The following discussion and analysis should be read in conjunction with the accompanying financial statements ofKBS Real Estate Investment Trust III, Inc. and the notes thereto. As used herein, the terms "we," "our" and "us" refer toKBS Real Estate Investment Trust III, Inc. , aMaryland corporation, and, as required by context, KBS Limited Partnership III, aDelaware 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 ofKBS Real Estate Investment Trust III, 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. These include statements about our plans, strategies and prospects and these statements are subject to known and unknown risks and uncertainties. Readers are cautioned not to place undue reliance on these forward-looking statements. 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 measures imposed to help control the spread of 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 and our investment in Prime US REIT (the "SREIT") depends on future developments, which remain uncertain and cannot be predicted with confidence, including among other developments, potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, which could materially and negatively impact the future demand for office space, resulting in slower overall leasing and an adverse impact to our operations.
•We are dependent on
•All of our executive officers, our affiliated director and other key professionals are also officers, affiliated 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, these individuals, our advisor and its affiliates face conflicts of interest, including conflicts created by our advisor's and its affiliates' compensation arrangements with us and other KBS programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in action or inaction that is not in the best interests of our stockholders. •Our advisor and its affiliates currently receive fees in connection with transactions involving the purchase or origination, management and disposition of our investments. Acquisition and asset management fees are based on the cost of the investment, and not based on the quality of the investment or the quality of the services rendered to us. We may also pay significant fees during our listing/liquidation stage. Although most of the fees payable during our listing/liquidation stage are contingent on our stockholders first enjoying agreed-upon investment returns, the investment return thresholds may be reduced subject to approval by our conflicts committee and our charter limitations. These payments increase the risk that our stockholders will not earn a profit on their investment in us and increase the risk of loss to our stockholders. Our conflicts committee and our board of directors continue to evaluate various alternatives available to us, including whether or not to convert to a perpetual-life net asset value "NAV" REIT. If we convert to an NAV REIT, we would implement a revised advisory fee structure. •We cannot guarantee that we will pay distributions. We have and may in the future fund distributions from sources other than cash flow from operations, including, without limitation, the sale of assets, borrowings, return of capital or offering proceeds. We have no limits on the amounts we may pay from such sources. •We may incur debt until our total liabilities would exceed 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), and we may exceed this limit with the approval of the conflicts committee of our board of directors. High debt levels could limit the amount of cash we have available to distribute and could result in a decline in the value of an investment in us. 32
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) •We depend on tenants for the revenue generated by our real estate investments. 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 becoming unable to pay their rent and/or lower rental rates, making it more difficult for us to meet our debt service obligations and limiting our ability to pay distributions to our stockholders. SinceMarch 2020 , we have granted rent relief to a number of tenants as a result of the pandemic, and these tenants or additional tenants may request rent relief in future periods or become unable to pay rent. •Our significant investment in the equity securities of the SREIT, a tradedSingapore real estate investment trust, is subject to the risks associated with real estate investments as well as the risks inherent in investing in traded securities, including, in this instance, risks related to the quantity of units held by us relative to the trading volume of the units. The COVID-19 pandemic has caused significant negative pressure in the financial markets. SinceMarch 2020 , the trading price of the common units of the SREIT has experienced substantial volatility; however, the units have recovered a portion of their losses since the low inMarch 2020 .
•Because investment opportunities that are suitable for us may also be suitable for other KBS programs or investors, our advisor and its affiliates face conflicts of interest relating to the purchase of investments.
•We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes. If such funds are not available, we may have to use a greater proportion of our cash flow from operations to meet cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program. •Continued disruptions in the financial markets, changes in the demand for office properties and uncertain economic conditions could adversely affect our ability to implement our business strategy and generate returns to stockholders. •Our conflicts committee and our board of directors continue to evaluate various alternatives available to us. There is no assurance that any alternative being considered by our board of directors will provide a return to stockholders that equals or exceeds our estimated value per share as ofNovember 1, 2021 , and although we remain focused on providing enhanced liquidity to stockholders while maximizing returns to stockholders, we can provide no assurances in this regard. We also can provide no assurances as to whether or when any alternative being considered by our board of directors will be consummated. •Our charter does not require us to liquidate our assets and dissolve by a specified date, nor does our charter require our directors to list our shares for trading by a specified date. No public market currently exists for our shares of common stock. There are limits on the ownership and transferability of our shares. Our shares cannot be readily sold and, if our stockholders are able to sell their shares, they would likely have to sell them at a substantial discount. •InDecember 2019 , our board of directors determined to temporarily suspend Ordinary Redemptions (defined below) under the share redemption program, and Ordinary Redemptions remained suspended throughJune 30, 2021 . Ordinary Redemptions are all redemptions other than those that qualify for the special provisions for redemptions sought in connection with a stockholder's death, "Qualifying Disability" or "Determination of Incompetence" (each as defined in the share redemption program and, together, "Special Redemptions"). Further, onJune 3, 2021 , we announced that, in connection with the approval of a self-tender offer, our board of directors had approved a temporary suspension of all redemptions under the share redemption program, including Special Redemptions. OnJuly 14, 2021 , our board of directors approved an amended and restated share redemption program and Ordinary Redemptions and Special Redemptions resumed effective for theJuly 30, 2021 redemption date. As ofMay 2, 2022 , we had 3.6 million shares available for redemption for the remainder of 2022 under the share redemption program, including the reserve for Special Redemptions. We cannot predict future redemption demand with any certainty. Moreover, our share redemption program includes numerous restrictions that limit our stockholders' ability to sell their shares to us. If future redemption requests exceed the amount of funding available under our share redemption program, the number of rejected redemption requests will increase over time. All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission (the "SEC"), and the risks identified in Part II, Item 1A herein. 33
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Overview We were formed onDecember 22, 2009 as aMaryland corporation that elected to be taxed as a real estate investment trust ("REIT") beginning with the taxable year endedDecember 31, 2011 and we intend to continue to operate in such a manner. We conduct our business primarily through ourOperating Partnership , of which we are the sole general partner. Subject to certain restrictions and limitations, our business is managed by our advisor pursuant to an advisory agreement and our advisor conducts our operations and manages our portfolio of real estate investments. Our advisor owns 20,857 shares of our common stock. We have no paid employees.
We have invested in a diverse portfolio of real estate investments. As of
OnFebruary 4, 2010 , we filed a registration statement on Form S-11 with theSEC to offer a minimum of 250,000 shares and a maximum of up to 280,000,000 shares, or up to$2,760,000,000 of shares, of common stock for sale to the public, of which up to 200,000,000 shares, or up to$2,000,000,000 of shares, were registered in our primary offering and up to 80,000,000 shares, or up to$760,000,000 of shares, were registered under our dividend reinvestment plan. We ceased offering shares of common stock in our primary offering onMay 29, 2015 and terminated the primary offering onJuly 28, 2015 . We sold 169,006,162 shares of common stock in our now-terminated primary initial public offering for gross offering proceeds of$1.7 billion . As ofMarch 31, 2022 , we had also sold 41,431,803 shares of common stock under our dividend reinvestment plan for gross offering proceeds of$428.0 million . Also as ofMarch 31, 2022 , we had redeemed or repurchased 68,496,126 shares for$727.6 million . Additionally, onOctober 3, 2014 , we issued 258,462 shares of common stock, for$2.4 million , in private transactions exempt from the registration requirements pursuant to Section 4(a)(2) of the Securities Act of 1933. We continue to offer shares of common stock under our dividend reinvestment plan. In some states, we will need to renew the registration statement annually or file a new registration statement to continue the dividend reinvestment plan offering. We may terminate our dividend reinvestment plan offering at any time. Our conflicts committee and our board of directors continue to evaluate various alternatives available to us, including whether or not to convert to an "NAV REIT." Our conflicts committee and board of directors remain focused on providing stable distributions and enhanced liquidity to stockholders. In the near term, while our conflicts committee and board of directors explore alternatives available to us, we may market certain of our assets for sale. Based on our assessment of alternatives available to us, market conditions and our further assessment of our capital raising prospects, our conflicts committee and board of directors may conclude that it would be in the best interest of our stockholders to (i) convert to an "NAV REIT," (ii) continue to operate as a going concern under our current business plan, or (iii) adopt a plan of liquidation that would involve the sale of our remaining assets (in which event such plan would be presented to stockholders for approval). There is no assurance that any alternative being considered by our board of directors will provide a return to stockholders that equals or exceeds the Company's estimated value per share as ofNovember 1, 2021 , and although we remain focused on providing enhanced liquidity to stockholders while maximizing returns to stockholders, we can provide no assurances in this regard. We also can provide no assurances as to whether or when any alternative being considered by our board of directors will be consummated. Section 5.11 of our charter requires that we seek stockholder approval of our liquidation if our shares of common stock are not listed on a national securities exchange bySeptember 30, 2020 , unless a majority of the conflicts committee of our board of directors, composed solely of all of our independent directors, determines that liquidation is not then in the best interest of our stockholders. Pursuant to our charter requirement, the conflicts committee assessed our portfolio of investments, and with consideration of the then current market conditions, including the uncertainty as a result of the COVID-19 pandemic and lack of liquidity in the marketplace, as well as our conflicts committee's and board of directors' continuing review and evaluation of various alternatives available to us, onAugust 30, 2021 , our conflicts committee unanimously determined to postpone approval of our liquidation. Section 5.11 of our charter requires that the conflicts committee revisit the issue of liquidation at least annually. At our annual meeting of stockholders held onMay 7, 2020 , our stockholders approved the removal of Section 5.11 of our charter. As set forth in the proxy statement for our annual meeting of stockholders, implementation of this amendment to our charter and our conversion to an NAV REIT remain subject to further approval of our conflicts committee. 34
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PART I. FINANCIAL INFORMATION (CONTINUED)
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 can cause fluctuations in the performance of theU.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. Further, increases in interest rates would increase the amount of our debt payments on our variable rate debt to the extent the interest rates on such debt are not fixed through interest rate swap agreements or limited by interest rate caps. 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 COVID-19 pandemic has had a negative impact on the real estate market as discussed below.
COVID-19 Pandemic and Portfolio Outlook
One of the most significant risks and uncertainties facing us and the real estate industry generally, and in particular office REITs like our company, continues to be the effect of the public health crisis of the COVID-19 pandemic. To date, we have not experienced significant disruptions in our operations from the COVID-19 pandemic. During the year endedDecember 31, 2020 , we recognized an impairment charge of$19.9 million for an office/retail property due to the continued deterioration of retail demand at the property which was further impacted by the COVID-19 pandemic. We have also made a significant investment in the common units of the SREIT. Since earlyMarch 2020 , the trading price of the common units of the SREIT has experienced substantial volatility; however, the units have recovered a portion of their losses since the low inMarch 2020 . As ofMay 10, 2022 , the aggregate value of our investment in the units of the SREIT was$153.2 million , which was based solely on the closing price of the units on the SGX-ST of$0.710 per unit as ofMay 10, 2022 and did not take into account any potential discount for the holding period risk due to the quantity of units we hold. We cannot predict to what extent economic activity, including the use of and demand for office space, will return to pre-pandemic levels. During 2021, the usage of our assets remained lower than pre-pandemic levels. In addition, we experienced a significant reduction in leasing interest and activity when compared to pre-pandemic levels. Even after the pandemic has ceased to be active, potential changes in customer behavior, such as the continued social acceptance, desirability and perceived economic benefits of work-from-home arrangements, resulting from the COVID-19 pandemic, could materially and negatively impact the future demand for office space, resulting in slower overall leasing and an adverse impact to our operations.
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; 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 and real estate-related investments;
•Debt financings (including amounts currently available under existing loan facilities);
•Proceeds from the sale of our real estate properties and real estate-related investments; and
•Proceeds from common stock issued under our dividend reinvestment plan.
Our real estate properties 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 our real estate properties is primarily dependent upon the occupancy level of our portfolio, the net effective rental rates on our leases, the collectability of rent and operating recoveries from our tenants and how well we manage our expenditures. Our investment in the equity securities of the SREIT generates cash flow in the form of dividend income, and dividends are typically declared and paid on a semi-annual basis, though dividends are not guaranteed. As ofMarch 31, 2022 , we held 215,841,899 units of the SREIT which represented 18.4% of the outstanding units of the SREIT as of that date. 35
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) As ofMarch 31, 2022 , we had mortgage debt obligations in the aggregate principal amount of$1.5 billion , with a weighted-average remaining term of 1.6 years. The maturity dates of certain loans may be extended beyond their current maturity date, subject to certain terms and conditions contained in the loan documents. As ofMarch 31, 2022 , we had$239.4 million of notes payable related to the Modified Portfolio Revolving Loan Facility maturing during the 12 months endingMarch 31, 2023 . The Modified Portfolio Revolving Loan Facility has two 12-month extension options, subject to certain terms, conditions and fees as described in the loan documents. We plan to exercise our extension options available under our loan agreements, pay down or refinance the related notes payable prior to their maturity dates. As ofMarch 31, 2022 , our debt obligations consisted of$123.0 million of fixed rate notes payable and$1.4 billion of variable rate notes payable. As ofMarch 31, 2022 , the interest rates on$1.1 billion of our variable rate notes payable were effectively fixed through interest rate swap agreements. As ofMarch 31, 2022 , we had$249.5 million of revolving debt available for future disbursement under various loans, subject to certain conditions set forth in the loan agreements. We paid cash distributions to our stockholders during the three months endedMarch 31, 2022 using cash flow from operations from current and prior periods. We believe that our cash flow from operations, cash on hand, proceeds from our dividend reinvestment plan, proceeds from asset sales and current and anticipated financing activities are sufficient to meet our liquidity needs for the foreseeable future. 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 endedMarch 31, 2022 did not exceed the charter-imposed limitation.
Cash Flows from Operating Activities
During the three months endedMarch 31, 2022 and 2021, net cash provided by operating activities was$7.5 million and$16.3 million , respectively. Net cash provided by operating activities was lower during the three months endedMarch 31, 2022 primarily as a result of a decrease in dividends received from our investment in the SREIT in 2022 due to our sale of 73,720,000 units in the SREIT inNovember 2021 , the timing of payments of lease commissions and deferred asset management fees and the dispositions of real estate properties subsequent toJanuary 1, 2021 .
Cash Flows from Investing Activities
Net cash used in investing activities was
Cash Flows from Financing Activities
During the three months ended
•$62.8 million from proceeds from notes payable; offset by
•$39.7 million of cash used for redemptions of common stock;
•$16.7 million of net cash distributions, after giving effect to distributions
reinvested by stockholders of
•$0.7 million used for interest rate swap settlements for off-market swap instruments; and
•Payment of other organization and offering costs of
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). There is no limitation on the amount we may borrow for the purchase of any single asset. We limit our total liabilities to 75% of the cost of our tangible assets (before deducting depreciation and other non-cash reserves), meaning that our borrowings and other liabilities may exceed our maximum target leverage of 65% of the cost of our tangible assets without violating these borrowing restrictions. We may exceed the 75% limit only if a majority of the conflicts committee approves each borrowing in excess of this limitation and we disclose such borrowings to our stockholders in our next quarterly report with an explanation from the conflicts committee of the justification for the excess borrowing. To the extent financing in excess of this limit is available on attractive terms, our conflicts committee may approve debt in excess of this limit. From time to time, our total liabilities could also be below 45% of the cost of our tangible assets due to the lack of availability of debt financing. As ofMarch 31, 2022 , our borrowings and other liabilities were approximately 56% of both the cost (before deducting depreciation and other noncash reserves) and book value (before deducting depreciation) of our tangible assets. 36
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) We also expect to use our capital resources to make certain payments to our advisor. We currently make payments to our advisor in connection with the acquisition of investments, the management of our investments and costs incurred by our advisor in providing services to us. We also pay fees to our advisor in connection with the disposition of investments. We reimburse our advisor and dealer manager for certain stockholder services. In addition, our advisor is entitled to an incentive fee upon achieving certain performance goals. Among the fees payable to our advisor is an asset management fee. With respect to investments in real property, the asset management fee is a monthly fee equal to one-twelfth of 0.75% of the amount paid or allocated to acquire the investment, plus the cost of any subsequent development, construction or improvements to the property. This amount includes any portion of the investment that was debt financed and is inclusive of acquisition expenses related thereto (but excludes 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 (but excluding acquisition fees paid to our advisor). With respect to investments in loans and any investments other than real property, the asset management fee is a monthly fee calculated, each month, as one-twelfth of 0.75% of the lesser of (i) the amount actually paid or allocated to acquire or fund the loan or other investment (which amount includes any portion of the investment that was debt financed and is inclusive of acquisition or origination expenses related thereto but is exclusive of acquisition or origination fees paid or payable to our advisor) and (ii) the outstanding principal amount of such loan or other investment, plus the acquisition or origination expenses related to the acquisition or funding of such investment (excluding acquisition or origination fees paid or payable to our advisor), as of the time of calculation. We currently do not pay asset management fees to our advisor on our investment in units of the SREIT. Pursuant to the advisory agreement, with respect to asset management fees accruing fromMarch 1, 2014 , our advisor agreed to defer, without interest, our obligation to pay asset management fees for any month in which our modified funds from operations ("MFFO") for such month, as such term is defined in the practice guideline issued by theInstitute for Portfolio Alternatives ("IPA") inNovember 2010 and interpreted by us, excluding asset management fees, does not exceed the amount of distributions declared by us for record dates of that month. We remain obligated to pay our advisor an asset management fee in any month in which our MFFO, excluding asset management fees, for such month exceeds the amount of distributions declared for the record dates of that month (such excess amount, an "MFFO Surplus"); however, any amount of such asset management fee in excess of the MFFO Surplus will also be deferred under the advisory agreement. If the MFFO Surplus for any month exceeds the amount of the asset management fee payable for such month, any remaining MFFO Surplus will be applied to pay any asset management fee amounts previously deferred in accordance with the advisory agreement. However, notwithstanding the foregoing, any and all deferred asset management fees that are unpaid will become immediately due and payable at such time as our stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) an 8% per year cumulative, noncompounded return on net invested capital (the "Stockholders' 8% Return") and (ii) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption program. The Stockholders' 8% Return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to receive deferred asset management fees. As ofMarch 31, 2022 , we had accrued$6.2 million of asset management fees, of which$4.5 million was deferred as ofMarch 31, 2022 , pursuant to the provision for deferral of asset management fees under the Advisory Agreement. The amount of asset management fees deferred, if any, will vary on a month-to-month basis and the total amount of asset management fees deferred as well as the timing of the deferrals and repayments are difficult to predict as they will depend on the amount of and terms of the debt we use to acquire assets, the level of operating cash flow generated by our real estate investments and other factors. In addition, deferrals and repayments may occur in the same period, and it is possible that there could be additional deferrals in the future. OnSeptember 27, 2021 , we and our advisor renewed the advisory agreement. The advisory agreement has a one-year term but may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and our conflicts committee. 37
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Participation Fee Liability and Potential Change in Fee Structure Pursuant to our advisory agreement currently in effect with our advisor, our advisor is due a subordinated participation in our net cash flows (the "Subordinated Participation in Net Cash Flows") upon meeting certain performance goals. After our stockholders have received, together as a collective group, aggregate distributions (including distributions that may constitute a return of capital for federal income tax purposes) sufficient to provide (i) a return of their net invested capital, or the amount calculated by multiplying the total number of shares purchased by stockholders by the issue price, reduced by any amounts to repurchase shares pursuant to our share redemption program, and (ii) an 8.0% per year cumulative, noncompounded return on such net invested capital, our advisor is entitled to receive 15.0% of our net cash flows, whether from continuing operations, net sale proceeds or otherwise. Net sales proceeds means the net cash proceeds realized by us after deduction of all expenses incurred in connection with a sale, including disposition fees paid to our advisor. The 8.0% per year cumulative, noncompounded return on net invested capital is calculated on a daily basis. In making this calculation, the net invested capital is reduced to the extent distributions in excess of a cumulative, noncompounded, annual return of 8.0% are paid (from whatever source), except to the extent such distributions would be required to supplement prior distributions paid in order to achieve a cumulative, noncompounded, annual return of 8.0% (invested capital is only reduced as described in this sentence; it is not reduced simply because a distribution constitutes a return of capital for federal income tax purposes). The 8.0% per year cumulative, noncompounded return is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for our advisor to participate in our net cash flows. In fact, if our advisor is entitled to participate in our net cash flows, the returns of our stockholders will differ, and some may be less than an 8.0% per year cumulative, noncompounded return. This fee is payable only if we are not listed on an exchange. OnJanuary 9, 2020 , we filed a definitive proxy statement with theSEC in connection with the annual meeting of stockholders to vote on, among other proposals, two proposals related to our pursuit of conversion to an NAV REIT. OnMay 7, 2020 at our annual meeting of stockholders, our stockholders approved the proposal to accelerate the payment of incentive compensation to our advisor, upon our conversion to an NAV REIT. If we convert to an NAV REIT, the proposed acceleration of the payment of incentive compensation to our advisor remains subject to further approval of the conflicts committee, after the proposed amount of the accelerated payment of the incentive fee has been determined. In connection with the determination of theNovember 1, 2021 estimated value per share of our common stock, our advisor determined that there would be no liability related to the Subordinated Participation in Net Cash Flows at that time, based on a hypothetical liquidation of the assets and liabilities at their estimated fair values, after considering the impact of any potential closing costs and fees related to the disposition of real estate properties; however, changes to the fair values of assets and liabilities could have a material impact to the incentive fee calculation. Our conflicts committee and our board of directors continue to evaluate various alternatives available to us, including whether or not to convert to an "NAV REIT." Our conflicts committee and board of directors remain focused on providing stable distributions and enhanced liquidity to stockholders. In the near term, while our conflicts committee and board of directors explore alternatives available to us, we may market certain of our assets for sale. Based on our assessment of alternatives available to us, market conditions and our further assessment of our capital raising prospects, our conflicts committee and board of directors may conclude that it would be in the best interest of our stockholders to (i) convert to an "NAV REIT," (ii) continue to operate as a going concern under our current business plan, or (iii) adopt a plan of liquidation that would involve the sale of our remaining assets (in which event such plan would be presented to stockholders for approval). There is no assurance that any alternative being considered by our board of directors will provide a return to stockholders that equals or exceeds our estimated value per share as ofNovember 1, 2021 , and although we remain focused on providing enhanced liquidity to stockholders while maximizing returns to stockholders, we can provide no assurances in this regard. We also can provide no assurances as to whether or when any alternative being considered by our board of directors will be consummated. 38
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Debt Obligations
The following is a summary of our debt obligations as of
Payments Due During the Years Ended
Total Remainder of 2022 2023-2024 2025-2026 Thereafter Outstanding debt obligations (1)$ 1,535,108 $
1,013
50,857 24,140 26,717 - - Interest payments on interest rate swaps (3) (5) 19,924 10,988 8,936 - - _____________________
(1) Amounts include principal payments only based on maturity dates as of
(2) Projected interest payments are based on the outstanding principal amounts, maturity dates and interest rates in effect as ofMarch 31, 2022 (consisting of the contractual interest rate and using interest rate indices as ofMarch 31, 2022 , where applicable). (3) Projected interest payments on interest rate swaps are calculated based on the notional amount, effective term of the swap contract, and fixed rate net of the swapped floating rate in effect as ofMarch 31, 2022 .
(4) We incurred interest expense related to notes payable of
(5) We incurred interest expense related to interest rate swaps of$4.3 million , excluding unrealized gains on derivative instruments of$25.8 million during the three months endedMarch 31, 2022 . Results of Operations Overview As ofMarch 31, 2021 , we owned 17 office properties, one mixed-use office/retail property and an investment in the equity securities of the SREIT, which was accounted for as an investment in an unconsolidated entity under the equity method of accounting at that time. Subsequent toMarch 31, 2021 , we sold one office property and, through our indirect wholly owned subsidiary ("REIT Properties III"), we sold 73,720,000 of our units in the SREIT, reducingREIT Properties III's ownership in the SREIT to 18.5% as of the transaction date. As a result, as ofMarch 31, 2022 , we owned 16 office properties, one mixed-use office/retail property and an investment in the equity securities of the SREIT. As a result of our reduced ownership in the SREIT, our investment in the equity securities of the SREIT is now presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date. Therefore, the results of operations presented for the three months endedMarch 31, 2022 and 2021 are not directly comparable. 39
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Comparison of the three months endedMarch 31, 2022 versus the three months endedMarch 31, 2021 The following table provides summary information about our results of operations for the three months endedMarch 31, 2022 and 2021 (dollar amounts in thousands): $ Changes Due to Three Months Ended Dispositions of March 31, Properties and $ Change Due to Ceasing of Properties Held Increase Equity Method of Throughout Both 2022 2021 (Decrease) Percentage Change Accounting (1) Periods (2) Rental income$ 68,855 $ 71,084 $ (2,229) (3) %$ (2,592) $ 363 Dividend income from real estate equity securities 7,252 - 7,252 100 % - 7,252 Other operating income 4,193 3,651 542 15 % (94) 636 Operating, maintenance and management 17,376 15,863 1,513 10 % (193)
1,706
Real estate taxes and insurance 14,048 14,379 (331) (2) % (103)
(228)
Asset management fees to affiliate 4,876 4,895 (19) - % (148) 129 General and administrative expenses 1,786 1,722 64 4 % n/a n/a Depreciation and amortization 27,220 27,399 (179) (1) % (755) 576 Interest expense 8,656 8,333 323 4 % (174) 497 Net gain on derivative instruments (21,469) (1,518) (19,951) 1,314 % -
(19,951)
Unrealized loss on real estate equity securities (17,267) - (17,267) (100) % -
(17,267)
Equity in income of an unconsolidated entity - 3,287 (3,287) (100) % (3,287) - Gain on sale of real estate, net - 20,459 (20,459) (100) % (20,459) - Other income 6 - 6 100 % n/a n/a Other interest income 8 15 (7) (47) % n/a n/a _____________________ (1) Represents the dollar amount increase (decrease) for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 related to dispositions of properties afterJanuary 1, 2021 and ceasing of equity method of accounting related to our investment in the units of the SREIT for periods afterNovember 9, 2021 . (2) Represents the dollar amount increase (decrease) for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 related to real estate investments owned by us throughout both periods presented. Rental income from our real estate properties decreased from$71.1 million for the three months endedMarch 31, 2021 to$68.9 million for the three months endedMarch 31, 2022 . The decrease in rental income was primarily due to the dispositions of real estate properties subsequent toJanuary 1, 2021 , partially offset by an increase in rental income related to lease commencements subsequent toMarch 31, 2021 with respect to properties held throughout both periods. We expect rental income to vary based on occupancy rates and rental rates of our real estate investments and uncertainty and business disruptions or recoveries as a result of the COVID-19 pandemic and to increase due to tenant reimbursements related to operating expenses as physical occupancy increases as employees return to the office. See "Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19 Pandemic and Portfolio Outlook." Dividend income from our real estate equity securities was$7.3 million for the three months endedMarch 31, 2022 . OnNovember 9, 2021 , upon our sale of 73,720,000 units in the SREIT, we determined that based on our ownership interest of 18.5% of the outstanding units of the SREIT as of that date, we no longer had significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, effectiveNovember 9, 2021 , our investment in the units of the SREIT represents an investment in marketable securities and is therefore presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date and dividend income is recognized as it is declared based on eligible units as of the ex-dividend date. Prior toNovember 9, 2021 , our investment in the SREIT was accounted for under the equity method of accounting. 40
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Other operating income increased from$3.7 million during the three months endedMarch 31, 2021 to$4.2 million for the three months endedMarch 31, 2022 . The increase in other operating income was primarily due to an increase in parking revenues for properties held throughout both periods, offset by the disposition of Anchor Centre inJanuary 2021 . We expect other operating income to vary in future periods based on occupancy rates and parking rates at our real estate properties, and business disruptions or recoveries as a result of the COVID-19 pandemic. Operating, maintenance and management costs increased from$15.9 million for the three months endedMarch 31, 2021 to$17.4 million for the three months endedMarch 31, 2022 . The increase in operating, maintenance and management costs was primarily due to an overall increase in operating costs, including utilities, janitorial and security costs, as a result of an increase in physical occupancy at properties held throughout both periods and higher legal fees and space planning costs related to leasing activities, offset by the disposition of real estate properties subsequent toJanuary 1, 2021 . We expect operating, maintenance and management costs to increase in future periods as a result of general inflation and as physical occupancy increases as employees return to the office. Real estate taxes and insurance decreased from$14.4 million for the three months endedMarch 31, 2021 to$14.0 million for the three months endedMarch 31, 2022 , primarily due to an insurance credit received during the three months endedMarch 31, 2022 at properties held throughout both periods. We expect real estate taxes and insurance to increase in future periods as a result of general inflation and general increases due to future property tax reassessments for properties that we continue to own. Asset management fees with respect to our real estate investments remained consistent at$4.9 million for the three months endedMarch 31, 2021 and 2022. We expect asset management fees to increase in future periods as a result of any improvements we make to our properties. As ofMarch 31, 2022 , there were$6.2 million of accrued asset management fees, of which$4.5 million was deferred as ofMarch 31, 2022 . For a discussion of accrued and deferred asset management fees, see "- Liquidity and Capital Resources" herein. General and administrative expenses increased slightly from$1.7 million for the three months endedMarch 31, 2021 to$1.8 million for the three months endedMarch 31, 2022 , primarily due to an increase in legal fees incurred during the three months endedMarch 31, 2022 . General and administrative costs consisted primarily of portfolio legal fees, errors and omissions insurance, third party transfer agent fees and board of directors fees. We expect general and administrative expenses to vary in future periods. Depreciation and amortization decreased slightly from$27.4 million for the three months endedMarch 31, 2021 to$27.2 million for the three months endedMarch 31, 2022 , primarily as a result of the disposition of Domain Gateway inNovember 2021 , offset by an increase in depreciation and amortization due to an increase in capital improvements at properties held throughout both periods. 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 increased from$8.3 million for the three months endedMarch 31, 2021 to$8.7 million for the three months endedMarch 31, 2022 . Included in interest expense was (i)$7.3 million and$7.7 million of interest expense payments for the three months endedMarch 31, 2021 and 2022, respectively, and (ii) the amortization of deferred financing costs of$1.0 million and$1.0 million for the three months endedMarch 31, 2021 and 2022, respectively. The increase in interest expense was due to draws on our revolving debt and higher one-month LIBOR and one-month Bloomberg Short-Term Bank Yield Index ("BSBY") during the three months endedMarch 31, 2022 and its impact on interest expense related to our variable rate debt. In general, we expect interest expense to vary based on fluctuations in interest rates (for our variable rate debt) and our level of future borrowings. Net gain on derivative instruments increased from$1.5 million for the three months endedMarch 31, 2021 to$21.5 million for the three months endedMarch 31, 2022 . Included in net gain on derivative instruments was (i) unrealized gain on interest rate swaps of$5.9 million and$25.8 million for the three months endedMarch 31, 2021 and 2022, respectively, offset by (ii)$4.4 million and$4.3 million of realized loss on interest rate swaps for the three months endedMarch 31, 2021 and 2022, respectively. The increase in net gain on derivative instruments was primarily due to changes in fair values with respect to our interest rate swaps that are not accounted for as cash flow hedges during the three months endedMarch 31, 2022 . In general, we expect net gain on derivative instruments to vary based on fair value changes with respect to our interest rate swaps that are not accounted for as cash flow hedges. During the three months endedMarch 31, 2022 , we recorded an unrealized loss on real estate equity securities of$17.3 million as a result of the decrease in the closing price of the units of the SREIT. 41
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) During the three months endedMarch 31, 2021 , we recorded equity in income of an unconsolidated entity of$3.3 million related to our investment in the SREIT. As discussed above, effectiveNovember 9, 2021 , based on our 18.5% ownership interest in the SREIT as of that date, we do not exercise significant influence over the operations, financial policies and decision making with respect to the SREIT. Accordingly, our investment in the units of the SREIT represents an investment in marketable securities and therefore is presented at fair value as ofMarch 31, 2022 , based on the closing price of the SREIT units on the SGX-ST on that date.
We recognized a gain on sale of real estate of
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 currentNational Association of Real Estate Investment Trusts ("NAREIT") definition. FFO represents net income, excluding gains and losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), gains and losses from change in control, impairment losses on real estate assets, depreciation and amortization of real estate assets, and adjustments for unconsolidated partnerships and joint ventures. In addition, we elected the option to exclude mark-to-market changes in value recognized on real estate equity securities in the calculation of FFO. We believe FFO facilitates comparisons of operating performance between periods and among other REITs. However, our computation of FFO may not be comparable to other REITs that do not define FFO in accordance with the NAREIT definition or that interpret the current NAREIT definition differently than we do. Our management believes that historical cost accounting for real estate assets in accordance withU.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 inNovember 2010 as interpreted by management. Our computation of MFFO may not be comparable to other REITs that do not compute MFFO in accordance with the current IPA definition or that interpret the current IPA definition differently than we do. We believe that MFFO is helpful as a measure of ongoing operating performance because it excludes costs that management considers more reflective of investing activities and other non-operating items included in FFO. Management believes that excluding acquisition fees and expenses (to the extent that such fees and expenses have been recorded as operating expenses) from MFFO provides investors with supplemental performance information that is consistent with management's analysis of the operating performance of the portfolio over time. MFFO also excludes non-cash items such as straight-line rental revenue. Additionally, we believe that MFFO provides investors with supplemental performance information that is consistent with the performance indicators and analysis used by management, in addition to net income and cash flows from operating activities as defined by GAAP, to evaluate the sustainability of our operating performance. MFFO provides comparability in evaluating the operating performance of our portfolio with other non-traded REITs. MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe often used by analysts and investors for comparison purposes. 42
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) FFO and MFFO are non-GAAP financial measures and do not represent net income as defined by GAAP. Net income as defined by GAAP is the most relevant measure in determining our operating performance because FFO and MFFO include adjustments that investors may deem subjective, such as adding back expenses such as depreciation and amortization and the other items described above. Accordingly, FFO and MFFO should not be considered as alternatives to net income as an indicator of our current and historical operating performance. In addition, FFO and MFFO do not represent cash flows from operating activities determined in accordance with GAAP and should not be considered an indication of our liquidity. We believe FFO and MFFO, in addition to net income and cash flows from operating activities as defined by GAAP, are meaningful supplemental performance measures; however, neither FFO nor MFFO reflects adjustments for the operations of properties sold or under contract to sale during the periods presented. During periods of significant disposition activity, FFO and MFFO are much more limited measures of future performance and dividend sustainability. In connection with our presentation of FFO and MFFO, we are providing information related to the proportion of MFFO related to properties sold in 2021. Although MFFO includes other adjustments, the exclusion of adjustments for straight-line rent, the amortization of above- and below-market leases, and unrealized gains on derivative instruments are the most significant adjustments for the periods presented. We have excluded these items based on the following economic considerations: •Adjustments for straight-line rent. These are adjustments to rental revenue as required by GAAP to recognize contractual lease payments on a straight-line basis over the life of the respective lease. We have excluded these adjustments in our calculation of MFFO to more appropriately reflect the current economic impact of our in-place leases, while also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we expect to receive in a future period or rent that was received in a prior period; •Amortization of above- and below-market leases. Similar to depreciation and amortization of real estate assets and lease related costs that are excluded from FFO, GAAP implicitly assumes that the value of intangible lease assets and liabilities diminishes predictably over time and requires that these charges be recognized currently in revenue. Since market lease rates in the aggregate have historically risen or fallen with local market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate; and •Unrealized gains on derivative instruments. These adjustments include unrealized gains 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. 43
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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 months endedMarch 31, 2022 and 2021, respectively (in thousands). No conclusions or comparisons should be made from the presentation of these periods. For the Three Months Ended March 31, 2022 2021 Net income$ 10,554 $ 27,423 Depreciation of real estate assets 21,334 21,162 Amortization of lease-related costs 5,886 6,237 Unrealized loss on real estate equity securities 17,267 - Gain on sale of real estate, net - (20,459) Adjustment for investment in an unconsolidated entity (1) - 4,516 FFO (2) 55,041 38,879 Straight-line rent and amortization of above- and below-market leases, net (2,404) (2,811) Unrealized gains on derivative instruments (25,788) (5,897) Adjustment for investment in an unconsolidated entity (1) - (3,006) MFFO (2)$ 26,849 $ 27,165 _____________________ (1) Reflects our noncontrolling interest share of adjustments to convert our net income (loss) to FFO and MFFO for our equity investment in an unconsolidated entity. (2) FFO and MFFO exclude our share of the SREIT's FFO and MFFO, respectively, for the period fromJanuary 1, 2022 throughMarch 31, 2022 . OnNovember 9, 2021 , upon our sale of 73,720,000 units in the SREIT, we determined that based on our ownership interest of 18.5% of the outstanding units of the SREIT as of that date, we no longer have significant influence over the operations, financial policies and decision making with respect to the SREIT and therefore, ceased accounting for our investment in the SREIT as an equity method investment on that date. Accordingly, effectiveNovember 9, 2021 , our investment in the units of the SREIT represents an investment in marketable securities and is therefore presented at fair value at each reporting date based on the closing price of the SREIT units on the SGX-ST on that date. As a result, FFO and MFFO related to our investment in the SREIT will be recognized based on dividends declared. FFO and MFFO for the three months endedMarch 31, 2022 reflect the aggregate dividends declared and received from the SREIT inMarch 2022 . Our calculation of MFFO above includes amounts related to the operations of two office properties sold onJanuary 19, 2021 andNovember 2, 2021 , respectively. Please refer to the table below with respect to the proportion of MFFO related to the real estate properties sold during 2021 (in thousands). For the Three Months Ended March 31, 2022 2021 MFFO by component: Assets held for investment$ 26,849 $ 25,804 Real estate properties sold - 1,361 MFFO$ 26,849 $ 27,165 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. 44
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Distributions Distributions declared, distributions paid and cash flow from operating activities were as follows for the first quarter of 2022 (in thousands, except per share amounts): Distributions Distributions Paid (2) Cash Flow from Distributions Declared Per Share Operating Period Declared (1) Cash Reinvested Total Activities First Quarter 2022$ 22,795 $ 0.149$ 16,721 $ 6,266 $ 22,987 $ 7,533 _____________________ (1) Assumes share was issued and outstanding on each monthly record date for distributions during the period presented. For each monthly record date for distributions during the period fromJanuary 1, 2022 throughMarch 31, 2022 , distributions were calculated at a rate of$0.04983333 per share. (2) Distributions are generally paid on a monthly basis. Distributions for the monthly record date of a given month are generally paid on or about the first business day of the following month. For the three months endedMarch 31, 2022 , we paid aggregate distributions of$23.0 million , including$16.7 million of distributions paid in cash and$6.3 million of distributions reinvested through our dividend reinvestment plan. Our net income for the three months endedMarch 31, 2022 was$10.6 million . FFO for the three months endedMarch 31, 2022 was$55.0 million and cash flow from operating activities was$7.5 million . See the reconciliation of FFO to net income above. We funded our total distributions paid, which includes net cash distributions and dividends reinvested by stockholders, with$7.5 million of cash flow from current operating activities and$15.5 million of cash flow from operating activities in excess of distributions paid during prior periods. For purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments. Over the long-term, we generally expect our distributions will be paid from cash flow from operating activities from current periods or prior periods (except with respect to distributions related to sales of our assets and distributions related to the sales or repayment of real estate-related investments). From time to time during our operational stage, we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from debt financing. To the extent that we pay distributions from sources other than our cash flow from operating activities, the overall return to our stockholders may be reduced. Further, our operating performance cannot be accurately predicted and may deteriorate in the future due to numerous factors, including those discussed under "Forward-Looking Statements," "- Market Outlook - Real Estate and Real Estate Finance Markets," "- Liquidity and Capital Resources," and "- Results of Operations" herein, and the risks discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSEC , and those discussed in Part II, Item 1A herein. Those factors include: the future operating performance of our real estate investments in the existing real estate and financial environment; the success and economic viability of our tenants; our ability to refinance existing indebtedness at comparable terms; changes in interest rates on any variable rate debt obligations we incur; the level of participation in our dividend reinvestment plan; and the extent to which the COVID-19 pandemic impacts our operations and those of our tenants and our investment in the SREIT. In the event our FFO and/or cash flow from operating activities decrease in the future, the level of our distributions may also decrease. In addition, future distributions declared and paid may exceed FFO and/or cash flow from operating activities.
Critical Accounting Policies and Estimates
Our consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of theSEC . 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 endedDecember 31, 2021 filed with theSEC . There have been no significant changes to our policies during 2022. 45
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Subsequent Events
We evaluate subsequent events up until the date the consolidated financial statements are issued.
Distributions Paid
OnApril 6, 2022 , we paid distributions of$7.5 million , which related to distributions in the amount of$0.04983333 per share of common stock to stockholders of record as of the close of business onMarch 28, 2022 . OnMay 2, 2022 , we paid distributions of$7.5 million , which related to distributions in the amount of$0.04983333 per share of common stock to stockholders of record as of the close of business onApril 20, 2022 .
Distributions Authorized
OnMay 9, 2022 , our board of directors authorized aMay 2022 distribution in the amount of$0.04983333 per share of common stock to stockholders of record as of the close of business onMay 20, 2022 , which we expect to pay inJune 2022 .
Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.
OnApril 13, 2022 , our board of directors approved an amended and restated share redemption program (the "April 2022 Amended Share Redemption Program") to increase the number of shares eligible for redemption under the program for calendar year 2022. Pursuant to theApril 2022 Amended Share Redemption Program, for calendar year 2022, we may redeem up to 5% of the weighted-average number of shares outstanding during the 2021 calendar year, provided that once we have received requests for redemptions, whether in connection with Special Redemptions or otherwise, that if honored, and when combined with all prior redemptions made during the 2022 calendar year, would result in the number of remaining shares available for redemption in the 2022 calendar year being 500,000 or less, the last 500,000 shares available for redemption shall be reserved exclusively for Special Redemptions. There were no other material changes to our share redemption program. TheApril 2022 Amended Share Redemption Program contains several general limitations on our ability to redeem shares under the program. We may (a) amend, suspend or terminate theApril 2022 Amended Share Redemption Program for any reason, or (b) consistent withSEC guidance and interpretations, increase or decrease the funding available for the redemption of shares pursuant to theApril 2022 Amended Share Redemption Program, each upon ten business days' notice to our stockholders. We may provide notice by including such information in a (i) Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with theSEC or (ii) separate mailing to our stockholders.
The
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PART I. FINANCIAL INFORMATION (CONTINUED)
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