 6, 2014, the Company, together with KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, 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 2015, KBS Growth & Income REIT was added to the insurance program at terms similar to those described above. In June 2018, the Company renewed its participation in the program. At renewal, KBS Strategic Opportunity REIT, KBS Strategic Opportunity REIT II and KBS Legacy Partners Apartment REIT elected to cease participation in the program and obtained separate insurance coverage. The program is effective through June 30, 2019. KBS REIT I elected to cease participation in the program at the June 2017 renewal and obtained separate insurance coverage. Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2018 and 2017, respectively, and any related amounts payable as of September 30, 2018 and December 31, 2017 (in thousands):
_____________________ (1) Reimbursable operating expenses primarily consists of internal audit personnel costs, 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 $69,000 and $243,000 for the three and nine months ended September 30, 2018, respectively, and $49,000 and $169,000 for the three and nine months ended September 30, 2017, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the three and nine months ended September 30, 2018 and 2017, respectively. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees 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. (2) Reimbursement of operating expenses includes professional fees incurred related to the assessment of strategic alternatives for the three and nine months ended September 30, 2018 of $1.8 million and $2.7 million, respectively. (3) Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net, in the accompanying consolidated statements of operations. In connection with the Offering, the Company’s sponsor, KBS Holdings LLC, agreed to provide additional indemnification to one of the participating broker-dealers. The Company agreed to add supplemental coverage to its directors’ and officers’ insurance coverage to insure the sponsor’s obligations under this indemnification agreement in exchange for reimbursement by the sponsor to the Company for all costs, expenses and premiums related to this supplemental coverage. During the nine months ended September 30, 2017, the Advisor incurred $0.1 million for the costs of the supplemental coverage obtained by the Company. During each of the nine months ended September 30, 2018 and 2017, the Advisor reimbursed the Company $0.2 million for property insurance rebates. Lease to Affiliate On May 29, 2015, the indirect wholly owned subsidiary of the Company that owns 3003 Washington Boulevard entered into a lease with an affiliate of the Advisor for 5,046 rentable square feet, or approximately 2.3% of the total rentable square feet, at 3003 Washington Boulevard. The lease commenced on October 1, 2015 and terminates on August 31, 2019. The annualized base rent, which represents annualized contractual base rental income as of September 30, 2018, adjusted to straight-line any contractual tenant concessions (including free rent) and rent increases from the lease’s inception through the balance of the lease term, for this lease is approximately $0.2 million, and the average annual rental rate (net of rental abatements) over the lease term is $46.38 per square foot. During the three and nine months ended September 30, 2018, the Company recognized $60,000 and $180,000 of revenue related to this lease, respectively. During the three and nine months ended September 30, 2017, the Company recognized $61,000 and $180,000 of revenue related to this lease, respectively. Prior to their approval of the lease, the Company’s conflicts committee and board of directors determined the lease to be fair and reasonable to the Company. During the three months ended September 30, 2018 and 2017, no other business transactions occurred between the Company and KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT II, KBS Growth & Income REIT, the Advisor, the Dealer Manager or other KBS-affiliated entities. |
COMMITMENTS AND CONTINGENCIES |
9 Months Ended |
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Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Economic Dependency The Company is dependent 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 the respective services, the Company will be required to obtain such services from other sources. Legal Matters From time to time, the Company may be 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. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of September 30, 2018. |
SUBSEQUENT EVENTS |
9 Months Ended |
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Sep. 30, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS The Company evaluates subsequent events up until the date the consolidated financial statements are issued. Distributions Paid On October 1, 2018, the Company paid distributions of $9.4 million, which related to distributions declared for daily record dates for each day in the period from September 1, 2018 through September 30, 2018. On November 1, 2018, the Company paid distributions of $9.8 million, which related to distributions declared for daily record dates for each day in the period from October 1, 2018 through October 31, 2018. Distributions Authorized On October 8, 2018, the Company’s board of directors authorized distributions based on daily record dates for the period from November 1, 2018 through November 30, 2018, which the Company expects to pay in December 2018. On November 5, 2018, the Company’s board of directors authorized distributions based on daily record dates for the period from December 1, 2018 through December 31, 2018, which the Company expects to pay in January 2019. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 5.54% annualized rate based on the Company's December 6, 2017 estimated value per share of $11.73. Financing Subsequent to September 30, 2018 Portfolio Revolving Loan Facility On October 17, 2018, the Company, through indirect wholly owned subsidiaries (each a “Borrower”), entered into a three-year loan facility with U.S. Bank, N.A., as administrative agent (the “Lender”), for a committed amount of up to $215.0 million (the “Portfolio Revolving Loan Facility”), of which $107.5 million is term debt and $107.5 million is revolving debt. At closing, $200.0 million was available for funding under the Portfolio Revolving Loan Facility with an additional $15.0 million available upon satisfaction of certain conditions set forth in the loan documents. At closing, $107.5 million of the term debt and $92.5 million of revolving debt was funded, of which approximately $69.8 million was used to pay off the 515 Congress Mortgage Loan and approximately $104.0 million was used to pay down one of the Company’s existing portfolio loan facilities. See “Portfolio Loan” below. The remaining amount was used to pay origination fees and accrued interest, with excess proceeds held by the Company for liquidity management. The Portfolio Revolving Loan Facility may be used for working capital, capital expenditures, real property acquisitions and other corporate purposes. The Portfolio Revolving Loan Facility matures on November 1, 2021, with two 12-month extension options, subject to certain terms, conditions and fees as described in the loan documents. The Portfolio Revolving Loan Facility bears interest at a floating rate of 150 basis points over one-month LIBOR. Monthly payments are interest only with the entire balance and all outstanding interest and fees due at maturity. The Company will have the right to prepay all or a portion of the Portfolio Revolving Loan Facility, subject to certain expenses potentially incurred by the Lender as a result of the prepayment and subject to certain conditions contained in the loan documents. During the term of the Portfolio Revolving Loan Facility, the Company has an option to increase the committed amount of the Portfolio Revolving Loan Facility up to four times with each increase of the committed amount to be at least $15.0 million but no greater than, in the aggregate, an additional $170.0 million so that the committed amount will not exceed $385.0 million, of which 50% would be non-revolving debt and 50% would be revolving debt, with the addition of one or more properties to secure the loan, subject to certain terms and conditions contained in the loan documents. In addition, the Portfolio Revolving Loan Facility contains customary representations and warranties, financial and other covenants, events of default and remedies typical for this type of facility. The Portfolio Revolving Loan Facility is secured by 515 Congress, Domain Gateway, the McEwen Building, and Gateway Tech Center. KBS REIT Properties III, LLC (“REIT Properties III”), the Company’s wholly owned subsidiary, is providing a guaranty of (i) up to 25% of the committed amount under the Portfolio Revolving Loan Facility, as such amount may be adjusted from time to time pursuant to the terms of the loan documents, (ii) payment of, and agrees to protect, defend, indemnify and hold harmless each Lender for, from and against, any liability, obligation, deficiency, loss, damage, costs and expenses (including reasonable attorney’s fees), and any litigation which may at any time be imposed upon, incurred or suffered by any Lender because of (a) certain intentional acts committed by any Borrower, (b) fraud or intentional misrepresentations by Borrower or REIT Properties III in connection with the loan documents as described in the guaranty agreement, and (c) certain bankruptcy or insolvency proceedings involving Borrower, as such acts are described in the guaranty, and (iii) upon and subject to the events and conditions described in the guaranty, payment of certain indemnity obligations of Borrower related to environmental matters. Portfolio Loan On October 17, 2018, in connection with the Portfolio Revolving Loan Facility, the Company paid down the Portfolio Loan by approximately $104.0 million, of which $43.0 million was term debt and $61.0 million was revolving debt. Domain Gateway, the McEwen Building, and Gateway Tech Center were released as collateral under the Portfolio Loan. In accordance with the terms of the Portfolio Loan, the committed amount of the Portfolio Loan was reduced from $255.0 million to $169.0 million, of which $84.5 million is term debt and $84.5 million is revolving debt. As a result of the paydown, the Portfolio Loan outstanding principal balance was reduced to $84.5 million, all of which was term debt. The revolving debt of $84.5 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Sep. 30, 2018 | |
Accounting Policies [Abstract] | |
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 FASB Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. |
Principles of Consolidation | The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership, their direct and indirect wholly owned subsidiaries, and a joint venture in which the Company has a controlling interest. All significant intercompany balances and transactions are eliminated in consolidation. |
Use of Estimates | The preparation of the consolidated financial statements and condensed notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and condensed notes. Actual results could materially differ from those estimates. |
Revenue Recognition | Effective January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”), using the modified retrospective approach, which requires a cumulative effect adjustment as of the date of the Company’s adoption. Under the modified retrospective approach, an entity may also elect to apply this standard to either (i) all contracts as of January 1, 2018 or (ii) only to contracts that were not completed as of January 1, 2018. A completed contract is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP that was in effect before the date of initial application. The Company elected to apply this standard only to contracts that were not completed as of January 1, 2018. Based on the Company’s evaluation of contracts within the scope of ASU No. 2014-09, revenue that is impacted by ASU No. 2014-09 includes revenue generated by sales of real estate, other operating income and tenant reimbursements for substantial services earned at the Company’s properties. The recognition of such revenue will occur when the services are provided and the performance obligations are satisfied. For the three and nine months ended September 30, 2018, tenant reimbursements for substantial services accounted for under ASU No. 2014-09 were $2.2 million and $5.7 million, respectively, and were included in tenant reimbursements on the accompanying statements of operations. |
Sale of Real Estate | Prior to January 1, 2018, gains on real estate sold were recognized using the full accrual method at closing when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be considered significant, the initial investment from the buyer was sufficient and other profit recognition criteria had been satisfied. Gain on sales of real estate may have been deferred in whole or in part until the requirements for gain recognition had been met. Effective January 1, 2018, the Company adopted the guidance of ASC 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, the Company’s sales of real estate would be considered a sale of a nonfinancial asset as defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09. Under ASC 610-20, if the Company determines it does not have a controlling financial interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, the Company would derecognize the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset transfers to the buyer. |
Per Share Data | Basic net income (loss) per share of common stock is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2018 and 2017, respectively. |
Segments | The Company has invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. As of September 30, 2018, the Company aggregated its investments in real estate properties into one reportable business segment. |
Square Footage, Occupancy and Other Measures | Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, or amounts derived from such measures, used to describe real estate investments included in these condensed notes to consolidated financial statements are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board. |
Recently Issued Accounting Standards Update | 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. ASU No. 2016-02 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. Upon adoption of ASU No. 2016-02, the Company expects to adopt the package of practical expedients for all leases that commenced before the effective date of January 1, 2019. Accordingly, the Company will 1) not reassess whether any expired or existing contracts are or contain leases, 2) not reassess the lease classification for any expired or existing lease, and 3) not reassess initial direct costs for any existing leases. The Company does not expect to elect the practical expedient related to using hindsight to reevaluate the lease term. In addition, the Company expects to adopt the practical expedient for land easements to not assess whether existing or expired land easements that were not previously accounted for as leases under the current lease accounting standards of Topic 840 are or contain a lease under Topic 842. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements (“ASU No. 2018-11”), which provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead to account for those components as a single component if the nonlease components otherwise would be accounted for under the new revenue recognition standard (Topic 606) and if certain conditions are met. Upon adoption of the lease accounting standard under Topic 842, the Company expects to adopt this practical expedient, specifically related to its tenant reimbursements which would otherwise be accounted for under the new revenue recognition standard. The Company believes the two conditions have been met for tenant reimbursements as 1) the timing and pattern of transfer of the nonlease components and associated lease components are the same and 2) the lease component would be classified as an operating lease. In addition, ASU No. 2018-11 provides an additional optional transition method to allow entities to apply the new lease accounting standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings. An entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new lease accounting standard will continue to be reported under the current lease accounting standards of Topic 840. The Company expects to adopt this transition method upon adoption of the lease accounting standard of Topic 842 on January 1, 2019. The Company is currently evaluating the impact of adopting the new lease accounting standards on its consolidated financial statements. The Company is in process of creating an inventory of its leases where the Company may be a lessee to assess the potential impact to the Company’s financial statements upon adoption of the new lease accounting standards. 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 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). The primary focus of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements. ASU No. 2018-13 removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and to disclose the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop the Level 3 fair value measurement. In addition, public entities are required to provide information about the measurement uncertainty of recurring Level 3 fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at the reporting date. ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company is still evaluating the impact of adopting ASU No. 2018-13 on its financial statements. |
REAL ESTATE (Tables) |
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Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Real Estate Investments | The following table summarizes the Company’s investments in real estate as of September 30, 2018 (in thousands):
___________________ (1) On August 26, 2016, the Company, through an indirect wholly-owned subsidiary, entered into a joint venture (the “Hardware Village Joint Venture”) to develop and subsequently operate a multifamily apartment complex, located on the developable land at Gateway Tech Center. The Company owns a 99.24% equity interest in the joint venture. In July 2018, one of the two buildings consisting of 265 units was placed into service. |
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Schedules of Concentration of Risk, by Risk Factor | As of September 30, 2018, the following property represented more than 10% of the Company’s total assets:
(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2018, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term. As of September 30, 2018, the Company’s real estate properties were leased to approximately 850 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:
(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2018, 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. |
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Schedule of Future Minimum Rental Income for Company's Properties | As of September 30, 2018, the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):
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Schedule of Revenue and Expenses of Real Estate Held-for-Sale | The results of operations for the property sold during the nine months ended September 30, 2018 and gain on sale as of September 30, 2018 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to this property for the three and nine months ended September 30, 2018 and 2017 (in thousands):
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Schedule of Assets and Liabilities of Real Estate Held-for-Sale | The following summary presents the major components of assets and liabilities related to real estate held for sale as of December 31, 2017 (in thousands). No real estate properties were held for sale as of September 30, 2018.
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TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities | As of September 30, 2018 and December 31, 2017, 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):
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Amortization of Tenant Origination and Absorption Costs, Above-Market Leases and Below-Market Lease Liabilities | Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2018 and 2017 were as follows (in thousands):
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INVESTMENT IN UNCONSOLIDATED JOINT VENTURE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Financial Information for Joint Ventures | Summarized financial information for the Village Center Station II Joint Venture is as follows (in thousands):
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NOTES PAYABLE (Tables) |
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Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | As of September 30, 2018 and December 31, 2017, the Company’s notes payable consisted of the following (dollars in thousands):
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2018. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2018 (consisting of the contractual interest rate and the effect of interest rate swaps and caps, if applicable), using interest rate indices as of September 30, 2018, where applicable. For further information regarding the Company's derivative instruments, see Note 7, “Derivative Instruments.” (2) Represents the maturity date as of September 30, 2018; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown. (3) As of September 30, 2018, the Portfolio Loan was secured by Domain Gateway, the McEwen Building, Gateway Tech Center, the Tower on Lake Carolyn, Park Place Village and Village Center Station. The face amount of the Portfolio Loan is $255.0 million, of which $127.5 million is term debt and $127.5 million is revolving debt. As of September 30, 2018, the outstanding balance under the loan consisted of $127.5 million of term debt and $61.0 million of revolving debt. As of September 30, 2018, an additional $65.5 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. The remaining $1.0 million of revolving debt is available for future disbursements upon the Company meeting certain financial coverage ratios and subject to certain conditions set forth in the loan agreement. During the remaining term of the Portfolio Loan, the Company has an option, which may be exercised up to two times, to increase the loan amount to a maximum of $350.0 million, of which 50% would be term debt and 50% would be revolving debt, with the addition of one or more properties to secure the Portfolio Loan, subject to certain conditions contained in the loan documents. Subsequent to September 30, 2018, the Company entered into a portfolio revolving loan facility in the amount of up to $215.0 million, of which $104.0 million was used to pay down the Portfolio Loan and Domain Gateway, the McEwen Building and Gateway Tech Center were released as security under the Portfolio Loan. See Note 11, “Subsequent Events - Financing Subsequent to September 30, 2018 - Portfolio Revolving Loan Facility and Portfolio Loan.” (4) On May 25, 2018, in connection with the disposition of Rocklin Corporate Center, the Company paid off the Rocklin Corporate Center Mortgage Loan. (5) Represents the payment type required under the loan as of September 30, 2018. Certain future monthly payments due under the loan also include amortizing principal payments. For more information on the Company’s contractual obligations under its notes payable, see the five-year maturity table below. (6) Subsequent to September 30, 2018, the Company entered into a portfolio revolving loan facility in the amount of up to $215.0 million, of which $69.8 million was used to pay off the 515 Congress Mortgage Loan. See Note 11, “Subsequent Events - Financing Subsequent to September 30, 2018 - Portfolio Revolving Loan Facility.” (7) As of September 30, 2018, $43.8 million had been disbursed and $30.2 million remained available for future disbursements, subject to certain conditions contained in the loan documents. (8) As of September 30, 2018, the Portfolio Loan Facility was secured by RBC Plaza, Preston Commons, Sterling Plaza, One Washingtonian Center, Towers at Emeryville, Ten Almaden, Town Center and 500 West Madison. The face amount of the Portfolio Loan Facility is $1.01 billion, of which $757.5 million is term debt and $252.5 million is revolving debt. As of September 30, 2018, the outstanding balance under the loan consisted of $757.5 million of term debt and $156.0 million of revolving debt. As of September 30, 2018, an additional $96.5 million of revolving debt remained available for immediate future disbursements, subject to certain conditions set forth in the loan agreement. During the remaining term of the Portfolio Loan Facility, the Company has an option to increase the loan amount by up to an additional $400.0 million in increments of $25.0 million, to a maximum of $1.41 billion, of which 75% would be term debt and 25% would be revolving debt, subject to certain conditions contained in the loan documents. |
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Schedule of Maturities of Long-term Debt | The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of September 30, 2018 (in thousands):
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DERIVATIVE INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notional and Fair Value of Interest Rate Swaps Designated as Cash Flow Hedges | The following table summarizes the notional amount and other information related to the Company’s interest rate swaps and cap as of September 30, 2018 and December 31, 2017. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):
_____________________ (1) Both interest rate swaps designated as hedging instruments matured during the nine months ended September 30, 2018. |
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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of September 30, 2018 and December 31, 2017 (dollars in thousands):
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Schedule of Derivative Instruments in Statement of Operations | The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):
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FAIR VALUE DISCLOSURES (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Face Value, Carrying Amounts and Fair Value | The following were the face values, carrying amounts and fair values of the Company’s notes payable as of September 30, 2018 and December 31, 2017, which carrying amounts generally do not approximate the fair values (in thousands):
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Fair Value, Assets Measured on Recurring Basis | As of September 30, 2018, the Company measured the following assets at fair value (in thousands):
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RELATED PARTY TRANSACTIONS (Tables) |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Costs | Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2018 and 2017, respectively, and any related amounts payable as of September 30, 2018 and December 31, 2017 (in thousands):
_____________________ (1) Reimbursable operating expenses primarily consists of internal audit personnel costs, 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 $69,000 and $243,000 for the three and nine months ended September 30, 2018, respectively, and $49,000 and $169,000 for the three and nine months ended September 30, 2017, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the three and nine months ended September 30, 2018 and 2017, respectively. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition or origination fees 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. (2) Reimbursement of operating expenses includes professional fees incurred related to the assessment of strategic alternatives for the three and nine months ended September 30, 2018 of $1.8 million and $2.7 million, respectively. (3) Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net, in the accompanying consolidated statements of operations. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2018
USD ($)
$ / shares
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Sep. 30, 2017
USD ($)
$ / shares
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Sep. 30, 2018
USD ($)
segment
$ / shares
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Sep. 30, 2017
USD ($)
$ / shares
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Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Tenant reimbursements | $ | $ 20,185 | $ 19,063 | $ 61,297 | $ 57,652 |
Distributions declared per share (in dollars per share) | $ / shares | $ 0.164 | $ 0.164 | $ 0.486 | $ 0.486 |
Distribution rate per share per day, declared (in dollars per share) | $ / shares | $ 0.00178082 | $ 0.00178082 | $ 0.00178082 | $ 0.00178082 |
Number of reportable segments | segment | 1 | |||
Difference between Revenue Guidance in Effect before and after Topic 606 | Accounting Standards Update 2014-09 | ||||
Revenue, Initial Application Period Cumulative Effect Transition [Line Items] | ||||
Tenant reimbursements | $ | $ 2,200 | $ 5,700 |
REAL ESTATE (Narrative) (Details) ft² in Millions |
Sep. 30, 2018
ft²
property
|
---|---|
Real Estate Properties [Line Items] | |
Rentable square feet | ft² | 10.9 |
Percentage of portfolio occupied | 93.00% |
Office Properties | |
Real Estate Properties [Line Items] | |
Number of real estate properties | 27 |
Mixed-use Office/Retail Property | |
Real Estate Properties [Line Items] | |
Number of real estate properties | 1 |
Held for Investment | Office Properties | |
Real Estate Properties [Line Items] | |
Number of real estate properties | 27 |
REAL ESTATE (Properties Represented More than 10% of Company’s Total Assets) (Details) $ in Thousands |
9 Months Ended | |
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Sep. 30, 2018
USD ($)
ft²
$ / ft²
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Dec. 31, 2017
USD ($)
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|
Real Estate Properties [Line Items] | ||
Rentable Square Feet | ft² | 10,900,000 | |
Total Real Estate, Net | $ 2,916,119 | $ 2,934,117 |
Occupancy | 93.00% | |
500 West Madison | Assets, Total | ||
Real Estate Properties [Line Items] | ||
Rentable Square Feet | ft² | 1,457,724 | |
Total Real Estate, Net | $ 367,831 | |
Percentage of Total Assets | 11.40% | |
Annualized Base Rent | $ 33,080 | |
Average Annualized Base Rent per sq. ft. | $ / ft² | 28.59 | |
Occupancy | 79.40% |
REAL ESTATE (Operating Leases) (Narrative) (Details) $ in Thousands |
9 Months Ended | ||
---|---|---|---|
Sep. 30, 2018
USD ($)
tenant
|
Sep. 30, 2017
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
Operating Leased Assets [Line Items] | |||
Deferred rent recognized | $ 6,932 | $ 8,527 | |
Deferred rent receivables | 88,700 | $ 74,400 | |
Incentive to Lessee | $ 15,700 | 9,300 | |
Number of tenants | tenant | 850 | ||
Other liabilities, at fair value | |||
Operating Leased Assets [Line Items] | |||
Security deposit liability | $ 10,800 | $ 11,500 | |
Maximum | |||
Operating Leased Assets [Line Items] | |||
Operating lease, term | 13 years 7 months 18 days | ||
Weighted Average | |||
Operating Leased Assets [Line Items] | |||
Operating lease, term | 4 years 4 months 16 days |
REAL ESTATE (Future Minimum Rental Income) (Details) $ in Thousands |
Sep. 30, 2018
USD ($)
|
---|---|
Real Estate [Abstract] | |
October 1, 2018 through December 31, 2018 | $ 75,926 |
2019 | 295,053 |
2020 | 271,651 |
2021 | 246,040 |
2022 | 213,601 |
Thereafter | 664,928 |
Future minimum rental income | $ 1,767,199 |
REAL ESTATE (Highes Tenant Industry Concentrations- Grater than 10% of Annual Base Rent) (Details) $ in Thousands |
9 Months Ended |
---|---|
Sep. 30, 2018
USD ($)
tenant
| |
Concentration Risk [Line Items] | |
Number of Tenants | 850 |
Finance | |
Concentration Risk [Line Items] | |
Number of Tenants | 151 |
Annualized Base Rent | $ | $ 62,011 |
Percentage of Annualized Base Rent | 19.80% |
REAL ESTATE REAL ESTATE (Geographic Concentration Risk) (Narrative) (Details) - Assets, Total |
9 Months Ended |
---|---|
Sep. 30, 2018 | |
California | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 20.00% |
Texas | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 15.00% |
Illinois | |
Concentration Risk [Line Items] | |
Concentration risk, percentage | 11.00% |
REAL ESTATE (Property Damage) (Details) - USD ($) |
9 Months Ended | 12 Months Ended | |
---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Real Estate Properties [Line Items] | |||
Insurance proceeds received for property damage | $ 4,629,000 | $ 0 | |
Physical Damage | |||
Real Estate Properties [Line Items] | |||
Maximum deductible per incident | $ 5,000 | ||
Loss due to property damages | 7,900,000 | ||
Estimated insurance recoveries | 7,900,000 | ||
Loss due to damages | $ 5,000 | ||
Insurance proceeds received for property damage | 4,600,000 | ||
Reduction in estimated insurance damages | 2,400,000 | ||
Business interruption insurance recorded | 600,000 | ||
Business interruption insurance received | 1,300,000 | ||
Insurance recoveries | 900,000 | ||
Physical Damage | Fiscal Year 2017 | |||
Real Estate Properties [Line Items] | |||
Business interruption insurance received | 700,000 | ||
Physical Damage | January through May 2018 | |||
Real Estate Properties [Line Items] | |||
Business interruption insurance received | $ 600,000 |
REAL ESTATE (Real Estate Sales - Narrative) (Details) $ in Thousands |
9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
May 25, 2018
USD ($)
|
Sep. 30, 2018
USD ($)
property
|
Dec. 31, 2017
USD ($)
property
|
Nov. 06, 2014
a
ft²
property
|
|
Real Estate Properties [Line Items] | ||||
Total real estate held for investment, cost | $ 3,424,773 | $ 3,369,925 | ||
Accumulated depreciation and amortization | $ 508,654 | $ 435,808 | ||
Rocklin Corporate Center | Office Properties | ||||
Real Estate Properties [Line Items] | ||||
Number of real estate properties acquired | property | 1 | |||
Net rentable area | ft² | 220,020 | |||
Area of land | a | 13.9 | |||
Disposed of by Sale | ||||
Real Estate Properties [Line Items] | ||||
Number of real estate properties disposed | property | 1 | 0 | ||
Disposed of by Sale | Rocklin Corporate Center | ||||
Real Estate Properties [Line Items] | ||||
Disposal group, consideration | $ 42,900 | |||
Total real estate held for investment, cost | 29,700 | |||
Accumulated depreciation and amortization | 6,000 | |||
Gain on sale of real estate | $ 11,900 |
REAL ESTATE (Revenue and Expenses of Real Estate Sales) (Details) - Disposed of by Sale - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Revenues | ||||
Rental income | $ 0 | $ 1,135 | $ 1,802 | $ 3,375 |
Tenant reimbursements and other operating income | 0 | 41 | 110 | 112 |
Total revenues | 0 | 1,176 | 1,912 | 3,487 |
Expenses | ||||
Operating, maintenance, and management | 0 | 464 | 463 | 1,086 |
Real estate taxes and insurance | 0 | 131 | 213 | 348 |
Asset management fees to affiliate | 0 | 67 | 105 | 198 |
Depreciation and amortization | 0 | 543 | 0 | 1,605 |
Interest expense | 0 | 176 | 320 | 483 |
Total expenses | $ 0 | $ 1,381 | $ 1,101 | $ 3,720 |
REAL ESTATE (Schedule of Assets and Liabilities Related to Real Estate Held for Sale) (Details) - Held-for-sale $ in Thousands |
Sep. 30, 2018
USD ($)
property
|
Dec. 31, 2017
USD ($)
|
---|---|---|
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Number of real estate properties | property | 0 | |
Assets related to real estate held for sale | ||
Total real estate, at cost | $ 0 | $ 33,575 |
Accumulated depreciation and amortization | 0 | (5,558) |
Real estate held for sale, net | 0 | 28,017 |
Other assets | 0 | 1,786 |
Total assets related to real estate held for sale | 0 | 29,803 |
Liabilities related to real estate held for sale | ||
Notes payable, net | 0 | 21,648 |
Other liabilities | 0 | 50 |
Total liabilities related to real estate held for sale | $ 0 | $ 21,698 |
INVESTMENT IN UNCONSOLIDATED JOINT VENTURE (Narrative) (Details) - USD ($) |
Mar. 03, 2017 |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Schedule of Equity Method Investments [Line Items] | |||
Amount drawn | $ 2,078,627,000 | $ 1,956,919,000 | |
Equity method investments | 34,662,000 | $ 33,997,000 | |
Village Center Station II Joint Venture | Village Center Station II Construction Loan | Secured Debt | |||
Schedule of Equity Method Investments [Line Items] | |||
Maximum borrowing capacity | $ 78,500,000.0 | ||
Amount drawn | 66,400,000 | ||
Village Center Station II Joint Venture | Village Center Station II | |||
Schedule of Equity Method Investments [Line Items] | |||
Equity interest in joint venture | 75.00% | ||
Development costs | $ 111,200,000 | ||
Contributed capital | $ 32,300,000 | ||
Equity interest in joint venture to be purchased | 25.00% | ||
Equity interest in joint venture to be purchased, value | $ 28,200,000 | ||
Equity method investments | 34,700,000 | ||
Equity method investments, acquisition cost | $ 2,300,000 |
NOTES PAYABLE (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 31, 2017 |
|
Debt Instrument [Line Items] | |||||
Interest expense | $ 16,584 | $ 15,460 | $ 29,911 | $ 45,257 | |
Amortization of deferred financing costs | 4,693 | 3,537 | |||
(Decrease) increase in interest expense incurred as a result of derivative instruments | (5,100) | 400 | (29,200) | 3,100 | |
Interest capitalized | 2,452 | 1,543 | |||
Interest payable, current | 6,600 | 6,600 | $ 6,100 | ||
Construction in Progress | |||||
Debt Instrument [Line Items] | |||||
Interest capitalized | 300 | 700 | 2,500 | 1,500 | |
Interest Expense | |||||
Debt Instrument [Line Items] | |||||
Amortization of deferred financing costs | $ 1,600 | $ 1,300 | $ 4,900 | $ 3,800 |
NOTES PAYABLE (Schedule of Maturities of Long-term Debt) (Details) - USD ($) $ in Thousands |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Notes Payable [Abstract] | ||
October 1, 2018 through December 31, 2018 | $ 1,074 | |
2019 | 549,285 | |
2020 | 1,253,722 | |
2021 | 93,956 | |
2022 | 180,590 | |
Total notes payable | $ 2,078,627 | $ 1,956,919 |
FAIR VALUE DISCLOSURES (Schedule of Face Value, Carrying Amounts and Fair Value) (Details) - USD ($) |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Debt face amount | $ 2,078,627,000 | $ 1,956,919,000 |
Carrying Amount | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Notes payable, Value | 2,068,199,000 | 1,941,786,000 |
Fair Value | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Notes payable, Value | $ 2,084,290,000 | $ 1,950,965,000 |
RELATED PARTY TRANSACTIONS (Narrative) (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
USD ($)
|
May 29, 2015
USD ($)
ft²
$ / ft²
|
|
Affiliated Entity | Subsidiaries | |||||
Related Party Transaction [Line Items] | |||||
Net rentable area | ft² | 5,046 | ||||
Percent of total rentable square feet | 2.30% | ||||
Annualized base rent | $ 200 | ||||
Average annualized base rent per square foot | $ / ft² | 46.38 | ||||
Rental income | $ 60 | $ 61 | $ 180 | $ 180 | |
KBS Capital Advisors LLC | |||||
Related Party Transaction [Line Items] | |||||
Incurred | 100 | ||||
KBS Capital Advisors LLC | Property Insurance Rebate | |||||
Related Party Transaction [Line Items] | |||||
Incurred | $ 200 | $ 200 |
SUBSEQUENT EVENTS (Distributions) (Details) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | 9 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Nov. 05, 2018 |
Nov. 01, 2018 |
Oct. 01, 2018 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Dec. 06, 2017 |
|
Subsequent Event [Line Items] | ||||||||
Distribution rate per share per day, declared (in dollars per share) | $ 0.00178082 | $ 0.00178082 | $ 0.00178082 | $ 0.00178082 | ||||
Dividend Authorized | Most Recent Primary Offering Purchase Price | ||||||||
Subsequent Event [Line Items] | ||||||||
Common stock, purchase price per share (in dollars per share) | $ 11.73 | |||||||
Subsequent Event | Dividend Paid | ||||||||
Subsequent Event [Line Items] | ||||||||
Dividends, common stock, cash | $ 9.8 | $ 9.4 | ||||||
Subsequent Event | Dividend Authorized | ||||||||
Subsequent Event [Line Items] | ||||||||
Distribution rate per share per day, declared (in dollars per share) | $ 0.00178082 | |||||||
Distribution rate per share annualized, declared, based on current estimated value | 5.54% |
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