KBS REAL ESTATE INVESTMENT TRUST III, INC. ITEM 8.01 OTHER EVENTS
Distributions Declared
OnSeptember 28, 2022 ,KBS Real Estate Investment Trust III, Inc.'s (the "Company") board of directors authorized aSeptember 2022 distribution in the amount of$0.04983333 per share on the outstanding shares of the Company's common stock to stockholders of record as of the close of business onSeptember 28, 2022 , which the Company expects to pay inOctober 2022 . Investors may choose to receive cash distributions or purchase additional shares through the Company's dividend reinvestment plan.
Estimated Value Per Share
OnSeptember 28, 2022 , the Company's board of directors approved an estimated value per share of the Company's common stock of$9.00 based on (i) appraisals of the Company's 17 real estate properties as ofJuly 31, 2022 (the "Appraised Properties "), the estimated value of the Company's investment in units of Prime US REIT (SGX-ST Ticker: OXMU) as ofSeptember 20, 2022 and the estimated value of the Company's other assets as ofJune 30, 2022 less (ii) the estimated value of the Company's liabilities as ofJune 30, 2022 , all divided by the number of shares outstanding as ofJune 30, 2022 . From the date of the valuations above through the date of this filing, there have been no material changes 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 engagedKroll, LLC (formerly known asDuff & Phelps, LLC ) ("Kroll"), an independent third party real estate valuation firm, to provide (i) appraisals of theAppraised 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 ofSeptember 28, 2022 . Kroll 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, notes payable and other liabilities, which are disclosed in the Company's Quarterly Report on Form 10-Q for the period endedJune 30, 2022 . The appraisal reports Kroll 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 Kroll's 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 Kroll. 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$8.15 to$9.89 , with an approximate mid-range value of$9.00 per share, as determined by Kroll and recommended by the Advisor, which approximate mid-range value was based on Kroll's appraisals of theAppraised Properties , Kroll's valuation of the Company's investment in units of Prime US REIT and valuations performed by the Advisor of the Company's cash, other assets, notes payable and other liabilities, was reasonable and (ii) recommended to the Company's board of directors that it adopt$9.00 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$9.00 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 ofSeptember 28, 2022 as well as the calculation of the Company's prior estimated value per share as ofNovember 1, 2021 . Kroll was not responsible for the determination of the estimated value per share as ofSeptember 28, 2022 orNovember 1, 2021 , respectively. September 28, 2022 November 1, 2021 Change in Estimated Value per Estimated Value per Estimated Value per Share Share (1) Share Real estate properties (2) $ 18.94 $ 19.74 $ (0.80) Investment in Prime US REIT units (3) 0.79 1.45 (0.66) Cash, restricted cash and cash equivalents 0.26 0.25 0.01 Other assets 0.24 0.10 0.14 Notes payable (4) (10.80) (10.17) (0.63) Other liabilities (0.43) (0.59) 0.16 Estimated value per share $ 9.00 $ 10.78 $ (1.78) Estimated enterprise value premium None assumed None assumed None assumed Total estimated value per share $ 9.00 $ 10.78 $ (1.78) _____________________ (1) TheNovember 1, 2021 estimated value per share was based upon a calculation of the range in estimated value per share of the Company's common stock as ofNovember 1, 2021 by Kroll and the recommendation of the Advisor. Kroll based this range in estimated value per share upon (i) its appraisals of 17 of the Company's consolidated real estate properties owned as ofSeptember 30, 2021 , (ii) the contractual sales price less estimated disposition costs and fees of one property that was under contract to sell as ofNovember 1, 2021 , (iii) its estimated value for the Company's investment in units of Prime US REIT and (iv) valuations performed by the Advisor of the Company's cash, other assets, notes payable and other liabilities. For more information relating to theNovember 1, 2021 estimated value per share and the assumptions and methodologies used by Kroll and the Advisor, see the Company's Current Report on Form 8-K filed with theSecurities and Exchange Commission (the "SEC") onNovember 4, 2021 .
(2) The estimated value of the Company's 17 real estate properties as of
(3) The decrease in estimated value of the Company's investment in Prime US REIT units per share is due to the Company's sale of 73,720,000 units onNovember 9, 2021 as well as a decrease in the closing price of the units of Prime US REIT on theSingapore Exchange Securities Trading Limited ("SGX-ST") as ofSeptember 20, 2022 . (4) The increase in the estimated value of notes payable per share is primarily due to an overall decrease in the Company's outstanding shares of common stock as a result of shares redeemed sinceSeptember 30, 2021 pursuant to the Company's share redemption program. 2 -------------------------------------------------------------------------------- The decrease 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 decrease in the estimated value per share from$10.78 to$9.00 . 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 onNovember 2, 2021 , the sale of 73,720,000 units of Prime US REIT onNovember 9, 2021 , debt financings 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 Share
November 1, 2021 estimated value per share $ 10.78
Changes to estimated value per share
Investments
Real estate (1.19)
Investment in Prime US REIT units (0.35)
Capital expenditures on real estate (0.61)
Total change related to investments (2.15)
Distributions declared in excess of modified operating cash flows (1)
(0.02)
Notes payable 0.07
Interest rate swap liability 0.31
Other changes, net 0.01
Total change in estimated value per share $ (1.78)
September 28, 2022 estimated value per share $ 9.00
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(1) Modified operating cash flow reflects modified funds from operations
("MFFO") adjusted to deduct capitalized interest expense, capitalized real
estate taxes and insurance and add back the amortization of deferred financing
costs. The Company computes MFFO in accordance with the definition included in
the practice guideline issued by the IPA in November 2010 .
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 to U.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 1.5%. The estimated value
per share also does not take into consideration acquisition-related costs and
financing costs related to any future acquisitions subsequent to September 28,
2022 . See "Limitations of the Estimated Value per Share" below.
As of September 28, 2022 , 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.
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--------------------------------------------------------------------------------Methodology
The Company's goal for the valuation was to arrive at a reasonable and . . .
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits Ex. Description 99.1 Consent ofKroll, LLC 104 Cover Page Interactive Data File (embedded within the Inline
XBRL document)
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