KBS REAL ESTATE INVESTMENT TRUST III, INC. ITEM 8.01 OTHER EVENTS
Estimated Value Per Share OnMay 13, 2021 ,KBS Real Estate Investment Trust III, Inc.'s (the "Company") board of directors approved an estimated value per share of the Company's common stock of$10.77 based on the estimated value of the Company's assets less the estimated value of the Company's liabilities, or net asset value, divided by the number of shares outstanding, all as ofMarch 31, 2021 , with the exception of adjustments to the Company's net asset value to give effect to the change in the estimated value of the Company's investment in units of Prime US REIT (SGX-ST Ticker: OXMU) as ofApril 29, 2021 . Other than the change in the estimated value of the Company's investment in units of Prime US REIT, there have been no material changes betweenMarch 31, 2021 and the date of this filing to the net values of the Company's assets and liabilities that impacted the overall estimated value per share. The Company is providing this estimated value per share to assist broker-dealers that participated in the Company's now-terminated initial public offering in meeting their customer account statement reporting obligations underFinancial Industry Regulatory Authority ("FINRA") Rule 2231. This valuation was performed in accordance with the provisions of and also to comply with Practice Guideline 2013-01, Valuations of Publicly Registered, Non-Listed REITs, issued by theInstitute for Portfolio Alternatives (formerly known as theInvestment Program Association ) ("IPA") inApril 2013 (the "IPA Valuation Guidelines"). The Company's conflicts committee, composed solely of all of the Company's independent directors, is responsible for the oversight of the valuation process used to determine the estimated value per share of the Company's common stock, including the review and approval of the valuation and appraisal processes and methodologies used to determine the Company's estimated value per share, the consistency of the valuation and appraisal methodologies with real estate industry standards and practices and the reasonableness of the assumptions used in the valuations and appraisals. With the approval of the conflicts committee, the Company engagedDuff & Phelps, LLC ("Duff & Phelps"), an independent third party real estate valuation firm, to provide (i) appraisals for 18 of the Company's consolidated real estate properties owned as ofMarch 31, 2021 (the "Appraised Properties "), (ii) an estimated value for the Company's investment in units of Prime US REIT (described below) and (iii) a calculation of the range in estimated value per share of the Company's common stock as ofMay 13, 2021 . Duff & Phelps based this range in estimated value per share upon (i) its appraisals of theAppraised Properties , (ii) its estimated value for the Company's investment in units of Prime US REIT, and (iii) valuations performed byKBS Capital Advisors LLC , the Company's external advisor (the "Advisor"), of the Company's cash, other assets, mortgage debt and other liabilities, which are disclosed in the Company's Quarterly Report on Form 10-Q for the period endedMarch 31, 2021 . The appraisal reports Duff & Phelps prepared summarized the key inputs and assumptions involved in the appraisal of each of theAppraised Properties . The methodologies and assumptions used to determine the estimated value of the Company's assets and the estimated value of the Company's liabilities are described further below. The conflicts committee reviewed Duff & Phelps' valuation report, which included an appraised value for each of theAppraised Properties , an estimated value of the Company's investment in units of Prime US REIT and a summary of the estimated value of each of the Company's other assets and the Company's liabilities as determined by the Advisor and reviewed by Duff & Phelps. In light of the valuation report and other factors considered by the conflicts committee and the conflicts committee's own extensive knowledge of the Company's assets and liabilities, the conflicts committee: (i) concluded that the range in estimated value per share of$10.05 to$11.46 , with an approximate mid-range value of$10.77 per share, as determined by Duff & Phelps and recommended by the Advisor, which approximate mid-range value was based on Duff & Phelps' appraisals of theAppraised Properties , Duff & Phelps' valuation of the Company's investment in units of Prime US REIT, valuations performed by the Advisor of the Company's cash, other assets, mortgage debt and other liabilities, was reasonable and (ii) recommended to the Company's board of directors that it adopt$10.77 as the estimated value per share of the Company's common stock, which estimated value per share is based on those factors discussed in (i) above. The Company's board of directors unanimously agreed to accept the recommendation of the conflicts committee and approved$10.77 as the estimated value per share of the Company's common stock, which determination is ultimately and solely the responsibility of the board of directors. 1 -------------------------------------------------------------------------------- The table below sets forth the calculation of the Company's estimated value per share as ofMay 13, 2021 as well as the calculation of the Company's prior estimated value per share as ofDecember 7, 2020 . Duff & Phelps was not responsible for the determination of the estimated value per share as ofMay 13, 2021 orDecember 7, 2020 , respectively. May 13, 2021 December 7, 2020 Change in Estimated Value Estimated Value Estimated Value per Share per Share (1) per Share Real estate properties (2) $ 16.62 $ 17.17 $ (0.55) Real estate loan receivable (3) - 0.81 (0.81) Cash, restricted cash and cash equivalents (4) 0.82 0.22 0.60 Investment in Prime US REIT units (5) 1.21 1.12 0.09 Other assets 0.09 0.09 0.00 Mortgage debt (6) (7.48) (8.05) 0.57 Other liabilities (0.49) (0.62) 0.13 Estimated value per share $ 10.77 $ 10.74 $ 0.03 Estimated enterprise value premium None assumed None assumed None assumed Total estimated value per share $ 10.77 $ 10.74 $ 0.03
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(1) TheDecember 7, 2020 estimated value per share was based upon a calculation of the range in estimated value per share of the Company's common stock as ofDecember 7, 2020 by Duff & Phelps and the recommendation of the Advisor. Duff & Phelps based this range in estimated value per share upon (i) its appraisals for 19 of the Company's consolidated real estate properties owned as ofSeptember 30, 2020 , (ii) its estimated value for the Company's investment in units of Prime US REIT and (iii) valuations performed by the Advisor of the Company's real estate loan receivable, cash, other assets, mortgage debt and other liabilities. For more information relating to theDecember 7, 2020 estimated value per share and the assumptions and methodologies used by Duff & Phelps and the Advisor, see Part II, Item 5 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 as filed with theSecurities and Exchange Commission ("SEC"). (2) As ofMarch 31, 2021 , the total appraised value of theAppraised Properties was$3.1 billion . The decrease in the estimated value of real estate properties per share was primarily due to the disposition of an office property, offset by an increase in the appraised value of real estate properties. (3) OnMay 7, 2020 , the Company through a consolidated joint venture (the "Hardware Village Joint Venture") sold a multifamily apartment project ("Hardware Village ") to a buyer unaffiliated with the Hardware Village Joint Venture, the Company or the Advisor. The purchase price was paid in a combination of approximately$27.8 million in cash and approximately$150.2 million in seller financing provided by an indirect wholly owned subsidiary of the Company (the "Lender"). In connection with the sale and seller financing, onMay 7, 2020 , the buyer entered into a promissory note with the Lender for$150.2 million . The promissory note was secured by a first mortgage onHardware Village (the "Hardware Village First Mortgage"). OnDecember 11, 2020 , the buyer/borrower on the Hardware Village First Mortgage exercised its prepayment option available under the promissory note, pursuant to which the buyer/borrower paid off the entire outstanding principal balance and accrued interest in the amount of$150.4 million , without fee, premium or penalty. (4) The increase in the estimated value of cash, restricted cash and cash equivalents per share primarily relates to the net proceeds received from the repayment of the Hardware Village First Mortgage onDecember 11, 2020 and the disposition of an office property onJanuary 19, 2021 . (5) The increase in the estimated value of the Company's investment in Prime US REIT units was primarily due to an increase in the closing price of the Prime US REIT units on the SGX-ST from$0.78 per unit as ofDecember 1, 2020 to$0.85 per unit as ofApril 29, 2021 . (6) The decrease in the estimated value of mortgage debt per share is primarily due to principal repayments on the Company's revolving debt facilities using proceeds from the repayment of the Hardware Village First Mortgage onDecember 11, 2020 . 2 -------------------------------------------------------------------------------- The increase in the Company's estimated value per share from the previous estimate was primarily due to the items noted in the table below, which reflect the significant contributors to the increase in the estimated value per share from$10.74 to$10.77 . The changes are not equal to the change in values of each asset and liability group presented in the table above due to changes in the amount of shares outstanding, the disposition of an office property, the repayment of the Hardware Village First Mortgage, debt repayments and other factors, which caused the value of certain asset or liability groups to change with no impact to the Company's fair value of equity or the overall estimated value per share. Change in Estimated Value per ShareDecember 7, 2020 estimated value per share $
10.74
Changes to estimated value per share Investments Real estate and real estate loan receivable
0.14
Investment in Prime US REIT units
0.11
Capital expenditures on real estate
(0.22)
Total change related to investments 0.03 Mortgage debt (0.04) Interest rate swap liability 0.06 Other changes, net (0.02) Total change in estimated value per share $
0.03
May 13, 2021 estimated value per share $ 10.77 As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties using different assumptions and estimates could derive a different estimated value per share of the Company's common stock, and this difference could be significant. The estimated value per share is not audited and does not represent the fair value of the Company's assets less the fair value of the Company's liabilities according toU.S. generally accepted accounting principles ("GAAP"), nor does it represent a liquidation value of the Company's assets and liabilities or the price at which the Company's shares of common stock would trade on a national securities exchange. The estimated value per share does not reflect a discount for the fact that the Company is externally managed, nor does it reflect a real estate portfolio premium/discount versus the sum of the individual property values. The estimated value per share also does not take into account estimated disposition costs and fees for real estate properties that are not under contract to sell, debt prepayment penalties that could apply upon the prepayment of certain of the Company's debt obligations, the impact of restrictions on the assumption of debt or swap breakage fees that may be incurred upon the termination of certain of the Company's swaps prior to expiration. The Company has generally incurred disposition costs and fees related to the sale of each real estate property since inception of 0.8% to 2.9% of the gross sales price less concessions and credits, with the weighted average being approximately 1.4%. The estimated value per share does not take into consideration acquisition-related costs and financing costs related to any future acquisitions subsequent toMay 13, 2021 . As ofMay 13, 2021 , the Company had no potentially dilutive securities outstanding that would impact the estimated value per share of the Company's common stock. The Company's estimated value per share takes into consideration any potential liability related to a subordinated participation in cash flows the Advisor is entitled to upon meeting certain stockholder return thresholds in accordance with the advisory agreement. For purposes of determining the estimated value per share, the Advisor calculated the potential liability related to this incentive fee 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, and determined that there would be no liability related to the subordinated participation in cash flows. 3 . . . ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (d) Exhibits Ex. Description 99.1 Consent of Duff & Phelps, LLC 11
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