The following discussion and analysis should be read in conjunction with the
accompanying financial statements of KBS Real Estate Investment Trust II, Inc.
and the notes thereto. As used herein, the terms "we," "our" and "us" refer to
KBS Real Estate Investment Trust II, Inc., a Maryland corporation, and, as
required by context, KBS Limited Partnership II, 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 II, Inc. and members of our management team, as well as the assumptions on
which such statements are based, and generally are identified by the use of
words such as "may," "will," "seeks," "anticipates," "believes," "estimates,"
"expects," "plans," "intends," "should" or similar expressions. Actual results
may differ materially from those contemplated by such forward-looking
statements. Further, forward-looking statements speak only as of the date they
are made, and we undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results over time, unless required by law.
Moreover, you should interpret many of the risks identified in this report, as
well as the risks set forth below, as being heightened as a result of the
ongoing and numerous adverse impacts of the COVID-19 pandemic.
The following are some of the risks and uncertainties, although not all of the
risks and uncertainties, that could cause our actual results to differ
materially from those presented in our forward-looking statements:
•The COVID-19 pandemic, together with the resulting measures imposed to help
control the spread of the virus, including quarantines, "shelter-in-place" and
"stay-at-home" orders, travel restrictions, restrictions on businesses and
school closures, has had a negative impact on the economy and business activity
globally. The extent to which the COVID-19 pandemic impacts our operations and
those of our tenants and our implementation of the Plan of Liquidation (defined
below) depends on future developments, which are highly uncertain and cannot be
predicted with confidence, including the scope, severity and duration of the
pandemic, the actions taken to contain the pandemic or mitigate its impact, and
the direct and indirect economic effects of the pandemic and containment
measures, among others.
•Although our board of directors and our stockholders have approved the sale of
all of our assets and our dissolution pursuant to the Plan of Liquidation, we
can give no assurance that we will be able to successfully implement the Plan of
Liquidation and sell our assets, pay our debts and distribute the net proceeds
from liquidation to our stockholders as we expect. If we underestimated our
existing obligations and liabilities or if unanticipated or contingent
liabilities arise, the amount of liquidating distributions ultimately paid to
our stockholders could be less than estimated. Given the uncertainty and current
business disruptions as a result of the outbreak of COVID-19, our implementation
of the Plan of Liquidation may be materially and adversely impacted and this may
have a material effect on the ultimate amount and timing of liquidating
distributions received by stockholders.
•We may face unanticipated difficulties, delays or expenditures relating to our
implementation of the Plan of Liquidation, which may reduce or delay our payment
of liquidating distributions.
•We can give no assurance regarding the timing of asset dispositions in
connection with the implementation of the Plan of Liquidation, the sale prices
we will receive for our assets and the amount and timing of liquidating
distributions to be received by our stockholders, which risks are heightened as
a result of the outbreak of COVID-19.
•We may face risks associated with legal proceedings, including stockholder
litigation, that may be instituted against us related to the Plan of
Liquidation.
•All of our executive officers, one of our directors and other key real estate
and debt finance professionals are also officers, directors, managers, key
professionals and/or holders of a direct or indirect controlling interest in our
advisor, the entity that acted as our dealer manager and/or other KBS-affiliated
entities. As a result, they face conflicts of interest, including significant
conflicts created by our advisor's compensation arrangements with us and other
KBS-sponsored programs and KBS-advised investors and conflicts in allocating
time among us and these other programs and investors. These conflicts could
result in unanticipated actions.
•We pay substantial fees to and expenses of our advisor and its affiliates.
These payments reduce the amount of liquidating distributions our stockholders
will receive.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
•We depend on tenants for the revenue generated by our real estate investments
and, accordingly, the revenue generated by our real estate investments is
dependent upon the success and economic viability of our tenants. Revenues from
our properties could decrease due to a reduction in occupancy (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 reducing our stockholders' returns and the amount of liquidating
distributions they receive. From March 2020 through March 31, 2021, we have
granted rent relief to eight 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 and therefore, we are unable to predict the impact
that the pandemic will have on the financial condition, results of operations
and cash flows of our tenants and us due to numerous uncertainties.
•Our investments in real estate may be affected by unfavorable real estate
market and general economic conditions, which could decrease the value of those
assets. Revenues from our properties could decrease. Such events would make it
more difficult for us to meet our debt service obligations and successfully
implement the Plan of Liquidation, which could reduce our stockholders' returns
and the amount of liquidating distributions they receive.
•Continued disruptions in the financial markets, changes in the demand for
office properties and uncertain economic conditions could adversely affect our
ability to successfully implement our business strategy and the Plan of
Liquidation, which could reduce our stockholders' returns and the amount of
liquidating distributions they receive.
•As of March 31, 2021, we have $240.5 million of variable debt outstanding, and
we may incur additional variable rate debt in the future. The interest and
related payments on our variable rate debt will vary with the movement of LIBOR
or other indexes. Increases in one-month LIBOR or other indexes would increase
the amount of our debt payments and could reduce our stockholders' returns and
the amount of liquidating distributions they receive.
•Our share redemption program provides only for redemptions sought upon a
stockholder's death, "qualifying disability" or "determination of incompetence"
(each as defined in the share redemption program document, and, together with
redemptions sought in connection with a stockholder's death, "Special
Redemptions"). The dollar amounts available for such redemptions are determined
by the board of directors and may be reviewed and adjusted from time to time.
Additionally, redemptions are further subject to limitations described in our
share redemption program. We do not expect to have funds available for ordinary
redemptions in the future.
•During the year ended December 31, 2020, we sold two office properties and four
office buildings that were part of an eight-building office campus. During the
year ended December 31, 2019, we sold two office properties. As a result of our
disposition activity, our general and administrative expenses, which are not
directly related to the size of our portfolio, have increased as a percentage of
our cash flow from operations and will continue to increase as we sell
additional assets pursuant to the Plan of Liquidation.
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, 2020, as filed with the Securities and Exchange Commission (the
"SEC"), and in Part II, Item 1A herein.

Overview


We were formed on July 12, 2007 as a Maryland corporation that elected to be
taxed as a real estate investment trust ("REIT") beginning with the taxable year
ended December 31, 2008 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, KBS Capital Advisors LLC, pursuant to an
advisory agreement. KBS Capital Advisors conducts our operations and manages our
portfolio of real estate investments. Our advisor owns 20,000 shares of our
common stock. We have no paid employees.
As of March 31, 2021, we owned four office properties and an office building
that is part of an office campus.
As of March 31, 2021, we had 184,055,532 shares of common stock issued and
outstanding.
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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)
On November 13, 2019, in connection with a review of potential strategic
alternatives available to us, a special committee composed of all of our
independent directors (the "Special Committee") and our board of directors
unanimously approved the sale of all of our assets and our dissolution pursuant
to the terms of the plan of complete liquidation and dissolution (the "Plan of
Liquidation"). The principal purpose of the Plan of Liquidation is to provide
liquidity to our stockholders by selling our assets, paying our debts and
distributing the net proceeds from liquidation to our stockholders. On March 5,
2020, our stockholders approved the Plan of Liquidation. The Plan of Liquidation
is included as an exhibit to this Quarterly Report on Form 10-Q.
Plan of Liquidation
In accordance with the Plan of Liquidation, our objectives are to pursue an
orderly liquidation of our company by selling all of our remaining assets,
paying our debts and our known liabilities, providing for the payment of unknown
or contingent liabilities, distributing the net proceeds from liquidation to our
stockholders and winding up our operations and dissolving our company. While
pursuing our liquidation pursuant to the Plan of Liquidation, we intend to
continue to manage our portfolio of assets to maintain and, if possible, improve
the quality and income-producing ability of our properties to enhance property
stability and better position our remaining assets for sale.
We expect to distribute substantially all of the net proceeds from liquidation
to our stockholders within 24 months from March 5, 2020. Pursuant to the Plan of
Liquidation, on March 5, 2020, our board of directors authorized an initial
liquidating distribution in the amount of $0.75 per share of common stock to
stockholders of record as of the close of business on March 5, 2020. On July 31,
2020, our board of directors authorized a second liquidating distribution in the
amount of $0.25 per share of common stock to stockholders of record as of the
close of business on August 3, 2020, and on December 24, 2020, our board of
directors authorized a third liquidating distribution in the amount of $0.40 per
share of common stock to stockholders of record as of the close of business on
December 24, 2020. We expect to continue to pay liquidating distribution
payments to our stockholders through the completion of our liquidation process.
However, if we cannot sell our assets and pay our debts within 24 months from
March 5, 2020, or if the board of directors and the Special Committee determine
that it is otherwise advisable to do so, pursuant to the Plan of Liquidation, we
may transfer and assign our remaining assets to a liquidating trust. Upon such
transfer and assignment, our stockholders will receive beneficial interests in
the liquidating trust.
Our expectations about the implementation of the Plan of Liquidation and the
amount of any additional liquidating distributions that we will pay to our
stockholders and when we will pay them are subject to risks and uncertainties
and are based on certain estimates and assumptions, one or more of which may
prove to be incorrect. As a result, the actual amount of any additional
liquidating distributions we pay to stockholders may be more or less than we
estimate and the liquidating distributions may be paid later than we predict.
There are many factors that may affect the amount of liquidating distributions
we will ultimately pay to our stockholders. If we underestimate our existing
obligations and liabilities or the amount of taxes, transaction fees and
expenses relating to the liquidation and dissolution, or if unanticipated or
contingent liabilities arise, the amount of liquidating distributions ultimately
paid to our stockholders could be less than estimated. Moreover, the liquidation
value will fluctuate over time in response to developments related to individual
assets in our portfolio and the management of those assets, in response to the
real estate and finance markets, based on the actual liquidation timing and the
amount of net proceeds received from the disposition of the remaining assets and
due to other factors. Given the uncertainty and current business disruptions as
a result of the outbreak of COVID-19, our implementation of the Plan of
Liquidation may be materially and adversely impacted and this may have a
material effect on the ultimate amount and timing of liquidating distributions
received by our stockholders. While we have considered the impact from COVID-19
in our net assets in liquidation presented on the Condensed Consolidated
Statement of Net Assets as of March 31, 2021, the extent to which our business
may be affected by COVID-19 depends on future developments with respect to the
continued spread and treatment of the virus, the actions taken to contain the
pandemic or mitigate its impact, and the direct and indirect economic effects of
the pandemic and containment measures. Any long-term impact of this situation,
even after an economic rebound, remains unclear. See "- Market Outlook - Real
Estate and Real Estate Finance Markets - COVID-19 Pandemic and Portfolio
Outlook" for a discussion of the impact of the outbreak of COVID-19 on our
business and our liquidation. We can give no assurance regarding the timing of
asset dispositions in connection with the implementation of the Plan of
Liquidation, the sale prices we will receive for our assets, and the amount or
timing of liquidating distributions to be received by our stockholders.

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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 our 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. Reductions in revenues
from our properties would adversely impact the timing of asset sales and/or the
sales price we will receive for our properties. To the extent there are
increases in the cost of financing due to higher interest rates, this may cause
difficulty in refinancing debt obligations at terms as favorable as the terms of
existing indebtedness. Further, increases in interest rates would increase the
amount of our debt payments on our variable rate debt. Management continuously
reviews our debt financing strategies to optimize our portfolio and the cost of
our debt exposure. Market conditions can change quickly, potentially negatively
impacting the value of real estate investments. Most recently, the outbreak of
COVID-19 has had a negative impact on the real estate market as discussed below.
COVID-19 Pandemic and Portfolio Outlook
Since initially being reported in December 2019, COVID-19 has spread around the
world, including to every state in the United States. On March 11, 2020, the
World Health Organization declared COVID-19 a pandemic, and on March 13, 2020,
the United States declared a national emergency with respect to COVID-19. The
COVID-19 pandemic has severely impacted global economic activity and caused
significant volatility and negative pressure in financial markets. The global
impact of the pandemic continues to evolve and many countries, states and
localities, including states and localities in the United States, have reacted
by imposing measures to help control the spread of the virus, including
instituting quarantines, "shelter-in-place" and "stay-at-home" orders, travel
restrictions, restrictions on businesses and school closures. As a result, the
COVID-19 pandemic is negatively impacting almost every industry, including the
U.S. office real estate industry and the industries of our tenants, directly or
indirectly. As of March 31, 2021, tenants in the mining and oil and gas
extraction industry represented approximately 19% of our base rent. Tenants in
this sector have been adversely impacted by the reduced demand for oil as a
result of the slowdown in economic activity resulting from the pandemic spread
of COVID-19 and the increased volatility in oil prices. The fluidity of the
COVID-19 pandemic continues to preclude any prediction as to the ultimate
adverse impact the pandemic may have on our business, financial condition,
results of operations, cash flows and liquidation.
During the year ended December 31, 2020 and the three months ended March 31,
2021, we did not experience a significant impact to rental income collections
from the COVID-19 pandemic. Rent collections for the quarter ended March 31,
2021 were approximately 99%. Many of our tenants have suffered reductions in
revenue. As of March 31, 2021, we had entered into lease amendments related to
the effects of the COVID-19 pandemic, granting $0.2 million of rent deferrals
for the period from March 2020 through March 31, 2021 and granting $0.1 million
in rental abatements during this period. From March 2020 through March 31, 2021,
eight tenants were granted rental deferrals or rental abatements as a result of
the pandemic, of which three tenants have begun to pay rent in accordance with
their lease agreements subsequent to the deferral or abatement period. Three of
the eight tenants continued to have rent abated through May 2021. Depending upon
the duration of the pandemic, the various measures imposed to help control the
spread of the virus and the corresponding economic slowdown, these tenants or
additional tenants may seek rent deferrals or abatements in future periods or
become unable to pay their rent. We will continue to evaluate any additional
short-term rent relief requests from tenants on an individual basis. Any future
rent relief arrangements are expected to be structured as temporary short-term
deferrals of base rent that will be paid back over time. Not all tenant requests
will ultimately result in modified agreements, nor are we forgoing our
contractual rights under our lease agreements. In most cases, it is in our best
interest to help our tenants remain in business and reopen when restrictions are
lifted. If tenants default on their rent and vacate, the ability to re-lease
this space is likely to be more difficult if the economic slowdown continues and
any long term impact of this situation, even after an economic rebound, remains
unclear. Subsequent to March 31, 2021, we have not seen a material impact on our
rent collections. However, current collections and rent relief requests to-date
may not be indicative of collections or requests in any future period. The
impact of the COVID-19 pandemic on our rental revenue for the second quarter of
2021 and thereafter cannot be determined at present.
Although we did not experience significant disruptions in rental income, during
the year ended December 31, 2020, we reduced the estimated liquidation value of
our real estate portfolio by $90.2 million due to changes in leasing projections
across our portfolio resulting in lower projected cash flow and projected sales
prices caused by the impact of the COVID-19 pandemic. We did not recognize any
additional decreases in the values of our real estate properties during the
three months ended March 31, 2021. In future periods, we may need to recognize
additional decreases in the values of our real estate properties to the extent
leasing projections and projected sales prices decline at our properties.
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PART I. FINANCIAL INFORMATION (CONTINUED)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
As of March 31, 2021, we had $48.4 million of revolving debt available for
immediate future disbursement under our portfolio loan facility, subject to
certain conditions set forth in the loan agreements. Significant reductions in
rental revenue in the future may limit our ability to draw on our portfolio loan
facility due to covenants described in our loan agreements. However, we believe
that our cash on hand, proceeds from asset sales and proceeds available under
our portfolio loan facility and mortgage loan will be sufficient to meet our
liquidity needs during our liquidation.
The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious
disease affecting states or regions in which we or our tenants operate could
have material and adverse effects on our business, financial condition, results
of operations, cash flows and our liquidation due to, among other factors:
health or other government authorities requiring the closure of offices or other
businesses or instituting quarantines of personnel as the result of, or in order
to avoid, exposure to a contagious disease; disruption in supply and delivery
chains; a general decline in business activity and demand for real estate,
especially office properties; reduced economic activity, general economic
decline or recession, which may impact our tenants' businesses, financial
condition and liquidity and may cause tenants to be unable to make rent payments
to us timely, or at all, or to otherwise seek modifications of lease
obligations; difficulty accessing debt and equity capital on attractive terms,
or at all, and a severe disruption and instability in the global financial
markets or deteriorations in credit and financing conditions, which may affect
our access to capital necessary to fund business operations or address maturing
liabilities on a timely basis and may result in fewer buyers seeking to acquire
commercial real estate; and the potential negative impact on the health of
personnel of our advisor, particularly if a significant number of our advisor's
employees are impacted, which would result in a deterioration in our ability to
ensure business continuity during a disruption.
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or
disease impacts our operations and those of our tenants and our ability to
implement our Plan of Liquidation depends on future developments, which are
highly uncertain and cannot be predicted with confidence, including the scope,
severity and duration of the pandemic, the actions taken to contain the pandemic
or mitigate its impact, and the direct and indirect economic effects of the
pandemic and containment measures, among others. Nevertheless, the COVID-19
pandemic (or a future pandemic, epidemic or disease) presents material
uncertainty and risk with respect to our business, financial condition, results
of operations, cash flows and our liquidation.
Our business, like all businesses, is being impacted by the uncertainty
regarding the COVID-19 pandemic, the effectiveness of policies introduced to
neutralize the disease, and the impact of those policies on economic activity.
Given the uncertainty and current business disruptions as a result of the
outbreak of COVID-19, our implementation of the Plan of Liquidation may be
materially and adversely impacted and this may have a material effect on the
ultimate amount and timing of liquidating distributions received by our
stockholders.

Liquidity and Capital Resources
As described above under "- Overview - Plan of Liquidation," on March 5, 2020,
our stockholders approved the sale of all of our assets and our dissolution
pursuant to the terms of the Plan of Liquidation. We expect to sell all of our
assets, pay all of our known liabilities, provide for unknown liabilities and
distribute the net proceeds from liquidation to our stockholders. Our principal
demands for funds during our liquidation are and will be for: the payment of
operating expenses, capital expenditures and general and administrative
expenses, including expenses in connection with the Plan of Liquidation;
payments under debt obligations; Special Redemptions of common stock pursuant to
our share redemption program; and payments of distributions to stockholders
pursuant to the Plan of Liquidation. During our liquidation, we intend to use
our cash on hand and proceeds from the sale of real estate properties as our
primary sources of liquidity. To the extent available, we also intend to use
cash flow generated by our real estate investments and proceeds from debt
financing; however, asset sales will further reduce cash flows from these
sources during the implementation of the Plan of Liquidation.
Our share redemption program provides only for Special Redemptions. During each
calendar year, such Special Redemptions are limited to an annual dollar amount
determined by the board of directors, which may be reviewed during the year and
increased or decreased upon ten business days' notice to our stockholders. We do
not expect to make ordinary redemptions in the future. On December 24, 2020, our
board of directors approved an annual dollar limitation of $10.0 million in the
aggregate for the calendar year 2021 for Special Redemptions (subject to review
and adjustment during the year by the board of directors), and further subject
to the limitations described in the share redemption program. As of March 31,
2021, we had $9.5 million available for Special Redemptions for the remainder of
2021.
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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 investments in real estate generate cash flow in the form of rental revenues
and tenant reimbursements, which are reduced by operating expenditures, debt
service payments, the payment of asset management fees and corporate general and
administrative expenses. Cash flow from operations from our real estate
investments is primarily dependent upon the occupancy level of our portfolio,
the net effective rental rates on our leases, the collectibility of rent and
operating recoveries from our tenants and how well we manage our expenditures,
all of which may be adversely affected by the impact of the COVID-19 pandemic as
discussed above. As of March 31, 2021, our real estate properties were 73%
occupied.
For the three months ended March 31, 2021, our cash needs for capital
expenditures and the payment of debt obligations were met with cash on hand and
proceeds from asset sales. Operating cash needs during the same period were met
with cash flow generated by our real estate. We believe that our cash on hand,
proceeds from the sales of real estate properties and, to the extent available,
our cash flow from operations and proceeds available under our portfolio loan
facility and mortgage loan will be sufficient to meet our liquidity needs during
our liquidation. As discussed above, asset sales will further reduce cash flows
from operations and proceeds available from debt financing during the
implementation of the Plan of Liquidation.
We do not expect to pay regular monthly distributions during the liquidating
process. During the liquidating process, we intend to maintain adequate cash
reserves for liquidity, capital expenditures, debt repayments, future Special
Redemptions under our share redemption program and other future capital needs.
We expect to continue to pay liquidating distribution payments to our
stockholders through the completion of our liquidation process and to pay the
final liquidating distribution after we sell all of our assets, pay all of our
known liabilities and provide for unknown liabilities. We expect to
substantially complete these activities within 24 months from March 5, 2020, the
day our stockholders approved the Plan of Liquidation. However, our expectations
about the amount of liquidating distributions that we will pay and when we will
pay them are based on many estimates and assumptions, one or more of which may
prove to be incorrect. As a result, the actual amount of liquidating
distributions we pay to our stockholders may be more or less than we estimate
and the liquidating distributions may be paid later than we predict. See "-
Overview - Plan of Liquidation" and "-Market Outlook - Real Estate and Real
Estate Finance Markets - COVID-19 Pandemic and Portfolio Outlook" for a
discussion of the impact of the outbreak of COVID-19 on our business and our
liquidation.
In addition to using our capital resources to meet our debt service obligations,
for capital expenditures and for operating costs, we use our capital resources
to make certain payments to our advisor. We paid our advisor fees in connection
with the acquisition and origination of our assets and pay our advisor fees in
connection with the management and disposition of our assets and for certain
costs incurred by our advisor in providing services to us. Among the fees
payable to our advisor is an asset management fee. With respect to investments
in real estate, we pay our advisor a monthly asset management 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 fees and expenses related thereto. We
also continue to reimburse our advisor and our dealer manager for certain
stockholder services.
During the three months ended March 31, 2021, cash and cash equivalents
decreased by $11.5 million primarily as a result of $14.1 million of capital
expenditure payments, offset by $4.9 million of net cash flows from operations.
In order to execute our investment strategy, we primarily utilized secured debt
to finance a portion of our investment portfolio. Management remains vigilant in
monitoring the risks inherent with the use of debt in our portfolio and is
taking actions to ensure that these risks, including refinance and interest rate
risks, are properly balanced with the benefit of using leverage. We limit our
total liabilities to 75% of the cost (before deducting depreciation and other
noncash reserves) of our tangible assets; however, we may exceed that limit if
the majority of the conflicts committee approves each borrowing in excess of
such 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. As of March 31, 2021, our borrowings and
other liabilities were approximately 37% of both the cost (before deducting
depreciation and other noncash reserves) and book value (before deducting
depreciation) of our tangible assets, respectively.
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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)
Pursuant to our stockholders' approval of the Plan of Liquidation, we adopted
the liquidation basis of accounting as of February 1, 2020 (as the approval of
the Plan of Liquidation by our stockholders became imminent within the first
week of February 2020 based on the results of our solicitation of proxies from
our stockholders for their approval of the Plan of Liquidation) and for the
periods subsequent to February 1, 2020 in accordance with GAAP. Accordingly, on
February 1, 2020, assets were adjusted to their estimated net realizable value,
or liquidation value, which represents the estimated amount of cash that we will
collect through the disposal of our assets as we carry out our Plan of
Liquidation. The liquidation values of our operating properties are presented on
an undiscounted basis. Estimated costs to dispose of assets and estimated
capital expenditures through the anticipated disposition date of the properties
have been presented separately from the related assets. Liabilities are carried
at their contractual amounts due or estimated settlement amounts.

Contractual Obligations
The following is a summary of our contractual obligations as of March 31, 2021
(in thousands):

Payments Due During the Years Ending December 31,


                                                                  Remainder

of


Contractual Obligations                         Total                 2021                 2022              2023              2024             2025
Outstanding debt obligations (1)             $ 240,520          $           -          $ 150,382          $ 90,138          $     -          $     -
Interest payments on outstanding debt
obligations (2)                              $   6,346          $       2,974          $   2,196          $  1,176          $     -          $     -


_____________________
(1) Amounts include principal payments only based on maturity dates as of
March 31, 2021.
(2) Projected interest payments are based on the outstanding principal amounts,
maturity dates and interest rates in effect as of March 31, 2021 (consisting of
the contractual interest rate). During the three months ended March 31, 2021, we
incurred interest expense of $1.0 million.

Changes in Net Assets in Liquidation
For the Three Months March 31, 2021
Net assets in liquidation decreased by approximately $1.6 million from $381.5
million on December 31, 2020 to $379.9 million on March 31, 2021. The primary
reason for the decline in net assets in liquidation was due to a net increase in
projected capital expenditures, partially offset by an increase in estimated
cash flows from operations. There is inherent uncertainty with these estimates
and projections, and they could change materially based on the timing of the
sales of our remaining real estate properties, the performance of our remaining
assets and any changes in the underlying assumptions of the projected cash flows
from such properties.

Results of Operations
In light of the adoption of liquidation basis accounting as of February 1, 2020,
the results of operations for the current year period are not comparable to the
prior year period. The sale of assets under the Plan of Liquidation will have a
significant impact on our operations. See "- Overview - Plan of Liquidation" and
"- Market Outlook - Real Estate and Real Estate Finance Markets - COVID-19
Pandemic and Portfolio Outlook" for a discussion of the impact of the outbreak
of COVID-19 on our business and our liquidation.
Due to the adoption of the Plan of Liquidation, we are no longer reporting funds
from operations and modified funds from operations as we no longer consider
these to be key performance measures.

Critical Accounting Policies
Our consolidated interim financial statements and condensed notes thereto have
been prepared in accordance with GAAP and in conjunction with the rules and
regulations of the SEC. The preparation of our financial statements requires
significant management judgements, 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. With different estimates or assumptions,
materially different amounts could be reported in our financial statements. A
discussion of the accounting policies that management considers critical in that
they involve significant management judgements, assumptions and estimates is
included in our Annual Report on Form 10-K for the year ended December 31, 2020
filed with the SEC. There have been no significant changes to our policies
during 2021.

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  Table of Contents
PART I. FINANCIAL INFORMATION (CONTINUED)

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