37
Contractual Commitments and Contingencies
The following is a summary of our contractual obligations as of September 30, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due During the Years Ended December 31, |
Contractual Obligations | | Total | | Remainder of 2017 | | 2018-2019 | | 2020-2021 | | Thereafter |
Outstanding debt obligations (1) | | $ | 1,898,897 |
| | $ | 874 |
| | $ | 1,323,985 |
| | $ | 393,448 |
| | $ | 180,590 |
|
Interest payments on outstanding debt obligations (2) | | 110,066 |
| | 16,772 |
| | 67,684 |
| | 23,407 |
| | 2,203 |
|
Development obligations | | 51,935 |
| | (3) | | (3) | | — |
| | — |
|
_____________________
(1) Amounts include principal payments only.
(2) Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as of September 30, 2017 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable). We incurred interest expense of $45.6 million, excluding amortization of deferred financing costs totaling $3.8 million and unrealized gain on derivatives of $2.6 million and including interest capitalized of $1.5 million during the nine months ended September 30, 2017.
(3) We have entered into a consolidated joint venture to develop a two building multi-family apartment complex consisting of 466 units and expect to incur an additional $51.9 million in development obligations through 2018. As of September 30, 2017, $8.7 million had been disbursed under the Hardware Village Loan Facility and $65.3 million remained available for future disbursements, subject to certain conditions contained in the Hardware Village Loan Facility documents.
As of September 30, 2017, we expect to acquire the developer’s 25% equity interest upon completion of Village Center Station II (defined below) in 2018 for approximately $25.0 million.
Results of Operations
Overview
As of September 30, 2016, we owned 28 office properties, one mixed-use office/retail property and had entered into a consolidated joint venture to develop and subsequently operate a multifamily apartment project (“Hardware Village”), which is currently under construction. During the three months ended September 30, 2016, the Aberdeen First Mortgage Origination was paid off. As of September 30, 2017, we owned 28 office properties and one mixed-use office/retail property and had made an investment in an unconsolidated joint venture to develop and subsequently operate an office/retail property (“Village Center Station II”), which is currently under construction. In addition, we had entered into a consolidated joint venture to develop and subsequently operate Hardware Village, which is currently under construction. As a result, the results of operations presented for the nine months ended September 30, 2017 and 2016 are not directly comparable due to our acquisition and development activity and the payoff of our investment in a real estate loan receivable.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Debt Obligations
The following is a summary of our debt obligations as of June 30, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments Due During the Years Ended December 31, |
Debt Obligations | | Total | | Remainder of 2022 | | 2023-2024 | | 2025-2026 | | Thereafter |
Outstanding debt obligations (1) | | $ | 1,603,365 | | | $ | 871 | | | $ | 1,602,494 | | | $ | — | | | $ | — | |
Interest payments on outstanding debt obligations (2) (3) | | 74,167 | | | 28,191 | | | 45,976 | | | — | | | — | |
Interest payments on interest rate swaps (4) (5) | | 574 | | | 574 | | | — | | | — | | | — | |
_____________________
(1) Amounts include principal payments only based on maturity dates as of June 30, 2022; subject to certain conditions, the maturity dates of certain loans may be extended beyond what is shown above.
(2) Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as of June 30, 2022 (consisting of the contractual interest rate and using interest rate indices as of June 30, 2022, where applicable).
(3) We incurred interest expense related to notes payable of $17.9 million, excluding amortization of deferred financing costs totaling $1.9 million during the six months ended June 30, 2022.
(4) Projected interest payments on interest rate swaps are calculated based on the notional amount, effective term of the swap contract, and fixed rate net of the swapped floating rate in effect as of June 30, 2022. In the case where the swapped floating rate (one-month LIBOR) at June 30, 2022 is higher than the fixed rate in the swap agreement, interest payments on interest rate swaps in the above debt obligations table would reflect zero as we would not be obligated to make any interest payments on those swaps and instead expect to receive payments from our swap counter-parties.
(5) We incurred realized losses related to interest rate swaps of $7.0 million, excluding unrealized gains on derivative instruments of $35.9 million, during the six months ended June 30, 2022.
Results of Operations
Overview
As of June 30, 2021, we owned 17 office properties, one mixed-use office/retail property and an investment in the equity securities of the SREIT, which was accounted for as an investment in an unconsolidated entity under the equity method of accounting at that time. Subsequent to June 30, 2021, we sold one office property and, through our indirect wholly owned subsidiary (“REIT Properties III”), we sold 73,720,000 of our units in the SREIT, reducing REIT Properties III’s ownership in the SREIT to 18.5% as of the transaction date. As a result, as of June 30, 2022, we owned 16 office properties, one mixed-use office/retail property and an investment in the equity securities of the SREIT. As a result of our reduced ownership in the SREIT, our investment in the equity securities of the SREIT is now presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date. Therefore, the results of operations presented for the three and six months ended June 30, 2022 and 2021 are not directly comparable.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Comparison of the three months ended SeptemberJune 30, 20172022 versus the three months ended SeptemberJune 30, 20162021
The following table provides summary information about our results of operations for the three months ended SeptemberJune 30, 20172022 and 20162021 (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Increase (Decrease) | | Percentage Change | | $ Changes Due to Dispositions of Properties and Ceasing of Equity Method of Accounting (1) | | $ Change Due to Properties Held Throughout Both Periods (2) |
| | 2022 | | 2021 | | | | |
Rental income | | $ | 68,187 | | | $ | 69,774 | | | $ | (1,587) | | | (2) | % | | $ | (2,418) | | | $ | 831 | |
Other operating income | | 4,551 | | | 4,080 | | | 471 | | | 12 | % | | — | | | 471 | |
Operating, maintenance and management | | 17,456 | | | 16,202 | | | 1,254 | | | 8 | % | | (23) | | | 1,277 | |
Real estate taxes and insurance | | 14,114 | | | 14,000 | | | 114 | | | 1 | % | | (18) | | | 132 | |
Asset management fees to affiliate | | 4,985 | | | 4,944 | | | 41 | | | 1 | % | | (112) | | | 153 | |
General and administrative expenses | | 2,014 | | | 1,880 | | | 134 | | | 7 | % | | n/a | | n/a |
Depreciation and amortization | | 26,638 | | | 27,920 | | | (1,282) | | | (5) | % | | (837) | | | (445) | |
Interest expense | | 11,170 | | | 8,345 | | | 2,825 | | | 34 | % | | (174) | | | 2,999 | |
| | | | | | | | | | | | |
Net (gain) loss on derivative instruments | | (7,469) | | | 554 | | | (8,023) | | | (1,448) | % | | — | | | (8,023) | |
Unrealized loss on real estate equity securities | | (17,268) | | | — | | | (17,268) | | | (100) | % | | — | | | (17,268) | |
Write-off of prepaid offering costs | | (2,728) | | | — | | | (2,728) | | | (100) | % | | n/a | | n/a |
Equity in income of an unconsolidated entity | | — | | | 63 | | | (63) | | | (100) | % | | (63) | | | — | |
| | | | | | | | | | | | |
Other interest income | | 9 | | | 16 | | | (7) | | | (44) | % | | n/a | | n/a |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
_____________________ |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Increase (Decrease) | | Percentage Change | | $ Change Due to Acquisitions and Payoffs (1) | | $ Change Due to Properties Held Throughout Both Periods (2) |
| | 2017 | | 2016 | | | | |
Rental income | | $ | 77,798 |
| | $ | 76,998 |
| | $ | 800 |
| | 1 | % | | $ | — |
| | $ | 800 |
|
Tenant reimbursements | | 19,063 |
| | 19,258 |
| | (195 | ) | | (1 | )% | | — |
| | (195 | ) |
Other operating income | | 5,697 |
| | 5,549 |
| | 148 |
| | 3 | % | | — |
| | 148 |
|
Operating, maintenance and management costs | | 25,293 |
| | 24,009 |
| | 1,284 |
| | 5 | % | | — |
| | 1,284 |
|
Real estate taxes and insurance | | 16,460 |
| | 16,359 |
| | 101 |
| | 1 | % | | — |
| | 101 |
|
Asset management fees to affiliate | | 6,587 |
| | 6,286 |
| | 301 |
| | 5 | % | | 164 |
| | 137 |
|
General and administrative expenses | | 983 |
| | 1,289 |
| | (306 | ) | | (24 | )% | | n/a |
| | n/a |
|
Depreciation and amortization | | 41,151 |
| | 39,978 |
| | 1,173 |
| | 3 | % | | — |
| | 1,173 |
|
Interest expense | | 15,460 |
| | 10,042 |
| | 5,418 |
| | 54 | % | | n/a |
| | n/a |
|
_____________________
(1) Represents the dollar amount increase (decrease) for the three months ended SeptemberJune 30, 20172022 compared to the three months ended SeptemberJune 30, 20162021 related to real estate investments acquired or repaid on ordispositions of properties after JulyApril 1, 2016.2021 and ceasing of equity method of accounting related to our investment in the units of the SREIT for periods after November 9, 2021.
(2) Represents the dollar amount increase (decrease) for the three months ended SeptemberJune 30, 20172022 compared to the three months ended SeptemberJune 30, 2016 with respect2021 related to real estate investments owned by us throughout both periods presented.
Rental income and tenant reimbursements from our real estate properties increaseddecreased from $96.3$69.8 million for the three months ended SeptemberJune 30, 20162021 to $96.9$68.2 million for the three months ended SeptemberJune 30, 2017.2022. The decrease in rental income was primarily due to the disposition of Domain Gateway in November 2021, partially offset by an increase in rental income and tenant reimbursements for propertiesrelated to a lease termination fee received during the three months ended June 30, 2022 with respect a property held throughout both periods was primarily due to an increase in lease termination fees and rental rates, partially offset by a decrease in property tax recoveries.periods. We expect rental income and tenant reimbursements to vary in future periods based on occupancy rates and rental rates of our real estate investments and increase based on the developmentuncertainty and subsequent operation of Hardware Village and upon the acquisitionbusiness disruptions or recoveries as a result of the developer's 25% equity interestCOVID-19 pandemic and subsequent operation of Village Center Station II.to increase due to tenant reimbursements related to operating expenses as physical occupancy increases as employees return to the office. See “Market Outlook – Real Estate and Real Estate Finance Markets – COVID-19 Pandemic and Portfolio Outlook.”
Other operating income increased from $5.5 million during the three months ended September 30, 2016 to $5.7$4.1 million for the three months ended SeptemberJune 30, 2017. The increase in other operating income2021 to $4.6 million for properties held throughout both periods wasthe three months ended June 30, 2022, primarily due to an increase in parking revenues.revenues for properties held throughout both periods. We expect other operating income to vary in future periods based on occupancy rates and parking rates at our real estate properties, and increase upon the acquisitionbusiness disruptions or recoveries as a result of the developer's 25% equity interest and subsequent operation of Village Center Station II.COVID-19 pandemic.
Operating, maintenance and management costs increased from $24.0$16.2 million for the three months ended SeptemberJune 30, 20162021 to $25.3$17.5 million for the three months ended SeptemberJune 30, 2017.2022. The increase in operating, maintenance and management costs for properties held throughout both periods was primarily due to an overall increase in repairsoperating costs, including utilities, janitorial and maintenance, management feessecurity costs, as a result of general inflation and an increase in bad debt expense related to a tenant bankruptcyphysical occupancy at a property.properties held throughout both periods. We expect operating, maintenance and management costs to increase in future periods as a result of the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II and general inflation.
Real estate taxes and insurance increased slightly from $16.4 million for the three months ended September 30, 2016 to $16.5 million for the three months ended September 30, 2017. We expect real estate taxes and insurance to increase in future periods as a result of the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II and general increases due to future property tax reassessments.
Asset management fees with respect to our real estate investments increased from $6.3 million for the three months ended September 30, 2016 to $6.6 million for the three months ended September 30, 2017. We expect asset management fees to increase in future periods as a result of the continued development of Hardware Village and Village Center Station IIinflation and as a result of any improvements we makephysical occupancy increases as employees return to our properties. As of September 30, 2017, $2.2 million of asset management fees were payable, which were subsequently paid in November 2017.
the office.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
DepreciationReal estate taxes and amortizationinsurance increased from $40.0$14.0 million for the three months ended SeptemberJune 30, 20162021 to $41.2$14.1 million for the three months ended SeptemberJune 30, 2017.2022, primarily due to a net increase in real estate taxes as a result of higher property tax assessments for real estate properties held throughout both periods and an overall increase in insurance expense, offset by property tax refunds received during the three months ended June 30, 2022.We expect real estate taxes and insurance to increase in future periods as a result of general inflation and general increases due to future property tax reassessments for properties that we continue to own.
Asset management fees with respect to our real estate investments increased from $4.9 million for the three months ended June 30, 2021 to $5.0 million for the three months ended June 30, 2022, primarily due to capital improvements at properties held throughout both periods, offset by the disposition of Domain Gateway in November 2021. We expect asset management fees to increase in future periods as a result of any improvements we make to our properties and to decrease to the extent we dispose of properties. As of June 30, 2022, there were $4.9 million of accrued asset management fees, of which $4.3 million was deferred as of June 30, 2022. For a discussion of accrued and deferred asset management fees, see “– Liquidity and Capital Resources” herein.
General and administrative expenses increased from $1.9 million for the three months ended June 30, 2021 to $2.0 million for the three months ended June 30, 2022, primarily due to professional fees incurred related to our conflicts committee’s and board of directors’ evaluation of various alternatives available to us, offset by a decrease in appraisal fees related to the update of our estimated value per share in May 2021 and a decrease in legal fees and proxy costs. General and administrative costs consisted primarily of portfolio legal fees, board of directors fees, and third party transfer agent fees. We expect general and administrative expenses to vary in future periods.
Depreciation and amortization decreased from $27.9 million for the three months ended June 30, 2021 to $26.6 million for the three months ended June 30, 2022, primarily as a result of the disposition of Domain Gateway in November 2021 and a decrease in depreciation and amortization due to a lease expiration at a property held throughout both periods. We expect depreciation and amortization to varyincrease in future periods as a result of additional capital improvements, offset by a decrease in amortization related to fully amortized tenant origination and absorption costs and increase as a result of the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II.costs.
Interest expense increased from $10.0$8.3 million for the three months ended SeptemberJune 30, 20162021 to $15.5$11.2 million for the three months ended SeptemberJune 30, 2017.2022. Included in interest expense iswas (i) $7.3 million and $10.3 million of interest expense payments for the three months ended June 30, 2021 and 2022, respectively, and (ii) the amortization of deferred financing costs of $1.3$1.0 million and $1.3$0.9 million for the three months ended SeptemberJune 30, 20162021 and 2017,2022, respectively. Additionally,The increase in interest expense was due to draws on our revolving debt and higher one-month LIBOR and one-month Bloomberg Short-Term Bank Yield Index (“BSBY”) during the three months ended SeptemberJune 30, 20162022, and 2017,its impact on interest expense related to the portion of our unhedged variable rate debt. In general, we capitalized $0.1expect interest expense to vary based on fluctuations in interest rates (for our variable rate debt) and our level of future borrowings.
We recorded net loss on derivative instruments of $0.6 million and $0.7 million of interest to construction-in-progress related to Hardware Village and Village Center Station II, respectively. As a result of $3.7 million of unrealized gainsnet gain on derivative instruments of $7.5 million for the three months ended SeptemberJune 30, 2016,2021 and 2022, respectively. Included in net (gain) loss on derivative instruments was (i) unrealized gain on interest expense decreased by $1.3 million. Interest expense incurred as a resultrate swaps of our derivative instruments$3.9 million and $10.1 million for the three months ended SeptemberJune 30, 2017 was $0.42021 and 2022, respectively, offset by (ii) $4.5 million which includes $1.0and $2.6 million of unrealized gainsrealized loss on derivative instrumentsinterest rate swaps for the three months ended SeptemberJune 30, 2017.2021 and 2022, respectively. The overall increase in interest expense isnet gain on derivative instruments was primarily due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges during the increased level of borrowings and increased interest rates on our variable rate debt, partially offset by an increase in unrealizedthree months ended June 30, 2022. In general, we expect net gains or losses on derivative instruments. We expect interest expenseinstruments to increase in future periods as a result of additional borrowings for capital expenditures and development activity. In addition, our interest expense in future periods will vary based on fair value changes with respect to our interest rate swaps that are not accounted for as cash flow hedges and fluctuations in one-month LIBOR (for our variable rate debt). hedges.
ComparisonDuring the three months ended June 30, 2022, we recorded an unrealized loss on real estate equity securities of $17.3 million as a result of the ninedecrease in the closing price of the units of the SREIT on the SGX-ST.
During the three months ended SeptemberJune 30, 2017 versus the nine months ended September 30, 2016
The following table provides summary information about our results of operations for the nine months ended September 30, 2017 and 2016 (dollar amounts in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | | Increase (Decrease) | | Percentage Change | | $ Change Due to Acquisitions and Payoffs (1) | | $ Change Due to Properties Held Throughout Both Periods (2) |
| | 2017 | | 2016 | | | | |
Rental income | | $ | 236,200 |
| | $ | 228,783 |
| | $ | 7,417 |
| | 3 | % | | $ | 558 |
| | $ | 6,859 |
|
Tenant reimbursements | | 57,652 |
| | 54,849 |
| | 2,803 |
| | 5 | % | | (96 | ) | | 2,899 |
|
Other operating income | | 17,124 |
| | 15,504 |
| | 1,620 |
| | 10 | % | | 186 |
| | 1,434 |
|
Interest income from real estate loan receivable | | — |
| | 831 |
| | (831 | ) | | (100 | )% | | (831 | ) | | — |
|
Operating, maintenance and management costs | | 70,765 |
| | 68,627 |
| | 2,138 |
| | 3 | % | | (36 | ) | | 2,174 |
|
Real estate taxes and insurance | | 48,721 |
| | 47,675 |
| | 1,046 |
| | 2 | % | | 24 |
| | 1,022 |
|
Asset management fees to affiliate | | 19,223 |
| | 18,646 |
| | 577 |
| | 3 | % | | 252 |
| | 325 |
|
Real estate acquisition fees to affiliate | | — |
| | 1,473 |
| | (1,473 | ) | | (100 | )% | | (1,473 | ) | | n/a |
|
Real estate acquisition fees and expenses | | — |
| | 306 |
| | (306 | ) | | (100 | )% | | (306 | ) | | n/a |
|
General and administrative expenses | | 3,324 |
| | 4,115 |
| | (791 | ) | | (19 | )% | | n/a |
| | n/a |
|
Depreciation and amortization | | 124,370 |
| | 120,088 |
| | 4,282 |
| | 4 | % | | 246 |
| | 4,036 |
|
Interest expense | | 45,257 |
| | 53,948 |
| | (8,691 | ) | | (16 | )% | | n/a |
| | n/a |
|
Other income | | 650 |
| | — |
| | 650 |
| | 100 | % | | — |
| | 650 |
|
_____________________
(1) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2017 compared2022, we recorded $2.7 million related to the nine months ended September 30, 2016 relatedwrite-off of prepaid offering costs. Given changing market conditions, we continue to real estate investments acquired or repaidevaluate various alternatives available to us. See “–Overview.” In order to avoid additional legal, accounting and other offering costs while we make this determination, we withdrew our registration statement on or after January 1, 2016.
(2) RepresentsForm S-11 to register a public offering as an NAV REIT, which had been filed with the dollar amount increase (decrease) for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 with respect to real estate investments owned by us throughout both periods presented.
Rental income and tenant reimbursements from our real estate properties increased from $283.6 million for the nine months ended September 30, 2016 to $293.9 million for the nine months ended September 30, 2017. The increase in rental income and tenant reimbursements for properties held throughout both periods was primarily dueSEC, as at this time it is not likely we will pursue a conversion to an increase in lease termination fees, rental rates, operating expense recoveries and property tax recoveries. We expect rental income and tenant reimbursements to vary in future periods based on occupancy rates and rental rates of our real estate investments and increase based on the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II.
“NAV REIT.”
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Comparison of the six months ended June 30, 2022 versus the six months ended June 30, 2021
The following table provides summary information about our results of operations for the six months ended June 30, 2022 and 2021 (dollar amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | | Increase (Decrease) | | Percentage Change | | $ Changes Due to Dispositions of Properties and Ceasing of Equity Method of Accounting (1) | | $ Change Due to Properties Held Throughout Both Periods (2) |
| | 2022 | | 2021 | | | | |
Rental income | | $ | 137,042 | | | $ | 140,858 | | | $ | (3,816) | | | (3) | % | | $ | (5,010) | | | $ | 1,194 | |
Dividend income from real estate equity securities | | 7,252 | | | — | | | 7,252 | | | 100 | % | | — | | | 7,252 | |
Other operating income | | 8,744 | | | 7,731 | | | 1,013 | | | 13 | % | | (94) | | | 1,107 | |
Operating, maintenance and management | | 34,832 | | | 32,065 | | | 2,767 | | | 9 | % | | (216) | | | 2,983 | |
Real estate taxes and insurance | | 28,162 | | | 28,379 | | | (217) | | | (1) | % | | (121) | | | (96) | |
Asset management fees to affiliate | | 9,861 | | | 9,839 | | | 22 | | | — | % | | (261) | | | 283 | |
General and administrative expenses | | 3,800 | | | 3,602 | | | 198 | | | 5 | % | | n/a | | n/a |
Depreciation and amortization | | 53,858 | | | 55,319 | | | (1,461) | | | (3) | % | | (1,592) | | | 131 | |
Interest expense | | 19,826 | | | 16,678 | | | 3,148 | | | 19 | % | | (348) | | | 3,496 | |
Net gain on derivative instruments | | (28,938) | | | (964) | | | (27,974) | | | 2,902 | % | | — | | | (27,974) | |
Unrealized loss on real estate equity securities | | (34,535) | | | — | | | (34,535) | | | (100) | % | | — | | | (34,535) | |
| | | | | | | | | | | | |
Write-off of prepaid offering costs | | (2,728) | | | — | | | (2,728) | | | (100) | % | | n/a | | n/a |
Equity in income of an unconsolidated entity | | — | | | 3,350 | | | (3,350) | | | (100) | % | | (3,350) | | | — | |
Gain on sale of real estate, net | | — | | | 20,459 | | | (20,459) | | | (100) | % | | (20,459) | | | — | |
Other income | | 6 | | | — | | | 6 | | | 100 | % | | n/a | | n/a |
Other interest income | | 17 | | | 31 | | | (14) | | | (45) | % | | n/a | | n/a |
| | | | | | | | | | | | |
_____________________
(1) Represents the dollar amount increase (decrease) for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 related to dispositions of properties after January 1, 2021 and ceasing of equity method of accounting related to our investment in the units of the SREIT for periods after November 9, 2021.
(2) Represents the dollar amount increase (decrease) for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 related to real estate investments owned by us throughout both periods presented.
Rental income from our real estate properties decreased from $140.9 million for the six months ended June 30, 2021 to $137.0 million for the six months ended June 30, 2022. The decrease in rental income was primarily due to the dispositions of real estate properties subsequent to January 1, 2021, partially offset by a net increase in rental income related to lease commencements subsequent to June 30, 2021 and an increase in operating recoveries with respect to properties held throughout both periods. We expect rental income to vary based on occupancy rates and rental rates of our real estate investments and uncertainty and business disruptions or recoveries as a result of the COVID-19 pandemic and to increase due to tenant reimbursements related to operating expenses as physical occupancy increases as employees return to the office. See “Market Outlook – Real Estate and Real Estate Finance Markets – COVID-19 Pandemic and Portfolio Outlook.”
Dividend income from our real estate equity securities was $7.3 million for the six months ended June 30, 2022. On November 9, 2021, upon our sale of 73,720,000 units in the SREIT, we determined that based on our ownership interest of 18.5% of the outstanding units of the SREIT as of that date, we no longer had significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, effective November 9, 2021, our investment in the units of the SREIT represents an investment in marketable securities and is therefore presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date and dividend income is recognized as it is declared based on eligible units as of the ex-dividend date. Prior to November 9, 2021, our investment in the SREIT was accounted for under the equity method of accounting.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Other operating income increased from $15.5 million during the nine months ended September 30, 2016 to $17.1$7.7 million for the ninesix months ended SeptemberJune 30, 2017.2021 to $8.7 million for the six months ended June 30, 2022. The increase in other operating income for properties held throughout both periods was primarily due to an increase in parking revenues.revenues for properties held throughout both periods, offset by the disposition of Anchor Centre in January 2021. We expect other operating income to vary in future periods based on occupancy rates and parking rates at our real estate properties, and increase upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II.
Interest income from our real estate loan receivable, recognized using the interest method, decreased from $0.8 million for the nine months ended September 30, 2016 to $0 for the nine months ended September 30, 2017business disruptions or recoveries as a result of the payoff of the real estate loan receivable on July 1, 2016.COVID-19 pandemic.
Operating, maintenance and management costs increased from $68.6$32.1 million for the ninesix months ended SeptemberJune 30, 20162021 to $70.8$34.8 million for the ninesix months ended SeptemberJune 30, 2017.2022. The increase in operating, maintenance and management costs forwas primarily due to an overall increase in operating costs, including utilities, janitorial and security costs, as a result of general inflation, an increase in physical occupancy at properties held throughout both periods was primarily dueand higher legal fees and space planning costs related to an increase in repairs and maintenance and management fees.leasing activities, offset by the dispositions of real estate properties subsequent to January 1, 2021. We expect operating, maintenance and management costs to increase in future periods as a result of general inflation and as physical occupancy increases as employees return to the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II and general inflation.office.
Real estate taxes and insurance increaseddecreased from $47.7$28.4 million for the ninesix months ended SeptemberJune 30, 20162021 to $48.7$28.2 million for the ninesix months ended SeptemberJune 30, 2017. The2022, primarily due to an insurance credit and property tax refunds received during the six months ended June 30, 2022 and the disposition of Anchor Centre in January 2021, offset by a net increase in real estate taxes and insuranceas a result of higher property tax assessments for real estate properties held throughout both periods was primarily due to higher property taxes as a result of reassessments for 500 West Madison.periods. We expect real estate taxes and insurance to increase in future periods as a result of the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station IIgeneral inflation and general increases due to future property tax reassessments.reassessments for properties that we continue to own.
Asset management fees with respect to our real estate investments increased from $18.6$9.8 million for the ninesix months ended SeptemberJune 30, 20162021 to $19.2$9.9 million for the ninesix months ended SeptemberJune 30, 2017.2022, primarily due to capital improvements at properties held throughout both periods, offset by the dispositions of real estate properties subsequent to January 1, 2021. We expect asset management fees to increase in future periods as a result of the development and subsequent operation of Hardware Village, upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II and as a result of any improvements we make to our properties, which increase would be offset to the extent we dispose of any of our assets.properties. As of SeptemberJune 30, 2017, $2.22022, there were $4.9 million of accrued asset management fees, were payable,of which were subsequently paid in November 2017.$4.3 million was deferred as of June 30, 2022. For a discussion of accrued and deferred asset management fees, see “– Liquidity and Capital Resources” herein.
Real estate acquisition feesGeneral and administrative expenses to affiliate and non-affiliates decreasedincreased from $1.8$3.6 million for the ninesix months ended SeptemberJune 30, 20162021 to $0$3.8 million for the ninesix months ended SeptemberJune 30, 20172022, primarily due to professional fees incurred related to our conflicts committee’s and board of directors’ evaluation of various alternatives available to us, offset by a decrease in acquisition activity. During the nine months ended September 30, 2017, we did not acquire any investments accounted for as a business combination, but we did make an investment in an unconsolidated joint venture. During the nine months ended September 30, 2017, we capitalized an aggregateproxy costs. General and administrative costs consisted primarily of $0.7 million in acquisitionportfolio legal fees, board of directors fees, and third party transfer agent fees. We expect general and administrative expenses related to the development of Hardware Village and the investment in the unconsolidated joint venture investment, the Village Center Station II Joint Venture. During the nine months ended September 30, 2016, we acquired one real estate property accounted for as a business combination for $146.1 million. We do not expect to incur any significant real estate acquisition fees and expensesvary in future periods.
Depreciation and amortization increaseddecreased from $120.1$55.3 million for the ninesix months ended SeptemberJune 30, 20162021 to $124.4$53.9 million for the ninesix months ended SeptemberJune 30, 2017,2022, primarily as a result of the accelerationdisposition of amortization of intangible assets related to a tenant relocation and lease termination at a property held throughout both periods.Domain Gateway in November 2021. We expect depreciation and amortization to varyincrease in future periods as a result of additional capital improvements, offset by a decrease in amortization related to fully amortized tenant origination and absorption costs and increase as a result of the development and subsequent operation of Hardware Village and upon the acquisition of the developer's 25% equity interest and subsequent operation of Village Center Station II.costs.
Interest expense decreasedincreased from $53.9$16.7 million for the ninesix months ended SeptemberJune 30, 20162021 to $45.3$19.8 million for the ninesix months ended SeptemberJune 30, 2017.2022. Included in interest expense iswas (i) $14.7 million and $17.9 million of interest expense payments for the six months ended June 30, 2021 and 2022, respectively, and (ii) the amortization of deferred financing costs of $3.8$2.0 million and $3.8$1.9 million for the ninesix months ended SeptemberJune 30, 20162021 and 2017,2022, respectively. Additionally,The increase in interest expense was due to draws on our revolving debt and higher one-month LIBOR and one-month BSBY during the ninesix months ended SeptemberJune 30, 2017, we capitalized $0.1 million2022, and $1.5 million ofits impact on interest to construction-in-progressexpense related to Hardware Village and Village Center Station II, respectively. Interest expense incurred as a resultthe portion of our derivative instruments for the nine months ended September 30, 2016unhedged variable rate debt. In general, we expect interest expense to vary based on fluctuations in interest rates (for our variable rate debt) and 2017 was $20.5 million and $3.1 million, respectively, which includes $14.8 millionour level of unrealized losses and $2.6 million of unrealized gainsfuture borrowings.
Net gain on derivative instruments increased from $1.0 million for the ninesix months ended SeptemberJune 30, 20162021 to $28.9 million for the six months ended June 30, 2022. Included in net gain on derivative instruments was (i) unrealized gain on interest rate swaps of $9.9 million and 2017,$35.9 million for the six months ended June 30, 2021 and 2022, respectively, offset by (ii) $8.9 million and $7.0 million of realized loss on interest rate swaps for the six months ended June 30, 2021 and 2022, respectively. The decreaseincrease in interest expense isnet gain on derivative instruments was primarily due to changes in the value offair values with respect to our interest rate swaps that are not accounted for as otherwise interest expense would have increased duecash flow hedges during the six months ended June 30, 2022. In general, we expect net gains or losses on derivative instruments to the increased level of borrowings. We expect interest expense to increase in future periods as a result of additional borrowings for capital expenditures and development activity. In addition, our interest expense in future periods will vary based on fair value changes with respect to our interest rate swaps that are not accounted for as cash flow hedges and fluctuationshedges.
During the six months ended June 30, 2022, we recorded an unrealized loss on real estate equity securities of $34.5 million as a result of the decrease in one-month LIBOR (for our variable rate debt).
the closing price of the units of the SREIT on the SGX-ST.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
During the six months ended June 30, 2022, we recorded $2.7 million related to the write-off of prepaid offering costs. Given changing market conditions, we continue to evaluate various alternatives available to us. See “–Overview.” In order to avoid additional legal, accounting and other offering costs while we make this determination, we withdrew our registration statement on Form S-11 to register a public offering as an NAV REIT, which had been filed with the SEC, as at this time it is not likely we will pursue a conversion to an “NAV REIT.”
During the ninesix months ended SeptemberJune 30, 2017,2021, we received $0.7recorded equity in income of an unconsolidated entity of $3.4 million in proceeds from a one-time easement agreement, which is included in other incomerelated to our investment in the accompanying consolidated statementsSREIT. As discussed above, effective November 9, 2021, based on our 18.5% ownership interest in the SREIT as of operations.that date, we do not exercise significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, our investment in the units of the SREIT represents an investment in marketable securities and therefore is presented at fair value as of June 30, 2022, based on the closing price of the SREIT units on the SGX-ST on that date.
We recognized a gain on sale of real estate of $20.5 million related to the disposition of Anchor Centre during the six months ended June 30, 2021. We did not dispose of any real estate during the six months ended June 30, 2022.
Funds from Operations and Modified Funds from Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of an equity REIT. We compute FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), gains and losses from change in control, impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. In addition, we elected the option to exclude mark-to-market changes in value recognized on real estate equity securities in the calculation of FFO. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance with U.S. generally accepted accounting principles (“GAAP”) implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provides a more complete understanding of our performance relative to our competitors and provides a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities.
Changes in accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, our management also uses MFFO as an indicator of our ongoing performance as well as our dividend sustainability. MFFO excludes from FFO: acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses); adjustments related to contingent purchase price obligations; amounts relating to straight-line rents and amortization of above and below market intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; amortization of closing costs relating to debt investments; impairments of real estate-related investments; mark-to-market adjustments included in net income; and gains or losses included in net income for the extinguishment or sale of debt or hedges. We compute MFFO in accordance with the definition of MFFO included in the practice guideline issued by the IPA in November 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do.
We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that excluding acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses) from MFFO provides investors with supplemental performance information that is consistent with management’s analysis of the operating performance of the portfolio over time, including periods after our acquisition stage.time. MFFO also excludes non-cash items such as straight-line rental revenue. Additionally, we believe that MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies.REITs. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
FFO and MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussionproperties sold or under contract to sale during the periods presented. During periods of significant disposition activity, FFO and AnalysisMFFO are much more limited measures of Financial Conditionfuture performance and Resultsdividend sustainability. In connection with our presentation of Operations (continued)
FFO and MFFO, we are providing information related to the proportion of MFFO related to properties sold in 2021.
Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, and unrealized (gains) lossesgains on derivative instruments and acquisition fees and expenses (as applicable) are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations:
•Adjustments for straight-line rent. These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period;
•Amortization of above- and below-market leases.Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate;
and•Unrealized (gains) lossesgains on derivative instruments.These adjustments include unrealized (gains) lossesgains from mark-to-market adjustments on interest rate swaps. The change in fair value of interest rate swaps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements;agreements.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Acquisition fees and expenses. Prior to our early adoption of ASU No. 2017-01 on January 1, 2017, acquisition fees and expenses related to the acquisition of real estate were generally expensed. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis. Additionally, acquisition fees and expenses have been funded from the proceeds from our now-terminated initial public offering and debt financings and not from our operations. We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance.
Our calculation of FFO, which we believe is consistent with the calculation of FFO as defined by NAREIT, is presented in the following table, along with our calculation of MFFO, for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Net (loss) income attributable to common stockholders | | $ | (3,151 | ) | | $ | 3,859 |
| | $ | 267 |
| | $ | (14,872 | ) |
Depreciation of real estate assets | | 21,729 |
| | 19,652 |
| | 63,793 |
| | 57,291 |
|
Amortization of lease-related costs | | 19,422 |
| | 20,326 |
| | 60,577 |
| | 62,797 |
|
FFO attributable to common stockholders (1) | | 38,000 |
| | 43,837 |
| | 124,637 |
| | 105,216 |
|
Straight-line rent and amortization of above- and below-market leases, net | | (4,140 | ) | | (5,655 | ) | | (13,176 | ) | | (20,812 | ) |
Amortization of discounts and closing costs | | — |
| | — |
| | — |
| | 15 |
|
Unrealized (gains) losses on derivative instruments | | (1,004 | ) | | (3,745 | ) | | (2,579 | ) | | 14,813 |
|
Real estate acquisition fees to affiliate | | — |
| | — |
| | — |
| | 1,473 |
|
Real estate acquisition fees and expenses | | — |
| | 5 |
| | — |
| | 306 |
|
MFFO attributable to common stockholders (1) | | $ | 32,856 |
| | $ | 34,442 |
| | $ | 108,882 |
| | $ | 101,011 |
|
_____________________ | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net (loss) income | $ | (16,157) | | | $ | 88 | | | $ | (5,603) | | | $ | 27,511 | |
Depreciation of real estate assets | 21,616 | | | 21,596 | | | 42,950 | | | 42,758 | |
Amortization of lease-related costs | 5,022 | | | 6,324 | | | 10,908 | | | 12,561 | |
| | | | | | | |
Unrealized loss on real estate equity securities | 17,268 | | | — | | | 34,535 | | | — | |
Gain on sale of real estate, net | — | | | — | | | — | | | (20,459) | |
Adjustment for investment in an unconsolidated entity (1) | — | | | 4,513 | | | — | | | 9,029 | |
FFO (2) (3) | 27,749 | | | 32,521 | | | 82,790 | | | 71,400 | |
Straight-line rent and amortization of above- and below-market leases, net | (2,931) | | | (1,905) | | | (5,335) | | | (4,716) | |
| | | | | | | |
| | | | | | | |
Unrealized gains on derivative instruments | (10,082) | | | (3,933) | | | (35,870) | | | (9,830) | |
| | | | | | | |
Adjustment for investment in an unconsolidated entity (1) | — | | | 293 | | | — | | | (2,713) | |
MFFO (2) (3) | $ | 14,736 | | | $ | 26,976 | | | $ | 41,585 | | | $ | 54,141 | |
| | | | | | | |
| | | | | | | |
_____________________
(1)Reflects our noncontrolling interest share of adjustments to convert our net income (loss) to FFO and MFFO includes $1.0 millionfor our equity investment in an unconsolidated entity.
(2) FFO and $7.0 millionMFFO exclude our share of lease termination incomethe SREIT’s FFO and MFFO, respectively, for the period from January 1, 2022 through June 30, 2022. On November 9, 2021, upon our sale of 73,720,000 units in the SREIT, we determined that based on our ownership interest of 18.5% of the outstanding units of the SREIT as of that date, we no longer have significant influence over the operations, financial policies and decision making with respect to the SREIT and therefore, ceased accounting for our investment in the SREIT as an equity method investment on that date. Accordingly, effective November 9, 2021, our investment in the units of the SREIT represents an investment in marketable securities and is therefore presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date. As a result, FFO and MFFO related to our investment in the SREIT will be recognized based on dividends declared. FFO and MFFO for the three and ninesix months ended SeptemberJune 30, 2017, respectively. FFO2022 reflect the aggregate dividends declared and MFFO includes $0.3 million and $0.7 million of lease termination incomereceived from the SREIT for the three and ninesix months ended SeptemberJune 30, 2016,2022.
(3) FFO and MFFO for the three and six months ended June 30, 2022 includes a one-time write-off of prepaid offering costs of $2.7 million and a $0.5 million fee to the conflicts committee’s financial advisor in connection with the conflicts committee’s review of alternatives available to us. Given changing market conditions, we continue to evaluate various alternatives available to us. See “–Overview.” In order to avoid additional legal, accounting and other offering costs while we make this determination, we withdrew our registration statement on Form S-11 to register a public offering as an NAV REIT, which had been filed with the SEC, as at this time it is not likely we will pursue a conversion to an “NAV REIT.”
Our calculation of MFFO above includes amounts related to the operations of two office properties sold on January 19, 2021 and November 2, 2021, respectively. Please refer to the table below with respect to the proportion of MFFO related to the real estate properties sold during 2021 (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
MFFO by component: | | | | | | | |
Assets held for investment | $ | 14,736 | | | $ | 25,648 | | | $ | 41,585 | | | $ | 51,452 | |
Real estate properties sold | — | | | 1,328 | | | — | | | 2,689 | |
| | | | | | | |
| | | | | | | |
MFFO | $ | 14,736 | | | $ | 26,976 | | | $ | 41,585 | | | $ | 54,141 | |
FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Distributions
From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities or FFO, in which case distributions may be paid in whole or in part from debt financing. Distributions declared, distributions paid and cash flow from operating activities were as follows for the first second and thirdsecond quarters of 20172022 (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Distributions Declared (1) | | Distributions Declared Per Share (1) (2) | | Distributions Paid (3) | | Cash Flow from Operating Activities |
Period | | | | Cash | | Reinvested | | Total | |
First Quarter 2017 | | $ | 29,080 |
| | $ | 0.160 |
| | $ | 14,067 |
| | $ | 14,987 |
| | $ | 29,054 |
| | $ | 19,097 |
|
Second Quarter 2017 | | 29,421 |
| | 0.162 |
| | 14,640 |
| | 15,110 |
| | 29,750 |
| | 39,521 |
|
Third Quarter 2017 | | 29,650 |
| | 0.164 |
| | 14,689 |
| | 15,001 |
| | 29,690 |
| | 31,947 |
|
| | $ | 88,151 |
| | $ | 0.486 |
| | $ | 43,396 |
| | $ | 45,098 |
| | $ | 88,494 |
| | $ | 90,565 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Distributions Declared | | Distributions Declared Per Share (1) | | Distributions Paid (2) | | Cash Flow from Operating Activities |
| | | Cash | | Reinvested | | Total | |
First Quarter 2022 | | $ | 22,795 | | | $ | 0.149 | | | $ | 16,721 | | | $ | 6,266 | | | $ | 22,987 | | | $ | 7,533 | |
Second Quarter 2022 | | 22,336 | | | 0.149 | | | 13,336 | | | 9,139 | | | 22,475 | | | 15,996 | |
| | | | | | | | | | | | |
| | $ | 45,131 | | | $ | 0.298 | | | $ | 30,057 | | | $ | 15,405 | | | $ | 45,462 | | | $ | 23,529 | |
_____________________
| |
(1) Assumes share was issued and outstanding on each monthly record date for distributions during the period presented. For each monthly record date for distributions during the period from January 1, 2022 through June 30, 2022, distributions were calculated at a rate of $0.04983333 per share. (2) Distributions are generally paid on a monthly basis. Distributions for the monthly record date of a given month are generally paid on or about the first business day of the following month. (1)
| Distributions for the period from January 1, 2017 through September 30, 2017 were based on daily record dates and were calculated at a rate of $0.00178082 per share per day. |
| |
(2)
| Assumes share was issued and outstanding each day during the period presented. |
| |
(3)
| Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid on or about the first business day of the following month. |
For the ninesix months ended SeptemberJune 30, 2017,2022, we paid aggregate distributions of $88.5$45.5 million, including $43.4$30.1 million of distributions paid in cash and $45.1$15.4 million of distributions reinvested through our dividend reinvestment plan. Our net income attributable to common stockholdersloss for the ninesix months ended SeptemberJune 30, 20172022 was $0.3$5.6 million. FFO for the ninesix months ended SeptemberJune 30, 20172022 was $124.6$82.8 million and cash flow from operating activities was $90.6$23.5 million. See the reconciliation of FFO to net (loss) income attributable to common stockholders above. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with $78.5$23.5 million of cash flow from current operating activities, and $10.0$17.3 million of cash flow from operating activities in excess of distributions paid during 2016.prior periods and $4.7 million of proceeds from debt financing. For purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments.
Over the long-term, we generally expect that a greater percentage of our distributions will be paid from current cash flow from operating activities from current periods or prior periods (except with respect to distributions related to sales of our assets and distributions related to the sales or repayment of principal under any real estate-related investments we make)investments). From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities.activities, in which case distributions may be paid in whole or in part from debt financing. To the extent that we pay distributions from sources other than our cash flow from operating activities, the overall return to our stockholders may be reduced. Further, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward-Looking Statements” and “MarketStatements,” “– Market Outlook -– Real Estate and Real Estate Finance Markets”Markets,” “– Liquidity and Capital Resources,” and “– Results of Operations” herein, and the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2022, each as filed with the SEC. Those factors include: the future operating performance of our real estate investments in the existing real estate and financial environment; the success and economic viability of our tenants; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on any variable rate debt obligations we incur; and the level of participation in our dividend reinvestment plan.plan; and the extent to which the COVID-19 pandemic impacts our operations and those of our tenants and our investment in the SREIT. In the event our FFO and/or cash flow from operating activities decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operating activities.
Critical Accounting Policies and Estimates
Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 20162021 filed with the SEC. There have been no significant changes to our policies during 2017 except for the addition of an accounting policy with respect to investments in unconsolidated joint ventures under the equity method.
2022.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Investments in Unconsolidated Joint Ventures
We account for investments in unconsolidated joint ventures over which we may exercise significant influence, but do not control, using the equity method of accounting. Under the equity method, the investment is initially recorded at cost and subsequently adjusted to reflect additional contributions or distributions and our proportionate share of equity in the joint venture’s income (loss). We recognize our proportionate share of the ongoing income or loss of the unconsolidated joint venture as equity in income (loss) of unconsolidated joint venture on the consolidated statements of operations. On a quarterly basis, we evaluate our investment in an unconsolidated joint venture for other-than-temporary impairments.
Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Distributions Paid
On October 2, 2017,July 1, 2022, we paid distributions of $9.7 million, which related to distributions declared for daily record dates for each day in the period from September 1, 2017 through September 30, 2017. On November 1, 2017, we paid distributions of $10.0$7.4 million, which related to distributions declared for daily record dates for each day in the period from Octoberamount of $0.04983333 per share of common stock to stockholders of record as of the close of business on June 27, 2022. On August 1, 2017 through October 31, 2017.2022, we paid distributions of $7.4 million, which related to distributions in the amount of $0.04983333 per share of common stock to stockholders of record as of the close of business on July 26, 2022.
Distributions DeclaredAuthorized
On October 9, 2017,August 11, 2022, our board of directors authorized distributions basedan August 2022 distribution in the amount of $0.04983333 per share of common stock to stockholders of record as of the close of business on daily record dates for the period from November 1, 2017 through November 30, 2017,August 19, 2022, which we expect to pay in December 2017. On November 14, 2017, our board of directors authorized distributions based on daily record dates for the period from December 1, 2017 through December 31, 2017, which we expect to pay in January 2018, and distributions based on daily record dates for the period from January 1, 2018 through January 31, 2018, which we expect to pay in February 2018. September 2022.
Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.
Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.11% annualized rate based on our December 9, 2016 estimated value per share of $10.63.47
Financing Subsequent to September 30, 2017
Portfolio Loan Facility
On November 3, 2017, we, through indirect wholly owned subsidiaries (each a “Borrower”), entered into a three-year loan facility with Bank of America, N.A., as administrative agent; Merril Lynch Pierce Fenner & Smith Incorporated, Wells Fargo Securities, LLC and U.S. Bank, N.A., as joint lead arrangers and joint book runners; Wells Fargo Bank, NA, as syndication agent, and each of the financial institutions a signatory thereto (the “Lenders”), for an amount of up to $1.01 billion (the “Portfolio Loan Facility”), of which $757.5 million is term debt and $252.5 million is revolving debt. Proceeds from the term debt were used to pay off and address the upcoming 2018 loan maturities for the existing Town Center Mortgage Loan, RBC Plaza Mortgage Loan, National Office Portfolio Mortgage Loan, 500 West Madison Mortgage Loan, Ten Almaden Mortgage Loan and Towers at Emeryville Mortgage Loan. At closing, $787.5 million was funded, of which $776.0 million was used to pay off the existing mortgage loans (listed above) and the remaining amount was used to pay origination fees and accrued interest. The $787.5 million funded consisted of $757.5 million of term debt and $30.0 million of revolving debt. The Portfolio Loan Facility may be used for the repayment of debt, for tenant improvements, leasing commissions and capital improvements, for working capital or liquidity management of the company and for other purposes described in the loan agreement. During the term of the Portfolio Loan Facility, we have an option to increase the aggregate loan amount by up to an additional $400.0 million in increments of $25.0 million, to a maximum of $1.41 billion, 25% of which would be revolving debt and 75% of which would be term debt, subject to certain conditions contained in the loan agreement.
The Portfolio Loan Facility matures on November 3, 2020, with two 12-month extension options, subject to certain terms and conditions contained in the loan documents. The Portfolio Loan Facility bears interest at a floating rate of 180 basis points over one-month LIBOR during the initial term of the loan and monthly payments are interest only with the entire balance and all outstanding interest and fees due at maturity, assuming no prior prepayment. We will have the right to prepay all of the Portfolio Loan Facility, subject to certain expenses potentially incurred by the Lenders as a result of the prepayment and subject to certain conditions contained in the loan documents. In addition, the Portfolio Loan Facility contains customary representations and warranties, financial and other affirmative and negative covenants (including maintenance of an ongoing debt service coverage ratio), events of default and remedies typical for this type of facility.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
On November 3, 2017, KBS REIT Properties III, LLC (“REIT Properties III”), an indirect wholly owned subsidiary of us, entered into three interest rate swap agreements with a current aggregate notional amount of $451.5 million. As of November 3, 2017, we had three existing interest rate swaps related to the paid off loans with a current notional amount in the aggregate of $306.0 million. As the existing interest rate swaps expire at various times from January 1, 2018 through January 1, 2020, the notional amount of the new interest rate swaps in the aggregate will increase to maintain a notional amount of $757.5 million. The new and existing interest rate swaps, in the aggregate, effectively fix the interest rate on the term portion of the Portfolio Loan Facility at a blended rate of 3.861%, effective from November 3, 2017 through November 1, 2022.
The Portfolio Loan Facility is secured by RBC Plaza, Preston Commons, Sterling Plaza, One Washingtonian Center, Towers at Emeryville, Ten Almaden, Town Center and 500 West Madison. We have the right to substitute properties securing the Portfolio Loan Facility at any time, subject to approval of the Lenders and compliance with the terms and conditions described in the loan agreement.
Under the guaranty agreement related to the Portfolio Loan Facility (the “Guaranty”), REIT Properties III (i) provides a guaranty of, among other sums described in the Guaranty, all principal and interest outstanding under the Portfolio Loan Facility in the event of certain bankruptcy or insolvency proceedings involving REIT Properties III, any Borrower or any of their affiliates and (ii) guarantees payment of, and agrees to protect, defend, indemnify and hold harmless each Lender for, from and against, any deficiency, loss or damage suffered by any Lender because of (a) certain intentional acts committed by any Borrower or (b) certain bankruptcy or insolvency proceedings involving REIT Properties III, any Borrower or any of their affiliates, as such acts are described in the Guaranty.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We may also be exposed to the effects of changes in interest rates as a result of the future acquisition and origination of mortgage and other loans. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that variable rate exposure is kept at an acceptable level or we may utilizeby utilizing a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.
We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt, or fixed rate real estate loans receivable, if any, unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. As of SeptemberJune 30, 2017,2022, the fair value of our fixed rate debt was $193.5$120.1 million and the outstanding principal balance of our fixed rate debt was $192.9$123.0 million. The fair value estimate of our fixed rate debt is calculated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loan was originated as of SeptemberJune 30, 2017.2022. As we expect to hold our fixed rate instruments to maturity (unless the property securing the debt is sold and the loan is repaid) and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations. As of September 30, 2017, we did not own any fixed rate loans receivable.
Conversely, movements in interest rates on our variable rate debt would change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums would result in changes in the fair value of variable rate instruments. As of SeptemberJune 30, 2017,2022, we were exposed to market risks related to fluctuations in interest rates on $630.9$360.6 million of variable rate debt outstanding after giving consideration to the impact of interest rate swap agreements on approximately $1.1 billion of our variable rate debt. This amount does not take into account the impact of $91.5 million of forward interest rate swap agreements that were not yet effective as of September 30, 2017. Based on interest rates as of SeptemberJune 30, 2017,2022, if interest rates were 100 basis points higher or lower during the 12 months ending SeptemberJune 30, 2018,2023, interest expense on our variable rate debt would increase or decrease by $6.3$3.6 million. As of September 30, 2017, we did not own any variable
The interest rate loans receivable.
Theand weighted-average effective interest ratesrate of our fixed rate debt and variable rate debt as of SeptemberJune 30, 20172022 were 4.1%3.7% and 3.2%3.4%, respectively. The weighted-average effective interest rates representrate represents the actual interest rate in effect as of SeptemberJune 30, 20172022 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of SeptemberJune 30, 20172022 where applicable.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 3. Quantitative and Qualitative Disclosures about Market Risk (continued)
We are exposed to financial market risk with respect to our investment in the SREIT (SGX-ST Ticker: OXMU). Financial market risk is the risk that we will incur economic losses due to adverse changes in our investment’s security price. Our exposure to changes in security prices is a result of our investment in these types of securities. Market prices are subject to fluctuation and, therefore, the amount realized in the subsequent sale of an investment may significantly differ from our carrying value. Fluctuation in the market prices of a security may result from any number of factors, including perceived changes in the underlying fundamental characteristics of the issuer, the relative price of alternative investments, interest rates, default rates and general market conditions. The SREIT’s units were first listed for trading on the SGX-ST on July 19, 2019. If an active trading market for the units does not develop or is not sustained, it may be difficult to sell our units. The market for Singapore REITs may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of our investment in the SREIT difficult. Even if an active trading market develops or we are able to negotiate block trades, if we or other significant investors sell or are perceived as intending to sell a substantial amount of units in a short period of time, the market price of our remaining units could be adversely affected. In addition, as a foreign equity investment, the trading price of units of the SREIT may be affected by political, economic, financial and social factors in the Singapore and Asian markets, including changes in government, economic and fiscal policies. Furthermore, we may be limited in our ability to sell our investment in the SREIT if our advisor and/or its affiliates are deemed to have material, non-public information regarding the SREIT. Charles J. Schreiber, Jr., the Chairman of our Board, our Chief Executive Officer, our President and our affiliated director, is a former director of the external manager of the SREIT, and Mr. Schreiber currently holds an indirect ownership interest in the external manager of the SREIT. An affiliate of our advisor serves as the U.S. asset manager to the SREIT. We do not currently engage in derivative or other hedging transactions to manage our investment’s security price risk. As of June 30, 2022, we held 215,841,899 units of the SREIT which represented 18.4% of the outstanding units of the SREIT as of that date. As of June 30, 2022, the aggregate value of our investment in the units of the SREIT was $145.7 million, which was based solely on the closing price of the SREIT units on the SGX-ST of $0.675 per unit as of June 30, 2022, and did not take into account any potential discount for the holding period risk due to the quantity of units held by us relative to the normal level of trading volume in the units. Based solely on the closing price per unit of the SREIT units as of June 30, 2022, if prices were to increase or decrease by 10%, our net income would increase or decrease by approximately $14.6 million.
For a discussion of the interest rate risks related to the current capital and credit markets, see Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Outlook -– Real Estate and Real Estate Finance Markets” herein and the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2021, as filed with the SEC.
PART I. FINANCIAL INFORMATION (CONTINUED)
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
In addition to the risk discussed below, pleasePlease see the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2022, each as filed with the SEC.
Because of certain limitations on the dollar value of shares that may be redeemed under our share redemption program, as of November 1, 2017, we will only able to process an additional $0.3 million of redemptions for the remainder of 2017.
During any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. In 2016, our net proceeds from the dividend reinvestment plan were $61.9 million. As of October 31, 2017, we had redeemed $61.6 million of shares of common stock. Thus, because of this limitation, we are only able to process an additional $0.3 million of redemptions for the remainder of 2017 and we anticipate exhausting this amount on the November 30, 2017 redemption date. If we cannot redeem all shares presented for redemption in any month because of the limitations on redemptions set forth in our share redemption program, then we will honor redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than the minimum purchase requirement described in our currently effective, or the most recently effective, registration statement, as such registration statement has been amended or supplemented, then we would redeem all of such stockholder’s shares.
The annual limitation on the dollar amount of shares that may be redeemed under our share redemption program will be reset on January 1, 2018. For more information on our share redemption program, see Part 2, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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a) | During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933. |
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c) | We have a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. The restrictions of our share redemption program will severely limit our stockholders’ ability to sell their shares should they require liquidity and will limit our stockholders’ ability to recover the value they invested in our common stock or recover an amount equal to or greater than our estimated value per share. |
a).During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933.
b).Not applicable.
c).We have a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. The restrictions of our share redemption program will limit our stockholders’ ability to sell their shares should they require liquidity and will limit our stockholders’ ability to recover an amount equal to our estimated value per share. The following is a description of our share redemption program from January 1, 2022 through March 30, 2022 and the amendments to the program made by (i) the March 2022 amended and restated share redemption program (the “March 2022 Amended Share Redemption Program”), which became effective for the March 31, 2022 redemption date, and (ii) the April 2022 amended and restated share redemption program (the “April 2022 Amended Share Redemption Program”), which became effective for the April 29, 2022 redemption date.
PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
There are several limitations on our ability to redeem shares under our share redemption program:
•Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability”“Qualifying Disability” or “determination“Determination of incompetence”Incompetence” (each as defined in the share redemption program, document and together with redemptions sought in connection with a stockholder'sstockholder’s death, “Special Redemptions;” all redemptions that do not meet the requirements for a Special Redemption are “Ordinary Redemptions”), we may not redeem shares unless the stockholder has held the shares for one year.
During•Except as provided otherwise for calendar year 2022 only, during any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year.year, provided that once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or less, the last $10.0 million of available funds shall be reserved exclusively for Special Redemptions. Notwithstanding anything contained in our share redemption program to the contrary, we may increase or decrease the funding available for the redemption of shares pursuant to the program upon ten business days’ notice to our stockholders. We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed
•For calendar year 2022 only,
◦Prior to effectiveness of the March 2022 Amended Share Redemption Program, we could redeem only the number of shares that we could purchase with the Securitiesamount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year, provided that once we had received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and Exchange Commissionwhen combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $10.0 million or (b)less, the last $10.0 million of available funds was reserved exclusively for Special Redemptions.
◦Upon effectiveness of the March 2022 Amended Share Redemption Program and prior to effectiveness of the April 2022 Amended Share Redemption Program, we could redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year, provided that once we had received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the calendar year, would result in the amount of remaining funds available for the redemption of additional shares in such calendar year being $2.0 million or less, the last $2.0 million of available funds was reserved exclusively for redemptions sought in connection with Special Redemptions.
◦Upon effectiveness of the April 2022 Amended Share Redemption Program, for calendar year 2022, we may redeem up to 5% of the weighted-average number of shares outstanding during the 2021 calendar year, provided that once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the 2022 calendar year, would result in the number of remaining shares available for redemption in the 2022 calendar year being 500,000 or less, the last 500,000 shares available for redemption shall be reserved exclusively for redemptions sought in connection with a separate mailing to our stockholders.Special Redemption.
•During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year.
•We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland General Corporation Law, as amended from time to time, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.
For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to our dividend reinvestment plan or received as a stock dividend will be deemed to have been acquired on the same date as the initial share to which the dividend reinvestment plan shares or stock dividend shares relate. The date of the share’s original issuance by us is not determinative.
PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
For a stockholder’s shares to be eligible for redemption in a given month, the administrator must receive a written redemption request from the stockholder or from an authorized representative of the stockholder setting forth the number of shares requested to be redeemed at least five business days before the redemption date. We redeem shares on the last business day of each month, except that the first redemption date following our establishment of an estimated value per share shall be no less than ten business days after our announcement of such estimated value per share in a filing with the SEC and the redemption date shall be set forth in such filing. If we cannot redeem all shares presented for redemption in any month because of the limitations on redemptions set forth in our share redemption program, then we will honor redemption requests on a pro rata basis, except that if a pro rata redemption would result in a stockholder owning less than the minimum purchase requirement described in our currently effective, or the most recently effective, registration statement, as such registration statement has been amended or supplemented, then we would redeem all of such stockholder’s shares.
If we do not completely satisfy a redemption request on a redemption date because the program administrator did not receive the request in time, because of the limitations on redemptions set forth in our share redemption program or because of a suspension of our share redemption program, then we will treat the unsatisfied portion of the redemption request as a request for redemption at the next redemption date funds are available for redemption, unless the redemption request is withdrawn. Any stockholder can withdraw a redemption request by sending written notice to the program administrator, provided such notice is received at least five business days before the redemption date.
Upon a transfer of shares, any pending redemption requests with respect to such transferred shares will be canceled as of the date we accept the transfer. Stockholders wishing us to continue to consider a redemption request related to any transferred shares must resubmit their redemption request.
Pursuant to our share redemption program, redemptions made in connection with Special Redemptions are made at a price per share equal to the most recent estimated value per share of our common stock as of the applicable redemption date. The
Ordinary Redemptions are made at a price at which we will redeem all other shares eligible for redemption is as follows:
For those shares held by the redeeming stockholder for at least one year, 92.5% of our most recent estimated value per share as of the applicable redemption date;
For those shares held by the redeeming stockholder for at least two years, 95.0% of our most recent estimated value per share as of the applicable redemption date;
For those shares held by the redeeming stockholder for at least three years, 97.5% of our most recent estimated value per share as of the applicable redemption date; and
For those shares held by the redeeming stockholder for at least four years, 100%equal to 96% of our most recent estimated value per share as of the applicable redemption date.
On December 9, 2016,November 1, 2021, our board of directors approved an estimated value per share of our common stock of $10.63$10.78 based on the estimated value of our assets less the estimated value of our liabilities divided by the number of shares outstanding, all as of September 30, 2016. This2021, with the exception of adjustments to our net asset value to give effect to (i) the change in the estimated value of our investment in units of the SREIT (SGX-ST Ticker: OXMU) as of October 22, 2021 and (ii) the contractual sales price less estimated disposition costs and fees of one property that was under contract to sell as of November 1, 2021. Effective for the November 2021 redemption date, which was November 30, 2021, and until the estimated value per share became effectiveis updated, the redemption price for the December 2016all shares eligible for redemption date, which was December 30, 2016.
For purposes of determining the time period a redeeming stockholder has held each share, the time period begins as of the date the stockholder acquired the share; provided, that shares purchased by the redeeming stockholder pursuant to our dividend reinvestment plan will be deemed to have been acquiredcalculated based on the same date as the initial share to which the dividend reinvestment plan shares relate. The date of the share’s original issuance by us is not determinative. In addition, as described above, the shares owned by a stockholder may be redeemed at different prices depending on how long the stockholder has held each share submitted for redemption.November 1, 2021 estimated value per share.
We currently expect to utilize an independent valuation firm to update our estimated value per share inno later than December 2017.2022. We will report the estimated value per share of our common stock in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC. We will also provide information about our estimated value per share on our website, www.kbsreitiii.com (such information may be provided by means of a link to our public filings on the SEC’s website, http://www.sec.gov).
Our board of directors may amend, suspend or terminate our share redemption program upon 30ten business days’ notice to stockholders, provided thatand consistent with SEC guidance and interpretations, we may increase or decrease the funding available for the redemption of shares pursuant to our share redemption program upon 10ten business days’ notice.
We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (b) in a separate mailing to our stockholders. The complete share redemption program document is filed as an exhibit to our AnnualCurrent Report on Form 10-K for8-K filed with the year ended December 31, 2013SEC on April 14, 2022 and is available at the SEC’s website, at http://www.sec.gov.
PART II. OTHER INFORMATION (CONTINUED)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (continued)
During the ninesix months ended SeptemberJune 30, 2017,2022, we fulfilled all redemption requests eligible for redemption under our share redemption program and received in good order. We funded redemptions under our share redemption program with the net proceeds from our dividend reinvestment plan and wefrom debt financing. We redeemed shares pursuant to our share redemption program as follows:
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Month | | Total Number of Shares Redeemed (1) | | Average Price Paid Per Share (2) | | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program |
January 2017 | | 536,160 |
| | $ | 10.46 |
| | (3) |
February 2017 | | 206,012 |
| | $ | 10.51 |
| | (3) |
March 2017 | | 458,763 |
| | $ | 10.37 |
| | (3) |
April 2017 | | 579,233 |
| | $ | 10.40 |
| | (3) |
May 2017 | | 563,933 |
| | $ | 10.46 |
| | (3) |
June 2017 | | 675,243 |
| | $ | 10.39 |
| | (3) |
July 2017 | | 899,951 |
| | $ | 10.36 |
| | (3) |
August 2017 | | 632,696 |
| | $ | 10.43 |
| | (3) |
September 2017 | | 701,088 |
| | $ | 10.38 |
| | (3) |
Total | | 5,253,079 |
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_____________________ | | | | | | | | | | | | | | | | | | | | |
Month | | Total Number of Shares Redeemed (1) | | Average Price Paid Per Share (2) | | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program |
January 2022 | | 1,153,542 | | | $ | 10.37 | | | (3) |
February 2022 | | 1,250,047 | | | $ | 10.39 | | | (3) |
March 2022 | | 1,417,714 | | | $ | 10.38 | | | (3) |
April 2022 | | 1,147,723 | | | $ | 10.37 | | | (3) |
May 2022 | | 1,108,578 | | | $ | 10.39 | | | (3) |
June 2022 | | 1,303,979 | | | $ | 10.38 | | | (3) |
| | | | | | |
| | | | | | |
| | | | | | |
Total | | 7,381,583 | | | | | |
_____________________
(1) We announced the adoption and commencement of the program on October 14, 2010. We announced amendments to the program on March 8, 2013 (which amendment became effective on April 7, 2013) and, on March 7, 2014 (which amendment became effective on April 6, 2014), on May 9, 2018 (which amendment became effective on June 8, 2018), on July 16, 2021 (which amendment became effective on July 30, 2021), on March 18, 2022 (which amendment became effective on March 31, 2022) and on April 14, 2022 (which amendment became effective on April 27, 2022).
(2) The prices at which we redeem shares under the program are as set forth above.
(3) We limit As of August 1, 2022, we had exhausted the dollar value of shares that may be redeemedfunds available under the share redemption program as described above. One of these limitations is that during eachfor Ordinary Redemptions for calendar year 2022, and we had approximately 428,000 shares available for Special Redemptions for the remainder of 2022. As of August 1, 2022, we had a total of $4.7 million of outstanding and unfulfilled Ordinary Redemption requests, representing approximately 457,000 shares. We will not be able to redeem shares submitted as Ordinary Redemptions for the remainder of 2022.
For the months of January 2022 through June 2022, we fulfilled all Ordinary Redemption and Special Redemption requests eligible for redemption under our share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the redemption of shares upon ten business days’ notice to our stockholders. In 2016, our net proceeds from the dividend reinvestment plan were $61.9 million. During the nine months ended September 30, 2017, we redeemed $54.7 million of shares of common stock and $7.2 million was available for redemptions of shares eligible for redemption for the remainder of 2017.received in good order. See note (3) above.
Item 3. Defaults uponUpon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
47
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.