x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 47-2778257 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
800 Newport Center Drive, Suite 700 Newport Beach, California | 92660 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Large Accelerated Filer | o | Accelerated Filer | o | ||
Non-Accelerated Filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | x | |
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. | |||
March 31, 2016 | December 31, 2015 | ||||||
(unaudited) | |||||||
Assets | |||||||
Real estate: | |||||||
Land | $ | 10,600,000 | $ | 10,600,000 | |||
Building and improvements | 8,833,424 | 8,833,424 | |||||
Tenant origination and absorption costs | 1,987,175 | 1,987,175 | |||||
Total real estate, cost | 21,420,599 | 21,420,599 | |||||
Less accumulated depreciation and amortization | (567,522 | ) | (340,993 | ) | |||
Total real estate, net | 20,853,077 | 21,079,606 | |||||
Cash and cash equivalents | 46,746,054 | 12,892,900 | |||||
Rent and other receivables | 365,207 | 305,007 | |||||
Due from affiliate | 3,670 | — | |||||
Prepaid expenses and other assets, net | 109,422 | 62,100 | |||||
Total assets | $ | 68,077,430 | $ | 34,339,613 | |||
Liabilities and stockholders’ equity | |||||||
Note payable, net | $ | 16,097,216 | $ | 16,056,981 | |||
Accounts payable and accrued liabilities | 330,522 | 232,035 | |||||
Due to affiliates | 1,307,194 | 1,434,522 | |||||
Distributions payable | 213,109 | 87,679 | |||||
Below-market leases, net | 107,544 | 113,211 | |||||
Other liabilities | 215,392 | 255,640 | |||||
Total liabilities | 18,270,977 | 18,180,068 | |||||
Commitments and contingencies (Note 9) | |||||||
Redeemable common stock | 251,160 | 53,830 | |||||
Stockholders’ equity | |||||||
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding | — | — | |||||
Common stock, $.01 par value; 1,000,000,000 shares authorized, 6,348,966 and 2,216,821 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively | 63,490 | 22,168 | |||||
Additional paid-in capital | 51,247,004 | 17,078,538 | |||||
Cumulative distributions and net losses | (1,755,201 | ) | (994,991 | ) | |||
Total stockholders’ equity | 49,555,293 | 16,105,715 | |||||
Total liabilities and stockholders’ equity | $ | 68,077,430 | $ | 34,339,613 | |||
For the Three Months Ended March 31, 2016 | For the Period from January 27, 2015 to March 31, 2015 | ||||||
Revenues: | |||||||
Rental income | $ | 567,726 | $ | — | |||
Tenant reimbursements | 28,055 | — | |||||
Total revenues | 595,781 | — | |||||
Expenses: | |||||||
Operating, maintenance, and management | 151,360 | — | |||||
Property management fees and expenses to affiliate | 7,770 | — | |||||
Real estate taxes and insurance | 69,411 | — | |||||
Asset management fees to affiliate | 20,262 | — | |||||
General and administrative expenses | 218,510 | 170 | |||||
Depreciation and amortization | 226,529 | — | |||||
Interest expense | 177,840 | — | |||||
Total expenses | 871,682 | 170 | |||||
Other income: | |||||||
Interest income | 20,122 | — | |||||
Total other income | 20,122 | — | |||||
Net loss | $ | (255,779 | ) | $ | (170 | ) | |
Net loss per common share, basic and diluted | $ | (0.07 | ) | $ | — | ||
Weighted-average number of common shares outstanding basic and diluted | 3,582,937 | 41,413 | |||||
Common Stock | Additional Paid-in Capital | Cumulative Distributions and Net Losses | Total Stockholders’ Equity | |||||||||||||||
Shares | Amounts | |||||||||||||||||
Balance, January 27, 2015 | 20,000 | $ | 200 | $ | 199,800 | $ | — | $ | 200,000 | |||||||||
Net loss | — | — | — | (776,202 | ) | (776,202 | ) | |||||||||||
Issuance of common stock | 2,194,161 | 21,941 | 19,083,324 | — | 19,105,265 | |||||||||||||
Transfers to redeemable common stock | — | — | (53,830 | ) | — | (53,830 | ) | |||||||||||
Stock dividends issued | 2,660 | 27 | 23,867 | (23,894 | ) | — | ||||||||||||
Distributions declared | — | — | — | (194,895 | ) | (194,895 | ) | |||||||||||
Commissions on stock sales and related dealer manager fees to affiliate | — | — | (1,085,364 | ) | — | (1,085,364 | ) | |||||||||||
Other offering costs to affiliate | — | — | (1,089,259 | ) | — | (1,089,259 | ) | |||||||||||
Balance, December 31, 2015 | 2,216,821 | 22,168 | 17,078,538 | (994,991 | ) | 16,105,715 | ||||||||||||
Net loss | — | — | — | (255,779 | ) | (255,779 | ) | |||||||||||
Issuance of common stock | 4,125,171 | 41,252 | 37,175,807 | — | 37,217,059 | |||||||||||||
Transfers to redeemable common stock | — | — | (197,330 | ) | — | (197,330 | ) | |||||||||||
Stock dividends issued | 6,974 | 70 | 64,360 | (64,430 | ) | — | ||||||||||||
Distributions declared | — | — | — | (440,001 | ) | (440,001 | ) | |||||||||||
Commissions on stock sales and related dealer manager fees to affiliate | — | — | (2,547,015 | ) | — | (2,547,015 | ) | |||||||||||
Other offering costs | — | — | (327,356 | ) | — | (327,356 | ) | |||||||||||
Balance, March 31, 2016 | 6,348,966 | $ | 63,490 | $ | 51,247,004 | $ | (1,755,201 | ) | $ | 49,555,293 | ||||||||
For the Three Months Ended March 31, 2016 | For the Period from January 27, 2015 to March 31, 2015 | ||||||
Cash Flows from Operating Activities: | |||||||
Net loss | $ | (255,779 | ) | $ | (170 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization | 226,529 | — | |||||
Deferred rents | (55,872 | ) | — | ||||
Amortization of below-market leases | (5,667 | ) | — | ||||
Amortization of deferred financing costs | 15,485 | — | |||||
Changes in operating assets and liabilities: | |||||||
Rents and other receivables | (4,328 | ) | — | ||||
Prepaid expenses and other assets | (47,322 | ) | — | ||||
Accounts payable and accrued liabilities | 120,210 | — | |||||
Due from affiliate | (3,670 | ) | — | ||||
Due to affiliates | (148,526 | ) | — | ||||
Other liabilities | (40,248 | ) | — | ||||
Net cash used in operating activities | (199,188 | ) | (170 | ) | |||
Cash Flows from Investing Activities: | |||||||
Improvements to real estate | (21,723 | ) | — | ||||
Net cash used in investing activities | (21,723 | ) | — | ||||
Cash Flows from Financing Activities: | |||||||
Proceeds from note payable | 25,750 | — | |||||
Payments of deferred financing costs | (1,000 | ) | — | ||||
Cash distribution advance from affiliate | 458,289 | — | |||||
Proceeds from issuance of common stock | 37,019,729 | 200,000 | |||||
Payments of commissions on stock sales and related dealer manager fees to affiliate | (2,547,015 | ) | — | ||||
Payments of other offering costs | (764,447 | ) | — | ||||
Distributions paid to common stockholders | (117,241 | ) | — | ||||
Net cash provided by financing activities | 34,074,065 | 200,000 | |||||
Net increase in cash and cash equivalents | 33,853,154 | 199,830 | |||||
Cash and cash equivalents, beginning of period | 12,892,900 | — | |||||
Cash and cash equivalents, end of period | $ | 46,746,054 | $ | 199,830 | |||
Supplemental Disclosure of Cash Flow Information | |||||||
Interest paid | $ | 158,972 | $ | — | |||
Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||
Stock dividends issued | $ | 64,430 | $ | — | |||
Increase in cash distributions payable | $ | 125,430 | $ | — | |||
Dividends paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan | $ | 197,330 | $ | — | |||
1. | ORGANIZATION |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
• | whether the lease stipulates how a tenant improvement allowance may be spent; |
• | whether the amount of a tenant improvement allowance is in excess of market rates; |
• | whether the tenant or landlord retains legal title to the improvements at the end of the lease term; |
• | whether the tenant improvements are unique to the tenant or general-purpose in nature; and |
• | whether the tenant improvements are expected to have any residual value at the end of the lease. |
Buildings | 25 - 40 years |
Building improvements | 10 - 25 years |
Tenant improvements | Shorter of lease term or expected useful life |
Tenant origination and absorption costs | Remaining term of related leases, including below-market renewal periods |
• | 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. |
• | Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), the Company may not redeem shares unless the stockholder has held the shares for one year. |
• | During any calendar year, the Company may redeem only the number of shares that it could purchase with the amount of net proceeds from the sale of shares under its distribution reinvestment plan during the prior calendar year. However, 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. |
• | 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 law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. |
• | there is no one-year holding requirement; |
• | until the Company establishes an estimated NAV per share, the redemption price is the amount paid to acquire the shares from the Company. Notwithstanding the foregoing, stock dividends will initially be redeemed at the “net investment amount” per share, which will be based on the “amount available for investment/net investment amount” percentage shown in the estimated use of proceeds table in the Company’s prospectus, as supplemented, for the Public Offering. For each class of shares designated, this amount will initially equal $9.40 per share for redemptions of shares received as a result of a stock dividend; and |
• | once the Company has established an estimated NAV per share, the redemption price will be the estimated NAV per share as of the redemption date. |
3. | STOCKHOLDERS’ EQUITY |
4. | REAL ESTATE |
Property | Date Acquired | City | State | Property Type | Total Real Estate at Cost | Accumulated Depreciation and Amortization | Total Real Estate, Net | |||||||||||||
Von Karman Tech Center | 08/12/2015 | Irvine | CA | Office | $ | 21,420,599 | $ | (567,522 | ) | $ | 20,853,077 | |||||||||
April 1, 2016 through December 31, 2016 | $ | 1,519,173 | |
2017 | 2,092,148 | ||
2018 | 1,866,986 | ||
2019 | 1,497,443 | ||
2020 | 1,440,502 | ||
Thereafter | 3,943,938 | ||
$ | 12,360,190 | ||
5. | TENANT ORIGINATION AND ABSORPTION COSTS AND BELOW-MARKET LEASE LIABILITIES |
Tenant Origination and Absorption Costs | Below-Market Lease Liabilities | ||||||||||||||
March 31, 2016 | December 31, 2015 | March 31, 2016 | December 31, 2015 | ||||||||||||
Cost | $ | 1,987,175 | $ | 1,987,175 | $ | (122,143 | ) | $ | (122,143 | ) | |||||
Accumulated Amortization | (240,158 | ) | (144,599 | ) | 14,599 | 8,932 | |||||||||
Net Amount | $ | 1,747,017 | $ | 1,842,576 | $ | (107,544 | ) | $ | (113,211 | ) | |||||
6. | NOTES PAYABLE |
Book Value as of March 31, 2016 | Book Value as of December 31, 2015 | Contractual Interest Rate as of March 31, 2016 (1) | Effective Interest Rate at March 31, 2016 (1) | Payment Type | Maturity Date | |||||||||||
Von Karman Tech Center Mortgage Loan (2) | $ | 16,371,790 | $ | 16,346,040 | One-month LIBOR + 3.50% | 3.94% | (3) | 09/01/2020 | ||||||||
Note payable principal outstanding | 16,371,790 | 16,346,040 | ||||||||||||||
Deferred financing costs, net | (274,574 | ) | (289,059 | ) | ||||||||||||
Note payable, net | $ | 16,097,216 | $ | 16,056,981 | ||||||||||||
7. | FAIR VALUE DISCLOSURES |
• | Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
• | Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and |
• | Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
Face Value | Carrying Amount | Fair Value | Face Value | Carrying Amount | Fair Value | |||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Notes payable | $ | 16,371,790 | $ | 16,097,216 | $ | 16,471,151 | $ | 16,346,040 | $ | 16,056,981 | $ | 16,556,729 | ||||||||||||
8. | RELATED-PARTY TRANSACTIONS |
Form of Compensation | Amount | |
Selling Commissions | The Company pays the Dealer Manager up to 6.5% of gross offering proceeds in the primary offering of the Private Offering. No selling commissions are payable on shares sold under the distribution reinvestment plan. The Dealer Manager reallows 100% of selling commissions earned to participating broker-dealers. | |
Dealer Manager Fee | The Company pays the Dealer Manager up to 2.0% of gross offering proceeds in the primary offering of the Private Offering. The Dealer Manager may reallow to any participating broker-dealer up to 1.5% of the gross offering proceeds attributable to that participating broker-dealer as a marketing fee, based upon such factors as the projected sales volume by such participating broker-dealer and the level of assistance of such participating broker-dealer in marketing this offering; no dealer manager fee is payable on shares of common stock sold under the distribution reinvestment plan. | |
Organization and Other Offering Expenses | The Company reimburses the Advisor and the Dealer Manager for organization and other offering costs they incur on its behalf in connection with the Private Offering. These organization and other offering expenses include all expenses (other than selling commissions and the dealer manager fee) to be paid in connection with the Private Offering, including the Company’s legal, accounting, printing, mailing and filing fees, charges of the escrow holder and transfer agent, charges of the Advisor for administrative services related to the issuance of shares in the Private Offering, reimbursement of due diligence expenses of broker dealers, reimbursement of the Advisor for costs in connection with preparing supplemental sales materials, the cost of training and education meetings held by the Company (primarily the travel, meal and lodging costs of registered representatives of broker-dealers), attendance and sponsorship fees, travel, meal and lodging costs for registered persons associated with the Dealer Manager and officers and employees of the Company’s affiliates to attend retail seminars conducted by broker-dealers. The Company does not reimburse for wholesaling compensation expenses. Also see Note 2, “Summary of Significant Accounting Policies — Organization and Offering Costs” for further discussion. | |
Form of Compensation | Amount | |
Acquisition and Origination Fees | The Company pays the Advisor 2.0% of the cost of investments acquired or originated by the Company, or the amount to be funded to acquire or originate loans, including acquisition and origination expenses and any debt attributable to such investments, plus significant capital expenditures budgeted as of the date of acquisition related to the development, construction or improvement of a real estate property. Acquisition fees calculated based on capital expenditures budgeted as of the date of acquisition are paid at the time funds are disbursed pursuant to a final approved budget upon receipt of an invoice by the Company. | |
Acquisition and Origination Expenses | The Company reimburses the Advisor or its affiliates for customary acquisition and origination expenses (including expenses relating to potential investments that do not close), such as legal fees and expenses (including fees of independent contractor in-house counsel that are not employees of the Advisor), costs of due diligence (including, as necessary, updated appraisals, surveys and environmental site assessments), travel and communication expenses, accounting fees and expenses and other closing costs and miscellaneous expenses relating to the acquisition or origination of real estate properties and real estate-related investments. | |
Asset Management Fees | The Company pays the Advisor a monthly fee equal to one-twelfth of 1.6% of the cost of its investments, less any debt secured by or attributable to the investments. The cost of the real property investments is calculated as the amount paid or allocated to acquire the real property, plus the budgeted capital improvement costs for the development, construction or improvements to the property once such funds are disbursed pursuant to a final approved budget and fees and expenses related to the acquisition, but excluding acquisition fees paid or payable to the Advisor. The cost of the Company’s real estate-related investments and any investments other than real property will be calculated as the lesser of: (x) the amount paid or allocated to acquire or fund the investment, including fees and expenses related to the acquisition or origination (but excluding acquisition or origination fees paid to the Advisor), and (y) the outstanding principal amount of such investment, including fees and expenses related to the acquisition or funding of such investment (but excluding acquisition or origination fees paid or payable to the Advisor). In the case of investments made through joint ventures, the asset management fee will be determined based on the Company’s proportionate share of the underlying investment. | |
Reimbursement of Operating Expenses | The Company may reimburse the expenses incurred by the Advisor or its affiliates in connection with their provision of services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and cybersecurity costs. The Advisor may seek reimbursement for employee costs under the Advisory Agreement. At this time, the Company anticipates it will only reimburses the Advisor for its allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. In the future, if the Advisor seeks reimbursement for additional employee costs, such costs may include the Company’s proportionate share of the salaries of persons involved in the preparation of documents to meet SEC reporting requirements if the Company becomes a public reporting company. The Company will not reimburse the Advisor or its affiliates for employee costs in connection with services for which the Advisor or its affiliates receive acquisition or origination fees or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries and benefits the Advisor or its affiliates may pay to the Company’s executive officers. | |
Form of Compensation | Amount | |
The Company reimburses the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the DTCC Alternative Investment Product Platform, or the AIP Platform, with respect to certain accounts of the Company’s investors serviced through the AIP Platform. The Company has entered, together with KBS REIT I, KBS REIT II, KBS Strategic Opportunity REIT, KBS Legacy Partners Apartment REIT, KBS REIT III, KBS Strategic Opportunity REIT II, the Dealer Manager, the Advisor and other KBS affiliated entities, 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. | ||
Subordinated Participation in Net Cash Flows | After the Company’s common stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their gross investment amount, which is the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by the total number of shares repurchased by the Company multiplied by the weighted average issue price of the shares sold in the primary offering, and (ii) a 6% per year cumulative, noncompounded return on such gross investment amount, the Advisor is entitled to receive 15% of the Company’s net cash flows, whether from continuing operations, net sales proceeds, net financing proceeds, or otherwise. Net sales proceeds means the net cash proceeds realized by the Company after deduction of all expenses incurred (i) in connection with a disposition of the Company’s assets, or (ii) from the prepayment, maturity, workout or other settlement of any loan or other investment. Net financing proceeds means the net cash proceeds realized from the financing of the Company’s assets or refinancing of the Company’s debt. The 6% per year cumulative, noncompounded return on gross investment amount is calculated on a daily basis. In making this calculation, gross investment amount is determined for each day during the period for which the 6% per year cumulative, noncompounded return is being calculated, including a daily adjustment to reflect shares repurchased by the Company, and gross investment amount is reduced by the following: (i) distributions from net sales proceeds, (ii) distributions paid from operating cash flow in excess of a cumulative, noncompounded, annual return of 6%, and (iii) distributions from net financing proceeds, except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 6%. Gross investment amount is only reduced as described above; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes. | |
Form of Compensation | Amount | |
Disposition Fee | In connection with the sale of the Company’s assets, which includes the sale of a single asset or the sale of all or a portion of the Company’s assets through a portfolio sale, merger, or business combination transaction, the Company will pay the Advisor or its affiliates a percentage of the contract sales price of the assets sold (including residential or commercial mortgage-backed securities issued by a subsidiary of the Company as part of a securitization transaction). For dispositions with a contract sales price less than or equal to $1.5 billion, the disposition fee will equal 1.5% of the contract sales price. For dispositions with a contract sales price greater than $1.5 billion, the disposition fee will equal 1.5% of the first $1.5 billion of the contract sales price, plus 1.1% of the amount of the contract sales price in excess of $1.5 billion. The Company will not pay a disposition fee upon the maturity, prepayment or workout of a loan or other debt-related investment, provided that (i) if the Company negotiates a discounted payoff with the borrower it will pay a disposition fee and (ii) if the Company takes ownership of a property as a result of a workout or foreclosure of a loan, it will pay a disposition fee upon the sale of such property. The disposition fee is determined on a per transaction basis and is not cumulative. | |
Subordinated Incentive Fee | Upon a merger or listing of the Company’s common stock on a national securities exchange, the Company will pay the Advisor an incentive fee. Upon a listing this fee will equal 15% of the amount by which (i) the market value of the outstanding stock plus the total of all distributions paid by the Company to stockholders from inception until the date market value is determined (including distributions that may constitute a return of capital for federal income tax purposes and excluding any stock dividend) exceeds (ii) the sum of the stockholders’ gross investment amount, which is the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by the total number of shares repurchased by the Company multiplied by the weighted average issue price of the shares sold in the primary offering, and the amount of cash flow necessary to generate a 6% per year cumulative, noncompounded return on stockholders’ gross investment amount from inception of the Company through the date the market value is determined. Upon a merger this fee will equal 15% of the amount by which (i) the merger consideration amount plus the total of all distributions paid or declared by the Company to stockholders from inception until the closing of the merger (including distributions that may constitute a return of capital for federal income tax purposes and excluding any stock dividend) exceeds (ii) the sum of the stockholders’ gross investment amount, which is the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by the total number of shares repurchased by the Company multiplied by the weighted average issue price of the shares sold in the primary offering, and the amount necessary to generate a 6% per year cumulative, noncompounded return on stockholders’ gross investment amount from the Company’s inception through the closing of the merger. | |
Form of Compensation | Amount | |
The 6% per year cumulative, noncompounded return on gross investment amount is calculated on a daily basis. In making this calculation, gross investment amount is determined for each day during the period for which the 6% per year cumulative, noncompounded return is being calculated, including a daily adjustment to reflect shares repurchased by the Company, and gross investment amount is reduced by the following: (i) distributions from net sales proceeds, (ii) distributions paid from operating cash flow in excess of a cumulative, noncompounded, annual return of 6%, and (iii) distributions from net financing proceeds, except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 6%. Gross investment amount is only reduced as described above; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes. | ||
Advance from the Advisor | The Advisor has agreed to advance funds to the Company for distribution record dates through the period ending May 31, 2016. The Company is only obligated to repay the Advisor for its advance if and to the extent that: (i) the Company’s modified funds from operations (“MFFO”), as such term is defined by the Investment Program Association and interpreted by the Company, for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “MFFO Surplus”), and the Company will pay the Advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or (ii) Excess proceeds from third-party financings are available (“Excess Proceeds”), provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the advance shall be determined by the conflicts committee in its sole discretion. No interest accrues on the advance made by the Advisor. In determining whether Excess Proceeds are available to repay the advance, the Company’s conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance. | |
Incurred | Payable as of | ||||||||||||||
Three Months Ended March 31, 2016 | For the Period from January 27, 2015 to March 31, 2015 | March 31, 2016 | December 31, 2015 | ||||||||||||
Expensed | |||||||||||||||
Asset management fees | $ | 20,262 | $ | — | $ | — | $ | — | |||||||
Reimbursement of operating expenses (1) | 51,527 | — | 48,980 | 205,276 | |||||||||||
Property management fees (2) | 7,770 | — | 7,770 | — | |||||||||||
Other Arrangement | |||||||||||||||
Advisor advance for cash distributions (3) | 458,289 | — | 656,786 | 198,497 | |||||||||||
Additional Paid-in Capital | |||||||||||||||
Selling commissions | 1,833,620 | — | — | — | |||||||||||
Dealer manager fees | 713,395 | — | — | — | |||||||||||
Reimbursable other offering costs (4) | 324,983 | — | 593,658 | 1,030,749 | |||||||||||
$ | 3,409,846 | $ | — | $ | 1,307,194 | $ | 1,434,522 | ||||||||
9. | COMMITMENTS AND CONTINGENCIES |
10. | SUBSEQUENT EVENTS |
• | We commenced investment operations on August 12, 2015 in connection with our first investment and we have a limited operating history. We are dependent on KBS Capital Advisors LLC (“KBS Capital Advisors”), our advisor, to identify suitable investments and to manage our investments. |
• | All of our executive officers, our affiliated directors and other key real estate and debt finance professionals are also officers, affiliated directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, our dealer manager and/or other KBS-affiliated entities. As a result, they face conflicts of interest, including significant conflicts created by our advisor’s and its affiliates’ compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions. |
• | Because investment opportunities that are suitable for us may also be suitable for other KBS-sponsored programs or KBS-advised investors, our advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders. |
• | Our advisor and its affiliates receive fees in connection with transactions involving the purchase or origination and management of our investments. These 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 and increases our stockholders’ risk of loss. In addition, we have paid and will pay substantial fees to and expenses of our advisor, its affiliates and participating broker-dealers, which payments increase the risk that our stockholders will not earn a profit on their investment. We may also pay significant fees during our listing/liquidation stage. |
• | If we are unable to raise substantial funds during our offering stage, we may not be able to acquire a diverse portfolio of real estate investments, which may cause the value of an investment in us to vary more widely with the performance of specific assets and cause our general and administrative expenses to constitute a greater percentage of our revenue. Raising fewer proceeds during our offering stage, therefore, could increase the risk that our stockholders will lose money in their investment. |
• | We may fund distributions from any source, including, without limitation, offering proceeds or borrowings (which may constitute a return of capital). Until the proceeds from our offering stage are fully invested and from time to time during our operational stage, we expect to use proceeds from financings, either from our advisor or a third-party, to fund at least a portion of distributions in anticipation of cash flow to be received in later periods. We may also fund distributions from the sale of assets or from the maturity, payoff or settlement of debt investments. As of March 31, 2016, all distributions paid have been funded with advances from our advisor. Distributions funded from sources other than our cash flow from operations will result in dilution to subsequent investors, reduce funds available for investment in assets and may reduce the overall return to our stockholders. |
• | If we are unable to locate investments with attractive yields while we are investing the proceeds raised in our offering stage, our distributions and the long-term returns of our investors may be lower. |
• | Our policies do not limit us from incurring debt until our aggregate borrowings would exceed 300% of our net assets (before deducting depreciation or other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. During the early stages of our public offering, and to the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt such that our aggregate borrowings would exceed this limit. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment. |
• | We depend on tenants for the revenue generated by any real estate investments we make and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from any properties we acquire could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) and/or lower rental rates, making it more difficult for us to meet any debt service obligations we have incurred and limiting our ability to pay distributions to our stockholders. |
• | Any real estate investments we make may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from real estate properties and assets directly securing any real estate-related investments we acquire or originate could decrease. Such events would make it more difficult for the borrowers under such investments to meet their payment obligations. These events could in turn make it more difficult for us to meet debt service obligations and limit our ability to pay distributions to our stockholders. |
• | We cannot predict with any certainty how much, if any, of our distribution reinvestment plan proceeds will be available for general corporate purposes including, but not limited to: the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to any real estate properties we acquire; reserves required by any financings of real estate investments; funding obligations under any real estate loan receivable; the acquisition or origination of real estate investments, which would include payment of acquisition or origination fees to our advisor; and the repayment of debt. If such funds are not available from our distribution reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program. |
• | Disruptions in the financial markets and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to our stockholders. |
• | We have a debt obligation with a variable interest rate and may incur additional variable rate debt in the future. The interest and related payments will vary with the movement of LIBOR or other indexes. Increases in the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders. |
(i) | Our modified funds from operations (“MFFO”), as such term is defined by the Investment Program Association and interpreted by us, for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “MFFO Surplus”), and we will pay our advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or |
• | $33.7 million of net cash provided by offering proceeds related to our private placement offering, net of payments of commissions, dealer manager fees and other organization and offering costs of $3.3 million; |
• | $0.4 million of cash distribution advance from affiliate; and |
• | $0.1 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $0.2 million. |
Payments Due During the Years Ending December 31, | ||||||||||||||||
Contractual Obligations | Total | Remainder of 2016 | 2017-2018 | 2019-2020 | ||||||||||||
Outstanding debt obligations (1) | $ | 16,371,790 | $ | — | $ | — | $ | 16,371,790 | ||||||||
Interest payments on outstanding debt obligations (2) | 2,854,118 | 485,995 | 1,290,097 | 1,078,026 | ||||||||||||
Cash Distributions Declared (1) | Cash Distribution Declared Per Share (1) (2) | Cash Distributions Paid (3) | Cash Flows used in Operations | |||||||||||||||||||||
Period | Cash | Reinvested | Total | |||||||||||||||||||||
First Quarter 2016 | $ | 440,001 | $ | 0.123 | $ | 117,241 | $ | 197,330 | $ | 314,571 | $ | (199,188 | ) | |||||||||||
• | whether the lease stipulates how a tenant improvement allowance may be spent; |
• | whether the amount of a tenant improvement allowance is in excess of market rates; |
• | whether the tenant or landlord retains legal title to the improvements at the end of the lease term; |
• | whether the tenant improvements are unique to the tenant or general-purpose in nature; and |
• | whether the tenant improvements are expected to have any residual value at the end of the lease. |
Buildings | 25 - 40 years |
Building improvements | 10 - 25 years |
Tenant improvements | Shorter of lease term or expected useful life |
Tenant origination and absorption costs | Remaining term of related leases, including below-market renewal periods |
• | 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. |
a) | During the period covered by this Form 10-Q, we sold the following equity securities that were not registered under the Securities Act of 1933 (the “Act”). |
b) | On April 28, 2016, our Registration Statement on Form S-11 (File No. 333-207471) was declared effective under the Securities Act of 1933, covering a public offering of up to $1,500,000,000 in shares of common stock in our primary offering, consisting of two classes of shares: Class A shares at a price of $10.39 per share and Class T shares at $10.00 per share. Both classes of shares have discounts available to certain categories of purchasers. We are also offering of up to $800,000,000 in shares of common stock under our distribution reinvestment plan: Class A shares at a price of $9.88 per share and Class T shares at a price of $9.50 per share. The amount of selling commissions differs among Class A shares and Class T shares, and there is an ongoing stockholder servicing fee with respect to Class T shares sold in the primary initial public offering. We are offering to sell any combination of Class A and Class T shares in our primary offering and distribution reinvestment plan offering. We reserve the right to reallocate shares between the primary offering and our distribution reinvestment plan offering. We commenced our initial public offering on April 28, 2016 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. We expect to sell the shares registered in our primary offering over a two-year period. Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date. We may sell shares under the distribution reinvestment plan beyond the termination of the primary offering until we have sold all the shares under the plan. As of March 31, 2016, our initial public offering was not declared effective under the Securities Act of 1933 and no sales had been made under the offering. |
c) | We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. |
• | Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held his or her shares for one year. |
• | During any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders. |
• | During any calendar year, we may redeem no more than 5% of the weighted‑average number of shares outstanding during the prior calendar year. |
• | We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. |
• | there is no one-year holding requirement; |
• | until we establish an estimated NAV per share, the redemption price is the amount paid to acquire the shares from us. Notwithstanding the foregoing, stock dividends will initially be redeemed at the “net investment amount” per share, which will be based on the “amount available for investment/net investment amount” percentage shown in the estimated use of proceeds table in the prospectus, as supplemented, for our initial public offering. For each class of shares designated, this amount will initially equal $9.40 per share for redemptions of shares received as a result of a stock dividend; and |
• | once we have established an estimated NAV per share, the redemption price will be the estimated NAV per share as of the redemption date. |
Ex. | Description | ||
1.1 | Dealer Manager Agreement with Form of Selected Dealer Agreement (related to the Public Offering), by and between the Company and KBS Capital Markets Group, dated as of April 28, 2016 | ||
3.1 | Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement filing on Form S-11 filed October 16, 2015 | ||
3.2 | Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement filing on Form S-11 filed October 16, 2015 | ||
3.3 | Articles Supplementary for Class T Shares, incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement filing on Form S-11 filed April 20, 2016 | ||
4.1 | Form of Subscription Agreement, included as Appendix A to the Company’s prospectus dated April 28, 2016 and filed with the SEC May 3, 2016 | ||
4.2 | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement filing on Form S-11 filed October 16, 2015 | ||
4.3 | Amended and Restated Distribution Reinvestment Plan, included as Appendix B to the Company’s prospectus dated April 28, 2016 and filed with the SEC May 3, 2016 | ||
4.4 | Multiple Class Plan, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement filing on Form S-11 filed April 20, 2016 | ||
4.5 | Amended and Restated Escrow Agreement, by and between the Company, KBS Capital Markets Group LLC and UMB Bank, N.A. dated as of March 18, 2016, incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement filing on Form S-11 filed March 25, 2016 | ||
10.1 | Amendment No. 4 to the Amended and Restated Advisory Agreement (related to the Private Offering), by and between the Company and KBS Capital Advisors, dated as of January 26, 2016, incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement filing on Form S-11 filed February 16, 2016 | ||
10.2 | Amendment No. 5 to the Amended and Restated Advisory Agreement (related to the Private Offering), by and between the Company and KBS Capital Advisors, dated as of March 16, 2016, incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement filing on Form S-11 filed March 25, 2016 | ||
10.3 | Real Estate Property Co-Management Agreement, by and between KBS GI Von Karman Tech Center, LLC and KBS Management Group, LLC dated as of March 9, 2016, incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement filing on Form S-11 filed March 25, 2016 | ||
10.4 | Second Amended and Restated Advisory Agreement by and between the Company and KBS Capital Advisors, dated as of April 28, 2016 | ||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | ||
99.1 | Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement filing on Form S-11 filed March 25, 2016 | ||
101.INS | XBRL Instance Document | ||
101.SCH | XBRL Taxonomy Extension Schema | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | ||
KBS GROWTH & INCOME REIT, INC. | |||
Date: | May 12, 2016 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director | |||
(principal executive officer) | |||
Date: | May 12, 2016 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) | |||
Distribution Channel | Primary Offering Shares | DRP Shares |
Class A Shares | ||
Sales through a Dealer earning transaction-based compensation | $10.39 | $9.88 |
Sales through all other distribution channels as discussed in the Prospectus | $9.715 | $9.88 |
Class T Shares | ||
Sales through a Dealer earning transaction-based compensation | $10.00 | $9.50 |
1. | Representations and Warranties of the Company. As an inducement to the Dealer Manager to enter into this Agreement, the Company represents and warrants to the Dealer Manager and to each Dealer that: |
1.1 | The Company has prepared and filed with the Securities and Exchange Commission (the “SEC”) a registration statement (Registration No. 333-207471) that has become effective for the registration of the Shares under the Securities Act of 1933, as amended (the “Securities Act”), and the applicable rules and regulations (the “Rules and Regulations”) of the SEC promulgated thereunder. Copies of such registration statement as initially filed and each amendment thereto have been or will be delivered to the Dealer Manager. The registration statement and the prospectus contained therein, as finally amended at the effective date of the registration statement (the “Effective Date”), are respectively hereinafter referred to as the “Registration Statement” and the “Prospectus,” except that if the Company files a prospectus or prospectus supplement pursuant to Rule 424(b) under the Securities Act, or if the Company files a post-effective amendment to the Registration Statement, the term “Prospectus” includes the prospectus filed pursuant to Rule 424(b) or the prospectus included in such post-effective amendment. The term “Preliminary Prospectus” as used herein shall mean a preliminary prospectus related to the Shares as contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at any time as part of the registration statement. If one or more additional registration statements are filed by the Company and become effective with respect to shares of the Company’s common stock to be sold pursuant to the DRP, the terms “Registration Statement” and “Prospectus” shall refer, with respect to such DRP shares, to each such registration statement and prospectus contained therein from and after the date of effectiveness of each such registration statement, as each such registration statement and prospectus may be amended or supplemented from time to time. |
1.2 | On the Effective Date, on the date of the Prospectus and on the date any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the SEC, the Registration Statement and the Prospectus, as applicable, including the financial statements contained therein, complied or will comply with the Securities Act and the Rules and Regulations. On the Effective Date, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. On the date of the Prospectus, as amended or supplemented, as applicable, the Prospectus did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding anything contained herein to the contrary, the Company’s representations in this Section 1.2 will not extend to such statements contained in or omitted from the |
1.3 | No order preventing or suspending the use of any Preliminary Prospectus or the Prospectus has been issued and no proceedings for that purpose are pending, threatened or, to the knowledge of the Company, contemplated by the SEC; and, to the knowledge of the Company, no order suspending the offering of the Shares in any jurisdiction has been issued and no proceedings for that purpose have been instituted or threatened or are contemplated. |
1.4 | The Company intends to use the funds received from the sale of the Shares as set forth in the Prospectus. |
1.5 | The Company has full legal right, power and authority to enter into this Agreement and to perform the transactions contemplated hereby, except to the extent that the enforceability of the indemnity provisions contained in Section 6 of this Agreement may be limited under applicable securities laws and to the extent that the enforceability of this Agreement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws that affect creditors’ rights generally or by equitable principles relating to the availability of remedies. |
1.6 | The execution and delivery of this Agreement, the consummation of the transactions contemplated herein and compliance with the terms of this Agreement by the Company will not conflict with or constitute a default or violation under any charter, bylaw, contract, indenture, mortgage, deed of trust, lease, rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company, except to the extent that the enforceability of the indemnity provisions contained in Section 6 of this Agreement may be limited under applicable securities law and to the extent that the enforceability of this Agreement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws that affect creditors’ rights generally or by equitable principles relating to the availability of remedies. |
1.7 | No consent, approval, authorization or other order of any governmental authority is required in connection with the execution or delivery by the Company of this Agreement or the issuance and sale by the Company of the Shares, except as may be required under the Securities Act and the Rules and Regulations thereunder, by the Financial Industry Regulatory Authority (“FINRA”) or under applicable state securities laws. |
1.8 | The Shares have been duly authorized and, when issued and sold as contemplated by the Prospectus and the Company’s charter, as amended and supplemented, and upon payment therefor as provided in the Prospectus and this Agreement, the Shares will be validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus. |
2. | Representations and Warranties of the Dealer Manager. As an inducement to the Company to enter into this Agreement, the Dealer Manager represents and warrants to the Company that: |
2.1. | The Dealer Manager is a member in good standing of FINRA and a broker-dealer registered as such under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Dealer Manager and its employees and representatives have all required licenses and registrations to act under this Agreement. |
2.2. | The Dealer Manager represents and warrants to the Company and each person that signs the Registration Statement that the information under the caption “Plan of Distribution” in the Prospectus, as amended and supplemented, and all other information furnished and to be furnished to the Company by the Dealer Manager in writing expressly for use in the Registration Statement, any Preliminary Prospectus or the Prospectus, does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. |
3. | Covenants of the Company. The Company covenants and agrees with the Dealer Manager that: |
3.1. | It will, at no expense to the Dealer Manager, furnish the Dealer Manager with such number of printed copies of the Registration Statement, including all amendments and exhibits thereto, as the Dealer Manager may reasonably request. It will similarly furnish to the Dealer Manager and others designated by the Dealer Manager as many copies as the Dealer Manager may reasonably request in connection with the offering of the Shares of: (a) the Prospectus, including any amendments and supplements thereto and (b) this Agreement. |
3.2. | The Company will prepare and file with the appropriate regulatory authorities, on behalf of and at no expense to the Dealer Manager, the printed sales literature or other materials authorized by the Company to be used in the Offering (“Authorized Sales Materials”). In addition, the Company will furnish the Dealer Manager and others designated by the Dealer Manager, at no expense to the Dealer Manager, with such number of printed copies of Authorized Sales Materials as the Dealer Manager may reasonably request. |
3.3. | The Company will furnish such information and execute and file such documents as may be necessary for it to qualify the Shares for offer and sale under the securities laws of such jurisdictions as the Dealer Manager may reasonably designate and will file and make in each year such statements and reports as may be required. The Company will furnish to the Dealer Manager upon request a copy of such papers filed by the Company in connection with any such qualification. |
3.4. | It will: (a) file every amendment or supplement to the Registration Statement or the Prospectus that may be required by the SEC or any state securities administration and (b) if at any time the SEC shall issue any stop order suspending the effectiveness of the Registration Statement or any state securities |
3.5. | If at any time when a Prospectus is required to be delivered under the Securities Act and the Rules and Regulations thereunder any event occurs as a result of which, in the opinion of either the Company or the Dealer Manager, the Prospectus would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in view of the circumstances under which they were made, not misleading, the Company will promptly notify the Dealer Manager thereof (unless the information shall have been received from the Dealer Manager) and will prepare an amendment or supplement to the Prospectus that will correct such statement or omission. |
3.6. | It will comply with all requirements imposed upon it by the Securities Act and the Exchange Act, by the rules and regulations of the SEC promulgated thereunder and by all securities laws and regulations of those states in which an exemption has been obtained or qualification of the Shares has been effected, to permit the continuance of offers and sales of the Shares in accordance with the provisions hereof and of the Prospectus. |
3.7. | The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (a) the preparation, filing and printing of the Registration Statement as originally filed and of each amendment thereto, (b) the preparation, printing and delivery to the Dealer Manager of this Agreement, the Selected Dealer Agreement and such other documents as may be required in connection with the offer, sale, issuance and delivery of the Shares, (c) the fees and disbursements of the Company’s counsel, accountants and other advisors, (d) the fees and expenses related to the review of the terms and fairness of the Offering by FINRA, (e) the fees and expenses related to the registration and qualification of the Shares under federal and state securities laws, including the fees and disbursements of counsel in connection with the preparation of any Blue Sky survey and any supplement thereto, (f) the printing and delivery to the Dealer Manager of copies of any Preliminary Prospectus and the Prospectus, including any amendments and supplements thereto, (g) the fees and expenses of any registrar, transfer agent or escrow agent in connection with the Shares and (h) the costs and expenses of the Company relating to the preparation and printing of any Authorized Sales Materials and Company-approved investor presentations undertaken in connection with the marketing of the Shares, including, without limitation, expenses associated with the production of slides and graphics, fees and expenses of any consultants engaged in connection with presentations with the prior approval of the Company and travel and lodging expenses of the representatives of the Company and any such consultants. |
3.8. | It will disclose a per share estimated value of the Shares and related information in accordance with the applicable requirements of FINRA Rule 2310(b)(5). |
4. | Covenants of the Dealer Manager. The Dealer Manager covenants and agrees with the Company that: |
4.1. | In connection with the Dealer Manager’s participation in the offer and sale of Shares (including, without limitation, any resales and transfers of Shares), the Dealer Manager will comply, and in its agreements with Dealers will require that the Dealers comply, with all requirements and obligations imposed upon any of them by (a) the Securities Act, the Exchange Act and the rules and regulations of the SEC promulgated under both such acts, including the obligation to deliver a copy of the Prospectus as amended or supplemented; (b) all applicable state securities laws and regulations as from time to time in effect; (c) the applicable rules of FINRA, including, but not in any way limited to, FINRA Rule 2121, FINRA Rule 2310 and FINRA Rule 5141; (d) all applicable rules and regulations relating to the suitability of the investors, including, without limitation, the provisions of Articles III.C and III.E of the Statement of Policy regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc. (“NASAA Guidelines”); (e) any other state and federal laws and regulations applicable to the Offering, the sale of Shares or the activities of the Dealer Manager pursuant to this Agreement, including without limitation the privacy standards and requirements of state and federal laws, including the Gramm-Leach-Bliley Act of 1999, and the laws governing money laundering abatement and anti-terrorist financing efforts, including the applicable rules of the SEC and FINRA, the Bank Secrecy Act, as amended, the USA Patriot Act of 2001 and regulations administered by the Office of Foreign Asset Control at the Department of the Treasury; and (f) this Agreement and the Prospectus as amended and supplemented. |
4.2. | The Dealer Manager will not offer the Shares, and in its agreements with Dealers will require that the Dealers not offer Shares, in any jurisdiction unless and until (a) the Dealer Manager has been advised by the Company in writing that the Shares are either registered in accordance with, or exempt from, the securities laws of such jurisdiction and (b) the Dealer Manager and any Dealer offering Shares in such jurisdiction have all required licenses and registrations to offer Shares in that jurisdiction. |
4.3. | The Dealer Manager will make, and in its agreements with Dealers will require that Dealers make, no representations concerning the Offering except as set forth in the Prospectus as amended and supplemented and in the Authorized Sales Materials. |
4.4. | The Dealer Manager will offer Shares, and in its agreements with Dealers will require that the Dealers offer Shares, only to persons who meet the financial qualification and suitability standards set forth in the Prospectus as amended and supplemented or in any suitability letter or memorandum sent to the Dealer Manager by the Company. The Dealer Manager further agrees that the Company, in its sole and absolute discretion, may accept or reject any subscription, in whole or in part, for any reason whatsoever and no commission will be paid to the Dealer Manager with respect to the portion of any subscription that is rejected. |
4.5. | Except for Authorized Sales Materials, the Company has not authorized the use of any supplemental literature or sales material in connection with the Offering and the Dealer Manager agrees not to use any such material that has not been authorized by the Company. The Dealer Manager further agrees (a) not to deliver any Authorized Sales Materials to any person unless it is accompanied or preceded by the Prospectus as amended and supplemented, (b) not to show or give to any investor or prospective investor or reproduce any material or writing that is supplied to it by the Company and marked “broker-dealer use only” or otherwise bearing a legend denoting that it is not to be used in connection with the sale of Shares to members of the public and (c) not to show or give to any investor or prospective investor in a particular jurisdiction any material or writing that is supplied to it by the Company if such material bears a legend denoting that it is not to be used in connection with the sale of Shares to members of the public in such jurisdiction. |
4.6. | The Dealer Manager agrees to be bound by the terms of the Amended and Restated Escrow Agreement dated March 18, 2016, among UMB Bank, N.A., as escrow agent, the Dealer Manager and the Company, a copy of which is attached hereto as Exhibit B, and the Dealer Manager further agrees that it will not represent or imply that UMB Bank, N.A., as the escrow agent identified in the Prospectus, has investigated the desirability or advisability of an investment in the Company or has approved, endorsed or passed upon the merits of the Shares or of the Company, nor will the Dealer Manager use the name of said escrow agent in any manner whatsoever in connection with the offer or sale of the Shares other than by acknowledgment that it has agreed to serve as escrow agent. |
4.7. | The Dealer Manager will provide the Company with such information relating to the offer and sale of the Shares by it as the Company may from time to time reasonably request or as may be requested to enable the Company to prepare such reports of sale as may be required to be filed under applicable federal or state securities laws. |
4.8. | The Dealer Manager will permit a Dealer to participate in the Offering only if such Dealer is a member of FINRA. |
5. | Obligations and Compensation of Dealer Manager. |
5.1. | The Company hereby appoints the Dealer Manager as its agent and principal distributor during the Offering Period (as defined in Section 5.2) for the purpose of finding, on a best-efforts basis, purchasers for the Shares for cash through the distribution channels contemplated herein and as set forth in the Prospectus. The Dealer Manager may also arrange for the sale of Shares for cash directly to clients and customers identified by the Company on the terms and conditions stated herein and in the Prospectus. The Dealer Manager hereby accepts such agency and distributorship and agrees to use its best efforts to find purchasers for the Shares on said terms and conditions. |
5.2. | The “Offering Period” shall mean that period during which Shares may be offered for sale, commencing on the Effective Date of the Registration Statement (but in no event prior to the Effective Date of the Registration Statement), during which period offers and sales of the Shares shall occur continuously in the jurisdictions in which the Shares are registered or qualified or exempt from registration (as confirmed in writing by the Company to the Dealer Manager) unless and until the Offering is terminated, provided that the Dealer Manager and the Dealers will suspend or terminate offering Shares upon request of the Company at any time and will resume offering Shares upon subsequent request of the Company. The Offering Period shall in all events terminate upon the sale of all of the Shares. Upon termination of the Offering Period, the Dealer Manager’s agency and this Agreement shall terminate without obligation on the part of the Dealer Manager or the Company except as set forth in this Agreement. |
5.3. | Except as may be provided in the “Plan of Distribution” section of the Prospectus, which may be amended and supplemented from time to time, as compensation for the services rendered by the Dealer Manager, the Company agrees that it will pay to the Dealer Manager selling commissions plus a dealer manager fee as follows: |
Selling Commissions | ||
Distribution Channel | Primary Offering Shares | DRP Shares |
Class A Shares | ||
Sales through a Dealer earning transaction-based compensation | 6.5%* | 0.0% |
Sales through all other distribution channels as described in the Prospectus | 0.0% | 0.0% |
Class T Shares | ||
Sales through a Dealer earning transaction-based compensation | 3.0%* | 0.0% |
Dealer Manager Fee | ||
Distribution Channel | Primary Offering Shares | DRP Shares |
Class A Shares | ||
Sales through a Dealer earning transaction-based compensation | 2.0%* | 0.0% |
Sales through all other distribution channels as described in the Prospectus | 2.0%* | 0.0% |
Class T Shares | ||
Sales through a Dealer earning transaction-based compensation | 2.0%* | 0.0% |
Dollar Volume Class A Shares Purchased | Sales Commissions (Based on $10.39 Price Per Share) | Dealer Manager Fee (Based on $10.39 Price Per Share) | Price Per Share to Investor | ||||
$0 | to | $ | 1,000,000 | 6.5% | 2.0% | $10.390 | |
$1,000,001 | to | $ | 2,000,000 | 5.5% | 2.0% | $10.286 | |
$2,000,001 | to | $ | 3,000,000 | 4.5% | 2.0% | $10.182 | |
$3,000,001 | to | $ | 4,000,000 | 3.5% | 1.5% | $10.026 | |
$4,000,001 | to | $10,000,000 | 2.0% | 1.5% | $9.871 | ||
$10,000,001 | and above | 1.0% | 1.0% | $9.715 | |||
Volume Discount Table for Purchases of Class A Shares Made Net of Selling Commissions | ||||||||
Dollar Volume Class A Shares Purchased | Dealer Manager Fee (Based on $10.39 Price Per Share) | Price Per Share to Investor* | ||||||
$3,000,001 | to | $10,000,000 | 1.5% | $9.663 | ||||
$10,000,001 | and above | 1.0% | $9.611 | |||||
Dollar Volume Class T Shares Purchased | Sales Commissions (Based on $10.00 Price Per Share) | Dealer Manager Fee (Based on $10.00 Price Per Share) | Price Per Share to Investor | ||||
$0 | to | $ | 1,000,000 | 3.0% | 2.0% | $10.00 | |
$1,000,001 | to | $ | 2,000,000 | 2.0% | 2.0% | $9.90 | |
$2,000,001 | to | $ | 3,000,000 | 1.5% | 2.0% | $9.85 | |
$3,000,001 | to | $ | 4,000,000 | 1.0% | 1.5% | $9.75 | |
$4,000,001 | to | $10,000,000 | 0.5% | 1.5% | $9.70 | ||
$10,000,001 | and above | 0.5% | 1.0% | $9.65 | |||
6. | Indemnification. |
6.1. | To the extent permitted by the Company’s charter and the provisions of Article II.G of the NASAA Guidelines, and subject to the limitations below, the Company will indemnify and hold harmless the Dealers and the Dealer Manager, their officers and directors and each person, if any, who controls such Dealer or Dealer Manager within the meaning of Section 15 of the Securities Act (the “Indemnified Persons”) from and against any losses, claims, damages or liabilities (“Losses”), joint or several, to which such Indemnified Persons may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or (ii) in any blue sky application or other document executed by the Company or on its behalf specifically for the purpose of qualifying any or all of the Shares for sale under the securities laws of any jurisdiction or based upon written information furnished by the Company under the securities laws thereof (any such application, document or information being hereinafter called a “Blue Sky Application”) or (iii) in any Authorized Sales Materials, or (b) the omission or alleged omission to state in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or in any Blue Sky Application or Authorized Sales Materials a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company will reimburse each Indemnified Person for any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending such Loss. |
6.2. | The Dealer Manager will indemnify and hold harmless the Company, its officers and directors (including any person named in the Registration Statement, with his consent, as about to become a director), each other person who has signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act (the “Company Indemnified Persons”), from and against any Losses to which any of the Company Indemnified Persons may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or (ii) in any Blue Sky Application or (iii) in any Authorized Sales Materials; or (b) the omission or alleged omission to state in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or in any Blue Sky Application or Authorized Sales Materials a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that clauses (a) and (b) apply, to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Dealer Manager specifically for use with reference to the Dealer Manager in the preparation of the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or in preparation of any Blue Sky Application or Authorized Sales Materials; or (c) any use of sales literature not authorized or approved by the Company or any use of "broker- |
6.3. | Each Dealer severally will indemnify and hold harmless the Company, the Dealer Manager, each of their officers and directors (including any person named in the Registration Statement, with his consent, as about to become a director), each other person who has signed the Registration Statement and each person, if any, who controls the Company or the Dealer Manager within the meaning of Section 15 of the Securities Act (the “Dealer Indemnified Persons”) from and against any Losses to which a Dealer Indemnified Person may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or (ii) in any Blue Sky Application or (iii) in any Authorized Sales Materials; or (b) the omission or alleged omission to state in the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or in any Blue Sky Application or Authorized Sales Materials a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that clauses (a) and (b) apply, to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company or the Dealer Manager by or on behalf of the Dealer specifically for use with reference to the Dealer in the preparation of the Registration Statement, the Prospectus, any Preliminary Prospectus used prior to the effective date of the Registration Statement or any post-effective amendment or supplement to any of them or in preparation of any Blue Sky Application or Authorized Sales Materials; or (c) any use of sales literature not authorized or approved by the Company or any use of "broker-dealer use only" materials with members of the public by the Dealer in the offer and sale of the Shares or any use of sales literature in a particular jurisdiction if such material bears a legend denoting that it is not to be used in |
6.4. | Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, notify in writing the indemnifying party of the commencement thereof. The failure of an indemnified party to so notify the indemnifying party will relieve the indemnifying party from any liability under this Section 6 as to the particular item for which indemnification is then being sought, but not from any other liability that it may have to any indemnified party. In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent it may wish, jointly with any other indemnifying party similarly notified, to participate in the defense thereof, with separate counsel. Such participation shall not relieve such indemnifying party of the obligation to reimburse the indemnified party for reasonable legal and other expenses (subject to Section 6.5) incurred by such indemnified party in defending itself, except for such expenses incurred after the indemnifying party has deposited funds sufficient to effect the settlement, with prejudice, of the claim in respect of which indemnity is sought. Any such indemnifying party shall not be liable to any such indemnified party on account of any settlement of any claim or action effected without the consent of such indemnifying party. Any indemnified party shall not be bound to perform or refrain from performing any act pursuant to the terms of any settlement of any claim or action effected without the consent of such indemnified party. |
6.5. | The indemnifying party shall pay all legal fees and expenses of the indemnified party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obliged to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one indemnified party. If such claims or actions are alleged or brought against more than one indemnified party, then the indemnifying party shall only |
7. | Survival of Provisions. |
7.1. | The respective agreements, representations and warranties of the Company and the Dealer Manager set forth in this Agreement shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Dealer Manager or any Dealer or any person controlling the Dealer Manager or any Dealer or by or on behalf of the Company or any person controlling the Company and (b) the acceptance of any payment for the Shares. |
7.2. | The respective agreements and obligations of the Company and the Dealer Manager set forth in Sections 3.7, 4.1, 4.4, 4.6, 4.7, 5.3, 6 through 10 and 12 through 13 of this Agreement shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Dealer Manager or any Dealer or any person controlling the Dealer Manager or any Dealer or by or on behalf of the Company or any person controlling the Company, (b) the acceptance of any payment for the Shares and (c) the termination of this Agreement. |
8. | Applicable Law and Invalid Provision. |
8.1. | This Agreement shall be governed by the laws of the State of Maryland; provided, however, that causes of action for violations of federal or state securities laws shall not be governed by this Section 8.1, but rather by the applicable federal or state securities law. |
8.2. | The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision was omitted. |
9. | Counterparts. This Agreement may be executed in any number of counterparts. Each counterpart, when executed and delivered, shall be an original contract, but all counterparts, when taken together, shall constitute one and the same agreement. |
10. | Successors and Assigns. |
10.1. | This Agreement shall inure to the benefit of and be binding upon the Dealer Manager and the Company and their respective successors and permitted assigns. This Agreement shall inure to the benefit of the Dealers to the extent set forth in Sections 1, 3 and 6 hereof. Nothing in this Agreement is intended or shall be |
10.2. | No party shall assign this Agreement or any right, interest or benefit under this Agreement without the prior written consent of the other party. |
11. | Amendments. This Agreement may only be amended by the written agreement of the Dealer Manager and the Company, except as set forth in Section 5 hereof. |
12. | Term. |
12.1. | Any party to this Agreement shall have the right to terminate this Agreement on 60 days’ written notice or immediately upon notice to the other party in the event that such other party shall have failed to comply with any material provision hereof. If not sooner terminated, the Dealer Manager’s agency and this Agreement shall terminate upon termination of the Offering Period without obligation on the part of the Dealer Manager or the Company, except as set forth in this Agreement. Upon termination of this Agreement, (a) the Company shall pay to the Dealer Manager all accrued amounts payable under Section 5 hereof at such time as such amounts become payable and (b) the Dealer Manager shall promptly deliver to the Company all records and documents in its possession that relate to the Offering and that are not designated as “dealer” copies. |
12.2. | The term of this Agreement shall be extended to cover offerings of shares of the Company’s common stock pursuant to the DRP which are offered pursuant to one or more additional registration statements (each, a “DRP Registration Statement”) and prospectus contained therein. Upon the effectiveness of any such DRP Registration Statement, this Agreement shall automatically be deemed to cover the offering of such DRP shares, and the terms “Shares,” “Offering,” “Registration Statement” and “Prospectus” set forth herein shall be deemed to include the newly registered DRP shares, the DRP Registration Statement and the prospectus contained in the DRP Registration Statement, as applicable, as such DRP Registration Statement and prospectus may be amended or supplemented from time to time. |
13. | Customer Complaints. Each party herby agrees to promptly provide to the other party copies of any written or otherwise documented complaints from customers of the Dealer Manager or any Dealer received by such party relating in any way to the Offering (including, but not limited to, the manner in which the Shares are offered by the Dealer Manager or the Dealer). |
14. | No Partnership. Nothing in this Agreement shall be construed or interpreted to constitute the Dealer Manager as in association with or in partnership with the Company; instead, this Agreement shall only constitute the Dealer Manager as a dealer authorized by the Company to sell and to manage the sale by others of the Shares according to the terms set forth in the Registration Statement and the Prospectus as amended or supplemented and in this Agreement. |
15. | Submission of Orders. |
15.1. | Those persons who purchase Shares will be instructed by the Dealer Manager or the Dealer to make their checks payable to the Company, except with respect to Arizona, Massachusetts and Pennsylvania investors. Checks from Arizona investors must be made payable to “UMB Bank, N.A., as escrow agent for KBS Growth & Income REIT, Inc.” until the Arizona Minimum has been achieved. Checks from Massachusetts and Pennsylvania investors must be made payable to “UMB Bank, N.A., as escrow agent for KBS Growth & Income REIT, Inc.” until the Massachusetts and Pennsylvania Minimum has been achieved. The Dealer Manager, any agent of the Dealer Manager and any Dealer receiving a check not conforming to the foregoing instructions shall return such check directly to such subscriber not later than the end of the next business day following its receipt. Checks received by the Dealer Manager, any agent of the Dealer Manager or a Dealer that conform to the foregoing instructions shall be transmitted for deposit pursuant to one of the methods described in this Section 15. |
15.2. | Where, pursuant to a Dealer’s internal supervisory procedures, internal supervisory review is conducted at the same location at which subscription documents and checks are received from subscribers, checks will be transmitted by the end of the next business day following receipt by the Dealer for deposit to the Company or its agent, except for investments from Arizona, Massachusetts and Pennsylvania investors. The Dealer will transmit checks from Arizona investors for deposit to the escrow agent for the Company or, after the Arizona Minimum has been achieved, to the Company or its agent. The Dealer will transmit checks from Massachusetts and Pennsylvania investors for deposit to the escrow agent for the Company or, after the Massachusetts and Pennsylvania Minimum has been achieved, to the Company or its agent. |
15.3. | Where, pursuant to a Dealer’s internal supervisory procedures, final internal supervisory review is conducted at a different location, checks will be transmitted by the end of the next business day following receipt by the Dealer to the office of the Dealer conducting such final internal supervisory review (the “Final Review Office”). The Final Review Office will in turn by the end of the next business day following receipt by the Final Review Office, transmit such checks for deposit to the Company or its agent, except for investments from Arizona, Massachusetts and Pennsylvania investors. The Final Review Office will transmit checks from Arizona investors for deposit to the escrow agent for the Company or, after the Arizona Minimum has been achieved, to the Company or its agent. The Final Review Office will transmit checks from Massachusetts and Pennsylvania investors for deposit to the escrow agent for the Company or, after the Massachusetts and Pennsylvania Minimum has been achieved, to the Company or its agent. |
15.4. | Where the Dealer Manager (or its agent) receives investor proceeds, checks will be transmitted by the Dealer Manager (or its agent) for deposit to the Company or its agent (except for investments from Arizona, Massachusetts and Pennsylvania investors) as soon as practicable but in any event by the end of the second business day following receipt by the Dealer Manager (or its agent). The Dealer Manager (or its agent) will transmit checks from Arizona investors for deposit to |
15.5. | Notwithstanding the above, the Dealer Manager may authorize certain Dealers that are “$250,000 broker-dealers” to instruct their customers to make their checks for Shares subscribed for payable directly to the Dealer or authorize a debit from the customer’s account maintained with the Dealer for the amount of shares subscribed for by the customer. In such case, the Dealer will collect the proceeds of the subscribers’ checks and debits and wire funds to the Company or, if instructed by the Dealer Manager, issue a check for the aggregate amount of the subscription proceeds made payable to “KBS Growth & Income REIT, Inc.” (except for investments from Arizona, Massachusetts and Pennsylvania investors). For Arizona investors, the Dealer will collect the proceeds of the subscribers’ checks and debits and wire funds to the escrow agent or, if instructed by the Dealer Manager, issue a check for the aggregate amount of the subscription proceeds made payable to “UMB Bank, N.A., as escrow agent for KBS Growth & Income REIT, Inc.” or, after the Arizona Minimum has been achieved, the Dealer will collect the proceeds of the subscribers’ checks and debits and wire funds to the Company or, if instructed by the Dealer Manager, issue a check for the aggregate amount of the subscription proceeds made payable to “KBS Growth & Income REIT, Inc.” For Massachusetts and Pennsylvania investors, the Dealer will collect the proceeds of the subscribers’ checks and debits and wire funds to the escrow agent or, if instructed by the Dealer Manager, issue a check for the aggregate amount of the subscription proceeds made payable to “UMB Bank, N.A., as escrow agent for KBS Growth & Income REIT, Inc.” or, after the Massachusetts and Pennsylvania Minimum has been achieved, the Dealer will collect the proceeds of the subscribers’ checks and debits and wire funds to the Company or, if instructed by the Dealer Manager, issue a check for the aggregate amount of the subscription proceeds made payable to “KBS Growth & Income REIT, Inc.” The procedures for the transmittal of checks and wiring of funds of $250,000 broker-dealers will be set forth in the agreements between the $250,000 broker-dealer and the Dealer Manager. |
I. | Dealer Manager Agreement |
II. | Submission of Orders |
III. | Pricing |
Distribution Channel | Primary Offering Shares | DRP Shares |
Class A shares | ||
Sales through a Dealer earning transaction-based compensation | $10.39 | $9.88 |
Sales through all other distribution channels as described in the Prospectus | $9.715 | $9.88 |
Class T shares | ||
Sales through a Dealer earning transaction-based compensation | $10.00 | $9.50 |
Dollar Volume Class A Shares Purchased | Price Per Share to Investor | ||||
$0 | to | $ | 1,000,000 | $10.390 | |
$1,000,001 | to | $ | 2,000,000 | $10.286 | |
$2,000,001 | to | $ | 3,000,000 | $10.182 | |
$3,000,001 | to | $ | 4,000,000 | $10.026 | |
$4,000,001 | to | $10,000,000 | $9.871 | ||
$10,000,001 | and above | $9.715 | |||
Volume Discount Table for Purchases of Class A Shares Made Net of Selling Commissions | ||||||||||||
Dollar Volume Class A Shares Purchased | Dealer Manager Fee (Based on $10.39 Price Per Share) | Price Per Share to Investor* | ||||||||||
$3,000,001 | To | $10,000,000 | 1.5% | $9.663 | ||||||||
$10,000,001 | and above | 1.0% | $9.611 | |||||||||
Dollar Volume Class T Shares Purchased | Price Per Share to Investor | ||||
$0 | to | $ | 1,000,000 | $10.00 | |
$1,000,001 | to | $ | 2,000,000 | $9.90 | |
$2,000,001 | to | $ | 3,000,000 | $9.85 | |
$3,000,001 | to | $ | 4,000,000 | $9.75 | |
$4,000,001 | to | $10,000,000 | $9.70 | ||
$10,000,001 | and above | $9.65 | |||
IV. | Dealer’s Compensation |
Selling Commissions | ||
Distribution Channel | Primary Offering Shares | DRP |
Class A shares | ||
Sales through a Dealer earning transaction-based compensation | 6.5% | 0.0% |
Sales through all other distribution channels as discussed in the Prospectus | 0.0% | 0.0% |
Class T shares | ||
Sales through a Dealer earning transaction-based compensation | 3.0% | 0.0% |
Dollar Volume Class A Shares Purchased | Sales Commissions (Based on $10.39 Price Per Share) | Dealer Manager Fee (Based on $10.39 Price Per Share) | ||||
$0 | to | $ | 1,000,000 | 6.5% | 2.0% | |
$1,000,001 | to | $ | 2,000,000 | 5.5% | 2.0% | |
$2,000,001 | to | $ | 3,000,000 | 4.5% | 2.0% | |
$3,000,001 | to | $ | 4,000,000 | 3.5% | 1.5% | |
$4,000,001 | to | $10,000,000 | 2.0% | 1.5% | ||
$10,000,001 | and above | 1.0% | 1.0% | |||
Dollar Volume Class T Shares Purchased | Sales Commissions (Based on $10.00 Price Per Share) | Dealer Manager Fee (Based on $10.00 Price Per Share) | ||||
$0 | to | $ | 1,000,000 | 3.0% | 2.0% | |
$1,000,001 | to | $ | 2,000,000 | 2.0% | 2.0% | |
$2,000,001 | to | $ | 3,000,000 | 1.5% | 2.0% | |
$3,000,001 | to | $ | 4,000,000 | 1.0% | 1.5% | |
$4,000,001 | to | $10,000,000 | 0.5% | 1.5% | ||
$10,000,001 | and above | 0.5% | 1.0% | |||
V. | Payment |
VI. | Right to Reject Orders or Cancel Sales |
VII. | Covenants of the Dealer |
7.1 | Dealer will use its best efforts to sell the Shares for cash on the terms and conditions set forth in this Agreement and the Prospectus as amended and supplemented. |
7.2 | In connection with the Dealer’s participation in the offer and sale of Shares (including, without limitation, all initial and additional subscriptions for Shares and any resales and transfers of Shares), the Dealer will comply with all requirements and obligations imposed upon it by (a) the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC promulgated under both such acts; (b) all applicable state securities laws and regulations as from time to time in effect; (c) the applicable rules of FINRA, including, but not in any way limited to, FINRA Rule 2040, FINRA Rule 2121, FINRA Rule 2310 and FINRA Rule 5141; (d) all applicable rules and regulations relating to the suitability of investors, including, without limitation, the provisions of Articles III.C. and III.E of the Statement of Policy regarding Real Estate Investment Trusts of the North American Securities Administrators Association, Inc. (the “NASAA Guidelines”); (e) any other state and federal laws and regulations applicable to the Offering, the sale of Shares or the activities of the Dealer pursuant to this Agreement, including without limitation the privacy standards and requirements of state and federal laws, including the Gramm-Leach-Bliley Act of 1999, and the laws governing money laundering abatement and anti-terrorist financing efforts, including the applicable rules of the SEC and FINRA, the Bank Secrecy Act, as amended, the USA Patriot Act of 2001, and regulations administered by the Office of Foreign Asset Control at the Department of the Treasury; and (f) this Agreement and the Prospectus as amended and supplemented. |
7.3 | The Dealer will not offer Shares in any jurisdiction unless and until (a) the Dealer has been advised in writing by the Company or the Dealer Manager that the Shares are either registered in accordance with, or exempt from, the securities laws of such jurisdiction and (b) the Dealer has all required licenses and registrations to offer shares in that jurisdiction. |
7.4 | The Dealer will offer Shares (both at the time of an initial subscription and at the time of any additional subscription, including initial enrollments and increased participations in the DRP) only to persons who meet the financial qualifications and suitability standards set forth in the Prospectus as amended or supplemented or in any suitability letter or memorandum sent to the Dealer by the Company or the Dealer Manager. Nothing contained in this section shall be construed to relieve the Dealer of the Dealer’s suitability obligations under FINRA Rule 2111 or FINRA Rule |
7.5 | The Dealer agrees to comply with the record-keeping requirements imposed by (a) federal and state securities laws and the rules and regulations thereunder, (b) the applicable rules of FINRA and (c) the NASAA Guidelines, including the requirement to maintain records (the “Suitability Records”) of the information used to determine that an investment in Shares is suitable and appropriate for each subscriber for a period of six years from the date of the sale of the Shares. The Dealer further agrees to make the Suitability Records available to the Dealer Manager and the Company upon request and to make them available to representatives of the SEC and FINRA and applicable state securities administrators upon the Dealer’s receipt of a subpoena or other appropriate document request from such agency. |
7.6 | The Dealer will provide the Dealer Manager with such information relating to the offer and sale of the Shares by it as the Dealer Manager may from time to time reasonably request or as may be requested to enable the Dealer Manager or the Company, as the case may be, to prepare such reports of sale as may be required to be filed under applicable federal or state securities laws and the rules and regulations thereunder. |
7.7 | The Dealer agrees to be bound by the terms of the Amended and Restated Escrow Agreement dated March 18, 2016, among UMB Bank, N.A., as escrow agent, the Dealer Manager and the Company (the “Escrow Agreement”), a copy of which is attached as Exhibit B to the Dealer Manager Agreement, and the Dealer further agrees that it will not represent or imply that UMB Bank, N.A., as the escrow agent identified in the Prospectus, has investigated the desirability or advisability of an investment in the Company or has approved, endorsed or passed upon the merits of the Shares or of the Company, nor will the Dealer use the name of said escrow agent in any manner whatsoever in connection with the offer or sale of the Shares other than by acknowledgment that it has agreed to serve as escrow agent. |
VIII. | Prospectus and Sales Literature |
IX. | License and Association Membership |
X. | Anti-Money Laundering Compliance Programs |
XI. | Effectiveness, Termination and Amendment |
XII. | Privacy Laws |
12.1 | Each party agrees to abide by and comply in all respects with (a) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (“GLBA”) and applicable regulations promulgated thereunder, (b) the privacy standards and requirements of any other applicable federal or state law, including the Fair Credit Reporting Act (“FCRA”) and (c) its own internal privacy policies and procedures, each as may be amended from time to time. |
12.2 | Dealer shall not disclose nonpublic personal information (as defined under the GLBA) of all customers who have opted out of such disclosures, except to service providers (when necessary and as permitted under the GLBA) or as otherwise required by applicable law; |
12.3 | Except as expressly permitted under the FCRA, Dealer shall not disclose any information that would be considered a “consumer report” under the FCRA; and |
12.4 | Dealer shall be responsible for determining which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving a list of such customers (the “List”) to identify customers that have exercised their opt-out rights. In the event either party expects to use or disclose nonpublic personal information of any customer for purposes other than servicing the customer, or as otherwise required by applicable law, that party must first consult the List to determine whether the affected customer has exercised his or her opt-out rights. Each party understands that it is prohibited from using or disclosing any nonpublic personal information of any customer that is identified on the List as having opted out of such disclosures. |
XIII. | Customer Complaints |
XIV. | Notice |
XV. | Confidentiality |
XVI. | Confirmation |
XVII. | Entire Agreement |
XVIII. | Successors and Assigns |
XIX. | Arbitration, Attorney’s Fees, Jury Trial and Applicable Law |
XX. | Severability |
XXI. | Counterparts |
XXII. | No Partnership |
Attest | KBS CAPITAL MARKETS GROUP LLC |
Dealer is authorized to sell the Company’s Class A shares of common stock: | Yes____ | No____ |
Dealer is authorized to sell the Company’s Class T shares of common stock: | Yes____ | No____ |
• | Maintain all licenses with FINRA necessary to carry on the activities required by Dealer’s Selected Dealer Agreement with the Dealer Manager and this Addendum; |
• | Offer to meet with the holder of the Class T shares no less than annually to provide overall guidance on the holder’s investment in the Company, including |
• | Discuss with the holder of the Class T shares upon such holder’s request any questions related to the holder’s investment in the Company. |
By: | ________________________________ |
Name: | __________________________ |
Title: | __________________________ |
By: | __________________________________ |
Name: | ____________________________ |
Title: | ____________________________ |
Page | |||
ARTICLE 1 – DEFINITIONS | 1 | ||
ARTICLE 2 – APPOINTMENT | 9 | ||
ARTICLE 3 – DUTIES OF THE ADVISOR | 9 | ||
3.01 Organizational and Offering Services | 10 | ||
3.02 Acquisition Services | 10 | ||
3.03 Asset Management Services | 10 | ||
3.04 Stockholder Services | 13 | ||
3.05 Other Services | 13 | ||
ARTICLE 4 – AUTHORITY OF ADVISOR | 13 | ||
4.01 General | 13 | ||
4.02 Powers of the Advisor | 14 | ||
4.03 Approval by the Board | 14 | ||
4.04 Modification or Revocation of Authority of Advisor | 14 | ||
ARTICLE 5 – BANK ACCOUNTS | 14 | ||
ARTICLE 6 – RECORDS AND FINANCIAL STATEMENTS | 14 | ||
ARTICLE 7 – LIMITATION ON ACTIVITIES | 15 | ||
ARTICLE 8 – FEES | 15 | ||
8.01 Acquisition Fees | 15 | ||
8.02 Origination Fees | 16 | ||
8.03 Asset Management Fees | 17 | ||
8.04 Disposition Fees | 17 | ||
8.05 Subscription Processing Fee | 18 | ||
8.06 Subordinated Share of Cash Flows | 18 | ||
8.07 Subordinated Incentive Fee | 18 | ||
8.08 Changes to Fee Structure | 19 | ||
ARTICLE 9 – EXPENSES | 19 | ||
9.01 General | 19 | ||
9.02 Timing of and Limitations on Reimbursements | 20 | ||
ARTICLE 10 – VOTING AGREEMENT | 21 | ||
ARTICLE 11 – RELATIONSHIP OF ADVISOR AND COMPANY, OTHER ACTIVITIES OF THE ADVISOR | 21 | ||
11.01 Relationship | 21 | ||
11.02 Time Commitment | 22 | ||
11.03 Investment Opportunities and Allocation | 22 | ||
ARTICLE 12 – THE KBS NAME | 23 | ||
ARTICLE 13 – TERM AND TERMINATION OF THE AGREEMENT | 23 | ||
13.01 Term | 23 | ||
13.02 Terminated by Either Party | 23 | ||
13.03 Payments on Termination and Survival of Certain Rights and Obligations | 23 | ||
ARTICLE 14 – ASSIGNMENT | 24 | ||
ARTICLE 15 – INDEMNIFICATION AND LIMITATION OF LIABILITY | 24 | ||
15.01 Indemnification | 24 | ||
15.02 Limitation on Indemnification | 25 | ||
15.03 Limitation on Payment of Expenses | 25 | ||
ARTICLE 16 – MISCELLANEOUS | 25 | ||
16.01 Notices | 25 | ||
16.02 Modification | 26 | ||
16.03 Severability | 26 | ||
16.04 Construction | 26 | ||
16.05 Entire Agreement | 26 | ||
16.06 Waiver | 26 | ||
16.07 Gender | 26 | ||
16.08 Titles Not to Affect Interpretation | 26 | ||
16.09 Counterparts | 26 | ||
ARTICLE 17 – ADVANCE | 27 | ||
• | the investment objectives and criteria of each program or investor; |
• | the cash requirements of each program or investor; |
• | the effect of the investment on the diversification of each program’s or investor’s portfolio by type of investment, risk of investment, type of commercial property, geographic location of properties, and tenants of properties and, in the case of debt-related investments, the characteristics of the underlying property; |
• | the policy of each program or investor relating to leverage; |
• | the anticipated cash flow of the property or asset to be acquired; |
• | the income tax effects of the purchase on each program or investor; |
• | the size of the investment; and |
• | the amount of funds available to each program or investor and the length of time such funds have been available for investment. |
(i) | the Company’s modified funds from operations (“MFFO”), as such term is defined by the Investment Program Association and interpreted by the Company, for the immediately preceding month exceeds the amount of cash distributions declared for record dates of such prior month (an “MFFO Surplus”), and the Company shall pay the Advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the Advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or |
(ii) | the Advance may be repaid from excess proceeds (“Excess Proceeds”) from the Company’s third-party financings, provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the Advance shall be determined by the Conflicts Committee of the Company in its sole discretion. |
By: | /s/ Charles J. Schreiber, Jr. |
By: | GKP Holding LLC, a Manager |
By: | /s/ Peter McMillan III |
By: | /s/ Keith D. Hall |
By: | Schreiber Real Estate Investments, L.P., a Manager |
By: | Schreiber Investments, LLC, as general partner |
By: | /s/ Charles J. Schreiber, Jr. |
1. | I have reviewed this quarterly report on Form 10-Q of KBS Growth & Income REIT, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [language omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986] and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34‑47986]; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | May 12, 2016 | 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 Growth & Income REIT, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [language omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986] and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34‑47986]; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | May 12, 2016 | 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: | May 12, 2016 | 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: | May 12, 2016 | By: | /S/ JEFFREY K. WALDVOGEL |
Jeffrey K. Waldvogel | |||
Chief Financial Officer | |||
(principal financial officer) | |||
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
May. 10, 2016 |
|
| Document and Entity Information [Abstract] | ||
| Entity Registrant Name | KBS Growth & Income REIT, Inc. | |
| Entity Central Index Key | 0001631256 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Document Type | 10-Q | |
| Document Period End Date | Mar. 31, 2016 | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q1 | |
| Amendment Flag | false | |
| Entity Common Stock, Shares Outstanding | 8,289,661 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
| Common stock, shares issued | 6,348,966 | 2,216,821 |
| Common stock, shares outstanding | 6,348,966 | 2,216,821 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
2 Months Ended | 3 Months Ended |
|---|---|---|
Mar. 31, 2015 |
Mar. 31, 2016 |
|
| Revenues: | ||
| Rental income | $ 0 | $ 567,726 |
| Tenant reimbursements | 0 | 28,055 |
| Total revenues | 0 | 595,781 |
| Expenses: | ||
| Operating, maintenance, and management | 0 | 151,360 |
| Property management fees and expenses to affiliate | 0 | 7,770 |
| Real estate taxes and insurance | 0 | 69,411 |
| Asset management fees to affiliate | 0 | 20,262 |
| General and administrative expenses | 170 | 218,510 |
| Depreciation and amortization | 0 | 226,529 |
| Interest expense | 0 | 177,840 |
| Total expenses | 170 | 871,682 |
| Other income: | ||
| Interest income | 0 | 20,122 |
| Total other income | 0 | 20,122 |
| Net loss | $ (170) | $ (255,779) |
| Net (loss) income per common share, basic and diluted (in dollars per share) | $ 0.00 | $ (0.07) |
| Weighted-average number of common shares outstanding, basic and diluted (in shares) | 41,413 | 3,582,937 |
ORGANIZATION |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION | ORGANIZATION KBS Growth & Income REIT, Inc. (the “Company”) was formed on January 12, 2015 as a Maryland corporation that intends to qualify as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2015. Substantially all of the Company’s business is conducted through KBS Growth & Income Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on January 14, 2015. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Growth & Income REIT Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on January 14, 2015, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings. Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement between the Company and the Advisor initially entered June 11, 2015, and amended at various points thereafter through March 31, 2016 (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of core real estate properties and real estate-related assets. On January 27, 2015, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. On June 11, 2015, these outstanding shares of common stock were designated Class A shares of common stock. As of March 31, 2016, the Class A shares of common stock were the only class of common stock designated and unless otherwise indicated, any reference in these notes to consolidated financial statements to the Company’s common stock is to the Class A shares of common stock. See Note 3, “Stockholders’ Equity,” for a discussion of the Company’s common stock designation. The Company has invested in an office building and intends to invest in a diverse portfolio of core real estate properties and real estate-related assets, including the acquisition of commercial properties and the acquisition and origination of real estate-related assets. Such real estate-related assets may include mortgage, mezzanine, bridge and other loans, debt and derivative securities related to real estate assets, including mortgage-backed securities, and equity securities such as common stocks, preferred stocks and convertible preferred securities of other REITs and real estate companies. The Company commenced a private placement offering exempt from registration under the Securities Act of 1933, as amended, on June 11, 2015, pursuant to which the Company offered a maximum of $105,000,000 of shares of its Class A common stock for sale to certain accredited investors (the “Private Offering”), of which $5,000,000 of Class A shares are being offered pursuant to the Company’s distribution reinvestment plan. The Company ceased offering shares in the primary portion of the Private Offering on April 27, 2016. The Company may continue to process subscriptions for the primary Private Offering dated on or prior to April 27, 2016 for up to 30 days following April 27, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager of the Private Offering pursuant to a dealer manager agreement dated June 11, 2015 (the “Dealer Manager Agreement”). The Dealer Manager was responsible for marketing the Company’s shares in the Private Offering. On February 4, 2015, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register an initial public offering of its common stock to offer a maximum of $1,500,000,000 in shares of common stock for sale to the public in the primary offering, consisting of two classes of shares: Class A and Class T (the “Primary Offering”). The Company also registered a maximum of $800,000,000 in both classes of shares of its common stock pursuant to the Company’s distribution reinvestment plan (the “DRP Offering” and, together with the Primary Offering, the “Public Offering”). The Company is offering to sell any combination of Class A and Class T shares in the Primary Offering and DRP Offering. The Company reserves the right to reallocate shares between the Primary Offering and the DRP Offering. The SEC declared the Company’s registration statement effective on April 28, 2016 and the Company retained the Dealer Manager to serve as the dealer manager of the Public Offering. The Dealer Manager will be responsible for marketing the Company’s shares in the Public Offering. As described above, the Company intends to use substantially all of the net proceeds from the Private Offering and the Primary Offering to invest in a diverse portfolio of core real estate properties and real estate-related assets. As of March 31, 2016, the Company owned one office building. As of March 31, 2016, the Company had sold 6,276,970 shares of common stock for gross offering proceeds of $56.0 million in the Private Offering, including 28,789 shares of common stock under its distribution reinvestment plan for gross offering proceeds of $0.3 million. Additionally, on August 11, 2015, two of the individuals who own and control the Company’s sponsor, Charles J. Schreiber, Jr. (who also acts as chief executive officer, the chairman of the board and a director of the Company) and Peter M. Bren (who also acts as president of the Company), purchased 21,181.2380 and 21,181.2390 shares of common stock, respectively, each for an aggregate purchase price of $172,500 or $8.144 per share. The per share purchase price reflects an 8.5% discount to the $8.90 offering price in the Private Offering in effect on the date of their purchase because selling commissions and dealer manager fees were not paid in connection with the sales. Mr. Bren’s investment was made on behalf of and for the account of three of his children, and he has disclaimed beneficial ownership of the shares. The Company issued these shares in private transactions exempt from the registration requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Revenue Recognition Real Estate The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred. The Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. Cash and Cash Equivalents The Company recognizes interest income on its cash and cash equivalents as it is earned and classifies such amounts as other income. Real Estate Depreciation and Amortization Real estate costs related to the acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
Real Estate Acquisition Valuation The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods. The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease up periods. The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income. Impairment of Real Estate and Related Intangible Assets and Liabilities The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Cash and cash equivalents are stated at cost, which approximates fair value. The Company’s cash and cash equivalents balance may exceed federally insurable limits. The Company intends to mitigate this risk by depositing funds with a major financial institution; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. There were no restrictions on the use of the Company’s cash and cash equivalents as of December 31, 2015 and March 31, 2016. Deferred Financing Costs Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing and are presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Deferred financing costs incurred before an associated debt liability is recognized are included in prepaid and other assets on the balance sheet. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. Fair Value Measurements 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:
When available, the Company utilizes quoted market prices from independent third-party sources to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or 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. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument. The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market). The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities. Redeemable Common Stock In connection with the Private Offering, the Company adopted a share redemption program that enabled stockholders to sell their shares to the Company in limited circumstances. On March 16, 2016, the Company adopted an Amended and Restated Share Redemption Program in anticipation of the commencement of the Public Offering and related designation of Class T shares of common stock (as discussed below): There are several limitations on the Company’s ability to redeem shares under the share redemption program:
Pursuant to the share redemption program, and provided the redeeming stockholder has held his or her shares for at least one year, the Company expects to initially redeem shares submitted as an ordinary redemption at 95.0% of the price paid to acquire the shares from the Company. Notwithstanding the foregoing, stock dividends will initially be redeemed at the “net investment amount” per share, which will be based on the “amount available for investment/net investment amount” percentage shown in the estimated use of proceeds table in the Company’s prospectus, as supplemented, for the Public Offering. For each class of shares designated, this amount will initially equal $9.40 per share for redemptions of shares received as a result of a stock dividend. Once the Company has established an estimated net asset value (“NAV”) per share of its common stock, it will redeem all shares submitted in connection with an ordinary redemption at 95.0% of the Company’s most recent estimated NAV per share as of the applicable redemption date. For purposes of determining whether a redeeming stockholder has held the share submitted for redemption for at least one year, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to the distribution reinvestment plan or received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the distribution reinvestment plan shares or stock dividend shares relate. The Company expects to establish an estimated NAV per share no later than 150 days after the second anniversary of the date on which the Company commenced the Public Offering. Once announced, the Company expects to update the estimated NAV per share in December of each year. In several respects the Company treats redemptions sought upon a stockholder’s death, qualifying disability or determination of incompetence differently from other redemptions:
The board may amend, suspend or terminate the share redemption program upon 30 days’ notice to stockholders, provided that the Company may increase or decrease the funding available for the redemption of shares pursuant to the share redemption program upon 10 business days’ notice. The Company records amounts that are redeemable under the share redemption program as redeemable common stock in its consolidated balance sheets because the shares will be mandatorily redeemable at the option of the holder and therefore their redemption is outside the control of the Company. The maximum amount redeemable under the Company’s share redemption program is limited to the number of shares the Company could redeem with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan during the prior calendar year. However, because the amounts that can be redeemed are determinable and only contingent on an event that is likely to occur (e.g., the passage of time) the Company will present the net proceeds from the current year and prior year distribution reinvestment plan, net of current year redemptions, as redeemable common stock in its consolidated balance sheets. 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. Organization and Offering Costs Organization and offering costs of the Company (other than selling commissions, dealer manager fees and the stockholder servicing fee) may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. Offering costs include all expenses incurred in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. During the Private Offering, there was no limit on the amount of organization and offering costs the Company could incur and the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and offering costs (excluding wholesaling compensation expenses) paid by them on behalf of the Company. During the Public Offering, pursuant to the second amended and restated advisory agreement entered as of April 28, 2016 and the dealer manager agreement for the Public Offering entered as of April 28, 2016, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and offering costs related to the Public Offering (excluding wholesaling compensation expenses) paid by them on behalf of the Company provided such reimbursement would not cause the total organization and offering costs borne by the Company related to the Public Offering (including selling commissions, dealer manager fees, the stockholder servicing fee and all other items of organization and offering expenses) to exceed 15% of gross offering proceeds raised in the Public Offering as of the date of reimbursement. The Company reimburses the Dealer Manager for underwriting compensation in connection with the Private Offering; however, the Company may also pay all of these costs directly as discussed in the private placement memorandum for the Private Offering. The Company also expects to reimburse the Dealer Manager for underwriting compensation in connection with the Public Offering as discussed in the prospectus for the Public Offering. The Dealer Manager has agreed to reimburse the Company to the extent that total underwriting compensation for the Primary Offering exceeds 10% of the gross offering proceeds raised in the Primary Offering, as of the termination of the Primary Offering. The Company also pays directly or reimburses, and expects to pay directly or reimburse, the Dealer Manager for due diligence expenses of broker dealers in connection with the Private Offering and the Public Offering, respectively. In addition, the Advisor is obligated to reimburse the Company to the extent organization and offering costs (excluding selling commissions, the dealer manager fee and stockholder servicing fee) borne by the Company and incurred in connection with the Primary Offering exceed 1% of gross proceeds raised in the Primary Offering as of the termination of the Primary Offering. As of March 31, 2016, the Company had not incurred any organization and offering costs related to the Public Offering and all such costs had been funded by the Advisor or the Dealer Manager. As a result, these organization and offering costs related to the Public Offering are not recorded in the financial statements of the Company as of March 31, 2016 because such costs are only a liability of the Company to the extent organization and offering costs incurred by the Company in connection with the Public Offering do not exceed 15% of the gross proceeds raised in the Public Offering. Organization and offering costs related to the Private Offering were not a liability to the Company until the Company satisfied the minimum offering amount in the Private Offering. Because the Company broke escrow in the Private Offering on August 12, 2015, organization and offering costs related to the Private Offering are recorded in the financial statements of the Company as of March 31, 2016. Organization costs are expensed as incurred and offering costs are deferred and charged to stockholder’s equity as such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross proceeds of the applicable offering. Income Taxes The Company intends to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended and intends to operate as such beginning with its taxable year ended December 31, 2015. The Company expects to have little or no taxable income prior to electing REIT status. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT. Per Share Data Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding for the period from January 27, 2015 to March 31, 2016. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued during the period presented and subsequent to March 31, 2016 but before the issuance of the consolidated financial statements are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. During the three months ended March 31, 2016, the Company declared total cash distributions of $0.12328740 per share of common stock and total stock dividends of 0.00246576 shares of common stock on each outstanding share of common stock, assuming the share of common stock was outstanding each day that was a record date for cash distributions or stock dividends, respectively. The Company did not declare any cash distributions or stock dividends during the period from January 27, 2015 to March 31, 2015. Square Footage, Occupancy and Other Measures Square footage, number of acres, occupancy and other measures used to describe real estate investments included in these Condensed Notes to Consolidated Financial Statements are presented on an unaudited basis. Recently Issued Accounting Standards Update In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”). The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements. |
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STOCKHOLDERS’ EQUITY |
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| Equity [Abstract] | |
| STOCKHOLDERS’ EQUITY | STOCKHOLDERS’ EQUITY General Under the Second Articles of Amendment and Restatement of the Company, the total number of shares of capital stock authorized for issuance is 1,010,000,000 shares, consisting of 1,000,000,000 shares of common stock, 500,000,000 of which are classified as shares of Class A common stock, and 10,000,000 shares of preferred stock, each as defined by the Company’s Second Articles of Amendment and Restatement. On April 8, 2016, the Company classified and designated 500,000,000 shares of its common stock as shares of Class T common stock. The shares of common stock have a par value of $0.01 per share and entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote, to receive dividends and other distributions as authorized by the board of directors in accordance with the Maryland General Corporation Law and to all rights of a stockholder pursuant to the Maryland General Corporation Law. The common stock has no preferences or preemptive, conversion or exchange rights. As of March 31, 2016 and December 31, 2015, the Company had issued 6,348,966 shares of Class A common stock and 2,216,821 shares of Class A common stock, respectively. The Company is authorized to issue one or more classes or series of preferred stock. Prior to the issuance of such shares, the board of directors shall have the power from time to time to classify or reclassify, in one or more series, any unissued shares and designate the preferences, rights and privileges of such shares. As of December 31, 2015 and March 31, 2016, no shares of the Company’s preferred stock were issued and outstanding. Distribution Reinvestment Plan The Company has adopted a distribution reinvestment plan, as amended and restated (the “DRP”), through which common stockholders may elect to reinvest an amount equal to the cash distributions declared on their shares, excluding those distributions that the board of directors designates as ineligible for reinvestment through the DRP, in additional shares of the Company’s common stock in lieu of receiving cash distributions. Until the Company announces an estimated NAV, participants in the DRP will acquire shares of common stock at a price per share equal to 95% of the then-current offering price for shares in the primary portion of an offering (whether in the primary portion of the Private Offering, the Public Offering or a follow-on primary offering and ignoring any discounts that may be available to certain categories of purchasers) or 95% of the most recent offering price in a primary offering if there is no current offering. This DRP offering price was initially $8.455 per share of common stock and increased to $8.598 effective November 19, 2015, $8.740 effective December 3, 2015, $8.835 effective February 4, 2016 and $8.930 effective March 31, 2016, in accordance with the pricing schedule for the Private Offering. Upon the commencement of the Public Offering on April 28, 2016, the DRP offering price increased to $9.88 per Class A share and $9.50 per Class T share. Once the Company has announced an estimated NAV per share, which the Company expects to occur no later than 150 days after the second anniversary of the date on which the Company commences the Public Offering, participants in the DRP will acquire shares of common stock at a price equal to 95% of the estimated NAV per share of the Company’s common stock. The board of directors of the Company may amend or terminate the DRP for any reason upon 10 days’ notice to participants. |
REAL ESTATE |
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| REAL ESTATE | REAL ESTATE As of March 31, 2016, the Company owned one office building containing 101,161 rentable square feet, which was 100% leased. The following table provides summary information regarding the property owned by the Company as of March 31, 2016:
Operating Leases The Company’s real estate property is leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2016, the leases had remaining terms, excluding options to extend, of up to 10.3 years with a weighted-average remaining term of 5.5 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $0.2 million and $0.2 million as of March 31, 2016 and December 31, 2015. During the three months ended March 31, 2016, the Company recognized deferred rent from tenants of $0.1 million, respectively. As of March 31, 2016, the cumulative deferred rent balance was $0.3 million and is included in rents and other receivables on the accompanying balance sheets. As of March 31, 2016, the future minimum rental income from the Company’s property under its non-cancelable operating leases was as follows:
As of March 31, 2016, the Company had a concentration of credit risk related to LNH, Inc., a tenant in Von Karman Tech in the computer industry, which represented 40% of the Company’s annualized base rent. The tenant individually occupied 44,892 rentable square feet or approximately 44% of the total property rentable square feet at Von Karman Tech Center. Its lease expires on June 30, 2023, with two five-year extension options. As of March 31, 2016, the annualized base rent for this tenant was approximately $0.9 million or $20.05 per square foot. No other tenant represented more than 10% of the Company’s annualized base rent. No material tenant credit issues have been identified at this time. |
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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 AND BELOW-MARKET LEASE LIABILITIES As of March 31, 2016 and December 31, 2015, the Company’s tenant origination and absorption costs, and below-market lease liabilities were as follows:
During the three months ended March 31, 2016, the Company recorded $95,559 of amortization expense related to tenant origination and absorption costs and $5,667 related to below-market lease liabilities, respectively. |
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NOTES PAYABLE |
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| NOTES PAYABLE | NOTES PAYABLE As of March 31, 2016, the Company’s notes payable consisted of the following:
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of March 31, 2016. Effective interest rate is calculated as the actual interest rate in effect at March 31, 2016 (consisting of the contractual interest rate), using interest rate indices at March 31, 2016, where applicable. (2) Subsequent to March 31, 2016, the Company repaid $5.1 million of the Von Karman Tech Center Mortgage Loan principal balance. (3) Monthly payments are initially interest-only; however, under certain circumstances described in the loan agreement, the Company may be required to make payments consisting of both principal and interest. During the three months ended March 31, 2016, the Company incurred $0.2 million of interest expense. As of March 31, 2016 and December 31, 2015, $55,525 and $52,142 of interest expense was payable. Included in interest expense during the three months ended March 31, 2016 was $15,485 of amortization of deferred financing costs. |
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FAIR VALUE DISCLOSURES |
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| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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, as defined under GAAP, is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value: Cash and cash equivalents, restricted cash, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items. Notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or 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 value, carrying amount and fair value of the Company’s note payable as of March 31, 2016 and December 31, 2015:
Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value. |
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RELATED PARTY TRANSACTIONS |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RELATED PARTY TRANSACTIONS | RELATED-PARTY TRANSACTIONS As of March 31, 2016, the Company had entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager with respect to the Private Offering. These agreements entitle the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Private Offering 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 reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, such as expenses related to the Private Offering, 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. 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. Upon commencement of the Public Offering on April 28, 2016, the Company entered a second amended and restated advisory agreement with the Advisor and a new dealer manager agreement with the Dealer Manager. The Advisor and Dealer Manager also serve 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 Real Estate Investment Trust III, Inc. (“KBS REIT III”), KBS Strategic Opportunity REIT, Inc. (“KBS Strategic Opportunity REIT”), KBS Legacy Partners Apartment REIT, Inc. (“KBS Legacy Partners Apartment REIT”) and KBS Strategic Opportunity REIT II, Inc. (“KBS Strategic Opportunity REIT II”). The fees and reimbursement obligations, including the Company’s obligation to reimburse the Advisor for an advance to fund cash distributions, with respect to the agreements in place through March 31, 2016 for the Private Offering are as follows:
The Company may terminate the Advisory Agreement on 60 days’ written notice. The Advisor in its sole discretion may defer any fee payable to it under the Advisory Agreement. All or any portion of such fee not taken may be deferred without interest and paid when the Advisor determines. Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three months ended March 31, 2016 and the period from January 27, 2015 to March 31, 2015 and any related amounts payable as of March 31, 2016 and December 31, 2015.
_____________________ (1) Reimbursable operating expenses primarily related to directors and officers liability insurance, legal fees, state and local taxes, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $2,547 for the three months ended March 31, 2016, and were the only type of employee costs reimbursed under the Advisory Agreement for the three months ended March 31, 2016. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company. (2) See “Real Estate Property Co-Management Agreement” below. (3) See “—Advance from the Advisor” above. (4) See Note 2, “Summary of Significant Accounting Policies – Organization and Offering Costs” for more information related to other offering costs related to the Private and Public Offering. As of March 31, 2016, the Company had $3,670 due from the Advisor related to a property insurance rebate. Conflicts of Interest All of the Company’s executive officers, affiliated directors and other key real estate and debt finance professionals assembled by the Advisor are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in the Advisor, the Dealer Manager and/or other KBS-affiliated investment advisors that are the sponsors of other KBS-sponsored programs or are the advisors of KBS-advised investors; and all of the Company’s executive officers, affiliated directors and other key real estate and debt finance professionals assembled by the Advisor are executive officers, affiliated directors and/or key professionals of KBS REIT I, KBS REIT II, KBS Legacy Partners Apartment REIT, KBS Strategic Opportunity REIT, KBS REIT III and KBS Strategic Opportunity REIT II, which are public, non-traded REITs advised by the Advisor. Through affiliates of the Advisor, key real estate and debt finance professionals at the Advisor also serve as investment advisors to KBS-advised investors. These individuals have legal and financial obligations with respect to those KBS-sponsored programs and KBS-advised investors that are similar to their obligations to the Company. In the future, these individuals and other affiliates of the Advisor may organize other KBS-sponsored programs, serve as the investment advisor to other KBS-advised investors and acquire for their own account real estate investments that may be suitable for the Company. Some of the material conflicts that the Advisor, the Dealer Manager or their affiliates face are 1) the determination of whether an investment opportunity should be recommended to the Company or another KBS-sponsored program or KBS-advised investor; 2) the competition for tenants or the resale of properties among the Company and other KBS-sponsored programs and KBS-advised investors; 3) the allocation of the time of key executive officers, directors, and other real estate professionals among the Company, other KBS-sponsored programs and KBS-advised investors, and the activities in which they are involved; 4) the fees received by the Advisor and its affiliates in connection with transactions involving the purchase, origination, management and sale of investments regardless of the quality of the asset acquired or the service provided the Company; and 5) the fees received by the Advisor, the Dealer Manager, and their affiliates in connection with offerings of securities. Real Estate Property Co-Management Agreement On March 9, 2016, the Company entered a property management agreement (the “Property Management Agreement”) with KBS Management Group, LLC (the “Co-Manager”), an affiliate of the Advisor, in connection with Von Karman Tech Center. Pursuant to the Property Management Agreement, the Co-Manager will provide certain management services related to Von Karman Tech Center in addition to those provided by the third-party property manager. In exchange for these services, the owner of Von Karman Tech Center, the Company’s indirect wholly owned subsidiary (the “Owner”), will pay the Co-Manager a monthly fee equal to 1.5% of the rent, payable and actually collected for the month, from the Von Karman Tech Center. The Co-Manager will generally be responsible for all expenses it incurs in rendering services pursuant to the Property Management Agreement. The effective date of the Property Management Agreement was January 1, 2016 and the initial term of the Property Management Agreement is for one year and will be deemed renewed for successive one-year periods provided it is not terminated. Each party may terminate the Property Management Agreement without cause on 30 days’ written notice to the other party and may terminate the Property Management Agreement for cause on 5 days’ written notice to the other party upon the occurrence of certain events as detailed in the Property Management Agreement. |
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Economic Dependency The Company depends on the Advisor and the Dealer Manager for certain services that are essential to the Company, including the sale of the Company’s shares of common stock; 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 these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources. Environmental As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s property, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities. Legal Matters From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote. |
SUBSEQUENT EVENTS |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Subsequent Events [Abstract] | |
| SUBSEQUENT EVENTS | SUBSEQUENT EVENTS The Company evaluates subsequent events up until the date the consolidated financial statements are issued. Status of the Offering The Company commenced the Private Offering on June 11, 2015. On April 27, 2016, the Company ceased offering shares in the primary portion of the Private Offering but will continue to process subscription agreements for the primary Private Offering for up to 30 days following April 27, 2016 for subscription agreements dated on or before April 27, 2016. From commencement through May 10, 2016, the Company sold 8,205,886 shares of Class A common stock for gross offering proceeds of $73.6 million in the Private Offering. The Company commenced the Public Offering on April 28, 2016. As of May 10, 2016, the Company has not made any sales in the Public Offering. Distributions and Stock Dividends On April 1, 2016, the Company paid cash distributions of $213,109, which related to cash distributions declared for daily record dates for each day in the period from March 1, 2016 through March 31, 2016. On May 3, 2016, the Company paid cash distributions of $299,489, which related to cash distributions declared for daily record dates for each day in the period from April 1, 2016 through April 30, 2016. Cash distributions for all periods since inception have been funded by a total advance from the Advisor of $970,637 as of May 10, 2016. The Advisor has agreed to advance funds for future cash distributions for record dates through May 31, 2016. On March 16, 2016, the Company’s board of directors declared cash distributions based on daily record dates for the period from May 1, 2016 through May 31, 2016, which the Company expects to pay in June 2016. On May 11, 2016, the Company’s board of directors declared cash distributions based on daily record dates for the period from June 1, 2016 through June 30, 2016, which the Company expects to pay in July 2016, and the period from July 1, 2016 through July 31, 2016, which the Company expects to pay in August 2016. Investors may choose to receive cash distributions or purchase additional shares through the Company’s distribution reinvestment plan. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00136986 per share per day reduced by the applicable daily stockholder servicing fees accrued for and allocable to any class of common stock, divided by the number of shares of common stock of such class outstanding as of the close of business on the respective record date. On April 1, 2016, the Company issued 5,424 shares of common stock in connection with stock dividends declared for each share of common stock outstanding on March 31, 2016. On May 4, 2016, the Company issued 6,355 shares of common stock in connection with stock dividends declared for each share of common stock outstanding on April 30, 2016. On March 16, 2016, the Company’s board of directors declared stock dividends of 0.00084932 shares of common stock on each outstanding share of common stock to all stockholders of record as of the close of business on May 31, 2016, which the Company expects to issue in June 2016. On May 11, 2016, the Company’s board of directors declared stock dividends of 0.00082192 shares and 0.00084932 shares of common stock on each outstanding share of common stock to all stockholders of record as of the close of business on June 30, 2016 and July 31, 2016, respectively, which the Company expects to issue in July 2016 and August 2016, respectively. Probable Real Estate Acquisition Purchase and Sale Agreement for the Commonwealth Building On May 6, 2016, the Company, through an indirect wholly owned subsidiary, entered into a purchase and sale agreement to acquire a 14-story Class A office building containing 216,099 rentable square feet located on approximately 0.46 acres of land in Portland, Oregon (the “Commonwealth Building”). The seller is not affiliated with the Company or the Advisor. The contractual purchase price of the Commonwealth Building is approximately $69.0 million plus closing costs. Pursuant to the purchase and sale agreement, the Company would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that the Company will complete the acquisition. As of May 9, 2016, the Company had made a deposit of $2.0 million and, in some circumstances, if the Company fails to complete the acquisition, it may forfeit up to $2.0 million of earnest money. As of May 1, 2016, the Commonwealth Building was 94% leased to 25 tenants. Second Amended and Restated Advisory Agreement On April 28, 2016, in connection with the commencement of the Public Offering, the Company and the Advisor entered into the second amended and restated advisory agreement. Dealer Manager Agreement On April 28, 2016, in connection with the commencement of the Public Offering, the Company and the Dealer Manager entered into the dealer manager agreement for the Public Offering. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Mar. 31, 2016 | |||||||||||||||||||||
| 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 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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. |
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| Principles of Consolidation | The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. |
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| Use of Estimates | The preparation of the consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. |
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| Revenue Recognition, Real Estate | The Company recognizes minimum rent, including rental abatements, lease incentives and contractual fixed increases attributable to operating leases, on a straight-line basis over the term of the related leases when collectibility is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed. When the tenant is the owner of the tenant improvements, any tenant improvement allowance (including amounts that the tenant can take in the form of cash or a credit against its rent) that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes, and other recoverable costs in the period the related expenses are incurred. The Company makes estimates of the collectibility of its tenant receivables related to base rents, including deferred rent receivable, expense reimbursements and other revenue or income. Management specifically analyzes accounts receivable, deferred rent receivable, historical bad debts, customer creditworthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. In addition, with respect to tenants in bankruptcy, management makes estimates of the expected recovery of pre-petition and post-petition claims in assessing the estimated collectibility of the related receivable. In some cases, the ultimate resolution of these claims can exceed one year. When a tenant is in bankruptcy, the Company will record a bad debt reserve for the tenant’s receivable balance and generally will not recognize subsequent rental revenue until cash is received or until the tenant is no longer in bankruptcy and has the ability to make rental payments. |
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| Revenue Recognition, Cash and Cash Equivalents | The Company recognizes interest income on its cash and cash equivalents as it is earned and classifies such amounts as other income. |
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| Real Estate, Depreciation and Amortization | Real estate costs related to the acquisition and improvement of properties are capitalized and amortized over the expected useful life of the asset on a straight-line basis. Repair and maintenance costs are charged to expense as incurred and significant replacements and betterments are capitalized. Repair and maintenance costs include all costs that do not extend the useful life of the real estate asset. The Company considers the period of future benefit of an asset to determine its appropriate useful life. Expenditures for tenant improvements are capitalized and amortized over the shorter of the tenant’s lease term or expected useful life. The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
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| Real Estate, Real Estate Acquisition Valuation | The Company records the acquisition of income-producing real estate or real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination are measured at their acquisition-date fair values. Acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. The Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant. The Company records above-market and below-market in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining non-cancelable terms of the respective lease, including any below-market renewal periods. The Company estimates the value of tenant origination and absorption costs by considering the estimated carrying costs during hypothetical expected lease up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease up periods. The Company amortizes the value of tenant origination and absorption costs to depreciation and amortization expense over the remaining non-cancelable term of the leases. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income. |
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| Real Estate, Impairments of Real Estate and Related Intangible Assets and Liabilities | The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets and liabilities may not be recoverable or realized. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets and liabilities may not be recoverable, the Company assesses the recoverability by estimating whether the Company will recover the carrying value of the real estate and related intangible assets and liabilities through its undiscounted future cash flows and its eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets and liabilities. |
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| Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Cash and cash equivalents are stated at cost, which approximates fair value. The Company’s cash and cash equivalents balance may exceed federally insurable limits. The Company intends to mitigate this risk by depositing funds with a major financial institution; however, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets. There were no restrictions on the use of the Company’s cash and cash equivalents as of December 31, 2015 and March 31, 2016. |
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| Deferred Financing Costs | Deferred financing costs represent commitment fees, loan fees, legal fees and other third-party costs associated with obtaining financing and are presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability. These costs are amortized over the terms of the respective financing agreements using the interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity unless specific rules are met that would allow for the carryover of such costs to the refinanced debt. Deferred financing costs incurred before an associated debt liability is recognized are included in prepaid and other assets on the balance sheet. Costs incurred in seeking financing transactions that do not close are expensed in the period in which it is determined that the financing will not close. |
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| Fair Value Measurements | 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:
When available, the Company utilizes quoted market prices from independent third-party sources to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or 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. Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument. The Company considers the following factors to be indicators of an inactive market: (i) there are few recent transactions, (ii) price quotations are not based on current information, (iii) price quotations vary substantially either over time or among market makers (for example, some brokered markets), (iv) indexes that previously were highly correlated with the fair values of the asset or liability are demonstrably uncorrelated with recent indications of fair value for that asset or liability, (v) there is a significant increase in implied liquidity risk premiums, yields, or performance indicators (such as delinquency rates or loss severities) for observed transactions or quoted prices when compared with the Company’s estimate of expected cash flows, considering all available market data about credit and other nonperformance risk for the asset or liability, (vi) there is a wide bid-ask spread or significant increase in the bid-ask spread, (vii) there is a significant decline or absence of a market for new issuances (that is, a primary market) for the asset or liability or similar assets or liabilities, and (viii) little information is released publicly (for example, a principal-to-principal market). The Company considers the following factors to be indicators of non-orderly transactions: (i) there was not adequate exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities under current market conditions, (ii) there was a usual and customary marketing period, but the seller marketed the asset or liability to a single market participant, (iii) the seller is in or near bankruptcy or receivership (that is, distressed), or the seller was required to sell to meet regulatory or legal requirements (that is, forced), and (iv) the transaction price is an outlier when compared with other recent transactions for the same or similar assets or liabilities. |
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| Organization and Offering Costs | Organization and offering costs of the Company (other than selling commissions, dealer manager fees and the stockholder servicing fee) may be paid by the Advisor, the Dealer Manager or their affiliates on behalf of the Company or may be paid directly by the Company. Offering costs include all expenses incurred in connection with the Private Offering and the Public Offering. Organization costs include all expenses incurred in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company. During the Private Offering, there was no limit on the amount of organization and offering costs the Company could incur and the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and offering costs (excluding wholesaling compensation expenses) paid by them on behalf of the Company. During the Public Offering, pursuant to the second amended and restated advisory agreement entered as of April 28, 2016 and the dealer manager agreement for the Public Offering entered as of April 28, 2016, the Company is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for organization and offering costs related to the Public Offering (excluding wholesaling compensation expenses) paid by them on behalf of the Company provided such reimbursement would not cause the total organization and offering costs borne by the Company related to the Public Offering (including selling commissions, dealer manager fees, the stockholder servicing fee and all other items of organization and offering expenses) to exceed 15% of gross offering proceeds raised in the Public Offering as of the date of reimbursement. The Company reimburses the Dealer Manager for underwriting compensation in connection with the Private Offering; however, the Company may also pay all of these costs directly as discussed in the private placement memorandum for the Private Offering. The Company also expects to reimburse the Dealer Manager for underwriting compensation in connection with the Public Offering as discussed in the prospectus for the Public Offering. The Dealer Manager has agreed to reimburse the Company to the extent that total underwriting compensation for the Primary Offering exceeds 10% of the gross offering proceeds raised in the Primary Offering, as of the termination of the Primary Offering. The Company also pays directly or reimburses, and expects to pay directly or reimburse, the Dealer Manager for due diligence expenses of broker dealers in connection with the Private Offering and the Public Offering, respectively. In addition, the Advisor is obligated to reimburse the Company to the extent organization and offering costs (excluding selling commissions, the dealer manager fee and stockholder servicing fee) borne by the Company and incurred in connection with the Primary Offering exceed 1% of gross proceeds raised in the Primary Offering as of the termination of the Primary Offering. As of March 31, 2016, the Company had not incurred any organization and offering costs related to the Public Offering and all such costs had been funded by the Advisor or the Dealer Manager. As a result, these organization and offering costs related to the Public Offering are not recorded in the financial statements of the Company as of March 31, 2016 because such costs are only a liability of the Company to the extent organization and offering costs incurred by the Company in connection with the Public Offering do not exceed 15% of the gross proceeds raised in the Public Offering. Organization and offering costs related to the Private Offering were not a liability to the Company until the Company satisfied the minimum offering amount in the Private Offering. Because the Company broke escrow in the Private Offering on August 12, 2015, organization and offering costs related to the Private Offering are recorded in the financial statements of the Company as of March 31, 2016. Organization costs are expensed as incurred and offering costs are deferred and charged to stockholder’s equity as such amounts are reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross proceeds of the applicable offering. |
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| Income Taxes | The Company intends to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended and intends to operate as such beginning with its taxable year ended December 31, 2015. The Company expects to have little or no taxable income prior to electing REIT status. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially and adversely affect the Company’s net income and net cash available for distribution to stockholders. However, the Company intends to organize and operate in such a manner as to qualify for treatment as a REIT. |
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| Per Share Data | Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding for the period from January 27, 2015 to March 31, 2016. For the purpose of determining the weighted average number of shares outstanding, stock dividends issued during the period presented and subsequent to March 31, 2016 but before the issuance of the consolidated financial statements are adjusted retroactively and treated as if they were issued and outstanding for all periods presented. During the three months ended March 31, 2016, the Company declared total cash distributions of $0.12328740 per share of common stock and total stock dividends of 0.00246576 shares of common stock on each outstanding share of common stock, assuming the share of common stock was outstanding each day that was a record date for cash distributions or stock dividends, respectively. The Company did not declare any cash distributions or stock dividends during the period from January 27, 2015 to March 31, 2015. |
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| Square Footage, Occupancy and Other Measures | Square footage, number of acres, occupancy and other measures used to describe real estate investments included in these Condensed Notes to Consolidated Financial Statements are presented on an unaudited basis. |
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| Recently Issued Accounting Standards Updates | In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2014-09”). ASU No. 2014-09 requires an entity to recognize the revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. ASU No. 2014-09 supersedes the revenue requirements in Revenue Recognition (Topic 605) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU No. 2014-09 does not apply to lease contracts within the scope of Leases (Topic 840). ASU No. 2014-09 was to be effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU No. 2015-14”), which defers the effective date of ASU No. 2014-09 by one year. Early adoption is permitted but not before the original effective date. The Company is still evaluating the impact of adopting ASU No. 2014-09 on its financial statements, but does not expect the adoption of ASU No. 2014-09 to have a material impact on its financial statements. In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU No. 2014-15”). The amendments in ASU No. 2014-15 require management to evaluate, for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or are available to be issued when applicable) and, if so, provide related disclosures. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect the adoption of ASU No. 2014-15 to have a significant impact on its financial statements. In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU No. 2016-01”). The amendments in ASU No. 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 primarily affects accounting for equity investments and financial liabilities where the fair value option has been elected. ASU No. 2016-01 also requires entities to present financial assets and financial liabilities separately, grouped by measurement category and form of financial asset in the balance sheet or in the accompanying notes to the financial statements. ASU No. 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted for financial statements that have not been previously issued. The Company does not expect the adoption of ASU No. 2016-01 to have a significant impact on its financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated financial statements. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
3 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2016 | |||||||||||||
| Accounting Policies [Abstract] | |||||||||||||
| Schedule of Property, Plant and Equipment | The Company anticipates the estimated useful lives of its assets by class to be generally as follows:
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REAL ESTATE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Real Estate | The following table provides summary information regarding the property owned by the Company as of March 31, 2016:
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| Schedule of Future Minimum Rental Income for Company's Properties | As of March 31, 2016, the future minimum rental income from the Company’s property under its non-cancelable operating leases was as follows:
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TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 March 31, 2016 and December 31, 2015, the Company’s tenant origination and absorption costs, and below-market lease liabilities were as follows:
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NOTES PAYABLE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Long-term Debt Instruments | As of March 31, 2016, the Company’s notes payable consisted of the following:
_____________________ (1) Contractual interest rate represents the interest rate in effect under the loan as of March 31, 2016. Effective interest rate is calculated as the actual interest rate in effect at March 31, 2016 (consisting of the contractual interest rate), using interest rate indices at March 31, 2016, where applicable. (2) Subsequent to March 31, 2016, the Company repaid $5.1 million of the Von Karman Tech Center Mortgage Loan principal balance. (3) Monthly payments are initially interest-only; however, under certain circumstances described in the loan agreement, the Company may be required to make payments consisting of both principal and interest. |
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FAIR VALUE DISCLOSURES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Face Value, Carrying Amounts and Fair Value | The following were the face value, carrying amount and fair value of the Company’s note payable as of March 31, 2016 and December 31, 2015:
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RELATED PARTY TRANSACTIONS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 months ended March 31, 2016 and the period from January 27, 2015 to March 31, 2015 and any related amounts payable as of March 31, 2016 and December 31, 2015.
_____________________ (1) Reimbursable operating expenses primarily related to directors and officers liability insurance, legal fees, state and local taxes, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled $2,547 for the three months ended March 31, 2016, and were the only type of employee costs reimbursed under the Advisory Agreement for the three months ended March 31, 2016. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company. (2) See “Real Estate Property Co-Management Agreement” below. (3) See “—Advance from the Advisor” above. (4) See Note 2, “Summary of Significant Accounting Policies – Organization and Offering Costs” for more information related to other offering costs related to the Private and Public Offering. |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Useful Life) (Details) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Building [Member] | Minimum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | 25 years | |
| Building [Member] | Maximum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | 40 years | |
| Building Improvements [Member] | Minimum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | 10 years | |
| Building Improvements [Member] | Maximum [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | 25 years | |
| Tenant Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | Shorter of lease term or expected useful life | |
| Tenant Origination and Absorption Costs [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Useful lives | Remaining term of related leases, including below-market renewal periods |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Redeemable Common Stock) (Details) - Amendment of Share Redemption Program [Member] |
Mar. 16, 2016
$ / shares
|
|---|---|
| Summary of Significant Accounting Policies [Line Items] | |
| Holding requirement | 1 year |
| Redemption price percentage of most recent estimated value per share | 95.00% |
| Estimated value per share of company's common stock | $ 9.40 |
| Dividend reinvestment plan, period estimating net assets value per share | 150 days |
| Share redemption program, termination period | 30 days |
| Period of increase or decrease of funding available for redemption | 10 days |
| Maximum [Member] | |
| Summary of Significant Accounting Policies [Line Items] | |
| Percentage of weighted-average shares outstanding available for redemption during any calendar year | 5.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Organization and Offering Costs) (Details) - IPO [Member] |
3 Months Ended |
|---|---|
Mar. 31, 2016 | |
| Minimum [Member] | |
| Summary of Significant Accounting Policies [Line Items] | |
| Reimbursable offering costs determination, gross offering costs, percentage | 15.00% |
| Maximum [Member] | |
| Summary of Significant Accounting Policies [Line Items] | |
| Reimbursed offering costs determination, gross offering costs, percentage | 15.00% |
| Dealer Manager [Member] | Minimum [Member] | |
| Summary of Significant Accounting Policies [Line Items] | |
| Reimbursable offering costs determination, gross offering costs, percentage | 10.00% |
| KBS Capital Advisors LLC [Member] | Minimum [Member] | |
| Summary of Significant Accounting Policies [Line Items] | |
| Reimbursable offering costs determination, gross offering costs, percentage | 1.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Per Share Data) (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2016
USD ($)
$ / shares
| |
| Accounting Policies [Abstract] | |
| Distributions declared per share | $ / shares | $ 0.12328740 |
| Stock dividends | $ | $ 0.00246576 |
REAL ESTATE (Narrative) (Details) - Office Building [Member] |
Mar. 31, 2016
ft²
property
|
|---|---|
| Real Estate Properties [Line Items] | |
| Number of real estate properties | property | 1 |
| Rentable square feet | ft² | 101,161 |
| Percent occupied | 100.00% |
REAL ESTATE (Schedule of Real Estate Investments) (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Real Estate Properties [Line Items] | ||
| Total real estate, cost | $ 21,420,599 | $ 21,420,599 |
| Less accumulated depreciation and amortization | (567,522) | (340,993) |
| Total real estate, net | $ 20,853,077 | $ 21,079,606 |
| Von Karman Tech Center [Member] | Office Building [Member] | ||
| Real Estate Properties [Line Items] | ||
| Date Acquired or Foreclosed on | Aug. 12, 2015 | |
| Total real estate, cost | $ 21,420,599 | |
| Less accumulated depreciation and amortization | (567,522) | |
| Total real estate, net | $ 20,853,077 |
REAL ESTATE (Operating Leases) (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Operating Leased Assets [Line Items] | ||
| Recognition of deferred rent from tenants | $ 0.1 | |
| Deferred rent receivables | 0.3 | |
| Other Liabilities [Member] | ||
| Operating Leased Assets [Line Items] | ||
| Security deposit liability | $ 0.2 | $ 0.2 |
| Maximum [Member] | ||
| Operating Leased Assets [Line Items] | ||
| Remaining terms | 10 years 3 months 18 days | |
| Weighted Average [Member] | ||
| Operating Leased Assets [Line Items] | ||
| Remaining terms | 5 years 6 months |
REAL ESTATE (Future Minimum Rental Income) (Details) |
Mar. 31, 2016
USD ($)
|
|---|---|
| Real Estate [Abstract] | |
| April 1, 2016 through December 31, 2016 | $ 1,519,173 |
| 2017 | 2,092,148 |
| 2018 | 1,866,986 |
| 2019 | 1,497,443 |
| 2020 | 1,440,502 |
| Thereafter | 3,943,938 |
| Future minimum rental income | $ 12,360,190 |
REAL ESTATE (Concentration Risk) (Details) - Customer Concentration Risk [Member] $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2016
USD ($)
ft²
extension
$ / ft²
| |
| Concentration Risk [Line Items] | |
| Extension options | extension | 2 |
| Extension period | 5 years |
| Annualized base rent | $ | $ 0.9 |
| Average annualized base rent per square foot | $ / ft² | 20.05 |
| Sales Revenue, Net [Member] | |
| Concentration Risk [Line Items] | |
| Concentration risk, percentage | 40.00% |
| Rentable Square Feet [Member] | |
| Concentration Risk [Line Items] | |
| Concentration risk, percentage | 44.00% |
| Net rentable area | ft² | 44,892 |
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | ||
| Tenant Origination And Absorption Costs, Cost | $ 1,987,175 | $ 1,987,175 |
| Tenant Origination and Absorption Costs, Accumulated Amortization | (240,158) | (144,599) |
| Tenant Origination and Absorption Costs, Net Amount | 1,747,017 | 1,842,576 |
| Below-Market Lease Liabilities, Cost | (122,143) | (122,143) |
| Below-Market Lease Liabilities, Accumulated Amortization | 14,599 | 8,932 |
| Below-Market Lease Liabilities, Net Amount | $ (107,544) | $ (113,211) |
TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-MARKET LEASE LIABILITIES (Narrative) (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2016
USD ($)
| |
| Tenant Origination and Absorption Costs, Above-Market Lease Assets and Below-Market Lease Liabilities [Abstract] | |
| Amortization expense related to tenant origination and absorption costs | $ 95,559 |
| Below-market lease liabilities | $ 5,667 |
NOTES PAYABLE (Narrative) (Details) - USD ($) |
2 Months Ended | 3 Months Ended | |
|---|---|---|---|
Mar. 31, 2015 |
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Notes Payable [Abstract] | |||
| Interest expense | $ 0 | $ 177,840 | |
| Interest payable, current | 55,525 | $ 52,142 | |
| Amortization of deferred financing costs | $ 0 | $ 15,485 |
NOTES PAYABLE (Schedule of Long-term Debt Instruments) (Details) - USD ($) |
1 Months Ended | 3 Months Ended | |
|---|---|---|---|
May. 12, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
|
| Debt Instrument [Line Items] | |||
| Note payable principal outstanding | $ 16,371,790 | $ 16,346,040 | |
| Deferred financing costs, net | (274,574) | (289,059) | |
| Note payable, net | 16,097,216 | 16,056,981 | |
| Von Karman Tech Center Mortgage Loan [Member] | Mortgage [Member] | |||
| Debt Instrument [Line Items] | |||
| Note payable principal outstanding | $ 16,371,790 | $ 16,346,040 | |
| Effective Interest Rate | 3.94% | ||
| Maturity Date | Sep. 01, 2020 | ||
| Von Karman Tech Center Mortgage Loan [Member] | Mortgage [Member] | Subsequent Event [Member] | |||
| Debt Instrument [Line Items] | |||
| Extinguishment of debt, amount | $ 5,100,000 | ||
| Von Karman Tech Center Mortgage Loan [Member] | Mortgage [Member] | One-month LIBOR [Member] | |||
| Debt Instrument [Line Items] | |||
| Basis Spread on Variable Rate | 3.50% |
FAIR VALUE DISCLOSURES (Details) - USD ($) |
Mar. 31, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Notes and bond payable, Face Value | $ 16,371,790 | $ 16,346,040 |
| Carrying Amount [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Notes and bond payable, Value | 16,097,216 | 16,056,981 |
| Fair Value [Member] | ||
| Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
| Notes and bond payable, Value | $ 16,471,151 | $ 16,556,729 |
RELATED PARTY TRANSACTIONS (Real Estate Property Co-Management Agreement) (Details) - KBS Management Group, LLC [Member] |
Mar. 09, 2016 |
|---|---|
| Related Party Transaction [Line Items] | |
| Monthly fee as percent of total rent | 1.50% |
| Initial term of management agreements | 1 year |
| Successive periods, renewal | 1 year |
| Period of termination notice | 30 days |
| Period of termination notice with cause | 5 days |
SUBSEQUENT EVENTS (Status Offering) (Details) - USD ($) |
3 Months Ended | 11 Months Ended | 14 Months Ended | ||
|---|---|---|---|---|---|
May. 10, 2016 |
Apr. 27, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
Mar. 31, 2016 |
|
| Subsequent Event [Line Items] | |||||
| Issuance of common stock, value | $ 37,217,059 | $ 19,105,265 | $ 56,000,000 | ||
| Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Issuance of common stock, value | $ 73,600,000 | ||||
| Common Stock [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Issuance of common stock, shares | 4,125,171 | 2,194,161 | 6,276,970 | ||
| Issuance of common stock, value | $ 41,252 | $ 21,941 | |||
| Common Stock [Member] | Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Primary private offering, period of continuation to process subscriptions | 30 days | ||||
| Issuance of common stock, shares | 8,205,886 |
SUBSEQUENT EVENTS (Probable Real Estate Acquisition) (Details) - Subsequent Event [Member] - Scenario, Plan [Member] - Lincoln Court [Member] $ in Millions |
May. 06, 2016
USD ($)
a
ft²
Tenants
|
|---|---|
| Subsequent Event [Line Items] | |
| Net rentable area | ft² | 216,099 |
| Area of land | a | 0.46 |
| Purchase price | $ 69.0 |
| Deposit | 2.0 |
| Earnest money deposit, amount that may be forfeited | $ 2.0 |
| Percent of property leased | 94.00% |
| Number of tenants | Tenants | 25 |