UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~March 31,~~September 30, 2020


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

For the transition period from to

Commission file number 000-56050

KBS GROWTH & INCOME REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

47-2778257

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

800 Newport Center Drive, Suite 700

Newport Beach,

California

92660

(Address of Principal Executive Offices)

(Zip Code)

(949) 417-6500

(Registrant’s Telephone Number, Including Area Code)

______________________________________________________________________

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


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

Trading Symbol(s)

None

~~Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes~~ ¨ No x

~~Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes~~ ¨ No x

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

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

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

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-Accelerated Filer

☒

Smaller reporting company

☒

Emerging growth company

☒

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

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

As of ~~May 4,~~November 9, 2020, there were ~~9,867,520~~9,873,729 outstanding shares of Class A common stock and ~~309,864~~310,974 outstanding shares of Class T common stock of KBS Growth & Income REIT, Inc.

Table of Contents

INDEX TO FINANCIAL STATEMENTS

KBS GROWTH & INCOME REIT, INC.

FORM 10-Q

~~March 31,~~September 30, 2020

INDEX

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of ~~March 31,~~September 30, 2020 (unaudited) and December 31, 2019

Consolidated Statements of Operations (unaudited) for the Three and Ni ne Months Ended ~~March 31,~~September 30, 2020 and 2019

Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Nine Months Ended ~~March 31,~~September 30, 2020 and 2019

Consolidated Statements of Cash Flows (unaudited) for the ~~Three~~Nine Months Ended ~~March 31~~September , 30, 2020 and 2019

Condensed Notes to Consolidated Financial Statements as of ~~March 31,~~September 30, 2020 (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2528

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

3944

Item 4.

Controls and Procedures

PART II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4247

Item 3.

Defaults upon Senior Securities

4248

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KBS GROWTH & INCOME REIT, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


		March 31, 2020		December 31, 2019			September 30, 2020		December 31, 2019
		(unaudited)					(unaudited)
Assets	Assets					Assets
Real estate:	Real estate:					Real estate:
Land	Land	$	19,545	$	20,709	Land	$	19,545	$	20,709
Buildings and improvements	Buildings and improvements	131,829		138,600		Buildings and improvements	132,045		138,600
Tenant origination and absorption costs	Tenant origination and absorption costs	11,875		13,822		Tenant origination and absorption costs	11,222		13,822
Total real estate, cost	Total real estate, cost	163,249		173,131		Total real estate, cost	162,812		173,131
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(19,967)		(22,688)		Less accumulated depreciation and amortization	(23,109)		(22,688)
Total real estate held for investment, net	Total real estate held for investment, net	143,282		150,443		Total real estate held for investment, net	139,703		150,443
Real estate held for sale, net	Real estate held for sale, net	—		18,594		Real estate held for sale, net	0		18,594
Total real estate, net	Total real estate, net	143,282		169,037		Total real estate, net	139,703		169,037
Cash and cash equivalents	Cash and cash equivalents	4,188		6,287		Cash and cash equivalents	2,256		6,287
Investment in unconsolidated joint venture	Investment in unconsolidated joint venture	528		1,000		Investment in unconsolidated joint venture	464		1,000
Rents and other receivables	Rents and other receivables	3,074		3,284		Rents and other receivables	3,034		3,284
Above-market leases, net	Above-market leases, net	113		120		Above-market leases, net	98		120
Assets related to real estate held for sale	Assets related to real estate held for sale	—		760		Assets related to real estate held for sale	0		760
Prepaid expenses and other assets	Prepaid expenses and other assets	2,003		1,753		Prepaid expenses and other assets	1,749		1,753
Total assets	Total assets	$	153,188	$	182,241	Total assets	$	147,304	$	182,241
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Notes payable:	Notes payable:					Notes payable:
Notes payable, net	Notes payable, net	$	94,323	$	103,913	Notes payable, net	$	91,483	$	103,913
Notes payable related to real estate held for sale, net	Notes payable related to real estate held for sale, net	—		13,948		Notes payable related to real estate held for sale, net	0		13,948
Total notes payable, net	Total notes payable, net	94,323		117,861		Total notes payable, net	91,483		117,861
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	1,382		2,728		Accounts payable and accrued liabilities	1,802		2,728
Due to affiliates	Due to affiliates	5,993		5,552		Due to affiliates	6,830		5,552
Distributions payable	Distributions payable	215		467		Distributions payable	0		467
Below-market leases, net	Below-market leases, net	2,248		2,533		Below-market leases, net	1,742		2,533
Liabilities related to real estate held for sale	Liabilities related to real estate held for sale	—		1,057		Liabilities related to real estate held for sale	0		1,057
Other liabilities	Other liabilities	5,182		3,765		Other liabilities	4,571		3,765
Total liabilities	Total liabilities	109,343		133,963		Total liabilities	106,428		133,963
Commitments and contingencies (Note 11)
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)
Redeemable common stock	Redeemable common stock	1,000		1,000		Redeemable common stock	193		1,000
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, 0 shares issued and outstanding	Preferred stock, $.01 par value; 10,000,000 shares authorized, 0 shares issued and outstanding	—		—		Preferred stock, $.01 par value; 10,000,000 shares authorized, 0 shares issued and outstanding	0		0
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 9,870,515 and 9,841,004 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		99		98
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 308,712 shares and 306,292 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		3		3
Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 9,873,729 and 9,841,004 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively						Class A common stock, $.01 par value per share; 500,000,000 shares authorized, 9,873,729 and 9,841,004 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	99		98
Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 310,974 shares and 306,292 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively						Class T common stock, $.01 par value per share; 500,000,000 shares authorized, 310,974 shares and 306,292 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively	3		3
Additional paid-in capital	Additional paid-in capital	84,452		84,184		Additional paid-in capital	85,305		84,184
Cumulative distributions and net losses	Cumulative distributions and net losses	(41,709)		(37,007)		Cumulative distributions and net losses	(44,724)		(37,007)
Total stockholders’ equity	Total stockholders’ equity	42,845		47,278		Total stockholders’ equity	40,683		47,278
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	153,188	$	182,241	Total liabilities and stockholders’ equity	$	147,304	$	182,241

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share amounts)


		For the Three Months Ended March 31,							For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Revenues:	Revenues:					Revenues:
Rental income	Rental income	$	4,583	$	5,241	Rental income	$	4,005	$	5,294	$	13,212	$	15,289
Other operating income	Other operating income	34		76		Other operating income	53		68		131		225
Total revenues	Total revenues	4,617		5,317		Total revenues	4,058		5,362		13,343		15,514
Expenses:	Expenses:					Expenses:
Operating, maintenance, and management	Operating, maintenance, and management	954		1,082		Operating, maintenance, and management	912		1,121		2,774		3,411
Property management fees and expenses to affiliate	Property management fees and expenses to affiliate	35		41		Property management fees and expenses to affiliate	32		40		102		122
Real estate taxes and insurance	Real estate taxes and insurance	733		777		Real estate taxes and insurance	590		715		2,029		2,234
Asset management fees to affiliate	Asset management fees to affiliate	435		461		Asset management fees to affiliate	432		483		1,293		1,412
General and administrative expenses	General and administrative expenses	473		375		General and administrative expenses	652		491		1,785		1,296
Depreciation and amortization	Depreciation and amortization	2,166		2,200		Depreciation and amortization	1,933		2,153		6,089		6,522
Interest expense	Interest expense	2,888		1,976		Interest expense	607		1,596		4,344		6,054
Impairment charges on real estate	Impairment charges on real estate	5,750		—		Impairment charges on real estate	0		0		5,750		0
Total expenses	Total expenses	13,434		6,912		Total expenses	5,158		6,599		24,166		21,051
Other income:
Other (loss) income:						Other (loss) income:
Interest and other income	Interest and other income	12		14		Interest and other income	1		17		14		50
Gain on sale of real estate		5,245		—
Equity in loss of unconsolidated joint venture		(469)		—
Gain on sale of real estate, net						Gain on sale of real estate, net	0		0		5,245		0
Equity in (loss) income of unconsolidated joint venture						Equity in (loss) income of unconsolidated joint venture	(402)		13		(837)		13
Loss from extinguishment of debt	Loss from extinguishment of debt	(29)		—		Loss from extinguishment of debt	0		0		(29)		0
Total other income		4,759		14
Total other (loss) income						Total other (loss) income	(401)		30		4,393		63
Net loss	Net loss	$	(4,058)	$	(1,581)	Net loss	$	(1,501)	$	(1,207)	$	(6,430)	$	(5,474)
Net loss per common share, basic and diluted	Net loss per common share, basic and diluted	$	(0.40)	$	(0.16)	Net loss per common share, basic and diluted	$	(0.15)	$	(0.12)	$	(0.63)	$	(0.55)
Weighted-average number of common shares outstanding basic and diluted	Weighted-average number of common shares outstanding basic and diluted	10,171,186		9,751,203		Weighted-average number of common shares outstanding basic and diluted	10,185,344		10,058,508		10,179,760		9,927,695

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Three Months Ended ~~March 31,~~September 30, 2020 and 2019 (unaudited)

(dollars in thousands)

Common Stock Additional
Paid-in Capital Cumulative Distributions and Net Losses Total Stockholders’ Equity
Class A Class T
Shares Amounts Shares Amounts
Balance, December 31, 2019 9,841,004 $ 98 306,292 $ 3 $ 84,184 $ (37,007) $ 47,278
Net loss — — — — — (4,058) (4,058)
Issuance of common stock 29,511 1 2,420 — 268 — 269
Distributions declared — — — — — (644) (644)
Balance, March 31, 2020 9,870,515 $ 99 308,712 $ 3 $ 84,452 $ (41,709) $ 42,845


	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, June 30, 2020	9,867,625	$	99	310,418	$	3	$	84,642	$	(43,223)	$	41,521
Net loss	—	—		—	—		—		(1,501)		(1,501)
Issuance of common stock	6,935	—		556	—		63		—		63
Transfers from redeemable common stock	—	—		—	—		607		—		607
Redemptions of common stock	(831)	—		—	—		(7)		—		(7)

Balance, September 30, 2020	9,873,729	$	99	310,974	$	3	$	85,305	$	(44,724)	$	40,683

Common Stock Additional
Paid-in Capital Cumulative Distributions and Net Losses Total Stockholders’ Equity
Class A Class T
Shares Amounts Shares Amounts
Balance, December 31, 2018 9,386,908 $ 94 294,963 $ 3 $ 79,907 $ (25,413) $ 54,591
Net loss — — — — — (1,581) (1,581)
Issuance of common stock 177,957 2 3,296 — 1,665 — 1,667
Transfers from redeemable common stock — — — — 21 — 21
Redemptions of common stock — — (2,245) — (21) — (21)
Distributions declared — — — — — (1,328) (1,328)
Balance, March 31, 2019 9,564,865 $ 96 296,014 $ 3 $ 81,572 $ (28,322) $ 53,349


	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, June 30, 2019	9,718,110	$	97	299,406	$	3	$	83,012	$	(32,386)	$	50,726
Net loss	—	—		—	—		—		(1,207)		(1,207)
Issuance of common stock	70,812	1		3,417	—		682		—		683


Distributions declared	—	—		—	—		—		(1,388)		(1,388)
Balance, September 30, 2019	9,788,922	$	98	302,823	$	3	$	83,694	$	(34,981)	$	48,814

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2020 and 2019 (unaudited)

(dollars in thousands)

Three Months Ended March 31,
2020 2019
Cash Flows from Operating Activities:
Net loss $ (4,058) $ (1,581)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,166 2,200
Impairment charges on real estate 5,750 —
Equity in income of unconsolidated joint venture 469 —
Deferred rents 191 (158)
Amortization of above and below-market leases, net (278) (343)
Amortization of deferred financing costs 83 89
Unrealized loss on derivative instrument 1,766 629
Loss from extinguishment of debt 29 —
Gain on sale of real estate, net (5,245) —
Changes in operating assets and liabilities:
Rents and other receivables (17) (75)
Prepaid expenses and other assets (420) (426)
Accounts payable and accrued liabilities (1,144) (1,203)
Due to affiliates 441 483
Other liabilities (327) (171)
Net cash used in operating activities (594) (556)
Cash Flows from Investing Activities:
Proceeds from sale of real estate 23,603 —
Improvements to real estate (834) (893)
Reimbursement from unconsolidated joint venture 3 —
Net cash provided by (used in) investing activities 22,772 (893)
Cash Flows from Financing Activities:
Proceeds from notes payable — 681
Principal payments on notes payable (23,650) —
Proceeds from issuance of common stock — 1,211
Payments to redeem common stock — (21)
Distributions paid to common stockholders (627) (845)
Net cash (used in) provided by financing activities (24,277) 1,026
Net decrease in cash and cash equivalents (2,099) (423)
Cash and cash equivalents, beginning of period 6,287 6,648
Cash and cash equivalents, end of period $ 4,188 $ 6,225
Supplemental Disclosure of Cash Flow Information
Interest paid $ 1,117 $ 1,301
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions payable $ 215 $ 460
Accrued improvements to real estate $ 259 $ 402
Dividends paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan $ 269 $ 456


	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, December 31, 2019	9,841,004	$	98	306,292	$	3	$	84,184	$	(37,007)	$	47,278
Net loss	—	—		—	—		—		(6,430)		(6,430)
Issuance of common stock	57,292	1		4,682	—		521		—		522
Transfers from redeemable common stock	—	—		—	—		807		—		807
Redemptions of common stock	(24,567)	—		—	—		(207)		—		(207)
Distributions declared	—	—		—	—		—		(1,287)		(1,287)
Balance, September 30, 2020	9,873,729	$	99	310,974	$	3	$	85,305	$	(44,724)	$	40,683


	Common Stock						Additional Paid-in Capital		Cumulative Distributions and Net Losses		Total Stockholders’ Equity
	Class A			Class T
	Shares	Amounts		Shares	Amounts
Balance, December 31, 2018	9,386,908	$	94	294,963	$	3	$	79,907	$	(25,413)	$	54,591
Net loss	—	—		—	—		—		(5,474)		(5,474)
Issuance of common stock	402,014	4		10,105	—		3,787		—		3,791
Transfers from redeemable common stock	—	—		—	—		21		—		21
Redemptions of common stock	—	—		(2,245)	—		(21)		—		(21)
Distributions declared	—	—		—	—		—		(4,094)		(4,094)
Balance, September 30, 2019	9,788,922	$	98	302,823	$	3	$	83,694	$	(34,981)	$	48,814

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2020		2019
Cash Flows from Operating Activities:
Net loss	$	(6,430)	$	(5,474)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	6,089		6,522
Impairment charges on real estate	5,750		0
Equity in loss (income) of unconsolidated joint venture	837		(13)
Deferred rents	230		(447)
Amortization of above and below-market leases, net	(769)		(959)
Amortization of deferred financing costs	243		267
Unrealized loss on derivative instrument	1,161		1,949
Loss from extinguishment of debt	29		0
Gain on sale of real estate, net	(5,245)		0
Changes in operating assets and liabilities:
Rents and other receivables	(57)		(129)
Prepaid expenses and other assets	(294)		(508)
Accounts payable and accrued liabilities	(512)		(296)
Due to affiliates	1,278		1,417
Other liabilities	(596)		(224)
Net cash provided by operating activities	1,714		2,105
Cash Flows from Investing Activities:
Proceeds from sale of real estate	23,603		0
Improvements to real estate	(1,262)		(3,303)
Investment in an unconsolidated joint venture	0		(935)
Reimbursement from unconsolidated joint venture	3		0
Net cash provided by (used in) investing activities	22,344		(4,238)
Cash Flows from Financing Activities:
Proceeds from notes payable	0		681
Principal payments on notes payable	(26,650)		0

Proceeds from issuance of common stock	0		2,411
Payments to redeem common stock	(207)		(21)
Distributions paid to common stockholders	(1,232)		(2,683)
Net cash (used in) provided by financing activities	(28,089)		388
Net decrease in cash and cash equivalents	(4,031)		(1,745)
Cash and cash equivalents, beginning of period	6,287		6,648
Cash and cash equivalents, end of period	$	2,256	$	4,903
Supplemental Disclosure of Cash Flow Information
Interest paid	$	3,047	$	3,848
Supplemental Disclosure of Noncash Investing and Financing Activities:
Distributions payable	$	0	$	464

Accrued improvements to real estate	$	47	$	548
Dividends paid to common stockholders through common stock issuances pursuant to the distribution reinvestment plan	$	522	$	1,380

See accompanying condensed notes to consolidated financial statements.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~March 31,~~September 30, 2020

(unaudited)

1. ORGANIZATION

KBS Growth & Income REIT, Inc. (the “Company”) was formed on January 12, 2015 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2015. Substantially all of the Company’s business is conducted through KBS Growth & Income Limited Partnership (the “Operating Partnership”), a Delaware limited partnership formed on January 14, 2015. The Company is the sole general partner of, and owns a 0.1% partnership interest in, the Operating Partnership. KBS Growth & Income REIT Holdings LLC (“REIT Holdings”), a Delaware limited liability company formed on January 14, 2015, owns the remaining 99.9% partnership interest in the Operating Partnership and is the sole limited partner. The Company is the sole member and manager of REIT Holdings.

Subject to certain restrictions and limitations, the business of the Company is externally managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement between the Company and the Advisor initially entered into on June 11, 2015, and amended at various times thereafter (the “Advisory Agreement”). The Advisor conducts the Company’s operations and manages its portfolio of core real estate properties. On January 27, 2015, the Company issued 20,000 shares of its common stock to the Advisor at a purchase price of $10.00 per share. On June 11, 2015, these outstanding shares of common stock were designated Class A shares of common stock.

As of ~~March 31,~~September 30, 2020, the Company ~~had invested in~~owned 3 office properties and had made an investment in an unconsolidated joint venture. The Company has invested in a portfolio of core real estate properties. The Company considers core properties to be existing properties with at least 80% occupancy. ~~Based on the market outlook, the~~The Company’s core focus in the U.S. office sector reflects a value-creating core strategy, which is also known as a core-plus strategy.

The Company commenced a private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act of 1933, as amended, on June 11, 2015, pursuant to which the Company offered a maximum of $105,000,000 in shares of its Class A common stock for sale to accredited investors (the “Initial Private Offering”), of which $5,000,000 of Class A shares were offered pursuant to the Company’s distribution reinvestment plan. The Company ceased offering shares in the primary portion of the Initial Private Offering on April 27, 2016 and processed subscriptions for the primary Initial Private Offering dated on or prior to April 27, 2016 through May 30, 2016. KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, served as the dealer manager of the Initial Private Offering pursuant to a dealer manager agreement dated June 11, 2015 (the “Initial Private Offering Dealer Manager Agreement”).

On February 4, 2015, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to register an initial public offering of its common stock to offer a maximum of $1,500,000,000 in shares of common stock for sale to the public in a primary offering, consisting of two classes of shares: Class A and Class T (the “Primary Offering”) and a maximum of $800,000,000 in both classes of shares of its common stock pursuant to the Company’s distribution reinvestment plan (the “DRP Offering” and, together with the Primary Offering, the “Public Offering”). The SEC declared the Company’s registration statement effective on April 28, 2016 and the Company retained the Dealer Manager to serve as the dealer manager of the Public Offering pursuant to a dealer manager agreement dated April 28, 2016 (the “Public Offering Dealer Manager Agreement”). The Company terminated the Primary Offering effective June 30, 2017.

~~The Company continues to offer shares~~On August 5, 2020, the board of ~~common stock pursuant to the DRP Offering. In some states,~~directors of the Company ~~will need to renew~~approved the ~~registration statement annually to continue the DRP Offering. The Company may terminate~~termination of the DRP Offering ~~at any time.~~effective August 20, 2020.

On October 3, 2017, the Company launched a private placement offering exempt from registration pursuant to Rule 506(c) of Regulation D of the Securities Act pursuant to which the Company offered a maximum of $1,000,000,000 in shares of its Class A common stock to accredited investors (the “Second Private Offering”). Prior to the launch of the Second Private Offering, on September 29, 2017, the Company entered into a dealer manager agreement (the “NCPS Dealer Agreement”) with the Advisor and North Capital Private Securities Corporation (“NCPS”) in connection with the Second Private Offering. In December 2019, ~~in connection with its consideration of strategic alternatives for the Company,~~ the Company’s board of directors ~~determined to suspend~~suspended the Second Private ~~Offering.~~Offering and terminated the Second Private Offering on August 5, 2020.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

The Company sold 8,548,972 shares of Class A common stock for gross offering proceeds of $76.8 million in the Initial Private Offering, including 74,744 shares of Class A common stock under its distribution reinvestment plan for gross offering proceeds of $0.7 million.

The Company sold 122,721 and 270,415 shares of Class A and Class T common stock, respectively, in the Primary Offering for aggregate gross offering proceeds of $3.9 million. ~~As of March 31, 2020, the~~The Company ~~had~~ sold ~~855,475~~883,256 and ~~38,768~~41,030 shares of Class A and Class T common stock, respectively, in the DRP Offering for aggregate gross offering proceeds of ~~$8.2~~$8.5 million.

~~As of March 31, 2020, the~~The Company ~~had~~ sold 612,272 shares of Class A common stock in the Second Private Offering for aggregate gross offering proceeds of $5.5 million.

As of ~~March 31,~~September 30, 2020, the Company had redeemed ~~422,286~~446,853 and 2,245 Class A and Class T shares, respectively, for ~~$3.5~~$3.8 million.

Additionally, on August 11, 2015, the Company issued 46,362 shares of Class A common stock to the Company’s affiliates, for an aggregate of $0.3 million, in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933.

COVID-19 Pandemic

~~Currently, one~~One of the most significant risks and uncertainties facing the Company and the real estate industry generally iscontinues to be the ~~potential adverse~~ effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic. The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business, including how the pandemic is affecting its tenants. During the nine months ended September 30, 2020, the Company did not experience significant disruptions in its operations from the COVID-19 pandemic. The Company did, however, recognize impairment charges related to a projected reduction in cash flows as a result of changes in leasing projections that were impacted in part by the COVID-19 pandemic. In addition, reductions in property values related to the impact of the COVID-19 pandemic may limit the Company’s ability to draw on the revolving commitment under its term loan due to covenants described in the loan agreement. Many of the Company’s tenants have experienced disruptions in their business, some more severely than others. In general, the Company’s retail tenants, which comprise approximately 4% of its annualized base rent, have been more severely impacted by the COVID-19 pandemic than its office tenants. During the second and third quarters of 2020, the Company granted rent relief to a small number of tenants, but as the impact of the pandemic continues to be felt, these tenants or additional tenants may request rent relief in future periods or become unable to pay rent, and the Company is unable to predict the ultimate impact the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.

The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants ~~will depend~~depends on future developments, which ~~are highly~~remain uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. ~~See Note 12, “Subsequent Events”~~

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Liquidation Strategy

On November 7, 2018, the board of directors of the Company formed a special committee comprised of the independent directors to evaluate various strategic alternatives for the Company. With input from the Advisor, and with the assistance of its own independent financial advisor, the special committee conducted a detailed assessment of the portfolio, taking into account the prevailing conditions of the real estate and financial markets and the economic conditions in the submarkets where the properties are located, the minimal amount of capital raised in the offerings, which was substantially impacted by regulatory changes, and subsequent inability to acquire a diverse portfolio of investments resulting in the fixed costs associated with managing a public REIT and the portfolio of real estate investments being a greater percentage of the net operating income of the Company. Based upon the special committee’s assessment and recommendation, in August of 2020, the board of directors determined that it is in the best interests of the Company and its stockholders to pursue a liquidation strategy through asset sales. Following this determination, the special committee directed the Advisor, with the assistance of the independent financial advisor of the special committee, to develop a plan of liquidation for approval by the board and submission to the stockholders. The Company initially expected to present a plan of liquidation for a ~~further discussion on~~vote of the stockholders of the Company within six months from its determination to pursue a liquidation strategy. However, as a result of the current adverse market conditions caused by the civil unrest and disruption in Portland and Chicago, where several of the Company’s properties are located, and the ongoing uncertainty and business disruptions related to the COVID-19 ~~pandemic.~~pandemic, the board believes it is in the best interest of the stockholders to delay any proposal to liquidate the Company. The Company remains committed to pursuing a liquidation strategy when market conditions improve.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements and condensed notes thereto have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended ~~March 31,~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The consolidated financial statements include the accounts of the Company, REIT Holdings, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

Use of Estimates

The preparation of the consolidated financial statements and the accompanying notes thereto in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Segments

The Company was invested in 3 office properties as of ~~March 31,~~September 30, 2020 and had made an investment in an unconsolidated joint venture. Substantially all of the Company’s revenue and net loss is from real estate, and therefore, the Company currently operates in 1 reportable segment.

Per Share Data

Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were 0 potentially dilutive securities outstanding for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019. Basic and diluted net income (loss) per share of Class A common stock and basic and diluted net income (loss) per share of Class T common stock were equal for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 as aggregate cash distributions for each share class were equal during those periods.

During the three months ended ~~March 31,~~September 30, 2019, aggregate cash distributions declared per share of Class A and Class T common stock were $0.13800000. During the nine months ended September 30, 2020 and 2019, aggregate cash distributions declared per share of Class A and Class T common stock were ~~$0.06322500~~$0.12645000 and ~~$0.13610970,~~$0.41236183, respectively, assuming the share was issued and outstanding each date that was a record date for distributions during the period. ~~Class A~~

Distributions for the three and ~~Class T common stock distributions~~nine months ended September 30, 2019 and for the nine months ended September 30, 2020 were calculated as follows:

•Distributions for the period from January 1, 2019 through ~~March~~May 31, 2019 were calculated at a rate of $0.00151233 per share per day.

•Distributions declared per ~~common~~ share of ~~Class A and Class T~~common stock were $0.046 per share for each month commencing June 2019 through September 30, 2019.

•Distributions declared per share of common stock were $0.02107500 per share for each month during the period from January 1, 2020 through ~~March 31,~~June 30, 2020.

Each day during the ~~three months ended March~~periods from January 1, 2019 through May 31, 2019 was a record date for distributions. ~~During the three months ended March 31,~~Beginning June 2019 and from January 2020 through June 2020, distributions per common share were based on a monthly record date for each month.

Square Footage, Occupancy and Other Measures

Square footage, occupancy, number of tenants and other measures, including annualized base rent and annualized base rent per square foot, or amounts derived from such measures, used to describe real estate investments included in these condensed notes to consolidated financial statements are presented on an unaudited basis and outside the scope of the Company’s independent registered public accounting firm’s review of the Company’s financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

Recently Issued Accounting Standards Update

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

For the period from January 1, 2020 (the earliest date the Company may elect to apply ASU No. 2020-04) through ~~March 31,~~September 30, 2020, the Company did not have any contract modifications that meet the criteria described above, specifically contract modifications that have been modified from LIBOR to an alternative reference rate. The Company’s loan agreements, derivative instruments, and certain lease agreements use LIBOR as the current reference rate. For eligible contract modifications, the Company expects to adopt the temporary optional expedients described in ASU No. 2020-04. The optional expedients for hedging relationships described in ASU No. 2020-04 are not expected to have an impact to the Company as the Company has elected to not designate its derivative instruments as a hedge.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

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

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

The Company has ~~created an inventory of tenants which have or are expected to request lease concessions. The Company did~~ not ~~have~~granted any material lease concessions related to the effects of the COVID-19 pandemic that had a material impact to the Company’s consolidated balance sheet as of ~~March 31,~~September 30, 2020 or consolidated ~~statement~~statements of operations for the three and nine months ended ~~March 31,~~September 30, 2020. ~~Subsequent to March 31, 2020, a number of tenants have requested~~Tenants may request additional lease concessions or deferrals for future periods, which may have an impact on the Company’s business, financial condition and results of operations, but the ultimate impact will largely depend on future developments with respect to the continued spread and treatment of the virus, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, which the Company cannot accurately predict.

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Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

3. REAL ESTATE HELD FOR INVESTMENT

As of ~~March 31,~~September 30, 2020, the Company’s portfolio of real estate held for investment was composed of 3 office buildings containing 582,791 rentable square feet, which were collectively ~~90.6%~~91.5% occupied. The following table provides summary information regarding the properties owned by the Company as of ~~March 31,~~September 30, 2020 (in thousands):


Property	Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost ⁽¹⁾		Accumulated Depreciation and Amortization ⁽¹⁾		Total Real Estate, Net ⁽¹⁾		Property	Date Acquired	City	State	Property Type	Total Real Estate at Cost (1)		Accumulated Depreciation and Amortization (1)		Total Real Estate, Net (1)
Commonwealth Building	Commonwealth Building	06/30/2016	Portland	OR	Office	$	78,863	$	(11,905)	$	66,958	Commonwealth Building	06/30/2016	Portland	OR	Office	$	78,182	$	(13,023)	$	65,159
The Offices at Greenhouse	The Offices at Greenhouse	11/14/2016	Houston	TX	Office	47,166		(8,062)		39,104		The Offices at Greenhouse	11/14/2016	Houston	TX	Office	47,165		(9,248)		37,917
Institute Property	Institute Property	11/09/2017	Chicago	IL	Office	37,220		—		37,220		Institute Property	11/09/2017	Chicago	IL	Office	37,465		(838)		36,627
						$	163,249	$	(19,967)	$	143,282						$	162,812	$	(23,109)	$	139,703

_____________________

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

As of ~~March 31,~~September 30, 2020, the following properties each represented more than 10% of the Company’s total assets:


Property	Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands)⁽¹⁾		Average Annualized Base Rent per sq. ft.		Occupancy		Property	Location	Rentable Square Feet	Total Real Estate, Net (in thousands)		Percentage of Total Assets		Annualized Base Rent (in thousands)(1)		Average Annualized Base Rent per sq. ft.		Occupancy
Commonwealth Building	Commonwealth Building	Portland, OR	224,122	$	66,958	43.7	%	$	5,585	$	28.60	87.1	%	Commonwealth Building	Portland, OR	224,122	$	65,159	44.2	%	$	5,585	$	28.60	87.1	%
The Offices at Greenhouse	The Offices at Greenhouse	Houston, TX	203,284	39,104		25.5	%	4,206		20.69		100.0	%	The Offices at Greenhouse	Houston, TX	203,284	37,917		25.7	%	4,206		20.69		100.0	%
Institute Property	Institute Property	Chicago, IL	155,385	37,220		24.3	%	3,626		28.01		83.3	%	Institute Property	Chicago, IL	155,385	36,627		24.9	%	3,748		27.78		86.8	%

_____________________

⁽¹⁾Annualized base rent represents annualized contractual base rental income as of ~~March 31,~~September 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

Operating Leases

The Company’s real estate properties held for investment are leased to tenants under operating leases for which the terms and expirations vary. As of ~~March 31,~~September 30, 2020, the leases had remaining terms, excluding options to extend, of up to ~~9.3~~8.8 years with a weighted-average remaining term of ~~3.5~~3.2 years. Some of the leases have provisions to extend the term of the leases, options for early termination for all or a part of the leased premises after paying a specified penalty, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from the tenant in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective lease and the creditworthiness of the tenant, but generally is not a significant amount. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled ~~$0.9~~$0.8 million and $1.1 million as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company recognized deferred rent from tenants, net of lease incentive amortization, of $(0.2) million and ~~$0.2~~$0.4 million, respectively. As of ~~March 31,~~September 30, 2020 and December 31, 2019, the cumulative deferred rent balance was ~~$2.8~~$2.7 million and $3.0 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $0.2 million and $0.2 million of unamortized lease incentives as of ~~March 31,~~September 30, 2020 and December 31, 2019, respectively.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

As of ~~March 31,~~September 30, 2020, the future minimum rental income from the Company’s properties held for investment under its non-cancelable operating leases was as follows (in thousands):


April 1, 2020 through December 31, 2020		$	10,247
October 1, 2020 through December 31, 2020				October 1, 2020 through December 31, 2020	$	3,461
2021	2021	12,692		2021	12,718
2022	2022	11,077		2022	11,092
2023	2023	8,426		2023	8,498
2024	2024	7,317		2024	7,317
Thereafter	Thereafter	4,906		Thereafter	4,920
		$	54,665		$	48,006

As of ~~March 31,~~September 30, 2020, the Company had a concentration of credit risk related to AECOM, 1 of the tenants in The Offices at Greenhouse in the engineering industry, which represented ~~22%~~21% of the Company’s annualized base rent. The tenant individually occupied 135,727 rentable square feet or approximately 23% of the total rentable square feet of the Company’s real estate portfolio held for investment, which expires on December 31, 2024, with 2 five-year extension options. As of ~~March 31,~~September 30, 2020, the annualized base rent for this tenant was approximately $2.9 million or $21.37 per square foot. No other tenant represented more than 10% of the Company’s annualized base rent.

As of ~~March 31,~~September 30, 2020, the Company’s real estate properties held for investment were leased to 6162 tenants over a diverse range of industries. The Company’s highest tenant industry concentration (greater than 10% of annualized base rent) was as follows:


Industry	Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent		Industry	Number of Tenants	Annualized Base Rent (1) (in thousands)		Percentage of Annualized Base Rent
Professional, scientific and technical	Professional, scientific and technical	9	$	4,980	37.1	%	Professional, scientific and technical	9	$	4,980	36.8	%
Computer system design and related services	Computer system design and related services	2	1,358		10.1	%	Computer system design and related services	2	1,358		10.0	%

_____________________

⁽¹⁾ Annualized base rent represents annualized contractual base rental income as of ~~March 31,~~September 30, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

As of ~~March 31,~~September 30, 2020, no other tenant industries accounted for more than 10% of annualized base rent. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, the Company ~~recorded an adjustment to~~excluded from rental income ~~of $0.4~~$0.6 million and ~~$12,000,~~$0.5 million, respectively, ~~for~~related to lease payments that were deemed not probable of collection. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company recorded bad debt recovery of $27,000, which was included in operating, maintenance, and management expense in the accompanying consolidated statements of operations. NaN bad debt expense or recovery was recorded during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

Impairment of Real Estate

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company recorded non-cash impairment charges of $5.8 million to write down the carrying value of the Institute Property, an office property located in Chicago, Illinois, to its estimated fair value as a result of changes in cash flow estimates including a change in leasing projections, which triggered the future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in longer lease-up periods and a decrease in projected rental rates and was further impacted by the COVID-19 pandemic which the Company believes will result in additional challenges to release the vacant space. Further, tenants at the Institute Property have been adversely impacted by the ~~stay at home order issued for~~measures put in place to control the ~~City~~spread of ~~Chicago~~COVID-19 and many tenants have requested rent concessions as their businesses have been severely impacted.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

~~4. TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW-~~

~~MARKET LEASE LIABILITIES~~

As of March 31, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):

Tenant Origination and
Absorption Costs Above-Market
Lease Assets Below-Market
Lease Liabilities
March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019 March 31, 2020 December 31, 2019
Cost $ 11,875 $ 13,822 $ 213 $ 213 $ (5,930) $ (6,213)
Accumulated Amortization (5,696) (6,818) (100) (93) 3,682 3,680
Net Amount $ 6,179 $ 7,004 $ 113 $ 120 $ (2,248) $ (2,533)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three months ended March 31, 2020 and 2019 were as follows (in thousands):

Tenant Origination and
Absorption Costs Above-Market
Lease Assets Below-Market
Lease Liabilities
For the Three Months Ended March 31, For the Three Months Ended March 31, For the Three Months Ended March 31,
2020 2019 2020 2019 2020 2019
Amortization $ (571) $ (690) $ (7) $ (7) $ 285 $ 350

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

~~5. REAL ESTATE SALES~~

During the three months ended March 31, 2020, the Company sold 1 office property. The results of operations for the property sold during the three months ended March 31, 2020 are included in continuing operations on the Company’s consolidated statements of operations. As of March 31, 2020, the Company did not have any real estate properties held for sale. The following table summarizes certain revenue and expenses related to the property that was sold during the three months ended March 31, 2020, which were included in continuing operations (in thousands):

For the Three Months Ended March 31,
2020 2019
Revenues
Rental income $ 102 $ 549
Other operating income — 21
Total revenues 102 570
Expenses
Operating, maintenance, and management 39 163
Property management fees and expenses to affiliate 1 8
Real estate taxes and insurance 14 75
Asset management fees to affiliate 10 54
General and administrative expenses 13 2
Depreciation and amortization — 140
Interest expense 30 271
Total expenses 107 713

The following summary presents the major components of assets and liabilities related to real estate held for sale as of March 31, 2020 and December 31, 2019 (in thousands). NaN real estate properties were held for sale as of March 31, 2020:

~~March 31, 2020~~

~~December 31, 2019~~

~~Assets related to real estate held for sale~~

~~Total real estate, at cost~~

—

~~20,602~~

~~Accumulated depreciation and amortization~~

—

~~(2,008)~~

~~Real estate held for sale, net~~

—

~~18,594~~

~~Other assets~~

—

~~760~~

~~Total assets related to real estate held for sale~~

—

~~19,354~~

~~Liabilities related to real estate held for sale~~

~~Total notes payable, net~~

—

~~13,948~~

~~Other liabilities~~

—

~~1,057~~

~~Total liabilities related to real estate held for sale~~

—

~~15,005~~

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March~~September 30, 2020

(unaudited)

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

MARKET LEASE LIABILITIES

As of September 30, 2020 and December 31, 2019, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) were as follows (in thousands):


	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Cost	$	11,222	$	13,822	$	213	$	213	$	(5,393)	$	(6,213)
Accumulated Amortization	(6,031)		(6,818)		(115)		(93)		3,651		3,680
Net Amount	$	5,191	$	7,004	$	98	$	120	$	(1,742)	$	(2,533)

Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands):


	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Three Months Ended September 30,				For the Three Months Ended September 30,				For the Three Months Ended September 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(470)	$	(627)	$	(7)	$	(7)	$	236	$	308


	Tenant Origination and Absorption Costs				Above-Market Lease Assets				Below-Market Lease Liabilities
	For the Nine Months Ended September 30,				For the Nine Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019		2020		2019
Amortization	$	(1,559)	$	(1,977)	$	(22)	$	(22)	$	791	$	981

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

5. REAL ESTATE SALES

During the nine months ended September 30, 2020, the Company sold 1 office property. The results of operations for the property sold during the nine months ended September 30, 2020 are included in continuing operations on the Company’s consolidated statements of operations. As of September 30, 2020, the Company did 0t have any real estate properties held for sale. The following table summarizes certain revenue and expenses related to the property that was sold during the nine months ended September 30, 2020, which were included in continuing operations (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues
Rental income	$	0	$	572	$	100	$	1,682
Other operating income	0		17		0		59
Total revenues	$	0	$	589	$	100	$	1,741
Expenses
Operating, maintenance, and management	$	0	$	171	$	41	$	493
Property management fees and expenses to affiliate	0		8		1		25
Real estate taxes and insurance	0		77		15		226
Asset management fees to affiliate	0		55		10		163
General and administrative expenses	0		4		18		9
Depreciation and amortization	0		130		0		414
Interest expense	0		203		30		839
Total expenses	$	0	$	648	$	115	$	2,169

The following summary presents the major components of assets and liabilities related to real estate held for sale as of September 30, 2020 and December 31, 2019 (in thousands). NaN real estate properties were held for sale as of September 30, 2020:


	September 30, 2020		December 31, 2019
Assets related to real estate held for sale
Total real estate, at cost	$	0	$	20,602
Accumulated depreciation and amortization	0		(2,008)
Real estate held for sale, net	0		18,594
Other assets	0		760
Total assets related to real estate held for sale	$	0	$	19,354
Liabilities related to real estate held for sale
Total notes payable, net	$	0	$	13,948
Other liabilities	0		1,057
Total liabilities related to real estate held for sale	$	0	$	15,005

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

6. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

On June 28, 2019, the Company, through an indirect wholly owned subsidiary, and FGPH 210 W. Chicago LLC (the “JV Partner”), entered into a limited liability company agreement (the “JV Agreement”) to form a joint venture (the “Joint Venture”). Prior to entering into the Joint Venture, an affiliate of the JV Partner entered into a purchase and sale agreement to acquire an office property containing 16,239 rentable square feet located on approximately 8,072 square feet of land in Chicago, Illinois (“210 W. Chicago”), and such affiliate of the JV Partner assigned the purchase and sale agreement to the Joint Venture and the Joint Venture acquired 210 W. Chicago on June 28, 2019.

The Company and the JV Partner each own a 50% equity interest in the Joint Venture, with the Company serving as the manager of the Joint Venture. Major decisions, as defined in the limited liability company agreement, require an affirmative unanimous written consent. Income, losses and distributions are generally allocated based on the members’ respective equity interests. Accordingly, the Company has accounted for its investment in the Joint Venture under the equity method of accounting.

The contractual purchase price of 210 W. Chicago was $5.4 million plus closing costs. The Joint Venture funded the purchase of 210 W. Chicago with a $3.8 million mortgage loan from an unaffiliated lender and with contributions from the Joint Venture members.

As of September 30, 2020, the Company and the JV Partner each owned a 50% equity interest in the Joint Venture, with the Company serving as the manager of the Joint Venture. Major decisions, as defined in the JV Agreement, required affirmative unanimous written consent. Income, losses and distributions were generally allocated based on the members’ respective equity interests. In accordance with the JV Agreement, if a cause event occurs (as defined in the JV agreement) or the members do not enter into a parking lot joint venture agreement prior to the expiration of the parking lot joint venture negotiation period and at any time during the 120 day period following the expiration of the parking lot joint venture negotiation period, the JV Partner may elect to exercise a call option to purchase the membership interest of the Company or a put option to sell its membership interest to the Company at an amount equal to 125% of unreturned capital contributions of the member’s interest being acquired.

The parking lot venture negotiation period expired on June 30, 2020. On September 4, 2020, the JV Partner exercised its put option available under the JV agreement. On October 5, 2020, the Company purchased the JV Partner’s 50% membership interest for $1.1 million and consolidated the Joint Venture as of that date.

During the three months ended ~~March 31,~~September 30, 2020, the Company recorded an estimated loss of $0.3 million related to its obligation to satisfy the put option to the JV Partner, which was included in equity in loss of unconsolidated joint venture. The loss was estimated based on the expected loss to be recorded on consolidation of the entity, which was determined based on FASB ASC 810, Consolidation, guidance for initial consolidation of a variable interest entity that is not considered a business. The loss was estimated based on the difference between (a) the sum of the value of the consideration paid plus the carrying amount of the previously held interests in the entity and (b) the estimated fair values of the net assets held within the entity as of the consolidation date.

During the three and nine months ended September 30, 2020, the Company recognized ~~$0.5~~$0.4 million and $0.8 million of equity loss, ~~which~~respectively, and $13,000 of equity income during the three and nine months ended September 30, 2019. Equity loss recognized during the nine months ended September 30, 2020 included $0.5 million of impairment related to ~~its~~the Company’s investment in the Joint ~~Venture. As~~Venture and $0.3 million of ~~March 31, 2020,~~loss recorded related to the ~~Company determined~~consolidation of the carrying value of its investment to be less than fair value and measured the fair value of its investment to be $0.5 million, resulting in an impairment of $0.5 million for the three months ended March 31, 2020.VIE as discussed above. The impairment was a result of the decline in fair value of the underlying 210 W. Chicago property due to changes in cash flow estimates including a change in leasing projections, which triggered future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in a decrease in projected rental rates as leases mature. Further, tenants at 210 W. Chicago have been adversely impacted by the ~~stay at home order issued for~~measures put in place to control the ~~City~~spread of ~~Chicago~~COVID-19 and many tenants have requested rent concessions as their businesses have been severely impacted. As of September 30, 2020, the book value of the Company’s investment in the Joint Venture was $0.5 million. As of September 30, 2020, the Company’s maximum loss exposure related to its investment in the Joint Venture was equal to the carrying value of its $0.5 million investment and the Company’s obligation of $1.1 million to satisfy the JV Partner’s put option pursuant to the JV Agreement.

1517

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

7. NOTES PAYABLE

As of ~~March 31,~~September 30, 2020 and December 31, 2019, the Company’s notes payable consisted of the following (dollars in thousands):


		Book Value as of March 31, 2020		Book Value as of December 31, 2019		Contractual Interest Rate as of March 31, 2020 ⁽¹⁾	Effective Interest Rate at March 31, 2020 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾		Book Value as of September 30, 2020		Book Value as of December 31, 2019		Contractual Interest Rate as of September 30, 2020 (1)	Effective Interest Rate at September 30, 2020 (1)	Payment Type	Maturity Date (2)
Commonwealth Building Mortgage Loan ⁽³⁾	Commonwealth Building Mortgage Loan ⁽³⁾	$	45,681	$	45,681	One-month LIBOR +1.80%	3.39%	Interest Only	02/01/2023	Commonwealth Building Mortgage Loan (3)	$	45,681	$	45,681	One-month LIBOR + 1.80%	3.74%	Interest Only	02/01/2023
Term Loan ⁽⁴⁾	Term Loan ⁽⁴⁾	49,150		72,800		One-month LIBOR + 2.00%	4.81%	Interest Only	11/09/2020	Term Loan (4)	46,150		72,800		One-month LIBOR + 2.00%	4.07%	Interest Only	11/09/2020
Notes payable principal outstanding	Notes payable principal outstanding	$	94,831	$	118,481					Notes payable principal outstanding	$	91,831	$	118,481
Deferred financing costs, net	Deferred financing costs, net	(508)		(620)						Deferred financing costs, net	(348)		(620)
Notes payable, net	Notes payable, net	$	94,323	$	117,861					Notes payable, net	$	91,483	$	117,861

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of ~~March 31,~~September 30, 2020. Effective interest rate is calculated as the actual interest rate in effect as of ~~March 31,~~September 30, 2020 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of ~~March 31,~~September 30, 2020, where applicable.

⁽²⁾ Represents the maturity date as of ~~March 31,~~September 30, 2020; subject to certain conditions, the maturity dates of ~~certain~~the loans may be extended beyond the dates shown.

⁽³⁾ As of ~~March 31,~~September 30, 2020, there are 2 one-year extension options remaining on the Commonwealth Building Mortgage Loan. As of ~~March 31,~~September 30, 2020, $45.7 million of the Commonwealth Building Mortgage Loan was outstanding and $5.7 million remained available for future disbursements, subject to certain terms and conditions set forth in the loan documents.

⁽⁴⁾ On January 17, 2020, in connection with the disposition of Von Karman Tech Center, pursuant to the terms of the Term Loan, the Company reduced the amount of the term commitment and revolving commitment to $39.4 million and $19.7 million, respectively. As of ~~March 31,~~September 30, 2020, the outstanding balance under the Term Loan consisted of $39.4 million of term commitment and ~~$9.7~~$6.7 million of revolving commitment. As of ~~March 31,~~September 30, 2020, there ~~are~~were 2 one-year extension options remaining on the Term Loan. The Term Loan is secured by The Offices at Greenhouse Property and the Institute Property. Reductions in property values related to the impact of the COVID-19 pandemic may limit the Company’s ability to draw on the revolving commitment under the Term Loan due to covenants described in the loan agreement. Subsequent to September 30, 2020, the Company exercised its extension option under the Term Loan and extended the maturity date to November 9, 2021.

During the three and nine months ended ~~March 31,~~September 30, 2020, the Company incurred $0.6 million and $4.3 million of interest expense, respectively. During the three and nine months ended September 30, 2019, the Company incurred ~~$2.9~~$1.6 million and ~~$2.0~~$6.1 million of interest expense, respectively. As of ~~March 31,~~September 30, 2020 and December 31, 2019, $0.3 million and $0.4 million of interest expense were payable, respectively. Included in interest expense during the three and nine months ended ~~March 31,~~September 30, 2020 were $0.1 million and $0.2 million of amortization of deferred financing costs, respectively. Included in interest expense during the three and nine months ended September 30, 2019 were $0.1 million and ~~$0.1~~$0.3 million of amortization of deferred financing costs, respectively. Interest expense (including gains and losses) incurred as a result of the Company’s derivative instruments increased interest expense by ~~$1.9 million~~$19,000 and ~~$0.6~~$2.1 million for the three and nine months ended ~~March 31,~~September 30, 2020, respectively. Interest expense (including gains and losses) incurred as a result of the Company’s derivative instruments increased interest expense by $0.2 million and $1.9 million for the three and nine months ended September 30, 2019, respectively.

~~The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of March 31, 2020 (in thousands):~~

April 1, 2020 through December 31, 2020 $ 49,150
2021 —
2022 —
2023 45,681
2024 —
Thereafter —
$ 94,831

1618

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~March 31,~~September 30, 2020

(unaudited)

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of September 30, 2020 (in thousands):


October 1, 2020 through December 31, 2020 (1)	$	46,150
2021	0
2022	0
2023	45,681
2024	0
Thereafter	0
	$	91,831

_____________________

(1)Subsequent to September 30, 2020, the Company exercised its extension option under the Term Loan and extended the maturity date to November 9, 2021.

8. DERIVATIVE INSTRUMENTS

The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into derivatives for speculative purposes.

The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.

The following table summarizes the notional amount and other information related to the Company’s interest rate swaps as of ~~March 31,~~September 30, 2020 and December 31, 2019. The notional amount is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):

March 31, 2020

December 31, 2019

Weighted-Average
Fix Pay Rate

Weighted-Average Remaining Term in Years

September 30, 2020

December 31, 2019

Weighted-Average
Fix Pay Rate

Weighted-Average Remaining Term in Years

Derivative Instruments

Number of Instruments

Notional Amount

Number of Instruments

Notional Amount

Reference Rate as of September 30, 2019

Weighted-Average
Fix Pay Rate

Derivative Instruments

Number of Instruments

Notional Amount

Number of Instruments

Notional Amount

Reference Rate as of September 30, 2020

Weighted-Average
Fix Pay Rate

Derivative instruments not designated as hedging instruments

Interest Rate Swaps

78,533

One-month LIBOR/

Fixed at 2.07% - 2.82%

2.36%

2.1

Interest Rate Swaps

78,533

One-month LIBOR/

Fixed at 2.07% - 2.82%

2.36%

1.5

The following table sets forth the fair value of the Company’s derivative instruments as well as their classification on the consolidated balance sheets as of ~~March 31,~~September 30, 2020 and December 31, 2019 (dollars in thousands):

March 31, 2020

December 31, 2019

September 30, 2020

December 31, 2019

Derivative Instruments

Balance Sheet Location

Number of
Instruments

Fair Value

Number of
Instruments

Fair Value

Derivative Instruments

Balance Sheet Location

Number of
Instruments

Fair Value

Number of
Instruments

Fair Value

Derivative instruments not designated as hedging instruments

Interest Rate Swaps

Other liabilities, at fair value

(3,269)

(1,503)

Interest Rate Swaps

Other liabilities, at fair value

(2,664)

(1,503)

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

The change in fair value of a derivative instrument that is not designated as a cash flow hedge is included in interest expense in the accompanying consolidated statements of operations. The following table summarizes the effects of derivative instruments on the Company’s consolidated statements of operations (in thousands):


		For the Three Months Ended March 31,							For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Income statement related	Income statement related					Income statement related
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments					Derivatives not designated as hedging instruments
Realized loss (gain) recognized on interest rate swaps	Realized loss (gain) recognized on interest rate swaps	$	132	$	(53)	Realized loss (gain) recognized on interest rate swaps	$	439	$	21	$	938	$	(57)
Unrealized loss on interest rate swaps		1,766		629
Unrealized (gain) loss on interest rate swaps						Unrealized (gain) loss on interest rate swaps	(420)		222		1,161		1,949
Increase in interest expense as a result of derivatives	Increase in interest expense as a result of derivatives	$	1,898	$	576	Increase in interest expense as a result of derivatives	$	19	$	243	$	2,099	$	1,892

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

9. FAIR VALUE DISCLOSURES

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

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

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

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

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

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

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit risks to the contracts, are incorporated in the fair values to account for potential nonperformance risk.

Notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. The Company classifies these inputs as Level 3 inputs.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

The following were the face values, carrying amounts and fair values of the Company’s notes payable as of ~~March 31,~~September 30, 2020 and December 31, 2019, which carrying amounts generally do not approximate the fair values (in thousands):


		March 31, 2020										December 31, 2019											September 30, 2020				December 31, 2019
		Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value			Face Value		Carrying Amount		Fair Value		Face Value		Carrying Amount		Fair Value
Financial liabilities:	Financial liabilities:													Financial liabilities:
Notes payable	Notes payable	$	94,831	$	94,323	$	94,204	$	118,481	$	117,861	$	119,196	Notes payable	$	91,831	$	91,483	$	90,589	$	118,481	$	117,861	$	119,196

Disclosure of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and requires a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.

As of ~~March 31,~~September 30, 2020, the Company measured the following derivative instruments at fair value (in thousands):


				Fair Value Measurements Using													Fair Value Measurements Using
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring Basis:	Recurring Basis:									Recurring Basis:
Liability derivative - interest rate swaps	Liability derivative - interest rate swaps	$	(3,269)	$	—	$	(3,269)	$	—	Liability derivative - interest rate swaps	$	(2,664)	$	0	$	(2,664)	$	0

Table of ~~March 31,~~Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

During the nine months ended September 30, 2020, the Company measured the following asset(s) at fair value on a nonrecurring basis (in thousands):


				Fair Value Measurements Using													Fair Value Measurements Using
		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Nonrecurring Basis:	Nonrecurring Basis:									Nonrecurring Basis:
Impaired real estate(1)	Impaired real estate(1)	$	37,100	$	—	$	—	$	37,100	Impaired real estate(1)	$	37,100	$	0	$	0	$	37,100
Investment in unconsolidated joint venture(1)	Investment in unconsolidated joint venture(1)	$	528	$	—	$	—	$	528	Investment in unconsolidated joint venture(1)	$	528	$	0	$	0	$	528

_____________________

(1) Amount represents the fair value for a real estate asset or investment in unconsolidated joint venture impacted by an impairment charge during the nine months ended September 30, 2020, as of the date that the fair value measurement was made. The carrying value for the real estate asset or investment in unconsolidated joint venture may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, one of the Company’s real estate properties was measured at its estimated fair value based on a discounted cash flow approach. The significant unobservable inputs the Company used in measuring the estimated fair value of this property include a discount rate of 7.50% and a terminal cap rate of 6.25%. See Note 3, “Real Estate Held for Investment - Impairment of Real Estate” for further discussion on the impaired real estate property. In addition, during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the Company measured its investment in unconsolidated joint venture to its estimated fair value based on a discounted cash flow approach. The significant unobservable inputs the Company used in measuring the estimated fair value of the underlying property of the investment include a discount rate of 10.00% and a terminal cap rate of 6.75%. See Note 6, “Investment in Unconsolidated Joint Venture” for further discussion.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

10. RELATED PARTY TRANSACTIONS

Pursuant to the Advisory Agreement, the Initial Private Offering Dealer Manager Agreement and the Public Offering Dealer Manager Agreement, the Company is or was obligated to pay the Advisor and the Dealer Manager specified fees upon the provision of certain services related to the Initial Private Offering and the Public Offering, the investment of funds in real estate, management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). The Company was also obligated to reimburse the Advisor and Dealer Manager for certain organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company, and the Company is obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company. The Advisor is entitled to certain other fees, including an incentive fee upon achieving certain performance goals, as detailed in the Advisory Agreement. In addition, the Advisor has paid all offering expenses related to the Second Private Offering without reimbursement by the Company.

In addition, in connection with certain property acquisitions, the Company, through indirect wholly owned subsidiaries, has entered into separate Property Management Agreements (defined below) with KBS Management Group, LLC, an affiliate of the Advisor (the “Co-Manager”).

The Company has also entered into a fee reimbursement agreement with the Dealer Manager pursuant to which the Company agreed to reimburse the Dealer Manager for certain fees and expenses it incurs for administering the Company’s participation in the DTCC Alternative Investment Product Platform with respect to certain accounts of the Company’s investors serviced through the platform.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

The Advisor also serves or served as the advisor for KBS Real Estate Investment Trust II, Inc. (“KBS REIT II”), KBS Real Estate Investment Trust III, Inc. (“KBS REIT III”), Pacific Oak Strategic Opportunity REIT, Inc., formerly KBS Strategic Opportunity REIT, Inc. (“Pacific Oak Strategic Opportunity REIT”) and Pacific Oak Strategic Opportunity REIT II, Inc., formerly KBS Strategic Opportunity REIT II, Inc. (“Pacific Oak Strategic Opportunity REIT II”). Effective October 31, 2019, the respective advisory agreements between the Advisor and Pacific Oak Strategic Opportunity REIT and Pacific Oak Strategic Opportunity REIT II terminated. The Dealer Manager also serves or served as the dealer manager for KBS REIT II, KBS REIT III, Pacific Oak Strategic Opportunity REIT and Pacific Oak Strategic Opportunity REIT II. Effective December 31, 2019, the respective dealer-manager agreements between the Dealer Manager, Pacific Oak Strategic Opportunity REIT and Pacific Oak Strategic Opportunity REIT II terminated.

On November 1, 2019, Pacific Oak Strategic Opportunity REIT and Pacific Oak Strategic Opportunity REIT II each entered into advisory agreements with a new external advisor, Pacific Oak Capital Advisors, LLC. Pacific Oak Capital Advisors, LLC is part of a group of companies formed, owned and managed by Keith D. Hall and Peter McMillan III. Together, through GKP Holding LLC, Messrs. Hall and McMillan, continue to indirectly own a 33 1/3% interest in the Advisor and the Dealer Manager.

As of January 1, 2019, the Company, together with KBS REIT II, KBS REIT III, the Dealer Manager, the Advisor and other KBS affiliated entities, had entered into an errors and omissions and directors and officers liability insurance program where the lower tiers of such insurance coverage were shared. The cost of these lower tiers is allocated by the Advisor and its insurance broker among each of the various entities covered by the program and is billed directly to each entity. In June ~~2019,~~2020, the Company renewed its participation in the program. The program is effective through June 30, ~~2020.~~2021.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, no other business transactions occurred between the Company and KBS REIT II, KBS REIT III, Pacific Oak Strategic Opportunity REIT and Pacific Oak Strategic Opportunity REIT II.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, and any related amounts payable as of ~~March 31,~~September 30, 2020 and December 31, 2019 (in thousands).


		Incurred						Payable as of							Incurred								Payable as of
		Three Months Ended March 31,											Three Months Ended September 30,				Nine Months Ended September 30,				September 30,		December 31,
		2020		2019		March 31, 2020		December 31, 2019			2020		2019		2020		2019		2020		2019
Expensed	Expensed									Expensed
Asset management fees ⁽¹⁾	Asset management fees ⁽¹⁾	$	435	$	461	$	4,607	$	4,171	Asset management fees (1)	$	432	$	483	$	1,293	$	1,412	$	5,464	$	4,171
Reimbursement of operating expenses ⁽²⁾	Reimbursement of operating expenses ⁽²⁾	54		49		37		29		Reimbursement of operating expenses (2)	80		49		232		139		25		29
Property management fees ⁽³⁾	Property management fees ⁽³⁾	35		41		11		14		Property management fees (3)	32		40		102		122		3		14
Disposition fees ⁽⁴⁾	Disposition fees ⁽⁴⁾	381		—		—		—		Disposition fees (4)	0		0		381		0		0		0
Other Arrangement	Other Arrangement									Other Arrangement
Advisor advance for cash distributions ⁽⁵⁾	Advisor advance for cash distributions ⁽⁵⁾	—		—		1,338		1,338		Advisor advance for cash distributions (5)	0		0		0		0		1,338		1,338
		$	905	$	551	$	5,993	$	5,552		$	544	$	572	$	2,008	$	1,673	$	6,830	$	5,552

_____________________

⁽¹⁾ The asset management fee is a monthly fee payable to the Advisor in an amount equal to one-twelfth of 1.0% of the cost of the Company’s investments including the portion of the investment that is debt financed. As of ~~March 31,~~September 30, 2020, the Company had accrued and deferred payment of ~~$4.6~~$5.5 million of asset management fees related to October 2017 through ~~March~~September 2020.

⁽²⁾ See “Reimbursable Operating Expenses” below.

⁽³⁾ See “Real Estate Property Co-Management Agreements” below.

⁽⁴⁾ Disposition fees with respect to real estate sold are included in the gain on sale of real estate, net, in the accompanying consolidated statements of operations.

⁽⁵⁾ See “Advance from the Advisor” below.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Reimbursable Operating Expenses

Reimbursable operating expenses primarily related to directors and officers liability insurance, legal fees, state and local taxes, accounting software and cybersecurity related expenses incurred by the Advisor under the Advisory Agreement. The Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These amounts totaled ~~$54,000~~$80,000 and ~~$49,000~~$232,000 for the three and nine months ended ~~March 31,~~September 30, 2020, respectively, and $49,000 and $139,000 for the three and nine months ended September 30, 2019, respectively, and were the only type of employee costs reimbursed under the Advisory Agreement for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively. The Company does not reimburse for employee costs in connection with services for which the Advisor earned or earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. In addition to the amounts above, the Company reimburses the Advisor for certain of the Company’s direct costs incurred from third parties that were initially paid by the Advisor on behalf of the Company.

Effective September 29, 2017, the Company eliminated its obligation to reimburse expenses incurred by the Advisor in connection with providing services pursuant to the Advisory Agreement, other than (i) the allocable portion of the costs of the internal audit department and (ii) promotional costs and expenses related to the leasing of properties.

The Advisor must reimburse the Company the amount by which the Company’s aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended ~~March 31,~~September 30, 2020 ~~did not exceed~~exceeded the charter-imposed ~~limitation.~~

~~Table~~limitation; however, the Company’s conflicts committee determined that the relationship of ~~Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

the Company’s operating expenses to its average invested assets was justified as the Company is now entering its liquidation stage and has incurred additional legal and financial advisor expenses as a result and has already sold one of its real estate properties.

Advance from the Advisor

The Advisor advanced funds to the Company, which are non-interest bearing, for distribution record dates through the period ended May 31, 2016. As of ~~March 31,~~September 30, 2020, the total advanced funds due to the Advisor from the Company was approximately $1.3 million, which is included in due to affiliates in the Company’s consolidated balance sheet. The Company is only obligated to repay the Advisor for its advance if and to the extent that:

(i)the Company’s modified funds from operations (“MFFO”), as such term is defined by the Institute for Portfolio Alternatives and interpreted by the Company, for the immediately preceding month exceeds the amount of cash distributions declared for record dates of such prior month (an “MFFO Surplus”), and the Company will pay the Advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or

(ii)Excess proceeds from third-party financings are available (“Excess Proceeds”), provided that the amount of any such Excess Proceeds that may be used to repay the principal amount outstanding under the advance shall be determined by the conflicts committee in its sole discretion.

In determining whether Excess Proceeds are available to repay the advance, the Company’s conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Real Estate Property Co-Management Agreements

In connection with its property acquisitions, the Company, through separate, indirect, wholly-owned subsidiaries, entered into separate property management agreements (each, a “Property Management Agreement”) with the Co-Manager for each of its properties. Under each Property Management Agreement, the Co-Manager will provide certain management services related to these properties in addition to those provided by the third-party property managers. In exchange for these services, the Company pays the Co-Manager a monthly fee equal to a percentage of the rent, payable and actually collected for the month from each of the properties. Each Property Management Agreement has an initial term of one year and will be deemed renewed for successive one-year periods provided it is not terminated. Each party may terminate the Property Management Agreement without cause on 30 days’ written notice to the other party and may terminate each Property Management Agreement for cause on 5 days’ written notice to the other party upon the occurrence of certain events as detailed in each Property Management Agreement.

Property Name

Effective Date

Annual Fee Percentage

Von Karman Tech Center (1)

07/31/2015

1.50%

Commonwealth Building

07/01/2016

1.25%

The Offices at Greenhouse

11/14/2016

0.25%

Institute Property

11/09/2017

1.00%

_____________________

(1) On January 17, 2020, the Company sold Von Karman Tech Center. The Property Management Agreement for Von Karman Tech Center was terminated effective January 17, 2020.

Organization and Offering Costs

Offering costs include all expenses incurred in connection with the offerings of securities by the Company. Organization costs include all expenses incurred in connection with the formation of the Company, including but not limited to legal fees and other costs to incorporate the Company.

With respect to the Public Offering, the Advisor and the Dealer Manager generally paid the organization and offering expenses of the Company incurred in the Primary Offering (other than selling commissions, dealer manager fees and stockholder servicing fees) directly.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

The Company reimbursed the Advisor, the Dealer Manager and its affiliates up to 1% of gross proceeds raised in the Primary Offering for commercially reasonable organization and offering expenses (other than selling commissions, dealer manager fees and stockholder servicing fees). The Advisor, the Dealer Manager and their affiliates were responsible for all organization and other offering expenses (which excludes selling commissions, dealer manager fees and stockholder servicing fees) paid related to the Primary Offering to the extent they exceeded 1% of gross proceeds raised in the Primary Offering. The Company did not reimburse the Dealer Manager for wholesaling compensation expenses.

During the Initial Private Offering, the Company was obligated to reimburse the Advisor and its affiliates for all organization and offering costs (excluding wholesaling compensation expenses) paid by them on behalf of the Company.

The Advisor has agreed to pay directly all offering expenses related to the Second Private Offering without reimbursement by the Company.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Through ~~March 31,~~September 30, 2020, the Advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on the Company’s behalf in connection with the Public Offering of approximately $4.4 million. As of ~~March 31,~~September 30, 2020, the Company had recorded $39,000 of organization and other offering expenses related to the Public Offering, which amount represents the Company’s maximum liability for organization and other offering costs as of ~~March 31,~~September 30, 2020 based on the limitations described above. As of ~~March 31,~~September 30, 2020, the Company had recorded $1.5 million of organization and other offering costs related to the Initial Private Offering. Organization costs were expensed as incurred and offering costs are deferred and charged to stockholders’ equity as such amounts were reimbursed to the Advisor, the Dealer Manager or their affiliates from the gross proceeds of the applicable offering.

As of ~~March 31,~~September 30, 2020, the Advisor had incurred $5.5 million in offering expenses related to the Second Private Offering.

11. PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma information for the three and nine months ended September 30, 2020 and 2019 has been prepared to give effect the disposition of Von Karman Tech Center on January 17, 2020, as if the disposition occurred on January 1, 2019. These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the disposition of Von Karman Tech Center been consummated as of January 1, 2019 (in thousands, except share and per share amounts).


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues	$	4,058	$	4,773	$	13,243	$	13,773
Net loss	$	(1,501)	$	(1,148)	$	(6,415)	$	(5,046)
Net loss per common share, basic and diluted	$	(0.15)	$	(0.11)	$	(0.63)	$	(0.51)

12. COMMITMENTS AND CONTINGENCIES

Economic Dependency

The Company depends on the Advisor for certain services that are essential to the Company, including the management of the daily operations of the Company’s investment portfolio, disposition of investments and other general and administrative responsibilities. In the event that the Advisor is unable to provide such services, the Company will be required to obtain such services from other sources.

Legal Matters

From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 1. Financial Statements (continued)

KBS GROWTH & INCOME REIT, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

September 30, 2020

(unaudited)

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Although there can be no assurance, the Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s property, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the property could result in future environmental liabilities.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 1. Financial Statements (continued)~~

~~KBS GROWTH & INCOME REIT, INC.~~

~~CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~March 31, 2020~~

~~(unaudited)~~

~~12.~~13. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the consolidated financial statements are issued.

~~Cash~~ Distributions ~~Paid~~Authorized

On ~~April 1,~~November 10, 2020, the ~~Company paid cash distributions~~Company’s board of ~~$0.2 million, which related to~~directors authorized a quarterly distribution ~~declared for March 2020~~ in the amount of ~~$0.02107500~~$0.04215000 per share of common stock to stockholders of record as of the close of business on ~~March 20, 2020. On May 1,~~November 13, 2020, which the Company ~~paid cash distributions of $0.2 million, which related~~expects to ~~a distribution declared for April 2020~~pay in ~~the amount of $0.02107500 per share of common stock to stockholders of record as of the close of business on April 20,~~November 2020.

~~COVID-19 Pandemic~~

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business, including how the pandemic will impact its tenants. While the Company did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, the Company did recognize impairment charges related to a projected reduction in cash flows related to a change in leasing projections that were impacted in part by the COVID-19 pandemic. Many of the Company’s tenants have experienced disruptions in their business, some more severely than others. In general, the Company’s retail tenants have been more severely impacted by the COVID-19 than the office tenants. In addition, in the last month, a number of tenants have requested rent relief as a result of the pandemic, and therefore, the Company is unable to predict the impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. The Company is evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor is the Company forgoing its contractual rights under its lease agreements.

The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

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Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying financial statements of KBS Growth & Income REIT, Inc. and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to KBS Growth & Income REIT, Inc., a Maryland corporation, and, as required by context, KBS Growth & Income Limited Partnership, a Delaware limited partnership, which we refer to as the “Operating Partnership,” and to their subsidiaries.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of KBS Growth & Income REIT, Inc. and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.

The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

•The COVID-19 pandemic, together with the resulting ~~restrictions on travel and quarantines~~measures imposed to contain the virus, has had a negative impact on the economy and business activity globally. The extent to which the COVID-19 pandemic impacts our operations and those of our tenants ~~will depend on future developments, which are highly~~remains uncertain and cannot be predicted with confidence, ~~including~~and will depend on the ultimate scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

•We depend on our advisor and its affiliates to conduct our operations. We pay fees to our advisor and its affiliates in connection with the management of our investments that are based on the cost of the investment, not on the quality of the investment or services rendered to us. These fees decrease the amount of cash available for distribution to our stockholders.

•All of our executive officers, our affiliated director and other key real estate and debt finance professionals are also officers, directors, managers, key professionals and/or holders of a direct or indirect controlling interest in our advisor, and/or other KBS-affiliated entities. As a result, our executive officers, our affiliated director, some of our key real estate and debt finance professionals, our advisor and its affiliates face conflicts of interest, including significant conflicts created by our advisor’s and its affiliates’ compensation arrangements with us and other KBS-sponsored programs and KBS-advised investors and conflicts in allocating time among us and these other programs and investors. Although we have adopted corporate governance measures to ameliorate some of the risks posed by these conflicts, these conflicts could result in action or inaction that is not in the best interests of our stockholders.

•~~We have~~As of September 30, 2020, we had a limited portfolio of three real estate investments and one investment in an unconsolidated joint venture, which may cause the value of an investment in us to vary more widely with the performance of specific assets in our portfolio and cause our general and administrative expenses to constitute a greater percentage of our revenue.

•We may fund distributions from any source, including, without limitation, offering proceeds or borrowings. Distributions paid through ~~March 31,~~September 30, 2020 have been funded in part with debt financing, including advances from our advisor, and cash resulting from a waiver of asset management fees by our advisor. Distributions funded from sources other than our cash flow from operations will result in dilution to subsequent investors, reduce funds available for investment in assets and may reduce the overall return to our stockholders.

•Our advisor waived its asset management fee for the second and third quarters of 2017 and deferred its asset management fee from October 2017 through ~~March~~September 2020. If our advisor determines to no longer waive or defer certain fees owed to them, our ability to fund our operations may be adversely affected.

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Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

•Our policies do not limit us from incurring debt until our aggregate borrowings would exceed 75% of the cost (before deducting depreciation or other non-cash reserves) of our tangible assets, and we may exceed this limit with the approval of the conflicts committee of our board of directors. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of our stockholders’ investment.

•We have debt obligations with variable interest ~~rates and may incur additional variable rate debt in the future.~~rates. The interest and related payments will vary with the movement of LIBOR or other indexes. Increases in the indexes could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

•We depend on tenants for the revenue generated by our real estate investments and, accordingly, the revenue generated by our real estate investments is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in occupancy and/or lower rental rates, making it more difficult for us to meet any debt service obligations we have incurred and limiting our ability to pay distributions to our stockholders.

•Our real estate investments may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. These events could make it more difficult for us to meet debt service obligations and limit our ability to pay distributions to our stockholders.

•We cannot predict with any certainty how much, if any, of our distribution reinvestment plan proceeds will be available for general corporate purposes including, but not limited to: the repurchase of shares under our share redemption program; capital expenditures, tenant improvement costs and leasing costs related to any real estate properties we acquire; reserves required by any financings of real estate investments; and the repayment of debt. If such funds are not available from our distribution reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program.

•Our share redemption program only provides for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program, and collectively “special redemptions”). The dollar amounts available for such redemptions are determined by the board of directors and may be adjusted from time to time. The dollar amount limitation for such redemptions for the calendar year 2020 iswas $1.0 million in the aggregate, of which ~~$0.1~~$0.2 million was used for such special redemptions from January through ~~April~~July 2020. On August 5, 2020, our board of directors established a new dollar amount limitation under our share redemption program for the remainder of the calendar year 2020 of $200,000. This reduced dollar amount limitation was effective for and included redemptions for the month of August 2020. Our share redemption program does not provide for ordinary redemptions and can provide no assurances, when, if ever, we will provide for redemptions other than special redemptions.

All forward-looking statements should be read in light of the risks identified herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, all filed with the Securities and Exchange Commission (the “SEC”).

Overview

We were formed on January 12, 2015 as a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) beginning with the taxable year ended December 31, 2015 and we intend to continue to operate in such a manner. Substantially all of our business is conducted through our Operating Partnership, of which we are the sole general partner. Subject to certain restrictions and limitations, our business is externally managed by our advisor pursuant to an advisory agreement. KBS Capital Advisors manages our operations and our portfolio of core real estate properties. KBS Capital Advisors also provides asset-management, marketing, investor-relations and other administrative services on our behalf. Our advisor acquired 20,000 shares of our Class A common stock for an initial investment of $200,000. We have no paid employees.

We commenced a private placement offering exempt from registration pursuant to Rule 506(b) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), on June 11, 2015, pursuant to which we offered a maximum of $105,000,000 of shares of our Class A common stock for sale to accredited investors, of which $5,000,000 of Class A shares were offered pursuant to our distribution reinvestment plan. We ceased offering shares in the primary portion of our private offering on April 27, 2016 and processed subscriptions for the primary portion of the private offering dated on or prior to April 27, 2016 through May 30, 2016. KBS Capital Markets Group LLC, an affiliate of our advisor, served as the dealer manager of the offering pursuant to a dealer manager agreement.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)~~

We sold 8,548,972 shares of our Class A common stock for gross offering proceeds of $76.8 million in our initial private offering, including 74,744 shares of our Class A common stock under our distribution reinvestment plan for gross offering proceeds of $0.7 million.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

On February 4, 2015, we filed a registration statement on Form S-11 with the SEC to register an initial public offering to offer a maximum of $1,500,000,000 in shares of common stock for sale to the public in the primary offering, consisting of two classes of shares: Class A and Class T and a maximum of $800,000,000 in both classes of shares of our common stock pursuant to our distribution reinvestment plan. The SEC declared our registration statement effective on April 28, 2016 and we retained KBS Capital Markets Group LLC to serve as the dealer manager of the initial public offering. We terminated our primary initial public offering effective June 30, 2017. We ~~are continuing to offer shares of common stock pursuant to~~terminated our ~~publicly registered~~ distribution reinvestment plan ~~offering.~~offering effective August 20, 2020.

We sold 122,721 and 270,415 shares of Class A and Class T common stock in the initial primary public offering, respectively, for aggregate gross offering proceeds of $3.9 million. ~~As of March 31, 2020, we had~~We sold ~~855,475~~883,256 and ~~38,768~~41,030 shares of Class A and Class T common stock under our distribution reinvestment plan, respectively, for aggregate gross offering proceeds of ~~$8.2~~$8.5 million.

On October 3, 2017, we launched a second private placement offering exempt from registration pursuant to Rule 506(c) of Regulation D of the Securities Act pursuant to which offered a maximum of $1,000,000,000 in shares of our Class A common stock to accredited investors. Prior to the launch of the second private placement offering, on September 29, 2017, we entered into a dealer manager agreement (the “NCPS Dealer Agreement”) with KBS Capital Advisors and North Capital Private Securities Corporation (“NCPS”) in connection with the second private placement offering. In December 2019, in connection with its consideration of strategic alternatives for us, our board of directors determined to suspend the second private ~~offering. As of March 31, 2020, we had~~offering and terminated the second private offering on August 5, 2020. We sold 612,272 shares of Class A common stock in the second private offering for aggregate gross offering proceeds of $5.5 million.

As of ~~March 31,~~September 30, 2020, we had redeemed ~~422,286~~446,853 and 2,245 Class A and Class T shares, respectively, for ~~$3.5~~$3.8 million.

We have used substantially all of the net proceeds from our offerings to invest in a portfolio of core real estate properties. We consider core properties to be existing properties with at least 80% occupancy. As of ~~March 31,~~September 30, 2020, we owned three office buildings and had made an investment in an unconsolidated joint venture.

~~In December 2019, we announced that~~On November 7, 2018, our board of directors ~~has~~ formed a special committee ~~composed our all~~comprised of ~~our~~the independent directors to evaluate various strategic ~~alternatives for us~~alternatives. With input from KBS Capital Advisors, and ~~has engaged a~~with the assistance of its own independent financial advisor, ~~to assist with this evaluation. Although~~ the special committee ~~engaged~~conducted a detailed assessment of our portfolio, taking into account the prevailing conditions of the real estate and financial ~~advisor~~markets and the economic conditions in the submarkets where our properties are located, the minimal amount of capital raised in our offerings, which was substantially impacted by regulatory changes, and subsequent inability to ~~assist us~~acquire a diverse portfolio of investments resulting in the fixed costs associated with managing a public REIT and the portfolio of real estate investments being a greater percentage of our net operating income. Based upon the special committee’s assessment and recommendation, in August of 2020, our board of directors determined that it is in our best interests and that of our stockholders to pursue a liquidation strategy through asset sales. Following this determination, the special committee directed KBS Capital Advisors, with the ~~exploration~~assistance of ~~strategic alternatives~~the independent financial advisor of the special committee, to develop a plan of liquidation for ~~us, we~~approval by our board of directors and submission to our stockholders. We initially expected to present a plan of liquidation for a vote of our stockholders within six months from our determination to pursue a liquidation strategy. However, as a result of the current adverse market conditions caused by the civil unrest and disruption in Portland and Chicago, where several of our properties are ~~not obligated~~located, and the ongoing uncertainty and business disruptions related to ~~enter into~~the COVID-19 pandemic, our board of directors believes it is in the best interest of our stockholders to delay any ~~particular transaction or any transaction at all.~~proposal to liquidate. We remain committed to pursuing a liquidation strategy when market conditions improve.

We elected to be taxed as a REIT under the Internal Revenue Code, beginning with the taxable year ended December 31, 2015. If we meet the REIT qualification requirements, we generally will not be subject to federal income tax on the income that we distribute to our stockholders each year. If we fail to qualify for taxation as a REIT in any year after electing REIT status, our income will be taxed at regular corporate rates, and we may be precluded from qualifying for treatment as a REIT for the four-year period following our failure to qualify. Such an event could materially and adversely affect our net income and cash available for distribution to our stockholders. However, we are organized and will operate in a manner that will enable us to qualify for treatment as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2015, and we will continue to operate so as to remain qualified as a REIT for federal income tax purposes thereafter.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Market Outlook – Real Estate and Real Estate Finance Markets

Volatility in global financial markets, ~~and~~ changing political environments and civil unrest can cause fluctuations in the performance of the U.S. commercial real estate markets. Possible future declines in rental rates, slower or potentially negative net absorption of leased space and expectations of future rental concessions, including free rent to renew tenants early, to retain tenants who are up for renewal or to attract new tenants, may result in decreases in cash flows from investment properties. Further, revenues from our properties could decrease due to a reduction in occupancy (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases), rent deferrals or abatements, tenants being unable to pay their rent and/or lower rental rates. To the extent there are increases in the cost of financing due to higher interest rates, this may cause difficulty in refinancing debt obligations at terms as favorable as the terms of existing indebtedness. Market conditions can change quickly, potentially negatively impacting the value of real estate investments. Management continuously reviews our investment and debt financing strategies to optimize our portfolio and the cost of our debt exposure. Most recently, the outbreak of COVID-19 has had a negative impact on the real estate market as discussed below.

COVID-19 Pandemic and Portfolio Outlook

Since initially being reported in December 2019, COVID-19 has spread around the world, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the pandemic ~~is rapidly evolving~~continues to evolve and many countries, states and localities, including states and localities in the United States, have reacted bywith various containment and mitigation efforts, including instituting quarantines, ~~mandating business~~“shelter-in-place” and “stay-at-home” orders, travel restrictions, restrictions on businesses and school ~~closures and restricting travel.~~closures. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including the U.S. office real estate industry and the industries of our tenants, directly or indirectly. The ~~rapid development and~~ fluidity of the COVID-19 pandemic ~~precludes~~continues to preclude any prediction as to the ultimate adverse impact the pandemic may have on our business, financial condition, results of operations and cash flows.

~~In the near term many~~Many of our tenants ~~will suffer~~have suffered reductions in ~~revenue~~revenue. Some of our tenants have sought rent deferrals or abatements and, depending upon the duration of ~~quarantines~~the pandemic, the various measures imposed to help control the spread of the virus and the corresponding economic slowdown, ~~some of our~~these tenants ~~have~~ or ~~will~~additional tenants may seek rent deferrals or abatements in future periods or become unable to pay their rent. ~~During April, we have seen an impact on our rental income. As~~Rent collections for the third quarter of ~~May 5,~~2020 were 89%. Further, since October 1, 2020, we had collected 85% of April rent charges, including billings related to tenant reimbursements, which is a reduction in collections of 8% from the first quarter monthly average. Further, as of May 7, 2020, we had received additional short-term rent relief requests from ~~36% of~~a few tenants, in the form of rent deferral requests or abatements, which we are evaluating on an individual basis. ~~Any~~Prior rent relief arrangements have been, and any future rent relief arrangements are expected to be structured as temporary short-term deferrals of base rent that will be paid back over time. Not all tenant requests will ultimately result in modified agreements, nor are we forgoing our contractual rights under our lease agreements. In most cases, it is in our best interest to help our tenants remain in business and reopen when shelter-in-place orders or other mandated closures are lifted. If tenants default on their rent and vacate, the ability to re-lease this space is likely to be more difficult if the economic slowdown continues and any long term impact of this situation, even after an economic rebound, remains unclear. ~~April~~Current collections and rent relief requests to-date may not be indicative of collections or requests in any future period. The impact of the COVID-19 pandemic on our rental income for the ~~second~~fourth quarter of 2020 and thereafter cannot, however, be determined at present.

In addition to the direct impact on our rental income we may also need to recognize additional impairment charges at our properties to the extent rental projections continue to decline at our properties. In response to a decrease in cash flow projections ~~related to~~as a result of changes in leasing projections due in part to the impact of COVID-19 on our leasing efforts and perceived ability to collect rent from tenants at one of our wholly owned properties and at the property owned by our joint venture, during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we recognized impairment charges at the Institute Property and equity in loss of unconsolidated joint venture, which included an impairment related to the property owned by the joint venture.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we or our tenants operate could have material and adverse effects on our business, financial condition, results of operations and cash flows due to, among other factors: health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease; disruption in supply and delivery chains; a general decline in business activity and demand for real estate; reduced economic activity, general economic decline or recession, which may impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations; difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and the potential negative impact on the health of personnel of our advisor, particularly if a significant number of our advisor’s employees are impacted, which would result in a deterioration in our ability to ensure business continuity during a disruption.

The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants ~~will depend on future developments, which are highly~~remains uncertain and cannot be predicted with confidence ~~including~~and will depend on the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows. ~~Our board of directors is evaluating the payment of future monthly distributions in~~In response to the uncertainty caused by the ongoing COVID-19 pandemic and ~~may suspend or reduce future distributions.~~its uncertain impact on our operations and those of our tenants, our board of directors has determined to adjust our distribution policy. Commencing with the fourth quarter of 2020, our board of directors expects to consider and declare quarterly distributions based on a single quarterly record date.

Our business, like all businesses, is being impacted by the uncertainty regarding the COVID-19 pandemic, the effectiveness of policies introduced to neutralize the disease, and the impact of those policies on economic activity. We believe the current challenging economic circumstances will be a difficult environment in which to continue to create value in our portfolio consistent with our core-plus investment strategy. The properties in our portfolio were acquired to provide an opportunity for us to achieve more significant capital appreciation by increasing occupancy, negotiating new leases with higher rental rates and/or executing enhancement projects, all of which we believe will be more difficult as a result of the impacts of COVID-19 on the economy. While the majority of our tenants have continued to pay rent, the weakening macroeconomic conditions have negatively impacted many of our tenants. As of ~~March 31,~~September 30, 2020, our portfolio was ~~90.6%~~91.5% occupied with a weighted-average lease term of ~~3.5~~3.2 years. Due to the impact of COVID-19, we believe the leasing environment will be challenged in the short-term and the time to lease up and stabilize a property will be extended. More specifically, our office property in Chicago will likely take more time to stabilize than previously anticipated.

Liquidity and Capital Resources

Our principal demands for funds during the short and long-term are and will be for operating expenses, capital expenditures and general and administrative expenses; payments under debt obligations; redemptions of common stock; capital commitments; and payments of distributions to stockholders. Our primary sources of capital for meeting our cash requirements are as follows:

•Cash flow generated by our real estate investments;

•Debt financings (including amounts currently available under an existing term loan); and

•Proceeds from the sale of our real estate ~~properties; and~~

•~~Proceeds from common stock issued under our dividend reinvestment plan.~~properties.

Our investments in real estate generate cash flow in the form of rental revenues and tenant reimbursements, which are reduced by operating expenditures, capital expenditures, debt service payments, the payment of asset management fees and corporate general and administrative expenses. Cash flow from operations from real estate investments will be primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectibility of rent and operating recoveries from our tenants and how well we manage our expenditures, all of which may be adversely effected by the impact of the COVID-19 pandemic as discussed above.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Our advisor advanced funds to us, which are non-interest bearing, for distribution record dates through the period ended May 31, 2016. We are only obligated to repay our advisor for its advance if and to the extent that:

(i)Our modified funds from operations (“MFFO”), as such term is defined by the Institute for Portfolio Alternatives and interpreted by us, for the immediately preceding month exceeds the amount of distributions declared for record dates of such prior month (an “MFFO Surplus”), and we will pay our advisor the amount of the MFFO Surplus to reduce the principal amount outstanding under the advance, provided that such payments shall only be made if management in its sole discretion expects an MFFO Surplus to be recurring for at least the next two calendar quarters, determined on a quarterly basis; or

In determining whether Excess Proceeds are available to repay the advance, our conflicts committee will consider whether cash on hand could have been used to reduce the amount of third-party financing provided to us. If such cash could have been used instead of third-party financing, the third-party financing proceeds will be available to repay the advance.

We expect that our debt financing and other liabilities will be between 45% and 65% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves). Though this is our target leverage, our charter does not limit us from incurring debt until our aggregate borrowings would exceed 300% of our net assets (before deducting depreciation and other non-cash reserves), which is effectively 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), though we may exceed this limit under certain circumstances. To the extent financing in excess of this limit is available at attractive terms, the conflicts committee may approve debt in excess of this limit. As of ~~March 31,~~September 30, 2020, we had mortgage debt obligations in the aggregate principal amount of ~~$94.8~~$91.8 million and our aggregate borrowings were approximately 60% of our net assets before deducting depreciation and other non-cash reserves. As of ~~March 31,~~September 30, 2020, we had ~~$10.0~~$13.0 million of revolving debt available for immediate future disbursement, subject to certain conditions set forth in the loan agreements. Reductions in property values related to the impact of the COVID-19 pandemic may limit our ability to draw on the revolving commitment under our term loan due to covenants described in the loan agreement.

In addition to making investments in accordance with our investment objectives, we have used a portion of our capital resources to make certain payments to our advisor, the affiliated dealer manager of our initial private offering and initial public offering and our affiliated property manager. These payments include payments to our dealer manager for selling commissions, the dealer manager fee and the stockholder servicing fee, and payments to the dealer manager and our advisor for reimbursement of certain organization and other offering expenses. See “—Organization and Offering Costs” below.

We make payments to our advisor in connection with the management of our assets and costs incurred by our advisor in providing certain services to us. Through August 8, 2017, the asset management fee payable to our advisor was a monthly fee equal to one-twelfth of 1.6% of the cost of our investments, less any debt secured by or attributable to our investments. As of August 9, 2017, the asset management fee is a monthly fee payable to our advisor in an amount equal to one-twelfth of 1.0% of the cost of our investments including the portion of the investment that is debt financed. The cost of our real property investments is calculated as the amount paid or allocated to acquire the real property, plus budgeted capital improvement costs for the development, construction or improvements to the property once such funds are disbursed pursuant to a final approved budget and fees and expenses related to the acquisition, but excluding acquisition fees paid or payable to our advisor. In the case of investments made through joint ventures, the asset management fee is determined based on our proportionate share of the underlying investment. Our advisor waived asset management fees for the second and third quarters of 2017 and deferred payment of asset management fees related to the periods from October 2017 through ~~March 31,~~September 30, 2020. Our advisor’s waiver and deferral of its asset management fees resulted in additional cash being available to fund our operations. If our advisor chooses to no longer waive or defer such fees, our ability to fund our operations may be adversely affected. While we consider strategic alternatives, we have reduced the distribution rate beginning January 2020 in order to set the distribution rate at a level that is fully sustainable with cash flows from operations and to preserve our estimated value per share of $8.43.

We also pay fees to KBS Management Group, LLC (the “Co-Manager”), an affiliate of our advisor, pursuant to property management agreements with the Co-Manager, for certain property management services at our properties.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

We elected to be taxed as a REIT and to operate as a REIT beginning with our taxable year ended December 31, 2015. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare cash distributions based on daily record dates and pay cash distributions on a monthly basis. We have not established a minimum distribution level.

Under our charter, we are required to limit our total operating expenses to the greater of 2% of our average invested assets or 25% of our net income for the four most recently completed fiscal quarters, as these terms are defined in our charter, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. Operating expenses for the four fiscal quarters ended ~~March 31,~~September 30, 2020 ~~did not exceed~~exceeded the charter-imposed ~~limitation.~~limitation; however, the conflicts committee determined that the relationship of our operating expenses to our average invested assets was justified as we are now entering our liquidation stage and have incurred additional legal and financial advisor expenses as a result and have already sold one of our real estate properties.

Cash Flows from Operating Activities

As of ~~March 31,~~September 30, 2020, we owned three office properties and had made an investment in an unconsolidated joint venture. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, net cash ~~used in~~provided by operating activities was ~~$0.6~~$1.7 million and $2.1 million, respectively. We expect cash flows provided by operating activities to decrease in future periods to the extent our tenants are impacted by COVID-19 and defer rent payments or are unable to pay rent.

Cash Flows from Investing Activities

Net cash provided by investing activities was ~~$22.8~~$22.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and consisted of the following:

•$23.6 million of net proceeds from the sale of Von Karman Tech Center; ~~and~~offset by

•$~~0.8~~1.3 million of cash used for improvements to real estate.

Cash Flows from Financing Activities

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, net cash used in financing activities was ~~$24.3~~$28.1 million and consisted primarily of the following:

•$~~23.7~~26.7 million of principal payments on notes payable; ~~and~~

•$~~0.6~~1.2 million of net cash distributions, after giving effect to distributions reinvested by stockholders of ~~$0.3 million.~~$0.5 million; and

•$0.2 million of payments to redeem common stock.

Contractual Obligations

The following is a summary of our contractual obligations as of ~~March 31,~~September 30, 2020 (in thousands).


				Payments Due During the Years Ending December 31,													Payments Due During the Years Ending December 31,
Contractual Obligations	Contractual Obligations	Total		Remainder of 2020		2021-2022		2023-2024		Contractual Obligations	Total		Remainder of 2020		2021-2022		2023-2024
Outstanding debt obligations ⁽¹⁾	Outstanding debt obligations ⁽¹⁾	$	94,831	$	49,150	$	—	$	45,681	Outstanding debt obligations (1)	$	91,831	$	46,150	$	—	$	45,681
Interest payments on outstanding debt obligations ⁽²⁾	Interest payments on outstanding debt obligations ⁽²⁾	5,845		2,612		3,097		136		Interest payments on outstanding debt obligations (2)	$	5,630	$	877	$	4,671	$	82

_____________________

⁽¹⁾ Amounts include principal payments only. Subsequent to September 30, 2020, the Company exercised its extension option under its term loan and extended the maturity date to November 9, 2021.

⁽²⁾ Projected interest payments are based on the outstanding principal amount, maturity date and contractual interest rate in effect as of ~~March 31,~~September 30, 2020 (consisting of the contractual interest ~~rate)~~rate and the effect of interest rate swaps). We incurred interest expense of ~~$1.0~~$2.9 million, excluding amortization of deferred financing costs totaling ~~$0.1~~$0.2 million and unrealized losses on derivative instruments of ~~$1.8~~$1.2 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations

Overview

As of ~~March 31,~~September 30, 2019, we owned four office ~~properties. Subsequent to March 31, 2019, we sold one office property~~properties and ~~made~~ an investment in an unconsolidated joint venture. Subsequent to September 30, 2019, we sold one office property. As a result, as of ~~March 31,~~September 30, 2020, we owned three office properties and had made an investment in an unconsolidated joint venture. The following table provides summary information about our results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019 (dollar amounts in thousands):

Comparison of the three months ended ~~March 31,~~September 30, 2020 versus the three months ended ~~March 31,~~September 30, 2019


		For the Three Months Ended March 31,						Increase (Decrease)		Percentage Change		$ Change Due to Dispositions ⁽¹⁾				$ Change Due to Properties Held Throughout Both Periods ⁽²⁾	For the Three Months Ended September 30,				Increase (Decrease)		Percentage Change			$ Change Due to Dispositions (1)		$ Change Due to Properties Held Throughout Both Periods (2)
		2020		2019															2020								$ Change Due to Properties Held Throughout Both Periods (2)
Rental income	Rental income	$	4,583	$	5,241	$	(658)	(13)	%	$	(447)	$	(211)	Rental income	$	4,005	$	5,294	$	(1,289)	(24)	%		$	(572)				$	(717)
Other operating income	Other operating income	34		76		(42)		(55)	%	(21)		(21)		Other operating income	53		68		(15)		(22)	%	(17)			2
Operating, maintenance and management costs	Operating, maintenance and management costs	954		1,082		(128)		(12)	%	(124)		(4)		Operating, maintenance and management costs	912		1,121		(209)		(19)	%	(171)			(38)
Property management fees and expenses to affiliate	Property management fees and expenses to affiliate	35		41		(6)		(15)	%	(7)		1		Property management fees and expenses to affiliate	32		40		(8)		(20)	%	(8)			—
Real estate taxes and insurance	Real estate taxes and insurance	733		777		(44)		(6)	%	(61)		17		Real estate taxes and insurance	590		715		(125)		(17)	%	(77)			(48)
Asset management fees to affiliate	Asset management fees to affiliate	435		461		(26)		(6)	%	(44)		18		Asset management fees to affiliate	432		483		(51)		(11)	%	(55)			4
General and administrative expenses	General and administrative expenses	473		375		98		26	%	n/a		n/a		General and administrative expenses	652		491		161		33	%	n/a			n/a
Depreciation and amortization	Depreciation and amortization	2,166		2,200		(34)		(2)	%	(140)		106		Depreciation and amortization	1,933		2,153		(220)		(10)	%	(130)			(90)
Impairment charges on real estate		5,750		—		5,750		100	%	—		5,750

Interest expense	Interest expense	2,888		1,976		912		46	%	(241)		1,153		Interest expense	607		1,596		(989)		(62)	%	(203)			(786)
Interest and other income	Interest and other income	12		14		(2)		(14)	%	n/a		n/a		Interest and other income	1		17		(16)		(94)	%	n/a			n/a
Gain on sale of real estate, net		5,245		—		5,245		100	%	5,245		—
Equity in loss of unconsolidated joint venture		(469)		—		(469)		(100)	%	n/a		n/a
Loss from extinguishment of debt		(29)		—		(29)		(100)	%	(29)		—

Equity in (loss) income of unconsolidated joint venture														Equity in (loss) income of unconsolidated joint venture	(402)		13		(415)		(3,192)	%	n/a			n/a

_____________________

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended ~~March 31,~~September 30, 2020 compared to the three months ended ~~March 31,~~September 30, 2019 related to real estate investments disposed of on or after ~~January~~July 1, 2019.

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended ~~March 31,~~September 30, 2020 compared to the three months ended ~~March 31,~~September 30, 2019 related to real estate investments owned by us throughout both periods presented.

Rental income decreased from ~~$5.2~~$5.3 million for the three months ended ~~March 31,~~September 30, 2019 to ~~$4.6~~$4.0 million for the three months ended ~~March 31,~~September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020, a decrease in occupancy rate due to lease expirations and increase in the write-off of receivables deemed not probable of collection during the three months ended September 30, 2020 as a result of the COVID-19 pandemic at properties held throughout both periods. We expect rental income to fluctuate based on the occupancy at our existing properties and uncertainty and business disruptions as a result of the outbreak of COVID-19. See “- Liquidity and Capital Resources” for our discussion on the impact on our business as a result of the outbreak of COVID-19.

Operating, maintenance, and management costs decreased from $1.1 million for the three months ended September 30, 2019 to $0.9 million for the three months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. We expect operating, maintenance, and management costs to fluctuate based on the occupancy at our existing properties.

Real estate taxes and insurance decreased from $0.7 million for the three months ended September 30, 2019 to $0.6 million for the three months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020 and an ~~adjustment~~increase in a property tax refund received during the three months ended September 30, 2020 at a property held throughout both periods. We expect real estate taxes and insurance to ~~rental~~increase in future periods as a result of general inflation and general increases due to future property tax reassessments.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Asset management fees to affiliate decreased slightly from $0.5 million for the three months ended September 30, 2019 to $0.4 million for the three months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. Asset management fees beginning October 2017 through September 30, 2020 were accrued but payment was deferred by our advisor. We expect asset management fees to increase in future periods as a result of any improvements we make to our properties. As of September 30, 2020, we had accrued and deferred payment of $5.5 million of asset management fees related to October 2017 through September 30, 2020.

General and administrative expenses increased from $0.5 million for the three months ended September 30, 2019 to $0.7 million for the three months ended September 30, 2020, primarily due to an increase in legal fees related to our plan of liquidation, partially offset by professional fees incurred related to the assessment of strategic alternatives during the three months ended September 30, 2019.

Depreciation and amortization decreased from $2.2 million for the three months ended September 30, 2019 to $1.9 million for the three months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. We expect depreciation and amortization to increase 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.

Interest expense decreased from $1.6 million for the three months ended September 30, 2019 to $0.6 million for the three months ended September 30, 2020. Included in interest expense is the amortization of deferred financing costs of $0.1 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively. During the three months ended September 30, 2020 and 2019, interest expense (including gains and losses) incurred as a result of our derivative instruments, increased interest expense by $19,000 and $0.2 million, respectively. The decrease in interest expense is primarily due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges, a decrease in one-month LIBOR and its impact on interest expense related to our variable rate debt and a decrease in interest expense due to principal pay downs in connection with disposition of Von Karman Tech Center on January 17, 2020. Our interest expense in future periods will also vary based on fluctuations in one-month LIBOR (for our unhedged variable rate debt) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our debts and any debt repayments we make.

During the three months ended September 30, 2020, we recognized $0.4 million of equity loss in unconsolidated joint venture, which included $0.3 million of loss recorded related to a put option exercised by the 210 W. Chicago joint venture partner, which required us to acquire the joint venture partner’s 50% equity interest for $1.1 million on October 5, 2020 pursuant to the joint venture agreement. During the three months ended September 30, 2019, we recognized $13,000 of equity in income of unconsolidated joint venture.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Comparison of the nine months ended September 30, 2020 versus the nine months ended September 30, 2019


	For the Nine Months Ended September 30,				Increase (Decrease)		Percentage Change		$ Change Due to Dispositions (1)		$ Change Due to Properties Held Throughout Both Periods (2)
	2020		2019
Rental income	$	13,212	$	15,289	$	(2,077)	(14)	%	$	(1,582)	$	(495)
Other operating income	131		225		(94)		(42)	%	(59)		(35)
Operating, maintenance and management costs	2,774		3,411		(637)		(19)	%	(452)		(185)
Property management fees and expenses to affiliate	102		122		(20)		(16)	%	(24)		4
Real estate taxes and insurance	2,029		2,234		(205)		(9)	%	(211)		6
Asset management fees to affiliate	1,293		1,412		(119)		(8)	%	(153)		34
General and administrative expenses	1,785		1,296		489		38	%	n/a		n/a
Depreciation and amortization	6,089		6,522		(433)		(7)	%	(414)		(19)
Interest expense	4,344		6,054		(1,710)		(28)	%	(809)		(901)
Impairment charges on real estate	5,750		—		5,750		100	%	—		5,750
Interest and other income	14		50		(36)		(72)	%	n/a		n/a
Gain on sale of real estate, net	5,245		—		5,245		100	%	5,245		—
Equity in (loss) income of unconsolidated joint venture	(837)		13		(850)		(6,538)	%	n/a		n/a
Loss from extinguishment of debt	(29)		—		(29)		(100)	%	(29)		—

_____________________

(1) Represents the dollar amount increase (decrease) for ~~lease payments that were~~the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 related to real estate investments disposed of on or after January 1, 2019.

(2) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 related to real estate investments owned by us throughout both periods presented.

Rental income decreased from $15.3 million for the nine months ended September 30, 2019 to $13.2 million for the nine months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020, and an increase in the write-off of receivables deemed not probable of collection ~~due to~~during the ~~impact~~nine months ended September 30, 2020 as a result of the COVID-19 pandemic at properties held throughout both periods. We expect rental income to decrease in future periods due to the sale of Von Karman Tech Center and to fluctuate based on the occupancy at our existing properties and uncertainty and business disruptions as a result of the outbreak of COVID-19. See “- Liquidity and Capital Resources” for our discussion on the impact on our business as a result of the outbreak of COVID-19.

Operating, maintenance, and management costs decreased ~~slightly~~ from ~~$1.1~~$3.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~$1.0~~$2.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, ~~2020.~~2020 and a decrease in repair and maintenance costs at properties held throughout both periods. We expect operating, maintenance, and management costs to decrease in future periods due to the sale of Von Karman Tech Center and to fluctuate based on the occupancy at our existing properties.

Real estate taxes and insurance decreased ~~slightly~~ from ~~$0.8~~$2.2 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~$0.7~~$2.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. We expect real estate taxes and insurance to decrease in future periods due to the sale of Von Karman Tech ~~Center.~~Center and to increase in future periods as a result of general inflation and general increases due to future property tax reassessments.

Asset management fees to affiliate decreased slightly from $1.4 million for the nine months ended September 30, 2019 to $1.3 million for the nine months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. We expect asset management fees to decrease in future periods due to the sale of Von Karman Tech Center and to increase in future periods as a result of any improvements we make to our properties. As of September 30, 2020, we had accrued and deferred payment of $5.5 million of asset management fees related to October 2017 through September 30, 2020.

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PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

~~Asset management fees to affiliate decreased slightly~~General and administrative expenses increased from ~~$0.5~~$1.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 to ~~$0.4~~$1.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, primarily due to expensing of pre-development costs for a real estate project and an increase in legal fees related to our plan of liquidation, partially offset by professional fees incurred related to the assessment of strategic alternatives during the nine months ended September 30, 2019.

Depreciation and amortization decreased from $6.5 million for the nine months ended September 30, 2019 to $6.1 million for the nine months ended September 30, 2020, primarily due to the sale of Von Karman Tech Center on January 17, 2020. Asset management fees beginning October 2017 through March 31, 2020 were accrued but payment was deferred by our advisor. We expect asset management fees to decrease in future periods due to the sale of Von Karman Tech Center. As of March 31, 2020, we had accrued and deferred payment of $4.6 million of asset management fees related to October 2017 through March 31, 2020.

General and administrative expenses increased from $0.4 million for the three months ended March 31, 2019 to $0.5 million for the three months ended March 31, 2020. These general and administrative costs consisted primarily of portfolio legal fees, board of directors fees, printer costs, state and local income tax and internal audit compensation.

~~Depreciation and amortization remained consistent at $2.2 million for the three months ended March 31, 2020 and 2019.~~ We expect depreciation and amortization to decrease in future periods due to the sale of Von Karman Tech Center and to increase 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.

Interest expense decreased from $6.1 million for the nine months ended September 30, 2019 to $4.3 million for the nine months ended September 30, 2020. Included in interest expense is the amortization of deferred financing costs of $0.2 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, interest expense (including gains and losses) incurred as a result of our derivative instruments, increased interest expense by $2.1 million and $1.9 million, respectively. The decrease in interest expense is primarily due to principal pay downs in connection with disposition of Von Karman Tech Center on January 17, 2020 and a decrease in one-month LIBOR and its impact on interest expense related to our variable rate debt, offset by an increase in interest expense due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges. In general, we expect interest expense to decrease in the future as a result of principal pay downs in connection with the sale of Von Karman Tech Center. Our interest expense in future periods will also vary based on fluctuations in one-month LIBOR (for our unhedged variable rate debt) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our debts and any debt repayments we make.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we recorded non-cash impairment charges of $5.8 million to write down the carrying value of the Institute Property, an office property located in Chicago, Illinois, to its estimated fair value as a result of changes in cash flow estimates including a change in leasing projections, which triggered the future estimated undiscounted cash flows to be lower than the net carrying value of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in longer lease-up periods and a decrease in projected rental rates and was further impacted by the COVID-19 pandemic which we believe will result in additional challenges to release the vacant space. Further, tenants at the Institute Property have been adversely impacted by the ~~stay at home order issued for~~measures put in place to control the ~~City~~spread of ~~Chicago~~COVID-19 and many tenants have requested rent concessions as their businesses have been severely impacted. We did not record any impairment charges on our real estate properties during ~~three~~nine months ended ~~March 31,~~September 30, 2019.

Interest expense increased from $2.0 million for the three months ended March 31, 2019 to $2.9 million for the three months ended March 31, 2020. Included in interest expense is the amortization of deferred financing costs of $0.1 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively. During the three months ended March 31, 2020 and 2019, interest expense (including gains and losses) incurred as a result of our derivative instruments, increased interest expense by $1.9 million and $0.6 million, respectively. The increase in interest expense is primarily due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges, offset by a decrease in interest expense due to principal pay downs in connection with disposition of Von Karman Tech Center on January 17, 2020. In general, we expect interest expense to decease in the future as a result of principal pay downs in connection with the sale of Von Karman Tech Center. Our interest expense in future periods will also vary based on fluctuations in one-month LIBOR (for our unhedged variable rate debt) and our level of future borrowings, which will depend on the availability and cost of debt financing, draws on our debts and any debt repayments we make.

We recognized a gain on sale of real estate of $5.2 million related to disposition of Von Karman Tech Center during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. We did not recognize any gain on sale of real estate during the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we recognized ~~$0.5~~$0.8 million of equity in loss of unconsolidated joint venture, which included $0.5 million of impairment related to our investment in the joint ~~venture. The impairment was~~venture and $0.3 million of loss recorded related to a ~~result of~~put option exercised by the ~~decline in fair value of the underlying~~ 210 W. Chicago ~~property due~~joint venture partner, which required us to ~~changes~~acquire the joint venture partner’s 50% equity interest for $1.1 million on October 5, 2020 pursuant to the joint venture agreement. During the nine months ended September 30, 2019, we recognized $13,000 of equity in ~~cash flow estimates including a change in leasing projections, which triggered future estimated undiscounted cash flows to be lower than the net carrying value~~income of the property. The decrease in cash flow projections was primarily due to reduced demand for the office space at the property resulting in a decrease in projected rental rates as leases mature. Further, tenants at 210 W. Chicago have been adversely impacted by the stay at home order issued for the City of Chicago and many tenants have requested rent concessions as their businesses have been severely impacted.unconsolidated joint venture.

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Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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. 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, by excluding acquisition costs (to the extent such costs have been recorded as operating expenses) as well as non-cash items such as straight line rental revenue, MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs which typically have limited lives with short and defined acquisition periods and targeted exit strategies. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes.

FFO and MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures.

Further, during the current period of uncertainty and business disruptions as a result of the outbreak of COVID-19, FFO and MFFO are much more limited measures of future performance and dividend sustainability. See “-Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19 Pandemic and Portfolio Outlook” for a discussion of the impact of the outbreak of COVID-19 on our business.

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Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, unrealized ~~gain~~(gains) losses on derivative instruments and loss from extinguishment of debt 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;

•Unrealized (gains) losses on derivative instruments. These adjustments include unrealized (gains) losses from mark-to-market adjustments on interest rate swaps. The change in fair value of interest rate swaps not designated as a hedge are non-cash adjustments recognized directly in earnings and are included in interest expense. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the economic impact of our interest rate swap agreements; and

•Loss from extinguishment of debt. A loss from extinguishment of debt, which includes prepayment fees related to the extinguishment of debt, represents the difference between the carrying value of any consideration transferred to the lender in return for the extinguishment of a debt and the net carrying value of the debt at the time of settlement. We have excluded the loss from extinguishment of debt in our calculation of MFFO because these losses do not impact the current operating performance of our investments and do not provide an indication of future operating performance.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

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 nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods.


		For the Three Months Ended March 31,							For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2020		2019			2020		2019		2020		2019
Net loss	Net loss	$	(4,058)	$	(1,581)	Net loss	$	(1,501)	$	(1,207)	$	(6,430)	$	(5,474)
Depreciation of real estate assets	Depreciation of real estate assets	1,145		1,051		Depreciation of real estate assets	1,100		1,098		3,341		3,206
Amortization of lease-related costs	Amortization of lease-related costs	1,021		1,149		Amortization of lease-related costs	833		1,055		2,748		3,316
Impairment charges on real estate	Impairment charges on real estate	5,750		—		Impairment charges on real estate	—		—		5,750		—
Gain on sale of real estate, net	Gain on sale of real estate, net	(5,245)		—		Gain on sale of real estate, net	—		—		(5,245)		—
Adjustment for investment in unconsolidated joint venture ⁽¹⁾	Adjustment for investment in unconsolidated joint venture ⁽¹⁾	566		—		Adjustment for investment in unconsolidated joint venture (1)	17		37		611		37
Remeasurement loss on unconsolidated joint venture (2)						Remeasurement loss on unconsolidated joint venture (2)	304		—		304		—
FFO	FFO	(821)		619		FFO	753		983		1,079		1,085
Straight-line rent and amortization of above- and below-market leases, net	Straight-line rent and amortization of above- and below-market leases, net	(87)		(501)		Straight-line rent and amortization of above- and below-market leases, net	(116)		(661)		(539)		(1,406)
Unrealized loss on derivative instruments		1,766		629
Unrealized (gain) loss on derivative instruments						Unrealized (gain) loss on derivative instruments	(420)		222		1,161		1,949
Loss from extinguishment of debt	Loss from extinguishment of debt	29		—		Loss from extinguishment of debt	—		—		29		—
Adjustment for investment in unconsolidated joint venture ⁽¹⁾	Adjustment for investment in unconsolidated joint venture ⁽¹⁾	(4)		—		Adjustment for investment in unconsolidated joint venture (1)	(3)		(5)		(11)		(5)
MFFO	MFFO	$	883	$	747	MFFO	$	214	$	539	$	1,719	$	1,623

_____________________

⁽¹⁾ Reflects adjustments to add back our noncontrolling interest share of the adjustments to convert our net loss attributable to common stockholders to FFO and MFFO for our equity investment in unconsolidated joint venture.

(2)

~~Table~~ Reflects the remeasurement loss as a result of ~~Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management’s Discussion and Analysis~~a change in control upon our purchase of ~~Financial Condition and Results~~the JV Partner’s 50% equity interest in the 210 W. Chicago Joint Venture on October 5, 2020, but was recognized as of ~~Operations (continued)~~

September 30, 2020 as the loss was deemed probable.

FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.

Organization and Offering Costs

Offering costs include all expenses incurred in connection with our offerings of securities. Organization costs include all expenses incurred in connection with our formation, including but not limited to legal fees and other costs to incorporate.

With respect to our public offering, our advisor and dealer manager generally paid our organization and offering expenses incurred in the primary portion of our initial public offering (other than selling commissions, dealer manager fees and stockholder servicing fees) directly.

We reimbursed our advisor, our affiliated dealer manager and their affiliates up to 1.0% of gross primary offering proceeds raised in our initial public offering for commercially reasonable organization and offering expenses. Our advisor, our affiliated dealer manager, and their affiliates were responsible for all organization and other offering expenses (which excludes selling commissions, dealer manager fees and stockholder servicing fees) related to the primary portion of our initial public offering to the extent they exceeded 1.0% of gross proceeds raised in the primary portion of our initial public offering. We did not reimburse our affiliated dealer manager for wholesaling compensation expenses.

During our initial private offering, we were obligated to reimburse our advisor, our affiliated dealer manager or their affiliates, as applicable, for organization and offering costs (excluding wholesaling compensation expenses) paid by them on our behalf. We recorded $1.5 million of offering costs (other than selling commissions and dealer manager fees) related to our initial private offering, all of which have been reimbursed to our advisor or its affiliates.

Our advisor has agreed to pay all offering expenses related to our second private placement offering directly on our behalf without reimbursement by us.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Through ~~March 31,~~September 30, 2020, our advisor and its affiliates had incurred organization and other offering costs (which exclude selling commissions, dealer manager fees and stockholder servicing fees) on our behalf in connection with the initial public offering of approximately $4.4 million. As of ~~March 31,~~September 30, 2020, we recorded $39,000 of organization and other offering expenses related to the initial public offering, which amounts represent our maximum liability for organization and other offering costs as of the termination of our primary initial public offering based on the limitation described above.

As of ~~March 31,~~September 30, 2020, KBS Capital Advisors had incurred $5.5 million in offering expenses on our behalf related to the second private placement offering. Our advisor has agreed to pay these expenses on our behalf without reimbursement by us.

Distributions

During our offering stage, and from time to time during our operational stage, we may not pay distributions solely from our cash flows from operations, in which case distributions may be paid in whole or in part from debt financing, including advances from our advisor, if necessary. Distributions declared, distributions paid and cash flows from operations were as follows for the first, ~~quarter~~second and third quarters of 2020 (in thousands, except per share amounts):


		Cash Distributions Declared⁽¹⁾		Cash Distribution Declared Per Class A Share^{(1) (2)}		Cash Distribution Declared Per Class T Share^{(1) (2)}		Cash Distributions Paid⁽³⁾													Cash Flows used in Operations			Cash Distributions Declared (1)				Cash Distribution Declared Per Class A Share (1) (2)			Cash Distribution Declared Per Class T Share (1) (2)		Cash Distributions Paid (3)						Cash Flow from Operating Activities
Period	Period											Cash			Reinvested			Total					Period							Cash			Reinvested		Total
First Quarter 2020	First Quarter 2020	$	644	$	0.063	$	0.063	$	627	$	269		$	896		$	(594)	First Quarter 2020	$	644		$	0.063			$	0.063				$	627	$	269	$	896	$	(594)
Second Quarter 2020																		Second Quarter 2020	643			0.063		0.063				453			190		643		1,350
Third Quarter 2020																		Third Quarter 2020	—			—		—				152			63		215		958
																			$	1,287		$	0.126	$	0.126			$	1,232		$	522	$	1,754	$	1,714

_____________________

⁽¹⁾ Distributions for the periods from January 1, 2020 through ~~March 31,~~June 30, 2020 were calculated at a monthly rate of $0.02107500 per share. Commencing with the fourth quarter of 2020, our board of directors expects to consider and declare quarterly distributions based on a single quarterly record date.

⁽²⁾ Assumes Class A and Class T shares were issued and outstanding each day that was a record date for distributions during the period presented.

⁽³⁾ Distributions ~~are~~for the periods from January 1, 2020 through June 30, 2020 were paid on a monthly basis. In general, distributions for all record dates of a given month ~~are~~were paid on or about the first business day of the following month.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)~~

For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we paid aggregate distributions of ~~$0.9~~$1.7 million, including ~~$0.6~~$1.2 million of distributions paid in cash and ~~$0.3~~$0.5 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~$4.1~~$6.4 million. FFO for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~$(0.8)~~$1.1 million and cash flows ~~used in~~provided by operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~$0.6~~$1.7 million. See the reconciliation of FFO to net loss above. We funded our total distributions paid, which includes net cash distributions and distributions reinvested by stockholders, with $0.8 million of current period cash flows from operations, $0.5 million of cash flows from operations in excess of distributions paid from prior periods and $0.4 million of net proceeds from the sale of real estate. In addition, our advisor waived and deferred certain of its asset management fees which resulted in more cash being available for distribution. To the extent that we pay distributions from sources other than our cash flows from operations, the overall return to our stockholders may be reduced.

Cash distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage rate of return for cash distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders. Our board of directors ~~is evaluating the payment of future monthly distributions~~has determined to adjust our distribution policy in response to the ongoing uncertainty caused by the COVID-19 pandemic and ~~may suspend or reduce future distributions.~~

~~Over the long-term, we expect that a greater percentage~~its uncertain impact on our operations and those of our distributions will be paid from cash flow from operations and FFO (except with respect to distributions related to sales of our assets). Our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under “Forward - Looking Statements,” “Market Outlook - Real Estate and Real Estate Finance Markets,” “Liquidity and Capital Resources” and “Results of Operations” herein and the risks discussed herein and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, as filedtenants. Commencing with the ~~SEC. Those factors include: the future operating performance~~fourth quarter of 2020, our ~~current~~board of directors expect to consider and future 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 ratesdeclare quarterly distributions based on any variable rate debt obligations we incur; and the level of participation in our distribution reinvestment plan. In the event our FFO and/or cash flow from operations decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operations.a single quarterly record date.

Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Critical Accounting Policies

Our consolidated interim financial statements and condensed notes thereto have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC. There have been no significant changes to our accounting policies during 2020.

Subsequent Events

We evaluate subsequent events up until the date the consolidated financial statements are issued.

~~Cash~~ Distributions ~~Paid~~Authorized

On ~~April 1,~~November 10, 2020, ~~we paid cash distributions~~our board of ~~$0.2 million, which related to~~directors authorized a quarterly distribution ~~declared for March 2020~~ in the amount of ~~$0.02107500~~$0.04215000 per share of common stock to stockholders of record as of the close of business on ~~March 20, 2020. On May 1,~~November 13, 2020, which the we ~~paid cash distributions of $0.2 million, which related~~expect to ~~a distribution declared for April 2020~~pay in ~~the amount of $0.02107500 per share of common stock to stockholders of record as of the close of business on April 20,~~November 2020.

~~Table of Contents~~

~~PART I. FINANCIAL INFORMATION (CONTINUED)~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)~~

~~COVID-19 Pandemic~~

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how the pandemic will impact our tenants. While we did not incur significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2020, we did recognize impairment charges related to a projected reduction in cash flows related to a change in leasing projections that were impacted in part by the COVID-19 pandemic. Many of our tenants have experienced disruptions in their business, some more severely than others. In general, our retail tenants have been more severely impacted by the COVID-19 than the office tenants. In addition, in the last month, a number of tenants have requested rent relief as a result of the pandemic, and therefore, we are unable to predict the impact that the pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. We are evaluating each tenant rent relief request on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor are we forgoing our contractual rights under our lease agreements.

The extent to which the COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

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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. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We may manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that variable rate exposure is kept at an acceptable level or we may utilize a variety of financial instruments, including interest rate caps, floors, and swap agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders and that the losses may exceed the amount we invested in the instruments.

We expect to borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect future earnings or cash flows on fixed rate debt unless such debt mature or is otherwise terminated. However, interest rate changes will affect the fair value of fixed rate instruments. At ~~March 31,~~September 30, 2020, we did not have any fixed rate debt outstanding.

Conversely, movements in interest rates on variable rate debt would change future earnings and cash flows, but not significantly affect the fair value of the debt. However, changes in required risk premiums would result in changes in the fair value of variable rate instruments. At ~~March 31,~~September 30, 2020, we were exposed to market risks related to fluctuations in interest rates on ~~$16.3~~$13.3 million of variable rate debt outstanding, after giving consideration to the impact of interest rate swap agreements on approximately $78.5 million of our variable debt. Based on interest rates as of ~~March 31,~~September 30, 2020, if interest rates were 100 basis points higher or lower during the 12 months ending ~~March 31,~~September 30, 2021, interest expense on our variable rate debt would increase or decrease by ~~$0.2~~$0.1 million.

The weighted average interest rate of our variable rate debt at ~~March 31,~~September 30, 2020 was ~~4.1%~~3.9%. The interest rate represents the actual interest rate in effect at ~~March 31,~~September 30, 2020 (consisting of the contractual interest rate and the effect of interest rate swaps, if applicable), using interest rate indices as of ~~March 31,~~September 30, 2020 where applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended ~~March 31,~~September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Please see the risks discussed below and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.

If our advisor determines to no longer waive or defer certain fees due to them, our ability to fund our operations and our distributions at the current rate may be adversely affected.

From time to time, our advisor may agree to waive or defer all or a portion of the asset management or other fees, compensation or incentives due to it, pay general administrative expenses or otherwise supplement stockholder returns in order to increase the amount of cash available to fund our operations or make distributions to stockholders. Specifically, in the second and third quarters of 2017 our advisor waived its asset management fee and beginning October 2017 through ~~March 31,~~September 30, 2020, the advisor deferred its asset management fee. If our advisor chooses to no longer waive or defer such fees, our ability to fund our operations and our distributions at the current rate may be adversely affected.

The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease could have material and adverse effects on our or our tenants’ business, financial condition, results of operations and cash flows and the markets and communities in which we and our tenants operate.

Since initially being reported in December 2019, COVID-19 has spread around the world, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak ~~has been rapidly evolving~~continues to evolve and many countries, states and localities, including states and localities in the United States, have reacted by instituting measures to help control the spread of the virus, including quarantines, ~~mandating business~~“shelter-in-place” and “stay-at-home” orders, travel restrictions, restrictions on businesses and school ~~closures and restricting travel.~~closures. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including the U.S. office real estate industry and the industries of our tenants, directly or indirectly. ~~Many experts predict that the~~The COVID-19 pandemic ~~will trigger~~has triggered a period of global economic ~~slowdown or recession.~~slowdown. The ~~rapid development and~~ fluidity of the COVID-19 pandemic ~~precludes~~continues to preclude any prediction as to the ultimate adverse impact of COVID-19.

The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we or our tenants operate could have material and adverse effects on our business, financial condition, results of operations and cash flows due to, among other factors:

•health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease;

•businesses evolving to make work-from-home environments, such as employee telecommuting, flexible work schedules, open workplaces or teleconferencing, increasingly common, which could over time erode the overall demand for office space and, in turn, place downward pressure on occupancy, rental rates and property valuations;

•disruption in supply and delivery chains;

•a general decline in business activity and demand for real estate; especially office properties;

•reduced economic activity, general economic decline or recession, which may impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations;

•difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and

•the potential negative impact on the health of our advisor’s personnel, particularly if a significant number of our advisor’s employees are impacted, which would result in a deterioration in our ability to ensure business continuity during a disruption.

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PART II. OTHER INFORMATION (CONTINUED)

Item 1A. Risk Factors (continued)

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts on our business and operations, our ~~tenant’s business~~tenants’ businesses and operations or the global economy as a whole.Nevertheless, ~~it appears reasonably likely in the near term that~~ many of our tenants ~~will suffer~~have suffered reductions in ~~revenue~~revenue. Some of our tenants have sought rent deferrals or abatements and, depending upon the duration of the pandemic, the quarantines and the corresponding economic slowdown, ~~some of our~~these tenants ~~will~~or additional tenants may seek rent deferrals or abatements in future periods or become unable to pay their rent. ~~In the last month, a number of tenants have requested rent deferrals or abatements.~~ If tenants default on their rent and vacate, the ability to re-lease this space is likely to be more difficult if the economic slowdown continues and any long term impact of this situation, even after an economic rebound, remains unclear. In addition, reductions in property values related to the impact of the COVID-19 pandemic may limit our ability to draw on the revolving commitment under our term loan due to covenants described in the loan agreement. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak or any other widespread epidemics will not occur, or that the global economy will recover, either of which could materially harm our business.

~~The current offering price of shares under~~Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our and our tenants’ business operations and the Company’s distribution reinvestment plan is equal to the December 4, 2019 estimated value per share approved by the Company’s board of directors. It does not take into account developments in our portfolio or the markets since December 4, 2019, including the current business disruptions as a result of the COVID-19 pandemic. As a result of these developments, a reinvestment of distributions in our common stock bears increased risk.

Pursuant to the Company’s distribution reinvestment plan, participants in the distribution reinvestment plan acquire shares of the Company’s common stock under the plan at a price equal the estimated value per share of the Company’s common stock. As such, participants currently acquire shares of the Company’s common stock under the plan at a price equal to $8.43 per share, which is the Company’s December 4, 2019 estimated value per share. The value of ~~the Company’s shares will fluctuate over time in response to developments related to the performance of individual assets in the portfolio and the management of those assets, the~~our real estate properties.

Our business and ~~finance markets~~our tenants’ businesses may be adversely affected by social, political, and ~~due~~economic instability, unrest, or disruption in a geographic region in which we or they operate, regardless of cause, including protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection, or social and political unrest. Such events may result in restrictions, curfews, or other actions and give rise to ~~other factors. As such,~~significant changes in regional and global economic conditions and cycles, which may adversely affect our and our tenants’ financial condition and operations and may cause the estimated value per share does not take into account developments in the Company’s portfolio since December 4, 2019. In particular, the outbreak of COVID-19 pandemic, together with the resulting restrictions on travel and quarantines imposed, has had a negative impact on the economy and business activity globally as discussed in the risk factor above. These risks are not priced into our most recent estimated value per share and given the uncertainty, no assurances can be given that the purchase price of shares of the Company’s common stock reflect the underlying value of ~~its assets.As a result, a reinvestment of distribution~~our real estate properties to decrease.

There have been recent demonstrations and protests in ~~our common stock bears increased risk.~~

~~For a full description of~~cities throughout the ~~methodologies~~U.S. and ~~assumptions used to value our assets and liabilities~~globally in connection with ~~the calculation~~civil rights, liberties, and social and governmental reform. While protests have been peaceful in many locations, looting, vandalism, and fires have taken place in several cities, including Portland and Chicago, where several of our properties are located. Government actions in an effort to protect people and property, including curfews and restrictions on business operations, may disrupt operations. In addition, action resulting from such social or political unrest may pose significant risks to our and our tenants’ personnel, facilities, and operations. The effect and duration of the ~~December 4, 2019 estimated~~demonstrations, protests, or other factors is uncertain, and we cannot assure there will not be further political or social unrest in the future or that there will not be other events that could lead to the disruption of social, political, and economic conditions. If such events or disruptions persist for a prolonged period of time, our and our tenants’ overall business and results of operations may be adversely affected and the value ~~per share, see Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases~~ of ~~Equity Securities — Market Information” of the Company’s annual report on Form 10-K for the year ended December 31, 2019.~~our real estate properties may decrease.

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PART II. OTHER INFORMATION (CONTINUED)

Item 2. Unregistered Sales of Equity ~~Securities~~ and Use of Proceeds

a).During the period covered by this Form 10-Q, no equity securities that were not registered under the Securities Act of 1933 (the “Act”) were sold.

b).Not applicable.

c).We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances.

Currently, our share redemption program is only available for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program, and collectively “special redemptions”).

Pursuant to the share redemption program, as amended to date, there are several limitations on our ability to redeem shares:

•During each calendar year, special redemptions are limited to an annual dollar amount determined by ~~the~~our board of directors, which may be reviewed during the year and increased or decreased upon ten business days’ notice to our stockholders. ~~The~~Initially, the dollar amount limitation for special redemptions for the calendar year 2020 iswas $1.0 million in the aggregate, as may be reviewed and adjusted from time to time by ~~the~~our board of directors. On August 5, 2020, our board of directors established a new dollar amount limitation under our share redemption program for the remainder of the calendar year 2020 of $200,000. This reduced dollar amount limitation was effective for and included redemptions for the month of August 2020.

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

•We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

Special redemptions are redeemed at a price equal to the most recent estimated NAV per share as of the applicable redemption date. On December 4, 2019, our board of directors approved an estimated NAV per share of our common stock of $8.43 based on the estimated value of our assets less the estimated value of our liabilities, or NAV, divided by the number of shares outstanding, all as of September 30, 2019. For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of our estimated NAV per share as of September 30, 2019, see the Current Report on Form 8-K filed with the SEC on December 12, 2019. We expect to update the estimated NAV annually in December.

We may amend, suspend or terminate our share redemption program upon 10 business days’ notice. We redeem shares on the last business day of each month. For a stockholder’s shares to be eligible for redemption in a given month or to withdraw a redemption request, we must receive a written notice from the stockholder or from an authorized representative of the stockholder in good order and on a form approved by us at least five business days before the redemption date.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED)

Item 2. Unregistered Sales of Equity and Use of Proceeds (continued)

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, ~~we did not redeem any shares~~redemptions under our share redemption ~~program.~~program were funded with existing cash on hand and shares were redeemed pursuant to our share redemption program as follows:


Month	Total Number of Shares Redeemed	Average Price Paid Per Share (1)		Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
January 2020	—	$	—	(2)
February 2020	—	$	—	(2)
March 2020	—	$	—	(2)
April 2020	16,905	$	8.43	(2)
May 2020	—	$	—	(2)
June 2020	6,831	$	8.43	(2)
July 2020	—	$	—	(2)
August 2020	554	$	8.43	(2)
September 2020	277	$	8.43	(2)
Total	24,567

_____________________

(1) The prices at which we redeem shares under the program are as set forth above.

(2) We limit the dollar value of shares that may be redeemed under the program as described above. OfBased on the ~~$1.0 million available for~~redemption limitation described above and redemptions through September 30, 2020, we may redeem up to $193,000 of shares in connection with special redemptions ~~$0.1 million was used to redeem special redemption shares from January through April~~for the remainder of 2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Table of Contents

PART II. OTHER INFORMATION (CONTINUED

Item 6. Exhibits


Ex.						Description

3.1						Second Articles of Amendment and Restatement, incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 filed October 16, 2015

3.2						Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 filed October 16, 2015

3.3						Articles Supplementary for Class T Shares, incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-11 filed April 20, 2016

4.1						Statement regarding restrictions in transferability of shares of common stock issued in a private offering (to be sent upon request and without charge to stockholders), incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed November 9, 2017

4.2						Statement regarding restrictions on transferability of shares of common stock issued in a public offering (to be sent upon request and without charge to stockholders), incorporated by reference to Exhibit 4.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, filed November 9, 2017

4.3						Third Amended and Restated Distribution Reinvestment Plan, dated August 9, 2017, incorporated by reference to Exhibit 4.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed August 10, 2017

4.4						Multiple Class Plan, effective as of April 11, 2016, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-11 filed April 20, 2016

~~10.1~~						~~Modification Agreement, by and among KBSGI Offices at Greenhouse, LLC, KBSGI Von Karman Tech, LLC, KBSGI 213 West Institute Place, LLC and JPMORGAN Chase Bank, N.A., dated January 17, 2020~~

~~10.2~~						Advisory Agreement, by and between the Company and KBS Capital Advisors LLC, dated April 28, 2020, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 29, 2020

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1						Second Amended and Restated Share Redemption Program, incorporated by reference to Exhibit ~~99.1~~99.2 to the Company’s Current Report on Form 8-K, filed December 10, 2018

~~Table of Contents~~

~~PART II. OTHER INFORMATION (CONTINUED)~~

~~Item 6. Exhibits (continued)~~


~~Ex.~~						~~Description~~

101.INS						Inline XBRL Instance Document

101.SCH						Inline XBRL Taxonomy Extension Schema

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase

104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

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

KBS GROWTH & INCOME REIT, INC.

Date:

~~May 8,~~November 12, 2020

By:

/S/ CHARLES J. SCHREIBER, JR.

Charles J. Schreiber, Jr.

Chairman of the Board,
Chief Executive Officer, President and Director

(principal executive officer)

Date:

~~May 8,~~November 12, 2020

By:

/S/ JEFFREY K. WALDVOGEL

Jeffrey K. Waldvogel

Chief Financial Officer, Treasurer and Secretary

(principal financial officer)

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