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KBS REAL ESTATE INVESTMENT TRUST III, INC.

(KBSR)
Delayed OTC Markets  -  01:48 2021-12-31 pm EST
6.750 USD   -10.95%
11/18Kbs Real Estate Investment Trust Iii, Inc. : Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K)
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11/09KBS REAL ESTATE INVESTMENT TRUST III, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)
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11/09KBS Real Estate Investment Trust III, Inc. Reports Earnings Results for the Third Quarter and Nine Months Ended September 30, 2022
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KBS REAL ESTATE INVESTMENT TRUST III, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/15/2022 | 06:27am EST
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of KBS Real Estate Investment Trust III, Inc.
and the notes thereto. As used herein, the terms "we," "our" and "us" refer to
KBS Real Estate Investment Trust III, Inc., a Maryland corporation, and, as
required by context, KBS Limited Partnership III, 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 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 continues to be one of the most significant risks and
uncertainties facing the real estate industry generally, and in particular
office REITs like our company. We cannot predict to what extent economic
activity, including the use of and demand for office space, will return 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.

•We are dependent on KBS Capital Advisors LLC ("KBS Capital Advisors"), our advisor, to conduct our operations.


•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.

•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.

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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)
•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. Since March 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 traded
Singapore 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. Since March
2020, the trading price of the common units of the SREIT has experienced
substantial volatility.

•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, including the current economic
slowdown, the rising interest rate environment and inflation (or the public
perception that any of these events may continue) as well as 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. 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.

•In December 2019, our board of directors determined to temporarily suspend
Ordinary Redemptions (defined below) under the share redemption program, and
Ordinary Redemptions remained suspended through June 30, 2021. Ordinary
Redemptions are all redemptions other than those that qualify for the special
provisions for redemptions sought in connection with a stockholder's death,
"Qualifying Disability" or "Determination of Incompetence" (each as defined in
the share redemption program and, together, "Special Redemptions"). Further, on
June 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. On July 14, 2021, our board of directors approved an amended and
restated share redemption program and Ordinary Redemptions and Special
Redemptions resumed effective for the July 30, 2021 redemption date. As of
August 1, 2022, we had exhausted the funds available under the share redemption
program for Ordinary Redemptions for calendar year 2022, and we had
approximately 428,000 shares available for Special Redemptions for the remainder
of 2022. As of August 1, 2022, we had a total of $4.7 million of outstanding and
unfulfilled Ordinary Redemption requests, representing approximately 457,000
shares. We will not be able to redeem shares submitted as Ordinary Redemptions
for the remainder of 2022. 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 ended
December 31, 2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q
for the period ended March 31, 2022, each as filed with the Securities and
Exchange Commission (the "SEC").

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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)
Overview

We were formed on December 22, 2009 as a Maryland corporation that elected to be
taxed as a real estate investment trust ("REIT") beginning with the taxable year
ended December 31, 2011 and we intend to continue to operate in such a manner.
We conduct our business primarily through our Operating 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 June 30, 2022, we owned 16 office properties, one mixed-use office/retail property and an investment in the equity securities of the SREIT.


On February 4, 2010, we filed a registration statement on Form S-11 with the SEC
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 on May 29, 2015
and terminated the primary offering on July 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 of June 30, 2022, we had also sold 42,324,144 shares of common stock under our dividend reinvestment plan for gross offering proceeds of $437.1 million. Also as of June 30, 2022, we had redeemed or repurchased 72,056,406 shares for $764.5 million.


Additionally, on October 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.

Based on our assessment of alternatives available to us, market conditions, our
further assessment of our capital raising prospects, uncertainty as a result of
the COVID-19 pandemic's impact on work-from-home arrangements and the impact of
such arrangements on the U.S. office market, and the current state of the debt
capital markets, our conflicts committee and board of directors may conclude
that it would be in the best interest of our stockholders to (i) continue to
operate as a going concern under our current business plan, or (ii) 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), although we
would not anticipate adopting a plan of liquidation in the immediate future. In
addition, at this time it is not likely we will pursue a conversion to an "NAV
REIT". However, our conflicts committee and board of directors continue to
evaluate all alternatives available to us. 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. Although we remain focused on providing
stable distributions and 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 by September 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, on August 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.


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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)
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 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. Increases in
the cost of financing due to higher interest rates will prevent us from
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 as well as the
current economic slowdown, the rising interest rate environment and inflation
(or the public perception that any of these events may continue) have had a
negative impact on the office real estate market as discussed below.

COVID-19 Pandemic and Portfolio Outlook


One of the most significant risks and uncertainties facing 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 ended December 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 early March 2020, the trading price of the
common units of the SREIT has experienced substantial volatility. As of August
12, 2022, the aggregate value of our investment in the units of the SREIT was
$143.5 million, which was based solely on the closing price of the units on the
SGX-ST of $0.665 per unit as of August 12, 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 and for
the first and second quarters of 2022, 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 of June 30, 2022, we
held 215,841,899 units of the SREIT which represented 18.4% of the outstanding
units of the SREIT as of that date.

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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)
As of June 30, 2022, we had mortgage debt obligations in the aggregate principal
amount of $1.6 billion, with a weighted-average remaining term of 1.3 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 of June 30, 2022, we had $249.1 million of notes payable related to the
Modified Portfolio Revolving Loan Facility maturing during the 12 months ending
June 30, 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 of June 30, 2022, our debt obligations consisted of
$123.0 million of fixed rate notes payable and $1.5 billion of variable rate
notes payable. As of June 30, 2022, the interest rates on $1.1 billion of our
variable rate notes payable were effectively fixed through interest rate swap
agreements. As of June 30, 2022, we had $181.1 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 six months ended
June 30, 2022 using cash flow from operations from current and prior periods and
proceeds from debt financing. 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 ended June 30, 2022 did not exceed the
charter-imposed limitation.

Cash Flows from Operating Activities


During the six months ended June 30, 2022 and 2021, net cash provided by
operating activities was $23.5 million and $44.0 million, respectively. Net cash
provided by operating activities was lower during the six months ended June 30,
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
in November 2021, the timing of payments of lease commissions and deferred asset
management fees and the disposition of Domain Gateway in November 2021.

Cash Flows from Investing Activities

Net cash used in investing activities was $54.4 million for the six months ended June 30, 2022 due to improvements to real estate.

Cash Flows from Financing Activities

During the six months ended June 30, 2022, net cash provided by financing activities was $23.0 million and primarily consisted of the following:


•$131.0 million of net cash provided by debt financing as a result of proceeds
from notes payable of $148.2 million, partially offset by principal payments on
notes payable of $17.1 million and payments of deferred financing costs of $0.1
million; offset by

•$76.6 million of cash used for redemptions of common stock;

•$30.1 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $15.4 million; and

•$1.2 million used for interest rate swap settlements for off-market swap instruments.


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 of June 30, 2022, our borrowings and other
liabilities were approximately 57% of both the cost (before deducting
depreciation and other noncash reserves) and book value (before deducting
depreciation) of our tangible assets.

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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)
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 from March 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 the Institute for Portfolio Alternatives ("IPA") in
November 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 of June 30, 2022, we had accrued $4.9 million of asset management fees, of
which $4.3 million was deferred as of June 30, 2022, pursuant to the provision
for deferral of asset management fees under the Advisory Agreement. For the
three and six months ended June 30, 2022, we and our advisor agreed to adjust
MFFO for the purpose of the calculation above to add back the following
non-operating expenses: a one-time write-off of prepaid offering costs of $2.7
million and a $0.5 million fee to the conflicts committee's financial advisor in
connection with the conflicts committee's review of alternatives available to
us. 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.

On September 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.

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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)
Debt Obligations

The following is a summary of our debt obligations as of June 30, 2022 (in thousands):

Payments Due During the Years Ended December 31,

                                                                   Remainder of
Debt Obligations                                 Total                 2022               2023-2024           2025-2026           Thereafter
Outstanding debt obligations (1)             $ 1,603,365          $        

871 $ 1,602,494 $ - $ - Interest payments on outstanding debt obligations (2) (3)

                               74,167                28,191               45,976                  -                    -
Interest payments on interest rate
swaps (4) (5)                                        574                   574                    -                  -                    -


_____________________

(1) Amounts include principal payments only based on maturity dates as of June 30, 2022; subject to certain conditions, the maturity dates of certain loans may be extended beyond what is shown above.


(2) Projected interest payments are based on the outstanding principal amounts,
maturity dates and interest rates in effect as of June 30, 2022 (consisting of
the contractual interest rate and using interest rate indices as of June 30,
2022, where applicable).

(3) We incurred interest expense related to notes payable of $17.9 million, excluding amortization of deferred financing costs totaling $1.9 million during the six months ended June 30, 2022.


(4) Projected interest payments on interest rate swaps are calculated based on
the notional amount, effective term of the swap contract, and fixed rate net of
the swapped floating rate in effect as of June 30, 2022. In the case where the
swapped floating rate (one-month LIBOR) at June 30, 2022 is higher than the
fixed rate in the swap agreement, interest payments on interest rate swaps in
the above debt obligations table would reflect zero as we would not be obligated
to make any interest payments on those swaps and instead expect to receive
payments from our swap counter-parties.

(5) We incurred realized losses related to interest rate swaps of $7.0 million,
excluding unrealized gains on derivative instruments of $35.9 million, during
the six months ended June 30, 2022.


Results of Operations

Overview

As of June 30, 2021, we owned 17 office properties, one mixed-use office/retail
property and an investment in the equity securities of the SREIT, which was
accounted for as an investment in an unconsolidated entity under the equity
method of accounting at that time. Subsequent to June 30, 2021, we sold one
office property and, through our indirect wholly owned subsidiary ("REIT
Properties III"), we sold 73,720,000 of our units in the SREIT, reducing REIT
Properties III's ownership in the SREIT to 18.5% as of the transaction date. As
a result, as of June 30, 2022, we owned 16 office properties, one mixed-use
office/retail property and an investment in the equity securities of the SREIT.
As a result of our reduced ownership in the SREIT, our investment in the equity
securities of the SREIT is now presented at fair value at each reporting date
based on the closing price of the SREIT units on the SGX-ST on that date.
Therefore, the results of operations presented for the three and six months
ended June 30, 2022 and 2021 are not directly comparable.

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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)
Comparison of the three months ended June 30, 2022 versus the three months ended
June 30, 2021

The following table provides summary information about our results of operations
for the three months ended June 30, 2022 and 2021 (dollar amounts in thousands):



                                                                                                                                 $ Changes
                                                                                                                                   Due to
                                                 Three Months Ended                                                           Dispositions of
                                                      June 30,                                                                 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                              $   68,187          $ 69,774          $    (1,587)                     (2) %       $      (2,418)         $           831
Other operating income                          4,551             4,080                  471                      12  %                   -                      471
Operating, maintenance and
management                                     17,456            16,202                1,254                       8  %                 (23)            

1,277

Real estate taxes and insurance                14,114            14,000                  114                       1  %                 (18)            

132

Asset management fees to affiliate              4,985             4,944                   41                       1  %                (112)            

153

General and administrative expenses             2,014             1,880                  134                       7  %                    n/a                      n/a
Depreciation and amortization                  26,638            27,920               (1,282)                     (5) %                (837)                    (445)
Interest expense                               11,170             8,345                2,825                      34  %                (174)                   2,999

Net (gain) loss on derivative
instruments                                    (7,469)              554               (8,023)                 (1,448) %                   -             

(8,023)

Unrealized loss on real estate
equity securities                             (17,268)                -              (17,268)                   (100) %                   -             

(17,268)

Write-off of prepaid offering costs            (2,728)                -               (2,728)                   (100) %                    n/a                      n/a
Equity in income of an
unconsolidated entity                               -                63                  (63)                   (100) %                 (63)                       -

Other interest income                               9                16                   (7)                    (44) %                    n/a                      n/a


_____________________

(1) Represents the dollar amount increase (decrease) for the three months ended
June 30, 2022 compared to the three months ended June 30, 2021 related to
dispositions of properties after April 1, 2021 and ceasing of equity method of
accounting related to our investment in the units of the SREIT for periods after
November 9, 2021.

(2) Represents the dollar amount increase (decrease) for the three months ended
June 30, 2022 compared to the three months ended June 30, 2021 related to real
estate investments owned by us throughout both periods presented.

Rental income from our real estate properties decreased from $69.8 million for
the three months ended June 30, 2021 to $68.2 million for the three months ended
June 30, 2022. The decrease in rental income was primarily due to the
disposition of Domain Gateway in November 2021, partially offset by an increase
in rental income related to a lease termination fee received during the three
months ended June 30, 2022 with respect a property 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."

Other operating income increased from $4.1 million for the three months ended
June 30, 2021 to $4.6 million for the three months ended June 30, 2022,
primarily due to an increase in parking revenues for properties held throughout
both periods. We expect other operating income to vary in future periods based
on occupancy rates and parking rates at our real estate properties, and business
disruptions or recoveries as a result of the COVID-19 pandemic.

Operating, maintenance and management costs increased from $16.2 million for the
three months ended June 30, 2021 to $17.5 million for the three months ended
June 30, 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 general inflation and an increase
in physical occupancy at properties held throughout both periods. 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.

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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)
Real estate taxes and insurance increased from $14.0 million for the three
months ended June 30, 2021 to $14.1 million for the three months ended June 30,
2022, primarily due to a net increase in real estate taxes as a result of higher
property tax assessments for real estate properties held throughout both periods
and an overall increase in insurance expense, offset by property tax refunds
received during the three months ended June 30, 2022. We expect real estate
taxes and insurance to increase in future periods as a result of general
inflation and general increases due to future property tax reassessments for
properties that we continue to own.

Asset management fees with respect to our real estate investments increased from
$4.9 million for the three months ended June 30, 2021 to $5.0 million for the
three months ended June 30, 2022, primarily due to capital improvements at
properties held throughout both periods, offset by the disposition of Domain
Gateway in November 2021. We expect asset management fees to increase in future
periods as a result of any improvements we make to our properties and to
decrease to the extent we dispose of properties. As of June 30, 2022, there were
$4.9 million of accrued asset management fees, of which $4.3 million was
deferred as of June 30, 2022. For a discussion of accrued and deferred asset
management fees, see "- Liquidity and Capital Resources" herein.

General and administrative expenses increased from $1.9 million for the three
months ended June 30, 2021 to $2.0 million for the three months ended June 30,
2022, primarily due to professional fees incurred related to our conflicts
committee's and board of directors' evaluation of various alternatives available
to us, offset by a decrease in appraisal fees related to the update of our
estimated value per share in May 2021 and a decrease in legal fees and proxy
costs. General and administrative costs consisted primarily of portfolio legal
fees, board of directors fees, and third party transfer agent fees. We expect
general and administrative expenses to vary in future periods.

Depreciation and amortization decreased from $27.9 million for the three months
ended June 30, 2021 to $26.6 million for the three months ended June 30, 2022,
primarily as a result of the disposition of Domain Gateway in November 2021 and
a decrease in depreciation and amortization due to a lease expiration at a
property held throughout both periods. We expect depreciation and amortization
to 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 ended June 30,
2021 to $11.2 million for the three months ended June 30, 2022. Included in
interest expense was (i) $7.3 million and $10.3 million of interest expense
payments for the three months ended June 30, 2021 and 2022, respectively, and
(ii) the amortization of deferred financing costs of $1.0 million and
$0.9 million for the three months ended June 30, 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 ended June 30, 2022, and its impact on interest
expense related to the portion of our unhedged 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.

We recorded net loss on derivative instruments of $0.6 million and net gain on
derivative instruments of $7.5 million for the three months ended June 30, 2021
and 2022, respectively. Included in net (gain) loss on derivative instruments
was (i) unrealized gain on interest rate swaps of $3.9 million and $10.1 million
for the three months ended June 30, 2021 and 2022, respectively, offset by (ii)
$4.5 million and $2.6 million of realized loss on interest rate swaps for the
three months ended June 30, 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 ended June 30, 2022. In general, we expect net
gains or losses 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 ended June 30, 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 on the SGX-ST.

During the three months ended June 30, 2022, we recorded $2.7 million related to
the write-off of prepaid offering costs. Given changing market conditions, we
continue to evaluate various alternatives available to us. See "-Overview." In
order to avoid additional legal, accounting and other offering costs while we
make this determination, we withdrew our registration statement on Form S-11 to
register a public offering as an NAV REIT, which had been filed with the SEC, as
at this time it is not likely we will pursue a conversion to an "NAV REIT."

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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)
Comparison of the six months ended June 30, 2022 versus the six months ended
June 30, 2021

The following table provides summary information about our results of operations
for the six months ended June 30, 2022 and 2021 (dollar amounts in thousands):



                                                                                                                                  $ Changes
                                                                                                                                    Due to
                                                   Six Months Ended                                                            Dispositions of
                                                       June 30,                                                                 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                               $ 137,042          $ 140,858          $    (3,816)                     (3) %       $      (5,010)         $        1,194
Dividend income from real estate
equity securities                               7,252                  -                7,252                     100  %                   -                   7,252
Other operating income                          8,744              7,731                1,013                      13  %                 (94)                  1,107
Operating, maintenance and management          34,832             32,065                2,767                       9  %                (216)           

2,983

Real estate taxes and insurance                28,162             28,379                 (217)                     (1) %                (121)           

(96)

Asset management fees to affiliate              9,861              9,839                   22                       -  %                (261)           

283

General and administrative expenses             3,800              3,602                  198                       5  %                    n/a                     n/a
Depreciation and amortization                  53,858             55,319               (1,461)                     (3) %              (1,592)                    131
Interest expense                               19,826             16,678                3,148                      19  %                (348)                  3,496
Net gain on derivative instruments            (28,938)              (964)             (27,974)                  2,902  %                   -            

(27,974)

Unrealized loss on real estate equity
securities                                    (34,535)                 -              (34,535)                   (100) %                   -            

(34,535)


Write-off of prepaid offering costs            (2,728)                 -               (2,728)                   (100) %                    n/a                     n/a
Equity in income of an unconsolidated
entity                                              -              3,350               (3,350)                   (100) %              (3,350)                      -
Gain on sale of real estate, net                    -             20,459              (20,459)                   (100) %             (20,459)                      -
Other income                                        6                  -                    6                     100  %                    n/a                     n/a
Other interest income                              17                 31                  (14)                    (45) %                    n/a                     n/a


_____________________

(1) Represents the dollar amount increase (decrease) for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021 related to
dispositions of properties after January 1, 2021 and ceasing of equity method of
accounting related to our investment in the units of the SREIT for periods after
November 9, 2021.

(2) Represents the dollar amount increase (decrease) for the six months ended
June 30, 2022 compared to the six months ended June 30, 2021 related to real
estate investments owned by us throughout both periods presented.

Rental income from our real estate properties decreased from $140.9 million for
the six months ended June 30, 2021 to $137.0 million for the six months ended
June 30, 2022. The decrease in rental income was primarily due to the
dispositions of real estate properties subsequent to January 1, 2021, partially
offset by a net increase in rental income related to lease commencements
subsequent to June 30, 2021 and an increase in operating recoveries with respect
to properties held throughout both periods. We expect rental income to vary
based on occupancy rates and rental rates of our real estate investments and
uncertainty and business disruptions or recoveries as a result of the COVID-19
pandemic and to increase due to tenant reimbursements related to operating
expenses as physical occupancy increases as employees return to the office. See
"Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19
Pandemic and Portfolio Outlook."

Dividend income from our real estate equity securities was $7.3 million for the
six months ended June 30, 2022. On November 9, 2021, upon our sale of 73,720,000
units in the SREIT, we determined that based on our ownership interest of 18.5%
of the outstanding units of the SREIT as of that date, we no longer had
significant influence over the operations, financial policies and decision
making with respect to the SREIT. Accordingly, effective November 9, 2021, our
investment in the units of the SREIT represents an investment in marketable
securities and is therefore presented at fair value at each reporting date based
on the closing price of the SREIT units on the SGX-ST on that date and dividend
income is recognized as it is declared based on eligible units as of the
ex-dividend date. Prior to November 9, 2021, our investment in the SREIT was
accounted for under the equity method of accounting.

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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)
Other operating income increased from $7.7 million for the six months ended
June 30, 2021 to $8.7 million for the six months ended June 30, 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 in January 2021. We expect other operating income to vary in
future periods based on occupancy rates and parking rates at our real estate
properties, and business disruptions or recoveries as a result of the COVID-19
pandemic.

Operating, maintenance and management costs increased from $32.1 million for the
six months ended June 30, 2021 to $34.8 million for the six months ended
June 30, 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 general inflation, 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
dispositions of real estate properties subsequent to January 1, 2021. We expect
operating, maintenance and management costs to increase in future periods as a
result of general inflation and as physical occupancy increases as employees
return to the office.

Real estate taxes and insurance decreased from $28.4 million for the six months
ended June 30, 2021 to $28.2 million for the six months ended June 30, 2022,
primarily due to an insurance credit and property tax refunds received during
the six months ended June 30, 2022 and the disposition of Anchor Centre in
January 2021, offset by a net increase in real estate taxes as a result of
higher property tax assessments for real estate 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 increased from $9.8 million for the six months ended
June 30, 2021 to $9.9 million for the six months ended June 30, 2022, primarily
due to capital improvements at properties held throughout both periods, offset
by the dispositions of real estate properties subsequent to January 1, 2021. We
expect asset management fees to increase in future periods as a result of any
improvements we make to our properties. As of June 30, 2022, there were
$4.9 million of accrued asset management fees, of which $4.3 million was
deferred as of June 30, 2022. For a discussion of accrued and deferred asset
management fees, see "- Liquidity  and Capital Resources" herein.

General and administrative expenses increased from $3.6 million for the six
months ended June 30, 2021 to $3.8 million for the six months ended June 30,
2022, primarily due to professional fees incurred related to our conflicts
committee's and board of directors' evaluation of various alternatives available
to us, offset by a decrease in proxy costs. General and administrative costs
consisted primarily of portfolio legal fees, board of directors fees, and third
party transfer agent fees. We expect general and administrative expenses to vary
in future periods.

Depreciation and amortization decreased from $55.3 million for the six months
ended June 30, 2021 to $53.9 million for the six months ended June 30, 2022,
primarily as a result of the disposition of Domain Gateway in November 2021. 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 $16.7 million for the six months ended June 30,
2021 to $19.8 million for the six months ended June 30, 2022. Included in
interest expense was (i) $14.7 million and $17.9 million of interest expense
payments for the six months ended June 30, 2021 and 2022, respectively, and (ii)
the amortization of deferred financing costs of $2.0 million and $1.9 million
for the six months ended June 30, 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 BSBY during the six months ended June 30, 2022, and its
impact on interest expense related to the portion of our unhedged 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 $1.0 million for the six
months ended June 30, 2021 to $28.9 million for the six months ended June 30,
2022. Included in net gain on derivative instruments was (i) unrealized gain on
interest rate swaps of $9.9 million and $35.9 million for the six months ended
June 30, 2021 and 2022, respectively, offset by (ii) $8.9 million and
$7.0 million of realized loss on interest rate swaps for the six months ended
June 30, 2021 and 2022, respectively. The 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
six months ended June 30, 2022. In general, we expect net gains or losses 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 six months ended June 30, 2022, we recorded an unrealized loss on
real estate equity securities of $34.5 million as a result of the decrease in
the closing price of the units of the SREIT on the SGX-ST.

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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)
During the six months ended June 30, 2022, we recorded $2.7 million related to
the write-off of prepaid offering costs. Given changing market conditions, we
continue to evaluate various alternatives available to us. See "-Overview." In
order to avoid additional legal, accounting and other offering costs while we
make this determination, we withdrew our registration statement on Form S-11 to
register a public offering as an NAV REIT, which had been filed with the SEC, as
at this time it is not likely we will pursue a conversion to an "NAV REIT."

During the six months ended June 30, 2021, we recorded equity in income of an
unconsolidated entity of $3.4 million related to our investment in the SREIT. As
discussed above, effective November 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
of June 30, 2022, based on the closing price of the SREIT units on the SGX-ST on
that date.

We recognized a gain on sale of real estate of $20.5 million related to the disposition of Anchor Centre during the six months ended June 30, 2021. We did not dispose of any real estate during the six months ended June 30, 2022.

Funds from Operations and Modified Funds from Operations


We believe that funds from operations ("FFO") is a beneficial indicator of the
performance of an equity REIT. We compute FFO in accordance with the current
National Association of Real Estate Investment Trusts ("NAREIT") definition. FFO
represents net income, excluding gains and losses from sales of operating real
estate assets (which can vary among owners of identical assets in similar
conditions based on historical cost accounting and useful-life estimates), gains
and losses from change in control, impairment losses on real estate assets,
depreciation and amortization of real estate assets, and adjustments for
unconsolidated partnerships and joint ventures. In addition, we elected the
option to exclude mark-to-market changes in value recognized on real estate
equity securities in the calculation of FFO. We believe FFO facilitates
comparisons of operating performance between periods and among other REITs.
However, our computation of FFO may not be comparable to other REITs that do not
define FFO in accordance with the NAREIT definition or that interpret the
current NAREIT definition differently than we do. Our management believes that
historical cost accounting for real estate assets in accordance with U.S.
generally accepted accounting principles ("GAAP") implicitly assumes that the
value of real estate assets diminishes predictably over time. Since real estate
values have historically risen or fallen with market conditions, many industry
investors and analysts have considered the presentation of operating results for
real estate companies that use historical cost accounting to be insufficient by
themselves. As a result, we believe that the use of FFO, together with the
required GAAP presentations, provides a more complete understanding of our
performance relative to our competitors and provides a more informed and
appropriate basis on which to make decisions involving operating, financing, and
investing activities.

Changes in accounting rules have resulted in a substantial increase in the
number of non-operating and non-cash items included in the calculation of FFO.
As a result, our management also uses MFFO as an indicator of our ongoing
performance as well as our dividend sustainability. MFFO excludes from FFO:
acquisition fees and expenses (to the extent that such fees and expenses have
been recorded as operating expenses); adjustments related to contingent purchase
price obligations; amounts relating to straight-line rents and amortization of
above and below market intangible lease assets and liabilities; accretion of
discounts and amortization of premiums on debt investments; amortization of
closing costs relating to debt investments; impairments of real estate-related
investments; mark-to-market adjustments included in net income; and gains or
losses included in net income for the extinguishment or sale of debt or hedges.
We compute MFFO in accordance with the definition of MFFO included in the
practice guideline issued by the IPA in November 2010 as interpreted by
management. Our computation of MFFO may not be comparable to other REITs that do
not compute MFFO in accordance with the current IPA definition or that interpret
the current IPA definition differently than we do.

We believe that MFFO is helpful as a measure of ongoing operating performance
because it excludes costs that management considers more reflective of investing
activities and other non-operating items included in FFO. Management believes
that excluding acquisition fees and expenses (to the extent that such fees and
expenses have been recorded as operating expenses) from MFFO provides investors
with supplemental performance information that is consistent with management's
analysis of the operating performance of the portfolio over time. 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.

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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)
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.

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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 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 six months ended June 30, 2022 and 2021,
respectively (in thousands). No conclusions or comparisons should be made from
the presentation of these periods.

                                                     For the Three Months Ended                 For the Six Months Ended
                                                              June 30,                                  June 30,
                                                       2022                 2021                 2022                2021
Net (loss) income                               $       (16,157)         $     88          $      (5,603)         $ 27,511
Depreciation of real estate assets                       21,616            21,596                 42,950            42,758
Amortization of lease-related costs                       5,022             6,324                 10,908            12,561

Unrealized loss on real estate equity
securities                                               17,268                 -                 34,535                 -
Gain on sale of real estate, net                              -                 -                      -           (20,459)
Adjustment for investment in an unconsolidated
entity (1)                                                    -             4,513                      -             9,029
FFO (2) (3)                                              27,749            32,521                 82,790            71,400
Straight-line rent and amortization of above-
and below-market leases, net                             (2,931)           (1,905)                (5,335)           (4,716)

Unrealized gains on derivative instruments              (10,082)           (3,933)               (35,870)           (9,830)

Adjustment for investment in an unconsolidated
entity (1)                                                    -               293                      -            (2,713)
MFFO (2) (3)                                    $        14,736          $ 26,976          $      41,585          $ 54,141


_____________________

(1) Reflects our noncontrolling interest share of adjustments to convert our net
income (loss) to FFO and MFFO 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 from January 1, 2022 through June 30, 2022. On November 9, 2021,
upon our sale of 73,720,000 units in the SREIT, we determined that based on our
ownership interest of 18.5% of the outstanding units of the SREIT as of that
date, we no longer have significant influence over the operations, financial
policies and decision making with respect to the SREIT and therefore, ceased
accounting for our investment in the SREIT as an equity method investment on
that date. Accordingly, effective November 9, 2021, our investment in the units
of the SREIT represents an investment in marketable securities and is therefore
presented at fair value at each reporting date based on the closing price of the
SREIT units on the SGX-ST on that date. As a result, FFO and MFFO related to our
investment in the SREIT will be recognized based on dividends declared. FFO and
MFFO for the three and six months ended June 30, 2022 reflect the aggregate
dividends declared and received from the SREIT for the three and six months
ended June 30, 2022.

(3) FFO and MFFO for the three and six months ended June 30, 2022 includes a
one-time write-off of prepaid offering costs of $2.7 million and a $0.5 million
fee to the conflicts committee's financial advisor in connection with the
conflicts committee's review of alternatives available to us. Given changing
market conditions, we continue to evaluate various alternatives available to us.
See "-Overview." In order to avoid additional legal, accounting and other
offering costs while we make this determination, we withdrew our registration
statement on Form S-11 to register a public offering as an NAV REIT, which had
been filed with the SEC, as at this time it is not likely we will pursue a
conversion to an "NAV REIT."

Our calculation of MFFO above includes amounts related to the operations of two
office properties sold on January 19, 2021 and November 2, 2021, respectively.
Please refer to the table below with respect to the proportion of MFFO related
to the real estate properties sold during 2021 (in thousands).

                                                     For the Three Months Ended                 For the Six Months Ended
                                                              June 30,                                  June 30,
                                                       2022                 2021                 2022                2021
MFFO by component:
Assets held for investment                       $       14,736          $ 25,648          $      41,585          $ 51,452
Real estate properties sold                                   -             1,328                      -             2,689

MFFO                                             $       14,736          $ 26,976          $      41,585          $ 54,141



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

                                       45

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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)
Distributions

Distributions declared, distributions paid and cash flow from operating activities were as follows for the first and second quarters 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
Second Quarter 2022                              22,336                       0.149            13,336                9,139            22,475                  15,996

                                        $        45,131          $            0.298          $ 30,057          $    15,405          $ 45,462          $       23,529


_____________________

(1) Assumes share was issued and outstanding on each monthly record date for distributions during the period presented. For each monthly record date for distributions during the period from January 1, 2022 through June 30, 2022, distributions were calculated at a rate of $0.04983333 per share.


(2) Distributions are generally paid on a monthly basis. Distributions for the
monthly record date of a given month are generally paid on or about the first
business day of the following month.

For the six months ended June 30, 2022, we paid aggregate distributions of
$45.5 million, including $30.1 million of distributions paid in cash and
$15.4 million of distributions reinvested through our dividend reinvestment
plan. Our net loss for the six months ended June 30, 2022 was $5.6 million. FFO
for the six months ended June 30, 2022 was $82.8 million and cash flow from
operating activities was $23.5 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 $23.5 million of
cash flow from current operating activities, $17.3 million of cash flow from
operating activities in excess of distributions paid during prior periods and
$4.7 million of proceeds from debt financing. For purposes of determining the
source of our distributions paid, we assume first that we use cash flow from
operating activities from the relevant or prior periods to fund distribution
payments.

Over the long-term, we generally expect 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 ended
December 31, 2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q
for the period ended March 31, 2022, each as filed with the SEC. Those factors
include: the future operating performance of our real estate investments in the
existing real estate and financial environment; the success and economic
viability of our tenants; our ability to refinance existing indebtedness at
comparable terms; changes in interest rates on any variable rate debt
obligations we incur; 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 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, 2021
filed with the SEC. There have been no significant changes to our policies
during 2022.
                                       46

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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)
Subsequent Events

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

Distributions Paid


On July 1, 2022, we paid distributions of $7.4 million, which related to
distributions in the amount of $0.04983333 per share of common stock to
stockholders of record as of the close of business on June 27, 2022. On August
1, 2022, we paid distributions of $7.4 million, which related to distributions
in the amount of $0.04983333 per share of common stock to stockholders of record
as of the close of business on July 26, 2022.

Distributions Authorized

On August 11, 2022, our board of directors authorized an August 2022 distribution in the amount of $0.04983333 per share of common stock to stockholders of record as of the close of business on August 19, 2022, which we expect to pay in September 2022.

Investors may choose to receive cash distributions or purchase additional shares through our dividend reinvestment plan.

                                       47

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Table of Contents

PART I. FINANCIAL INFORMATION (CONTINUED)

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