UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from              to             

Commission file number 000-54687

______________________________________________________

KBS REAL ESTATE INVESTMENT TRUST III, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________________________

 

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)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

_______________________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
None	None

Trading Symbol(s)

____________________________________________________

None

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

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

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

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of May 9, 2022, there were 149,390,889 outstanding shares of common stock of KBS Real Estate Investment Trust III, Inc.

KBS REAL ESTATE INVESTMENT TRUST III, INC.

FORM 10-Q

March 31, 2022

INDEX

PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements	2
		Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 2021	2
		Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2022 and 2021	3
		Consolidated Statements of Equity (unaudited) for the Three Months Ended March 31, 2022 and 2021	4
		Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021	5
		Condensed Notes to Consolidated Financial Statements as of March 31, 2022 (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
	Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION		49
	Item 1.	Legal Proceedings	49
	Item 1A.	Risk Factors	49
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
	Item 3.	Defaults upon Senior Securities	52
	Item 4.	Mine Safety Disclosures	52
	Item 5.	Other Information	52
	Item 6.	Exhibits	53
SIGNATURES			54

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Real estate:
Land	$	290,121	$	290,121
Buildings and improvements	2,123,354		2,090,983
Tenant origination and absorption costs	58,311		60,162
Total real estate held for investment, cost	2,471,786		2,441,266
Less accumulated depreciation and amortization	(595,592)		(572,968)
Total real estate, net	1,876,194		1,868,298
Real estate equity securities	162,961		180,228
Total real estate and real estate-related investments, net	2,039,155		2,048,526
Cash and cash equivalents	43,775		44,404
Restricted cash	2,032		2,032
Rents and other receivables, net	90,098		88,534
Above-market leases, net	324		348
Due from affiliate	1,426		343
Prepaid expenses and other assets	95,273		70,014
Total assets	$	2,272,083	$	2,254,201
Liabilities and equity
Notes payable, net	$	1,529,174	$	1,465,398
Accounts payable and accrued liabilities	71,686		58,323
Due to affiliate	6,333		8,126
Distributions payable	7,543		7,735
Below-market leases, net	2,836		3,277
Other liabilities	37,589		48,780
Total liabilities	1,655,161		1,591,639
Commitments and contingencies (Note 11)
Redeemable common stock	8,972		42,369
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, 149,941,515 and 153,150,766 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	1,499		1,532
Additional paid-in capital	1,322,644		1,322,613
Cumulative distributions in excess of net income	(716,193)		(703,952)
Total stockholders’ equity	607,950		620,193
Total liabilities and equity	$	2,272,083	$	2,254,201

See accompanying condensed notes to consolidated financial statements.

2

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended March 31,
	2022		2021
Revenues:
Rental income	$	68,855	$	71,084
Dividend income from real estate equity securities	7,252		—
Other operating income	4,193		3,651
Total revenues	80,300		74,735
Expenses:
Operating, maintenance and management	17,376		15,863
Real estate taxes and insurance	14,048		14,379
Asset management fees to affiliate	4,876		4,895
General and administrative expenses	1,786		1,722
Depreciation and amortization	27,220		27,399
Interest expense	8,656		8,333
Net gain on derivative instruments	(21,469)		(1,518)
Total expenses	52,493		71,073
Other (loss) income:
Unrealized loss on real estate equity securities	(17,267)		—
Equity in income of an unconsolidated entity	—		3,287
Gain on sale of real estate, net	—		20,459
Other income	6		—
Other interest income	8		15
Total other (loss) income, net	(17,253)		23,761
Net income	$	10,554	$	27,423
Net income per common share, basic and diluted	$	0.07	$	0.15
Weighted-average number of common shares outstanding, basic and diluted	152,418,162		184,865,217

See accompanying condensed notes to consolidated financial statements.

3

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended March 31, 2022 and 2021 (unaudited)

(dollars in thousands)

	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Total Stockholders’ Equity
	Shares	Amounts
Balance, December 31, 2021	153,150,766	$	1,532	$	1,322,613	$	(703,952)	$	620,193
Net income	—	—		—		10,554		10,554
Issuance of common stock	612,052	5		6,261		—		6,266
Transfers from redeemable common stock	—	—		33,397		—		33,397
Redemptions of common stock	(3,821,303)	(38)		(39,627)		—		(39,665)
Distributions declared	—	—		—		(22,795)		(22,795)
Balance, March 31, 2022	149,941,515	$	1,499	$	1,322,644	$	(716,193)	$	607,950

	Common Stock			Additional Paid-in Capital		Cumulative Distributions in Excess of Net Income		Total Stockholders’ Equity
	Shares	Amounts
Balance, December 31, 2020	184,249,076	$	1,842	$	1,641,184	$	(744,990)	$	898,036
Net income	—	—		—		27,423		27,423
Issuance of common stock	1,109,258	12		11,314		—		11,326
Transfers to redeemable common stock	—	—		(8,214)		—		(8,214)
Redemptions of common stock	(289,739)	(3)		(3,109)		—		(3,112)
Distributions declared	—	—		—		(27,640)		(27,640)
Balance, March 31, 2021	185,068,595	$	1,851	$	1,641,175	$	(745,207)	$	897,819

See accompanying condensed notes to consolidated financial statements.

4

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended March 31,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	10,554	$	27,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,220		27,399
Equity in income of an unconsolidated entity	—		(3,287)
Unrealized loss on real estate equity securities	17,267		—
Distribution of operating cash flow from an unconsolidated entity	—		9,903
Deferred rents	(1,987)		(2,233)
Amortization of above- and below-market leases, net	(417)		(578)
Amortization of deferred financing costs	958		987
Unrealized gain on derivative instruments	(25,788)		(5,897)
Gain on sale of real estate	—		(20,459)
Interest rate swap settlements for off-market swap instruments	717		731
Changes in operating assets and liabilities:
Rents and other receivables	(146)		(17)
Due from affiliate	(1,083)		—
Prepaid expenses and other assets	(11,913)		(10,182)
Accounts payable and accrued liabilities	(5,465)		(6,693)
Due to affiliate	(1,793)		(482)
Other liabilities	(591)		(320)
Net cash provided by operating activities	7,533		16,295
Cash Flows from Investing Activities:
Improvements to real estate	(13,755)		(19,182)
Proceeds from sale of real estate, net	—		98,000
Net cash (used in) provided by investing activities	(13,755)		78,818
Cash Flows from Financing Activities:
Proceeds from notes payable	62,818		—
Payments of deferred financing costs	(1)		(14)
Interest rate swap settlements for off-market swap instruments	(749)		(721)
Payments to redeem common stock	(39,665)		(3,112)
Payments of prepaid other offering costs	(89)		(792)
Distributions paid to common stockholders	(16,721)		(16,274)
Net cash provided by (used in) financing activities	5,593		(20,913)
Net (decrease) increase in cash, cash equivalents and restricted cash	(629)		74,200
Cash, cash equivalents and restricted cash, beginning of period	46,436		77,811
Cash, cash equivalents and restricted cash, end of period	$	45,807	$	152,011
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	11,181	$	11,005
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions payable	$	7,543	$	9,227
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan	$	6,266	$	11,326
Accrued prepaid other offering costs	$	262	$	—
Accrued improvements to real estate	$	36,601	$	15,064
Accrued interest rate swap settlements related to off-market swap instruments	$	227	$	255

See accompanying condensed notes to consolidated financial statements.

5

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(unaudited)

1. ORGANIZATION

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

Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company entered into with the Advisor (the “Advisory Agreement”). On January 26, 2010, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. As of March 31, 2022, the Advisor owned 20,857 shares of the Company’s common stock.

The Company owns a diverse portfolio of real estate investments. As of March 31, 2022, the Company owned 16 office properties, one mixed-use office/retail property and an investment in the equity securities of Prime US REIT, a Singapore real estate investment trust (the “SREIT”).

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 March 31, 2022, the Company had also sold 41,431,803 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $428.0 million. Also as of March 31, 2022, the Company had redeemed or repurchased 68,496,126 shares sold in the Offering for $727.6 million.

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

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

COVID-19 Pandemic

One of the most significant risks and uncertainties facing the Company and the real estate industry generally, and in particular office REITs like the Company, continues to be the effect of the public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. To date, the Company has not experienced significant disruptions in its operations from the COVID-19 pandemic. During the year ended December 31, 2020, the Company did, however, recognize an impairment charge on an office/retail property due to the continued deterioration of retail demand at the property, which was further impacted by the COVID-19 pandemic.

The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants and the Company’s investment in the SREIT depends on future developments, which remain uncertain and cannot be predicted with confidence, including among other developments, potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing and an adverse impact to the Company’s operations.

6

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The consolidated financial statements include the accounts of the Company, REIT Holdings III, the Operating Partnership and their direct and indirect wholly owned subsidiaries. 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.

Reclassifications

Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. During the three months ended March 31, 2022, the Company presented gains and losses on derivative instruments separate from interest expense on the Company’s consolidated statement of operations. Accordingly, the Company’s gains and losses on derivative instruments were reclassified for all periods presented.

Dividend Reinvestment Plan

The Company has adopted a dividend reinvestment plan pursuant to which common stockholders may elect to have all or a portion of their dividends and other distributions, exclusive of dividends and other distributions that the Company’s board of directors designates as ineligible for reinvestment through the dividend reinvestment plan, reinvested in additional shares of the Company’s common stock in lieu of receiving cash distributions. Participants in the dividend reinvestment plan acquire shares of the Company’s common stock at a price equal to 95% of the estimated value per share of the Company’s common stock, as determined by the Advisor or another firm chosen by the Company’s board of directors for that purpose.

7

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

On December 7, 2020, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.74 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2020, with the exception of adjustments to the Company’s net asset value to give effect to the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: “OXMU”) as of December 1, 2020. The change in the dividend reinvestment plan purchase price was effective for the January 4, 2021 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the January 4, 2021 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $10.21.

On May 13, 2021, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.77 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of March 31, 2021, with the exception of adjustments to the Company’s net asset value to give effect to the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: OXMU) as of April 29, 2021. The change in the dividend reinvestment plan purchase price was effective for the June 1, 2021 dividend reinvestment plan purchase date and was effective until the estimated value per share was updated. Commencing with the June 1, 2021 purchase date and until the estimated value per share was updated, the purchase price per share under the dividend reinvestment plan was $10.23.

On November 1, 2021, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $10.78 (unaudited) based on the estimated value of the Company’s assets less the estimated value of the Company’s liabilities, or net asset value, divided by the number of shares outstanding, all as of September 30, 2021, with the exception of adjustments to the Company’s net asset value to give effect to (i) the change in the estimated value of the Company’s investment in units of the SREIT (SGX-ST Ticker: “OXMU”) as of October 22, 2021 and (ii) the contractual sales price less estimated disposition costs and fees of one property that was under contract to sell as of November 1, 2021. The change in the dividend reinvestment plan purchase price was effective for the December 1, 2021 dividend reinvestment plan purchase date and is effective until the estimated value per share is updated. Commencing with the December 1, 2021 purchase date and until the estimated value per share is updated, the purchase price per share under the dividend reinvestment plan is $10.24.

No selling commissions or dealer manager fees will be paid on shares sold under the dividend reinvestment plan. The board of directors of the Company may amend or terminate the dividend reinvestment plan for any reason upon ten days’ notice to participants.

Redeemable Common Stock

The Company’s board of directors has adopted a share redemption program that may enable stockholders to sell their shares to the Company in limited circumstances. The restrictions of the Company’s share redemption program will limit its stockholders’ ability to sell their shares should they require liquidity and will limit the stockholders’ ability to recover an amount equal to the Company’s estimated value per share. The following is a description of the Company’s share redemption program from January 1, 2021 through June 30, 2021 and the amendments to the program made by (i) the July 2021 amended and restated share redemption program (the “July 2021 Amended Share Redemption Program”), which became effective as of the July 30, 2021 redemption date, and (ii) the March 2022 amended and restated share redemption program (the “March 2022 Amended Share Redemption Program”), which became effective as of the March 31, 2022 redemption date. Subsequent to March 31, 2022, the Company’s board of directors approved a further amendment to the Company’s share redemption program (the “April 2022 Amended Share Redemption Program”). See Note 12, “Subsequent Events – April 2022 Amended and Restated Redemption Program.”

8

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In December 2019, the Company’s board of directors determined to temporarily suspend Ordinary Redemptions under the share redemption program, and Ordinary Redemptions remained suspended through June 30, 2021. Ordinary Redemptions are all redemptions other than those that qualify for the special provisions for redemptions sought in connection with a stockholder’s death, “Qualifying Disability” or “Determination of Incompetence” (each as defined in the share redemption program and, together, “Special Redemptions”). Upon suspension, all Ordinary Redemption requests that had been received were cancelled and no Ordinary Redemption requests were accepted or collected during the suspension of the share redemption program. Further, on June 3, 2021, the Company announced that, in connection with the approval of a self-tender offer, the Company’s board of directors approved a temporary suspension of all redemptions under the share redemption program, including Special Redemptions. Upon suspension, all outstanding redemption requests under the share redemption program were cancelled, and no requests were accepted or collected under the share redemption program. On July 14, 2021, the Company’s board of directors approved the July 2021 Amended Share Redemption Program and Ordinary Redemptions and Special Redemptions resumed effective for the July 30, 2021 redemption date.

9

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

There are several limitations on the Company’s ability to redeem shares under the share redemption program:

•Unless the shares are being redeemed in connection with a Special Redemption, the Company may not redeem shares unless the stockholder has held the shares for one year.

•Except as provided otherwise for calendar year 2022 and 2021 only, during any calendar year, the share redemption program limits the number of shares the Company may redeem to those that the Company could purchase with the amount of net proceeds from the sale of shares under the dividend reinvestment plan during the prior calendar year, provided that once the Company has 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. Notwithstanding anything contained in the share redemption program to the contrary, the Company may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to its stockholders.

•For calendar year 2022 only,

◦Prior to effectiveness of the March 2022 Amended Share Redemption Program, the Company could redeem only the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year, provided that once the Company had 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 was reserved exclusively for Special Redemptions.

◦Prior to effectiveness of the April 2022 Amended Share Redemption Program, the Company could redeem only the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year, provided that once the Company had 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 $2.0 million or less, the last $2.0 million of available funds was reserved exclusively for redemptions sought in connection with Special Redemptions.

•Pursuant to the July 2021 Amended Share Redemption Program, for calendar year 2021 only, the Company could redeem up to 5% of the weighted-average number of shares outstanding during the 2020 calendar year, provided that if the Company 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 2021 calendar year, would result in the number of remaining shares available for redemption in the 2021 calendar year being 500,000 or less, the last 500,000 shares available for redemption were reserved exclusively for Special Redemptions.

•During any calendar year, the Company may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.

•The Company has 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.

10

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Pursuant to the share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of the Company’s common stock as of the applicable redemption date.

From January 1, 2021 through June 30, 2021, Ordinary Redemptions were made at a price per share equal to 95% of the Company’s most recent estimated value per share as of the applicable redemption date. Upon effectiveness of the July 2021 Amended Share Redemption Program and commencing with the July 30, 2021 redemption date, Ordinary Redemptions are made at a price per share equal to 96% of the Company’s most recent estimated value per share as of the applicable redemption date.

On December 7, 2020, the Company’s board of directors approved an estimated value per share of its common stock of $10.74 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the December 2020 redemption date, which was December 31, 2020.

On May 13, 2021, the Company’s board of directors approved an estimated value per share of its common stock of $10.77 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the May 2021 redemption date, which was May 28, 2021.

On November 1, 2021, the Company’s board of directors approved an estimated value per share of its common stock of $10.78 (unaudited) as described above under “— Dividend Reinvestment Plan.” This estimated value per share became effective for the November 2021 redemption date, which was November 30, 2021. The Company currently expects to utilize an independent valuation firm to update its estimated value per share no later than December 2022.

For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to the Company’s dividend reinvestment plan or received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares or stock dividend shares relate. The date of the share’s original issuance by the Company is not determinative.

The Company will classify as liabilities financial instruments that represent a mandatory obligation of the Company to redeem shares. The Company’s redeemable common shares are contingently redeemable at the option of the holder. When the Company determines it has a mandatory obligation to repurchase shares under the share redemption program, it will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

The Company may (a) amend, suspend or terminate the share redemption program for any reason, or (b) consistent with SEC guidance and interpretations, increase or decrease the funding available for the redemption of shares pursuant to the share redemption program, each upon ten business days’ notice to the Company’s stockholders. The Company may provide notice by including such information in a (i) Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the SEC or (ii) separate mailing to the stockholders.

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 months ended March 31, 2022 and 2021, respectively.

11

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Distributions declared per common share were $0.149 and $0.149 in the aggregate for the three months ended March 31, 2022 and 2021, respectively. Distributions declared per common share assumes each share was issued and outstanding each day that was a record date for distributions and were based on a monthly record date for each month during the periods commencing January 2021 through March 2021 and January 2022 through March 2022. For each monthly record date for distributions during the period from January 1, 2021 through March 31, 2021 and January 1, 2022 through March 31, 2022, distributions were calculated at a rate of $0.04983333 per share.

Segments

The Company has invested in core real estate properties and real estate-related investments with the goal of acquiring a portfolio of income-producing investments. The Company’s real estate properties exhibit similar long-term financial performance and have similar economic characteristics to each other. Accordingly, 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, used to describe real estate investments included in these condensed notes to the consolidated financial statements are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

Recently Issued Accounting Standards Update

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

12

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through March 31, 2022, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. Certain of the Company’s loan agreements, derivative instruments, and lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company as the Company has elected to not designate its derivative instruments as a hedge.

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

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

13

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company has granted a number of lease concessions related to the effects of the COVID-19 pandemic but these lease concessions did not have a material impact to the Company’s consolidated balance sheets as of March 31, 2022 and December 31, 2021 or consolidated statements of operations for the three months ended March 31, 2022 and 2021. As of March 31, 2022, the Company had entered into lease amendments related to the effects of the COVID-19 pandemic, granting $3.9 million of rent deferrals for the period from March 2020 through September 2021 and granting $3.2 million in rental abatements.

As of March 31, 2022, the Company had $0.8 million of receivables for lease payments that had been deferred as lease concessions related to the effects of the COVID-19 pandemic, of which $0.5 million was reserved for payments not probable of collection, which were included in rent and other receivables, net on the accompanying consolidated balance sheet. For the three months ended March 31, 2022 and 2021, the Company recorded $0.4 million and $0.4 million, respectively, of rental abatements granted to tenants as a result of the COVID-19 pandemic.

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

14

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

3. REAL ESTATE

As of March 31, 2022, the Company’s real estate portfolio was composed of 16 office properties and one mixed-use office/retail property encompassing in the aggregate approximately 7.3 million rentable square feet. As of March 31, 2022, the Company’s real estate portfolio was collectively 84.1% occupied. The following table summarizes the Company’s investments in real estate as of March 31, 2022 (in thousands):

Property	Date Acquired	City	State	Property Type	Total Real Estate, at Cost (1)		Accumulated Depreciation and Amortization (1)		Total Real Estate, Net (1)
Town Center	03/27/2012	Plano	TX	Office	$	133,346	$	(44,824)	$	88,522
McEwen Building	04/30/2012	Franklin	TN	Office	38,540		(9,505)		29,035
Gateway Tech Center	05/09/2012	Salt Lake City	UT	Office	32,805		(9,127)		23,678
RBC Plaza	01/31/2013	Minneapolis	MN	Office	146,625		(49,207)		97,418
Preston Commons	06/19/2013	Dallas	TX	Office	139,553		(33,476)		106,077
Sterling Plaza	06/19/2013	Dallas	TX	Office	88,156		(24,621)		63,535
201 Spear Street	12/03/2013	San Francisco	CA	Office	151,472		(32,497)		118,975
Accenture Tower	12/16/2013	Chicago	IL	Office	506,532		(123,899)		382,633
Ten Almaden	12/05/2014	San Jose	CA	Office	130,603		(33,644)		96,959
Towers at Emeryville	12/23/2014	Emeryville	CA	Office	216,028		(50,007)		166,021
3003 Washington Boulevard	12/30/2014	Arlington	VA	Office	152,377		(37,059)		115,318
Park Place Village	06/18/2015	Leawood	KS	Office/Retail	81,486		(7,050)		74,436
201 17th Street	06/23/2015	Atlanta	GA	Office	103,915		(29,367)		74,548
515 Congress	08/31/2015	Austin	TX	Office	131,301		(26,114)		105,187
The Almaden	09/23/2015	San Jose	CA	Office	192,307		(38,696)		153,611
3001 Washington Boulevard	11/06/2015	Arlington	VA	Office	60,929		(11,352)		49,577
Carillon	01/15/2016	Charlotte	NC	Office	165,811		(35,147)		130,664
					$	2,471,786	$	(595,592)	$	1,876,194

_____________________

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

As of March 31, 2022, the following property represented more than 10% of the Company’s total assets:

Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands) (1)		Average Annualized Base Rent per sq. ft.		Occupancy
Accenture Tower	Chicago, IL	1,457,724	$	382,633	16.8	%	$	28,339	$	27.33	71.1	%

___________________

(1) Annualized base rent represents annualized contractual base rental income as of March 31, 2022, 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.

15

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

3. REAL ESTATE (CONTINUED)

Operating Leases

The Company’s office and office/retail properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2022, the leases, including leases that have been executed but not yet commenced, had remaining terms, excluding options to extend, of up to 17.2 years with a weighted-average remaining term of 5.4 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 $8.8 million and $8.7 million as of March 31, 2022 and December 31, 2021, respectively.

During the three months ended March 31, 2022 and 2021, the Company recognized deferred rent from tenants of $2.0 million and $2.2 million, respectively. As of March 31, 2022 and December 31, 2021, the cumulative deferred rent balance was $87.0 million and $85.2 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $22.5 million and $22.8 million of unamortized lease incentives as of March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022, the future minimum rental income from the Company’s properties under its non-cancelable operating leases was as follows (in thousands):

April 1, 2022 through December 31, 2022	$	150,623
2023	183,109
2024	172,841
2025	155,563
2026	136,685
Thereafter	514,775
	$	1,313,596

As of March 31, 2022, the Company’s office and office/retail properties were leased to approximately 560 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:

Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Finance	110	$	44,364	20.8	%
Real Estate	56	22,267		10.4	%
		$	66,631	31.2	%

_____________________

(1) Annualized base rent represents annualized contractual base rental income as of March 31, 2022, 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.

16

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

3. REAL ESTATE (CONTINUED)

As of March 31, 2022, no other tenant industries accounted for more than 10% of annualized base rent and no tenant accounted for more than 10% of annualized base rent.

Geographic Concentration Risk

As of March 31, 2022, the Company’s net investments in real estate in California, Illinois and Texas represented 23.6%, 16.8% and 16.0% 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, Illinois and Texas 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.

4. REAL ESTATE DISPOSITIONS

During the year ended December 31, 2021, the Company sold two office properties to purchasers unaffiliated with the Company or the Advisor. In November 2021, the Company completed the sale of one office property for $143.0 million, before third-party closing costs, closing credits and disposition fees payable to the Advisor, and in January 2021, the Company sold one office property for $103.5 million, before third-party closing costs, credits and disposition fees payable to the Advisor.

As of March 31, 2022, the Company did not have any real estate properties held for sale.

The results of operations for the office properties sold during the year ended December 31, 2021 are included in continuing operations on the Company’s consolidated statements of operations. The following table summarizes certain revenues and expenses related to these properties for the three months ended March 31, 2021 (in thousands).

	For the Three Months Ended March 31,
	2022		2021
Revenues
Rental income	$	—	$	2,592
Other operating income	—		94
Total revenues	$	—	$	2,686
Expenses
Operating, maintenance, and management	$	—	$	193
Real estate taxes and insurance	—		103
Asset management fees to affiliate	—		148
Depreciation and amortization	—		755
Interest expense	—		174
Total expenses	$	—	$	1,373

17

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

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

MARKET LEASE LIABILITIES

As of March 31, 2022 and December 31, 2021, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Cost	$	58,311	$	60,162	$	1,002	$	1,112	$	(15,252)	$	(15,395)
Accumulated Amortization	(41,317)		(41,387)		(678)		(764)		12,416		12,118
Net Amount	$	16,994	$	18,775	$	324	$	348	$	(2,836)	$	(3,277)

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 months ended March 31, 2022 and 2021 were as follows (in thousands):

	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Three Months Ended March 31,				For the Three Months Ended March 31,				For the Three Months Ended March 31,
	2022		2021		2022		2021		2022		2021
Amortization	$	(1,780)	$	(2,102)	$	(24)	$	(26)	$	441	$	604

18

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

6. REAL ESTATE EQUITY SECURITIES

Investment in Prime US REIT

In connection with the Company’s sale of 11 properties to the SREIT on July 18, 2019 (the “Singapore Portfolio”), on July 19, 2019, the Company, through an indirect wholly owned subsidiary (“REIT Properties III”), acquired 307,953,999 units in the SREIT at a price of $271.0 million, or $0.88 per unit, representing a 33.3% ownership interest in the SREIT (such transactions, the “Singapore Transaction”). On August 21, 2019, REIT Properties III sold 18,392,100 of its units in the SREIT for $16.2 million pursuant to an over-allotment option granted to the underwriters of the SREIT’s offering, reducing REIT Properties III’s ownership in the SREIT to 31.3% of the outstanding units of the SREIT as of that date. On November 9, 2021, REIT Properties III sold 73,720,000 of its units in the SREIT for $58.9 million, net of fees and costs, reducing REIT Properties III’s ownership in the SREIT to 18.5% of the outstanding units of the SREIT as of that date. As of March 31, 2022, REIT Properties III held 215,841,899 units of the SREIT which represented 18.4% of the outstanding units of the SREIT. As of March 31, 2022, the aggregate book value and fair value of the Company’s investment in the units of the SREIT was $163.0 million, which was based on the closing price of the SREIT units on the SGX-ST of $0.755 per unit as of March 31, 2022.

For the period from July 19, 2019 through November 8, 2021, the Company concluded that based on its ownership interest, it exercised significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, the Company accounted for its investment in the SREIT during this period under the equity method of accounting. Income was allocated according to the Company’s ownership interest at each month-end and recorded as equity income (loss) from unconsolidated entity. Any dividends received from the SREIT reduced the carrying amount of the investment.

On November 9, 2021, upon the Company’s sale of 73,720,000 units in the SREIT, the Company determined that based on its ownership interest of 18.5% of the outstanding units of the SREIT, it no longer had significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, effective November 9, 2021, the Company’s investment in the units of the SREIT represent an investment in marketable securities and is therefore presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date and dividend income is recognized as it is declared based on eligible units as of the ex-dividend date.

During the three months ended March 31, 2022, the Company recognized $7.3 million of dividend income from its investment in the SREIT and recorded an unrealized loss on real estate equity securities of $17.3 million. During the three months ended March 31, 2021, the Company recorded equity in income from an unconsolidated entity of $3.3 million related to its investment in the SREIT and $9.9 million of dividends from its investment in the SREIT, which was recorded as a reduction of the Company’s carrying value of its equity method investment. The Company elected to apply the nature of the distribution approach for purposes of presentation of the dividends on the statement of consolidated cash flows and classified the dividends received during the three months ended March 31, 2021 as operating activities on the statement of consolidated cash flows for the three months ended March 31, 2021. The nature of the distribution approach requires the Company to classify distributions from equity method investments on the basis of the nature of the activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow of operating activities) or a return of investment (classified as a cash inflow from investing activities) when such information is available.

19

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

7. NOTES PAYABLE

As of March 31, 2022 and December 31, 2021, the Company’s notes payable consisted of the following (dollars in thousands):

	Book Value as of March 31, 2022		Book Value as of December 31, 2021		Contractual Interest Rate as of March 31, 2022 (1)	Effective Interest Rate as of March 31, 2022 (1)	Payment Type	Maturity Date (2)
The Almaden Mortgage Loan (3)	$	123,000	$	123,000	3.65%	3.65%	Interest Only	12/01/2023
201 Spear Street Mortgage Loan	125,000		125,000		One-month LIBOR + 1.45%	1.74%	Interest Only	01/05/2024
Carillon Mortgage Loan (4)	105,800		105,800		One-month LIBOR +1.40%	1.63%	Interest Only	04/11/2024
Modified Portfolio Revolving Loan Facility (5)	239,413		196,595		One-month LIBOR + 1.50%	1.73%	Interest Only	03/01/2023
3001 & 3003 Washington Mortgage Loan	143,245		143,245		One-month LIBOR + 1.45%	1.68%	Interest Only (6)	06/01/2024
Accenture Tower Revolving Loan (7)	281,250		281,250		One-month LIBOR + 2.25%	2.48%	Interest Only	11/02/2023
Unsecured Credit Facility (8)	37,500		37,500		One-month LIBOR + 2.10%	2.33%	Interest only	07/30/2023
Amended and Restated Portfolio Loan Facility (9)	479,900		459,900		One-month BSBY (10) +1.80%	1.93%	Interest only	11/03/2023
Total notes payable principal outstanding	$	1,535,108	$	1,472,290
Deferred financing costs, net	(5,934)		(6,892)
Total Notes Payable, net	$	1,529,174	$	1,465,398

_____________________

(1) Contractual interest rate represents the interest rate in effect under the loan as of March 31, 2022. Effective interest rate is calculated as the actual interest rate in effect as of March 31, 2022, consisting of the contractual interest rate and using interest rate indices as of March 31, 2022, where applicable. For information regarding the Company’s derivative instruments, see Note 8, “Derivative Instruments.”

(2) Represents the maturity date as of March 31, 2022; subject to certain conditions, the maturity dates of certain loans may be extended beyond the dates shown.

(3) As of March 31, 2022, The Almaden Mortgage Loan has two 12-month extension options, subject to certain terms, conditions and fees as described in the loan documents. The Almaden Mortgage Loan bears interest at a fixed rate of 3.65% for the initial term of the loan and a floating rate of 350 basis points over one-month LIBOR during the extension options, subject to a minimum interest rate of 3.65%.

(4) As of March 31, 2022, the borrowing capacity under the Carillon Mortgage Loan was $111.0 million, of which $88.8 million is term debt and $22.2 million is revolving debt. As of March 31, 2022, the outstanding balance under the loan consisted of $88.8 million of term debt and $17.0 million of revolving debt. As of March 31, 2022, an additional $5.2 million of revolving debt remained available for future disbursements, subject to certain terms and conditions set forth in the loan documents.

(5) As of March 31, 2022, the Modified Portfolio Revolving Loan Facility was secured by 515 Congress, the McEwen Building, Gateway Tech Center and 201 17th Street. As of March 31, 2022, the borrowing capacity under the Modified Portfolio Revolving Loan Facility was $249.2 million, of which $124.6 million is term debt and $124.6 million is revolving debt. As of March 31, 2022, the outstanding balance under the loan consisted of $124.6 million of term debt and $114.8 million of revolving debt. As of March 31, 2022, an additional $9.8 million of revolving debt remained available upon satisfaction of certain loan conditions set forth in the loan documents. The Modified Portfolio Revolving Loan Facility has two 12-month extension options, subject to certain terms, conditions and fees as described in the loan documents.

(6) Represents the payment type required as of March 31, 2022. 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.

(7) As of March 31, 2022, the outstanding balance under the Accenture Tower Revolving Loan consisted of $281.3 million of term debt and an additional $93.7 million of revolving debt remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. As of March 31, 2022, the Accenture Tower Revolving Loan has two 12-month extension options, subject to certain terms and conditions contained in the loan documents.

(8) As of March 31, 2022, the borrowing capacity under the Unsecured Credit Facility was $75.0 million, of which $37.5 million is term debt and $37.5 million is revolving debt. Subject to certain conditions contained in the loan documents, the Company may on three occasions request an increase of the aggregate committed amount, provided that the aggregate commitment under the Unsecured Credit Facility may not exceed $100.0 million and that the election to fund any such additional amounts shall be in the sole discretion of the lenders. As of March 31, 2022, the outstanding balance under the Unsecured Credit Facility consisted of $37.5 million of term debt and an additional $37.5 million of revolving debt remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. The Unsecured Credit Facility has one 12-month extension option, subject to certain terms and conditions contained in the loan documents.

(9) As of March 31, 2022, the Amended and Restated Portfolio Loan Facility was secured by RBC Plaza, Preston Commons, Sterling Plaza, Towers at Emeryville, Ten Almaden and Town Center. The borrowing capacity under the Amended and Restated Portfolio Loan Facility was $613.2 million, of which $459.9 million is term debt and $153.3 million is revolving debt. As of March 31, 2022, the outstanding balance under the loan consisted of $459.9 million of term debt and $20.0 million of revolving debt. As of March 31, 2022, an additional $133.3 million of revolving debt remained available for future disbursements, subject to certain terms and conditions contained in the loan documents. The Amended and Restated Portfolio Loan Facility has one 12-month extension option, subject to certain terms and conditions as described in the loan documents.

(10) Bloomberg Short-Term Bank Yield Index (“BSBY”).

20

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

7. NOTES PAYABLE (CONTINUED)

During the three months ended March 31, 2022 and 2021, the Company’s interest expense related to notes payable was $8.7 million and $8.3 million, respectively. Included in interest expense was the amortization of deferred financing costs of $1.0 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, $4.1 million and $4.0 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 March 31, 2022 (in thousands):

April 1, 2022 through December 31, 2022	$	1,013
2023	1,162,885
2024	371,210
2025	—
2026	—
Thereafter	—
	$	1,535,108

The Company’s notes payable contain financial debt covenants. As of March 31, 2022, the Company was in compliance with these debt covenants.

8. 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.

21

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

8. DERIVATIVE INSTRUMENTS (CONTINUED)

As of March 31, 2022, the Company has entered into 12 interest rate swaps, which were not designated as hedging instruments. The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of March 31, 2022 and December 31, 2021. 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):

	March 31, 2022			December 31, 2021				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 March 31, 2022
Derivative instruments not designated as hedging instruments
Interest rate swaps (1)	12	$	1,420,090	12	$	1,420,390	One-month LIBOR/ Fixed at 0.70% - 2.11%	1.6%	1.2

_____________________

(1) Includes four forward interest rate swaps in the total amount of $300.0 million, which will become effective on November 1, 2022 and mature on January 1, 2025.

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 March 31, 2022 and December 31, 2021 (dollars in thousands):

		March 31, 2022			December 31, 2021
Derivative Instruments	Balance Sheet Location	Number of Instruments	Fair Value		Number of Instruments	Fair Value
Derivative instruments not designated as hedging instruments
Interest rate swaps	Prepaid expenses and other assets, at fair value (1)	9	$	16,514	5	$	757
Interest rate swaps	Other liabilities, at fair value (2)	3	$	(2,774)	7	$	(12,805)

_____________________

(1) Includes four forward interest rate swaps which will become effective on November 1, 2022 and mature on January 1, 2025. As of March 31, 2022, prepaid expenses and other assets included a $4.7 million asset related to the fair value of two off-market interest rate swaps determined to be hybrid financial instruments for which the Company elected to apply the fair value option. As of December 31, 2021, prepaid expenses and other assets included a $0.1 million asset related to the fair value of an off-market interest rate swap determined to be a hybrid financial instrument for which the Company elected to apply the fair value option.

(2) As of December 31, 2021, other liabilities included a $2.1 million liability related to the fair value of an off-market interest rate swap determined to be a hybrid financial instrument for which the Company elected to apply the fair value option.

22

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

8. DERIVATIVE INSTRUMENTS (CONTINUED)

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

	For the Three Months Ended March 31,
	2022		2021
Derivatives not designated as hedging instruments
Realized loss recognized on interest rate swaps	$	4,319	$	4,379
Unrealized gain on interest rate swaps (1)	(25,788)		(5,897)
Net gain on derivative instruments	$	(21,469)	$	(1,518)

_____________________

(1) For the three months ended March 31, 2022 and 2021, unrealized gain on interest rate swaps included a $6.7 million and $1.7 million unrealized gain, respectively, related to the change in fair value of two off-market interest rate swaps determined to be hybrid financial instruments for which the Company elected to apply the fair value option.

9. FAIR VALUE DISCLOSURES

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

•Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

•Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

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

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

23

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

9. FAIR VALUE DISCLOSURES (CONTINUED)

Real estate equity securities: At March 31, 2022, the Company’s investment in the units of the SREIT was presented at fair value on the accompanying consolidated balance sheet. The fair value of the units of the SREIT was based on a quoted price in an active market on a major stock exchange. The Company classifies these inputs as Level 1 inputs.

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.

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 March 31, 2022 and December 31, 2021, which carrying amounts generally do not approximate the fair values (in thousands):

	March 31, 2022						December 31, 2021
	Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities:
Notes payable	$	1,535,108	$	1,529,174	$	1,524,816	$	1,472,290	$	1,465,398	$	1,469,580

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.

24

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS REAL ESTATE INVESTMENT TRUST III, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

March 31, 2022

(unaudited)

9. FAIR VALUE DISCLOSURES (CONTINUED)

As of March 31, 2022, the Company measured the following derivative instruments at fair value (in thousands):

			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:
Real estate equity securities	$	162,961	$	162,961	$	—	$	—
Asset derivatives - interest rate swaps (1)	$	16,514	$	—	$	16,514