x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 26-0658752 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
620 Newport Center Drive, Suite 1300 Newport Beach, California | 92660 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | ||||
Non-Accelerated Filer | x | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
PART I. | |||
Item 1. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II. | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 5. | |||
Item 6. | |||
September 30, 2011 | December 31, 2010 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Real estate: | ||||||||
Land | $ | 245,247 | $ | 190,507 | ||||
Buildings and improvements | 1,919,817 | 1,511,105 | ||||||
Tenant origination and absorption costs | 325,690 | 252,264 | ||||||
Total real estate, cost | 2,490,754 | 1,953,876 | ||||||
Less accumulated depreciation and amortization | (162,360 | ) | (80,473 | ) | ||||
Total real estate, net | 2,328,394 | 1,873,403 | ||||||
Real estate loans receivable, net | 357,261 | 336,759 | ||||||
Total real estate and real estate-related investments, net | 2,685,655 | 2,210,162 | ||||||
Cash and cash equivalents | 50,298 | 82,413 | ||||||
Restricted cash | 171 | 937 | ||||||
Rents and other receivables, net | 39,329 | 20,582 | ||||||
Above-market leases, net | 55,597 | 48,456 | ||||||
Deferred financing costs, prepaid expenses and other assets | 20,999 | 17,104 | ||||||
Total assets | $ | 2,852,049 | $ | 2,379,654 | ||||
Liabilities and stockholders’ equity | ||||||||
Notes payable | $ | 1,237,270 | $ | 828,157 | ||||
Accounts payable and accrued liabilities | 27,611 | 20,287 | ||||||
Due to affiliates | — | 373 | ||||||
Distributions payable | 10,203 | 9,179 | ||||||
Below-market leases, net | 35,338 | 35,487 | ||||||
Other liabilities | 33,883 | 18,536 | ||||||
Total liabilities | 1,344,305 | 912,019 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Redeemable common stock | 79,623 | 43,306 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, $.01 par value; 10,000,000 shares authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $.01 par value; 1,000,000,000 shares authorized, 191,063,817 and 176,739,865 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively | 1,911 | 1,767 | ||||||
Additional paid-in capital | 1,631,421 | 1,537,403 | ||||||
Cumulative distributions in excess of net income | (187,357 | ) | (112,711 | ) | ||||
Accumulated other comprehensive loss | (17,854 | ) | (2,130 | ) | ||||
Total stockholders’ equity | 1,428,121 | 1,424,329 | ||||||
Total liabilities and stockholders’ equity | $ | 2,852,049 | $ | 2,379,654 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 57,077 | $ | 30,217 | $ | 164,815 | $ | 69,673 | ||||||||
Tenant reimbursements | 12,044 | 5,085 | 35,741 | 10,845 | ||||||||||||
Interest income from real estate loans receivable | 9,351 | 7,243 | 27,037 | 20,088 | ||||||||||||
Other operating income | 4,098 | 721 | 9,328 | 1,466 | ||||||||||||
Total revenues | 82,570 | 43,266 | 236,921 | 102,072 | ||||||||||||
Expenses: | ||||||||||||||||
Operating, maintenance, and management | 15,422 | 7,804 | 44,041 | 17,835 | ||||||||||||
Real estate taxes and insurance | 8,249 | 3,617 | 25,391 | 7,643 | ||||||||||||
Asset management fees to affiliate | 5,156 | 2,877 | 14,713 | 6,184 | ||||||||||||
Real estate acquisition fees to affiliates | 1,021 | 6,850 | 4,021 | 8,439 | ||||||||||||
Real estate acquisition fees and expenses | 241 | 5,793 | 2,552 | 6,718 | ||||||||||||
General and administrative expenses | 716 | 954 | 3,196 | 3,122 | ||||||||||||
Depreciation and amortization | 30,554 | 17,129 | 89,268 | 40,465 | ||||||||||||
Interest expense | 13,169 | 5,952 | 36,677 | 10,310 | ||||||||||||
Total expenses | 74,528 | 50,976 | 219,859 | 100,716 | ||||||||||||
Other income: | ||||||||||||||||
Other interest income | 37 | 68 | 98 | 239 | ||||||||||||
Net income (loss) | $ | 8,079 | $ | (7,642 | ) | $ | 17,160 | $ | 1,595 | |||||||
Net income (loss) per common share, basic and diluted | $ | 0.04 | $ | (0.06 | ) | $ | 0.09 | $ | 0.01 | |||||||
Weighted-average number of common shares outstanding, basic and diluted | 190,522,710 | 134,108,105 | 188,818,780 | 115,611,704 | ||||||||||||
Distributions declared per common share | $ | 0.164 | $ | 0.164 | $ | 0.486 | $ | 0.486 |
Additional Paid-in Capital | Cumulative Distributions and Net Income (Loss) | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | ||||||||||||||||||||
Common Stock | |||||||||||||||||||||||
Shares | Amounts | ||||||||||||||||||||||
Balance, December 31, 2009 | 93,167,161 | $ | 932 | $ | 810,006 | $ | (36,376 | ) | $ | — | $ | 774,562 | |||||||||||
Comprehensive income: | |||||||||||||||||||||||
Net income | — | — | — | 5,508 | — | 5,508 | |||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | — | (2,130 | ) | (2,130 | ) | |||||||||||||||
Total comprehensive income | 3,378 | ||||||||||||||||||||||
Issuance of common stock | 85,838,625 | 858 | 852,417 | — | — | 853,275 | |||||||||||||||||
Redemptions of common stock | (2,265,921 | ) | (23 | ) | (21,237 | ) | — | — | (21,260 | ) | |||||||||||||
Transfers to redeemable common stock | — | — | (22,046 | ) | — | — | (22,046 | ) | |||||||||||||||
Distributions declared | — | — | — | (81,843 | ) | — | (81,843 | ) | |||||||||||||||
Commissions on stock sales and related dealer manager fees to affiliate | — | — | (74,346 | ) | — | — | (74,346 | ) | |||||||||||||||
Other offering costs | — | — | (7,391 | ) | — | — | (7,391 | ) | |||||||||||||||
Balance, December 31, 2010 | 176,739,865 | $ | 1,767 | $ | 1,537,403 | $ | (112,711 | ) | $ | (2,130 | ) | $ | 1,424,329 | ||||||||||
Comprehensive income: | |||||||||||||||||||||||
Net income | — | — | — | 17,160 | — | 17,160 | |||||||||||||||||
Unrealized losses on derivative instruments | — | — | — | — | (15,724 | ) | (15,724 | ) | |||||||||||||||
Total comprehensive income | 1,436 | ||||||||||||||||||||||
Issuance of common stock | 15,827,740 | 159 | 154,370 | — | — | 154,529 | |||||||||||||||||
Redemptions of common stock | (1,503,788 | ) | (15 | ) | (14,334 | ) | — | — | (14,349 | ) | |||||||||||||
Transfers to redeemable common stock | — | — | (36,317 | ) | — | — | (36,317 | ) | |||||||||||||||
Distributions declared | — | — | — | (91,806 | ) | — | (91,806 | ) | |||||||||||||||
Commissions on stock sales and related dealer manager fees to affiliate | — | — | (8,864 | ) | — | — | (8,864 | ) | |||||||||||||||
Other offering costs | — | — | (837 | ) | — | — | (837 | ) | |||||||||||||||
Balance, September 30, 2011 | 191,063,817 | $ | 1,911 | $ | 1,631,421 | $ | (187,357 | ) | $ | (17,854 | ) | $ | 1,428,121 |
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 17,160 | $ | 1,595 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 89,268 | 40,465 | ||||||
Noncash interest income on real estate-related investments | (5,081 | ) | (4,690 | ) | ||||
Deferred rent | (15,648 | ) | (4,195 | ) | ||||
Bad debt expense | 148 | 18 | ||||||
Amortization of above- and below-market leases, net | (943 | ) | (3,818 | ) | ||||
Amortization of deferred financing costs | 2,195 | 533 | ||||||
Increase in fair value of contingent consideration | (339 | ) | (123 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Restricted cash for operational expenditures | 552 | (624 | ) | |||||
Rents and other receivables | (3,247 | ) | (12,647 | ) | ||||
Prepaid expenses and other assets | (4,160 | ) | (3,120 | ) | ||||
Accounts payable and accrued liabilities | 6,798 | 20,853 | ||||||
Other liabilities | 715 | 1,118 | ||||||
Net cash provided by operating activities | 87,418 | 35,365 | ||||||
Cash Flows from Investing Activities: | ||||||||
Acquisitions of real estate | (533,255 | ) | (1,090,784 | ) | ||||
Additions to real estate | (16,545 | ) | (3,261 | ) | ||||
Investments in real estate loans receivable | (15,605 | ) | (111,116 | ) | ||||
Principal repayments on real estate loans receivable | 184 | — | ||||||
Decrease (increase) in restricted cash for capital expenditures | 214 | (172 | ) | |||||
Net cash used in investing activities | (565,007 | ) | (1,205,333 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from notes payable | 380,998 | 609,622 | ||||||
Transfer of financial asset | 45,000 | — | ||||||
Principal payments on notes payable | (16,885 | ) | (32,833 | ) | ||||
Payments of deferred financing costs | (4,288 | ) | (6,173 | ) | ||||
Contingent consideration related to acquisition of real estate | — | (3,611 | ) | |||||
Return of contingent consideration related to acquisition of real estate | 1,316 | 349 | ||||||
Proceeds from issuance of common stock | 103,869 | 501,794 | ||||||
Payments to redeem common stock | (14,349 | ) | (17,206 | ) | ||||
Payments of commissions on stock sales and related dealer manager fees | (8,864 | ) | (46,150 | ) | ||||
Payments of other offering costs | (1,201 | ) | (4,945 | ) | ||||
Distributions paid to common stockholders | (40,122 | ) | (23,811 | ) | ||||
Net cash provided by financing activities | 445,474 | 977,036 | ||||||
Net decrease in cash and cash equivalents | (32,115 | ) | (192,932 | ) | ||||
Cash and cash equivalents, beginning of period | 82,413 | 273,821 | ||||||
Cash and cash equivalents, end of period | $ | 50,298 | $ | 80,889 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Interest paid | $ | 33,308 | $ | 7,913 | ||||
Supplemental Disclosure of Noncash Transactions: | ||||||||
Mortgage debt assumed on real estate acquisition | $ | — | $ | 16,985 | ||||
Increase in distributions payable | $ | 1,024 | $ | 2,551 | ||||
Increase in lease commissions payable | $ | 517 | $ | 771 | ||||
Distributions paid to common stockholders through common stock issuances pursuant to the dividend reinvestment plan | $ | 50,660 | $ | 29,851 |
Intangibles | ||||||||||||||||||||||||||||||
Property Name | City | State | Acquisition Date | Land | Building and Improvements | Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | Total Purchase Price | |||||||||||||||||||||
Gateway Corporate Center | Sacramento | CA | 01/26/2011 | $ | 6,380 | $ | 31,272 | $ | 7,674 | $ | 2,073 | $ | (464 | ) | $ | 46,935 | ||||||||||||||
601 Tower at Carlson Center | Minnetonka | MN | 02/03/2011 | 4,350 | 42,182 | 7,445 | 564 | (143 | ) | 54,398 | ||||||||||||||||||||
I-81 Industrial Portfolio | Various | PA | 02/16/2011 | 7,250 | 62,655 | 12,820 | 7,275 | — | 90,000 | |||||||||||||||||||||
Two Westlake Park | Houston | TX | 02/25/2011 | 7,000 | 67,590 | 10,291 | 111 | (5,570 | ) | 79,422 | ||||||||||||||||||||
CityPlace Tower | West Palm Beach | FL | 04/06/2011 | 17,460 | 90,472 | 16,067 | 3,002 | (501 | ) | 126,500 | ||||||||||||||||||||
Fountainhead Plaza | Tempe | AZ | 09/13/2011 | 12,300 | 99,108 | 24,592 | — | — | 136,000 | |||||||||||||||||||||
$ | 54,740 | $ | 393,279 | $ | 78,889 | $ | 13,025 | $ | (6,678 | ) | $ | 533,255 |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||
Gateway Corporate Center | 8.7 | 8.8 | 9.2 | |||
601 Tower at Carlson Center | 3.2 | 4.7 | 2.6 | |||
I-81 Industrial Portfolio | 5.9 | 6.1 | — | |||
Two Westlake Park | 3.5 | 2.4 | 4.8 | |||
CityPlace Tower | 8.2 | 8.0 | 8.4 | |||
Fountainhead Plaza | 11.9 | — | — |
Land | Buildings and Improvements | Tenant Origination and Absorption Costs | Total Real Estate | |||||||||||||
As of September 30, 2011: | ||||||||||||||||
Office | $ | 232,047 | $ | 1,824,845 | $ | 305,807 | $ | 2,362,699 | ||||||||
Industrial (1) | 13,200 | 94,972 | 19,883 | 128,055 | ||||||||||||
Cost | $ | 245,247 | $ | 1,919,817 | $ | 325,690 | $ | 2,490,754 | ||||||||
Accumulated depreciation/amortization | — | (93,894 | ) | (68,466 | ) | (162,360 | ) | |||||||||
Net Amount | $ | 245,247 | $ | 1,825,923 | $ | 257,224 | $ | 2,328,394 | ||||||||
As of December 31, 2010: | ||||||||||||||||
Office | $ | 184,557 | $ | 1,478,777 | $ | 244,967 | $ | 1,908,301 | ||||||||
Industrial (1) | 5,950 | 32,328 | 7,297 | 45,575 | ||||||||||||
Cost | $ | 190,507 | $ | 1,511,105 | $ | 252,264 | $ | 1,953,876 | ||||||||
Accumulated depreciation/amortization | — | (47,307 | ) | (33,166 | ) | (80,473 | ) | |||||||||
Net Amount | $ | 190,507 | $ | 1,463,798 | $ | 219,098 | $ | 1,873,403 |
Property | Location | Rentable Square Feet | Total Real Estate, Net (in thousands) | Percentage of Total Assets | Annualized Base Rent (in thousands) (1) | Average Annualized Base Rent per sq. ft. | Occupancy | ||||||||||||||||
300 N. LaSalle Building | Chicago, IL | 1,302,901 | $ | 594,137 | 20.8 | % | $ | 44,339 | $ | 34.80 | 97.8 | % |
October 1, 2011 through December 31, 2011 | $ | 59,328 | |
2012 | 216,587 | ||
2013 | 202,457 | ||
2014 | 189,578 | ||
2015 | 164,636 | ||
Thereafter | 934,599 | ||
$ | 1,767,185 |
Industry | Number of Tenants | Annualized Base Rent (1) (in thousands) | Percentage of Annualized Base Rent | ||||||
Legal Services | 56 | $ | 50,843 | 21.6 | % | ||||
Finance | 86 | 49,240 | 20.9 | % | |||||
Other Professional Services | 61 | 35,042 | 14.9 | % | |||||
$ | 135,125 | 57.4 | % |
Net Rentable Sq. Ft. | Annualized Base Rent Statistics | |||||||||||||||||||||
Tenant | Property | Tenant Industry | Square Feet | % of Portfolio | Annualized Base Rent (1) (in thousands) | % of Portfolio Annualized Base Rent | Annualized Base Rent per Square Foot | Lease Expiration (2) | ||||||||||||||
Kirkland & Ellis | 300 N. LaSalle Building | Legal Services | 687,857 | 6.4 | % | $ | 25,347 | 10.8 | % | $ | 36.85 | 02/28/2029 |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||||||||||||||
September 30, 2011 | December 31, 2010 | September 30, 2011 | December 31, 2010 | September 30, 2011 | December 31, 2010 | |||||||||||||||||||
Cost | $ | 325,690 | $ | 252,264 | $ | 63,871 | $ | 51,024 | $ | (50,392 | ) | $ | (44,100 | ) | ||||||||||
Accumulated Amortization | (68,466 | ) | (33,166 | ) | (8,274 | ) | (2,568 | ) | 15,054 | 8,613 | ||||||||||||||
Net Amount | $ | 257,224 | $ | 219,098 | $ | 55,597 | $ | 48,456 | $ | (35,338 | ) | $ | (35,487 | ) |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||||||||||||||
For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Amortization expense | $ | (13,629 | ) | $ | (7,595 | ) | $ | (2,026 | ) | $ | (884 | ) | $ | 2,287 | $ | 1,487 |
Tenant Origination and Absorption Costs | Above-Market Lease Assets | Below-Market Lease Liabilities | ||||||||||||||||||||||
For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Amortization expense | $ | (40,763 | ) | $ | (19,795 | ) | $ | (5,884 | ) | $ | (1,280 | ) | $ | 6,827 | $ | 5,098 |
Loan Name Location of Related Property or Collateral | Date Acquired/ Originated | Property Type | Loan Type | Outstanding Principal Balance as of September 30, 2011 (1) | Book Value as of September 30, 2011 (2) | Book Value as of December 31, 2010 (2) | Contractual Interest Rate (3) | Annualized Effective Interest Rate (3) | Maturity Date (4) | |||||||||||||||
Northern Trust Building A-Note | ||||||||||||||||||||||||
San Diego, California | 12/31/2008 | Office | A-Note | $ | 94,500 | $ | 65,514 | $ | 63,244 | 5.6% | 13.0% | 10/01/2017 | ||||||||||||
One Liberty Plaza Notes (5) | ||||||||||||||||||||||||
New York, New York | 02/11/2009 | Office | Mortgage | 114,816 | 76,835 | 73,914 | 6.1% | 15.0% | 08/06/2017 | |||||||||||||||
Tuscan Inn First Mortgage Origination | ||||||||||||||||||||||||
San Francisco, California | 01/21/2010 | Hotel | Mortgage | 20,200 | 19,856 | 20,027 | 8.3% | 8.7% | 01/21/2015 | |||||||||||||||
Chase Tower First Mortgage Origination (6) | ||||||||||||||||||||||||
Austin, Texas | 01/25/2010 | Office | Mortgage | 59,200 | 59,215 | 59,218 | 8.4% | 8.5% | 02/01/2015 | |||||||||||||||
Pappas Commerce First Mortgage Origination (7) | ||||||||||||||||||||||||
Boston, Massachusetts | 04/05/2010 | Industrial | Mortgage | 32,673 | 32,673 | 31,900 | (7) | 9.5% | 07/01/2014 | |||||||||||||||
One Kendall Square First Mortgage Origination (8) | ||||||||||||||||||||||||
Cambridge, Massachusetts | 11/22/2010 | Mixed-use Facility | Mortgage Participation | 87,500 | 88,650 | 88,456 | (8) | 7.0% | 12/01/2013 | |||||||||||||||
Sheraton Charlotte Airport Hotel First Mortgage (9) | ||||||||||||||||||||||||
Charlotte, North Carolina | 07/11/2011 | Hotel | Mortgage | 14,500 | $ | 14,518 | — | 7.5% | 7.6% | 08/01/2018 | ||||||||||||||
$ | 423,389 | $ | 357,261 | $ | 336,759 |
Real estate loans receivable - December 31, 2010 | $ | 336,759 | |
Face value of real estate loan receivable originated | 14,500 | ||
Principal repayment received on real estate loan receivable | (184 | ) | |
Accretion of discounts on purchased real estate loans receivable | 5,469 | ||
Closing costs and origination fees on origination of real estate loans receivable | 332 | ||
Amortization of closing costs and origination fees on real estate loans receivable | (388 | ) | |
Pappas Commerce First Mortgage Origination - protective advance | 773 | ||
Real estate loans receivable - September 30, 2011 | $ | 357,261 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Contractual interest income | $ | 7,580 | $ | 5,606 | $ | 21,956 | $ | 15,398 | ||||||||
Accretion of purchase discounts | 1,906 | 1,658 | 5,469 | 4,752 | ||||||||||||
Amortization of closing costs and origination fees | (135 | ) | (21 | ) | (388 | ) | (62 | ) | ||||||||
Interest income from real estate loans receivable | $ | 9,351 | $ | 7,243 | $ | 27,037 | $ | 20,088 |
Current Maturity | Fully Extended Maturity (1) | |||||||||||||||
Face Value (Funded) | Book Value | Face Value (Funded) | Book Value | |||||||||||||
October 1, 2011 through December 31, 2011 | $ | — | $ | — | $ | — | $ | — | ||||||||
2012 | — | — | — | — | ||||||||||||
2013 | 87,500 | 88,650 | — | — | ||||||||||||
2014 | 32,673 | 32,673 | 32,673 | 32,673 | ||||||||||||
2015 | 79,400 | 79,071 | 166,900 | 167,721 | ||||||||||||
Thereafter | 223,816 | 156,867 | 223,816 | 156,867 | ||||||||||||
$ | 423,389 | $ | 357,261 | $ | 423,389 | $ | 357,261 |
Principal as of September 30, 2011 | Principal as of December 31, 2010 | Contractual Interest Rate as of September 30, 2011(1) | Effective Interest Rate at September 30, 2011 (1) | Payment Type | Maturity Date (2) | |||||||||||
100 & 200 Campus Drive Mortgage Loan (3) | $ | 55,000 | $ | 55,000 | One-month LIBOR + 3.25% | 5.1% | Interest Only | 02/26/2014 | ||||||||
300-600 Campus Drive Mortgage Loan | 93,850 | 93,850 | 5.90% | 5.9% | Interest Only | 04/10/2014 | ||||||||||
Portfolio Revolving Loan Facility (4) (5) | 100,000 | 65,000 | One-month LIBOR + 3.00% (5) | 4.8% | Interest Only | 04/30/2014 | ||||||||||
Willow Oaks Revolving Loan (6) | 33,000 | 13,000 | (6) | 4.4% | Interest Only | 08/01/2013 | ||||||||||
300 N. LaSalle Building Mortgage Loan | 350,000 | 350,000 | 4.25% | 4.3% | Interest Only | 08/01/2015 | ||||||||||
Torrey Reserve West Mortgage Loan (7) | — | 16,885 | (7) | (7) | (7) | (7) | ||||||||||
Union Bank Plaza Mortgage Loan (8) | 105,000 | 105,000 | One-month LIBOR + 1.75% | 3.4% | Interest Only | 09/15/2015 | ||||||||||
Portfolio Bridge Loan (9) | — | 40,622 | (9) | (9) | (9) | (9) | ||||||||||
Emerald View at Vista Center Mortgage Loan | 19,800 | 19,800 | One-month LIBOR + 2.25% | 4.6% | Interest Only | 01/01/2016 | ||||||||||
National City Tower Mortgage Loan (9) | — | 69,000 | (9) | (9) | (9) | (9) | ||||||||||
Portfolio Loan (10) | 348,300 | — | One-month LIBOR + 2.15% | 3.7% | Interest Only | 01/27/2016 | ||||||||||
One Kendall Square Borrowing (11) | 45,000 | — | One-month LIBOR + 2.50% | 4.0% | Interest Only | 12/01/2013 | ||||||||||
601 Tower Mortgage Loan (12) | 16,320 | — | (12) | 3.5% | Interest Only | 06/03/2015 | ||||||||||
CityPlace Tower Mortgage Loan (13) | 71,000 | — | 3.59% | 3.6% | Interest Only | 08/01/2015 | ||||||||||
$ | 1,237,270 | $ | 828,157 |
Current Maturity | Fully Extended Maturity (1) | |||||||
October 1, 2011 through December 31, 2011 | $ | — | $ | — | ||||
2012 | — | — | ||||||
2013 | 78,000 | — | ||||||
2014 | 248,850 | 93,850 | ||||||
2015 | 542,320 | 583,000 | ||||||
Thereafter | 368,100 | 560,420 | ||||||
$ | 1,237,270 | $ | 1,237,270 |
Fair Value of Asset (Liability) | Fair Value of Asset (Liability) | |||||||||||||||||
Derivative Instruments | Effective Date | Maturity Date | Notional Value | Reference Rate | September 30, 2011 | December 31, 2010 | ||||||||||||
Interest Rate Swap | 02/26/2010 | 02/26/2014 | $ | 10,000 | One-month LIBOR/ Fixed at 2.30% | $ | (420 | ) | $ | (322 | ) | |||||||
Interest Rate Swap | 02/26/2010 | 02/26/2014 | 10,000 | One-month LIBOR/ Fixed at 2.30% | (420 | ) | (322 | ) | ||||||||||
Interest Rate Swap (1) | 04/30/2010 | 04/30/2014 | 55,000 | One-month LIBOR/ Fixed at 2.17% | (2,106 | ) | (1,520 | ) | ||||||||||
Interest Rate Swap | 07/26/2010 | 08/01/2013 | 6,500 | One-month LIBOR/ Fixed at 1.33% | (104 | ) | (57 | ) | ||||||||||
Interest Rate Swap | 07/26/2010 | 08/01/2013 | 6,500 | One-month LIBOR/ Fixed at 1.33% | (104 | ) | (56 | ) | ||||||||||
Interest Rate Swap | 09/15/2010 | 09/15/2015 | 105,000 | One-month LIBOR/ Fixed at 1.70% | (3,332 | ) | 1,092 | |||||||||||
Interest Rate Swap | 12/15/2010 | 02/26/2014 | 17,500 | One-month LIBOR/ Fixed at 1.53% | (415 | ) | (149 | ) | ||||||||||
Interest Rate Swap | 12/15/2010 | 02/26/2014 | 17,500 | One-month LIBOR/ Fixed at 1.53% | (415 | ) | (149 | ) | ||||||||||
Interest Rate Swap | 12/16/2010 | 01/01/2016 | 19,800 | One-month LIBOR/ Fixed at 2.39% | (1,162 | ) | (329 | ) | ||||||||||
Interest Rate Swap | 12/20/2010 | 06/16/2015 | 69,000 | One-month LIBOR/ Fixed at 1.94% | (2,788 | ) | (318 | ) | ||||||||||
Interest Rate Swap | 02/01/2011 | 01/01/2016 | 56,150 | One-month LIBOR/ Fixed at 2.16% | (2,764 | ) | — | |||||||||||
Interest Rate Swap | 02/01/2011 | 02/01/2015 | 8,400 | One-month LIBOR/ Fixed at 1.75% | (282 | ) | — | |||||||||||
Interest Rate Swap | 02/01/2011 | 02/01/2014 | 80,150 | One-month LIBOR/ Fixed at 1.29% | (1,430 | ) | — | |||||||||||
Interest Rate Swap | 03/08/2011 | 02/01/2014 | 85,900 | One-month LIBOR/ Fixed at 1.45% | (1,857 | ) | — | |||||||||||
Interest Rate Swap | 03/10/2011 | 02/01/2014 | 13,750 | One-month LIBOR/ Fixed at 1.32% | (255 | ) | — | |||||||||||
Total derivatives designated as hedging instruments | $ | 561,150 | $ | (17,854 | ) | (2,130 | ) |
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Face Value | Carrying Amount | Fair Value | Face Value | Carrying Amount | Fair Value | |||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Real estate loans receivable | $ | 423,389 | $ | 357,261 | $ | 431,033 | $ | 408,300 | $ | 336,759 | $ | 413,423 | ||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Notes payable | 1,237,270 | 1,237,270 | 1,245,430 | 828,157 | 828,157 | 829,914 |
Fair Value Measurements Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Nonrecurring Basis: | ||||||||||||||||
Investments in real estate (1) | $ | 533,255 | $ | — | $ | — | $ | 533,255 | ||||||||
Recurring Basis: | ||||||||||||||||
Contingent consideration | $ | 2,086 | $ | — | $ | — | $ | 2,086 | ||||||||
Liability derivatives | $ | (17,854 | ) | $ | — | $ | (17,854 | ) | $ | — |
Incurred | Payable as of | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | December 31, | |||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Expensed | ||||||||||||||||||||||||
Asset management fees | $ | 5,156 | $ | 2,877 | $ | 14,713 | $ | 6,184 | $ | — | $ | — | ||||||||||||
Reimbursement of operating expenses (1) | 15 | 1 | 38 | 3 | — | 9 | ||||||||||||||||||
Acquisition fees | 1,021 | 6,850 | 4,021 | 8,439 | — | — | ||||||||||||||||||
Additional Paid-in Capital | ||||||||||||||||||||||||
Selling commissions | — | 12,769 | 5,748 | 30,325 | — | — | ||||||||||||||||||
Dealer manager fees | — | 6,193 | 3,116 | 15,823 | — | — | ||||||||||||||||||
Reimbursable other offering costs | — | 677 | 283 | 2,175 | — | 364 | ||||||||||||||||||
Capitalized | ||||||||||||||||||||||||
Origination fees | 145 | 29 | 145 | 1,113 | — | — | ||||||||||||||||||
Disposition fees (2) | — | — | 450 | — | — | — | ||||||||||||||||||
$ | 6,337 | $ | 29,396 | $ | 28,514 | $ | 64,062 | $ | — | $ | 373 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: | ||||||||||||||||
Real estate segment | $ | 73,219 | $ | 36,023 | $ | 209,884 | $ | 81,984 | ||||||||
Real estate-related segment | 9,351 | 7,243 | 27,037 | 20,088 | ||||||||||||
Total segment revenues | $ | 82,570 | $ | 43,266 | $ | 236,921 | $ | 102,072 | ||||||||
Interest Expense: | ||||||||||||||||
Real estate segment | $ | 12,427 | $ | 5,715 | $ | 34,796 | $ | 9,448 | ||||||||
Real estate-related segment | 505 | — | 974 | — | ||||||||||||
Total segment interest expense | 12,932 | 5,715 | 35,770 | 9,448 | ||||||||||||
Corporate-level | 237 | 237 | 907 | 862 | ||||||||||||
Total interest expense | $ | 13,169 | $ | 5,952 | $ | 36,677 | $ | 10,310 | ||||||||
NOI: | ||||||||||||||||
Real estate segment | $ | 32,535 | $ | 16,470 | $ | 92,673 | $ | 42,136 | ||||||||
Real estate-related segment | 8,276 | 6,783 | 24,333 | 18,826 | ||||||||||||
Total NOI | $ | 40,811 | $ | 23,253 | $ | 117,006 | $ | 60,962 | ||||||||
As of September 30, | As of December 31, | |||||||||||||||
2011 | 2010 | |||||||||||||||
Assets: | ||||||||||||||||
Real estate segment | $ | 2,465,429 | $ | 1,981,974 | ||||||||||||
Real estate-related segment | 360,054 | 339,146 | ||||||||||||||
Total segment assets | 2,825,483 | 2,321,120 | ||||||||||||||
Corporate-level (1) | 26,566 | 58,534 | ||||||||||||||
Total assets | $ | 2,852,049 | $ | 2,379,654 | ||||||||||||
Liabilities: | ||||||||||||||||
Real estate segment | $ | 1,288,080 | $ | 901,270 | ||||||||||||
Real estate-related segment | 45,190 | 61 | ||||||||||||||
Total segment liabilities | 1,333,270 | 901,331 | ||||||||||||||
Corporate-level (2) | 11,035 | 10,688 | ||||||||||||||
Total liabilities | $ | 1,344,305 | $ | 912,019 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) | $ | 8,079 | $ | (7,642 | ) | $ | 17,160 | $ | 1,595 | |||||||
Other interest income | (37 | ) | (68 | ) | (98 | ) | (239 | ) | ||||||||
Real estate acquisition fees to affiliates | 1,021 | 6,850 | 4,021 | 8,439 | ||||||||||||
Real estate acquisition fees and expenses | 241 | 5,793 | 2,552 | 6,718 | ||||||||||||
General and administrative expenses | 716 | 954 | 3,196 | 3,122 | ||||||||||||
Depreciation and amortization | 30,554 | 17,129 | 89,268 | 40,465 | ||||||||||||
Corporate-level interest expense | 237 | 237 | 907 | 862 | ||||||||||||
NOI | $ | 40,811 | $ | 23,253 | $ | 117,006 | $ | 60,962 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues | $ | 82,550 | $ | 48,200 | $ | 241,512 | $ | 115,827 | ||||||||
Depreciation and amortization | $ | 30,330 | $ | 18,856 | $ | 90,560 | $ | 45,619 | ||||||||
Net income (loss) | $ | 8,299 | $ | (7,543 | ) | $ | 21,876 | $ | 2,934 | |||||||
Net income (loss) per common share, basic and diluted | $ | 0.04 | $ | (0.05 | ) | $ | 0.11 | $ | 0.02 | |||||||
Weighted-average number of common shares outstanding, basic and diluted | 191,063,817 | 152,420,979 | 191,063,817 | 133,924,578 |
• | We have a limited operating history. This inexperience makes our future performance difficult to predict. |
• | All of our executive officers, some 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 KBS Capital Advisors LLC (“KBS Capital Advisors”), 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-advised programs and investors and conflicts in allocating time among us and these other programs and investors. These conflicts could result in unanticipated actions. Fees paid to our advisor in connection with transactions involving the origination, acquisition and management of our investments are based on the cost of the investment, not on the quality of the investment or services rendered to us. This arrangement could influence our advisor to recommend riskier transactions to us. |
• | Because investment opportunities that are suitable for us may also be suitable for other KBS-advised programs or investors, our advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders. |
• | We pay substantial fees to and expenses of our advisor and its affiliates and, in connection with our public offering, we paid substantial fees to participating broker-dealers. 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 have used and expect to continue to use proceeds from financings to fund a portion of our distributions from time to time during our operational stage in anticipation of cash flow to be received in later periods. We may also fund such distributions from advances from our advisor or sponsors, from our advisor’s deferral of its asset management fee, from the net proceeds from the sale of real estate and from the receipt of principal payments on our real estate-related investments. |
• | We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. Revenues from our properties could decrease due to a reduction in tenants (caused by factors including, but not limited to, tenant defaults, tenant insolvency, early termination of tenant leases and non-renewal of existing tenant leases) 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. |
• | Our current and future investments in real estate, mortgage loans, mezzanine loans, bridge loans, mortgage-backed securities, collateralized debt obligations and other debt may be affected by unfavorable real estate market and general economic conditions, which could decrease the value of those assets and reduce the investment return to our stockholders. Revenues from our properties and the properties and other assets directly securing our loan investments could decrease. Such events would make it more difficult for the borrowers under our loan investments to meet their payment obligations to us. It could also make it more difficult for us to meet our debt service obligations and limit our ability to pay distributions to our stockholders. |
• | Continued disruptions in the financial markets and uncertain economic conditions could adversely affect the value of our investments. |
• | We cannot predict with any certainty how much, if any, of our dividend reinvestment plan proceeds will be available for general corporate purposes, including, but not limited to, the redemption of shares under our share redemption program, the funding of capital expenditures on our real estate investments, or the repayment of debt. If such funds are not available from our dividend reinvestment plan offering, then we may have to use a greater proportion of our cash flow from operations to meet these cash requirements, which would reduce cash available for distributions and could limit our ability to redeem shares under our share redemption program. |
• | Proceeds from our now terminated primary offering; |
• | Proceeds from common stock issued under our dividend reinvestment plan; |
• | Debt financings; and |
• | Cash flow generated by our real estate operations and real estate-related investments. |
• | Acquisitions of five individual office properties and a portfolio of four industrial properties for an aggregate purchase price of $533.3 million; |
• | $16.5 million of additions to real estate; and |
• | The origination of one real estate loan receivable and a protective advance on another real estate loan receivable, net of closing costs and origination fees of $15.6 million. |
• | $404.8 million of net cash provided by debt and other financings as a result of proceeds from notes payable of $426.0 million, partially offset by principal payments on notes payable of $16.9 million and payments of deferred financing costs of $4.3 million; |
• | $93.8 million of cash provided by offering proceeds related to our now terminated initial public offering, net of payments of commissions, dealer manager fees and other organization and offering expenses of $10.1 million; |
• | $40.1 million of net cash distributions, after giving effect to dividends reinvested by stockholders of $50.7 million; and |
• | $14.3 million of cash used for redemptions of common stock. |
Payments Due During the Years Ending December 31, | ||||||||||||||||||||
Contractual Obligations | Total | Remainder of 2011 | 2012-2013 | 2014-2015 | Thereafter | |||||||||||||||
Outstanding debt obligations (1) | $ | 1,237,270 | $ | — | $ | 78,000 | $ | 791,170 | $ | 368,100 | ||||||||||
Interest payments on outstanding debt obligations (2) | 181,750 | 13,004 | 102,430 | 65,373 | 943 |
Three Months Ended September 30, | Increase (Decrease) | Percentage Change | $ Change Due to Acquisitions/ Originations (1) | $ Change Due to Properties or Loans Held Throughout Both Periods (2) | |||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||||
Rental income | $ | 57,077 | $ | 30,217 | $ | 26,860 | 89 | % | $ | 26,973 | $ | (113 | ) | ||||||||||
Tenant reimbursements | 12,044 | 5,085 | 6,959 | 137 | % | 6,554 | 405 | ||||||||||||||||
Interest income from real estate loans receivable | 9,351 | 7,243 | 2,108 | 29 | % | 1,801 | 307 | ||||||||||||||||
Other operating income | 4,098 | 721 | 3,377 | 468 | % | 3,383 | (6 | ) | |||||||||||||||
Operating, maintenance, and management | 15,422 | 7,804 | 7,618 | 98 | % | 7,593 | 25 | ||||||||||||||||
Real estate taxes and insurance | 8,249 | 3,617 | 4,632 | 128 | % | 4,467 | 165 | ||||||||||||||||
Asset management fees to affiliate | 5,156 | 2,877 | 2,279 | 79 | % | 2,247 | 32 | ||||||||||||||||
Real estate acquisition fees to affiliates | 1,021 | 6,850 | (5,829 | ) | (85 | )% | (5,829 | ) | — | ||||||||||||||
Real estate acquisition fees and expenses | 241 | 5,793 | (5,552 | ) | (96 | )% | (5,546 | ) | (6 | ) | |||||||||||||
General and administrative expenses | 716 | 954 | (238 | ) | (25 | )% | n/a | n/a | |||||||||||||||
Depreciation and amortization | 30,554 | 17,129 | 13,425 | 78 | % | 15,049 | (1,624 | ) | |||||||||||||||
Interest expense | 13,169 | 5,952 | 7,217 | 121 | % | 6,226 | 991 | ||||||||||||||||
Other interest income | 37 | 68 | (31 | ) | (46 | )% | n/a | n/a |
Nine Months Ended September 30, | Increase (Decrease) | Percentage Change | $ Change Due to Acquisitions/ Originations (1) | $ Change Due to Properties or Loans Held Throughout Both Periods (2) | |||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||||
Rental income | $ | 164,815 | $ | 69,673 | $ | 95,142 | 137 | % | $ | 96,549 | $ | (1,407 | ) | ||||||||||
Tenant reimbursements | 35,741 | 10,845 | 24,896 | 230 | % | 25,900 | (1,004 | ) | |||||||||||||||
Interest income from real estate loans receivable | 27,037 | 20,088 | 6,949 | 35 | % | 6,245 | 704 | ||||||||||||||||
Other operating income | 9,328 | 1,466 | 7,862 | 536 | % | 7,796 | 66 | ||||||||||||||||
Operating, maintenance, and management | 44,041 | 17,835 | 26,206 | 147 | % | 26,112 | 94 | ||||||||||||||||
Real estate taxes and insurance | 25,391 | 7,643 | 17,748 | 232 | % | 17,879 | (131 | ) | |||||||||||||||
Asset management fees to affiliate | 14,713 | 6,184 | 8,529 | 138 | % | 8,479 | 50 | ||||||||||||||||
Real estate acquisition fees to affiliates | 4,021 | 8,439 | (4,418 | ) | (52 | )% | (4,419 | ) | 1 | ||||||||||||||
Real estate acquisition fees and expenses | 2,552 | 6,718 | (4,166 | ) | (62 | )% | (4,148 | ) | (18 | ) | |||||||||||||
General and administrative expenses | 3,196 | 3,122 | 74 | 2 | % | n/a | n/a | ||||||||||||||||
Depreciation and amortization | 89,268 | 40,465 | 48,803 | 121 | % | 52,078 | (3,275 | ) | |||||||||||||||
Interest expense | 36,677 | 10,310 | 26,367 | 256 | % | 21,424 | 4,943 | ||||||||||||||||
Other interest income | 98 | 239 | (141 | ) | (59 | )% | n/a | n/a |
• | 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, also providing investors with a useful supplemental metric that addresses core operating performance by removing rent we hope to receive in a future period or rent that was received in a prior period; |
• | Acquisition fees and expenses. Prior to 2009, acquisition costs related to business combinations were capitalized; however, per updated accounting standards, beginning in 2009, acquisition costs are expensed. Although these amounts reduce net income, we exclude them from MFFO to more appropriately present the ongoing operating performance of our real estate investments on a comparative basis. Additionally, acquisition costs have been and will continue to be funded from the proceeds from our now terminated initial public offering and debt financings and not from our operations. We believe this exclusion is useful to investors as it allows investors to more accurately evaluate the sustainability of our operating performance; and |
• | Amortization of discounts and closing costs. Discounts and closing costs related to debt investments are amortized over the term of the loan as an adjustment to interest income. This application results in income recognition that is different than the underlying contractual terms of the debt investments. We have excluded the amortization of discounts and closing costs related to our debt investments in our calculation of MFFO to more appropriately reflect the economic impact of our debt investments as discounts will not be economically recognized until the loan is repaid and closing costs are essentially the same as acquisition fees and expenses on real estate (discussed above). We believe excluding these items provides investors with a useful supplemental metric that directly addresses core operating performance. |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net income (loss) | $ | 8,079 | $ | (7,642 | ) | $ | 17,160 | $ | 1,595 | |||||||
Depreciation of real estate assets | 11,701 | 6,392 | 33,045 | 12,794 | ||||||||||||
Amortization of lease-related costs | 18,853 | 10,737 | 56,223 | 27,671 | ||||||||||||
FFO | 38,633 | 9,487 | 106,428 | 42,060 | ||||||||||||
Real estate acquisition fees and expenses to affiliates | 1,021 | 6,850 | 4,021 | 8,439 | ||||||||||||
Real estate acquisition fees and expenses | 241 | 5,793 | 2,552 | 6,718 | ||||||||||||
Straight-line rent and amortization of above- and below-market leases | (4,988 | ) | (3,084 | ) | (16,591 | ) | (8,013 | ) | ||||||||
Amortization of discounts and closing costs | (1,771 | ) | (1,637 | ) | (5,081 | ) | (4,690 | ) | ||||||||
Adjustment to valuation of contingent purchase consideration | (474 | ) | (123 | ) | (339 | ) | (123 | ) | ||||||||
MFFO | $ | 32,662 | $ | 17,286 | $ | 90,990 | $ | 44,391 |
Distributions Declared (1) | Distributions Declared Per Share (1) (2) | Distributions Paid (3) | Cash Flows From Operations | |||||||||||||||||||||
Period | Cash | Reinvested | Total | |||||||||||||||||||||
First Quarter 2011 | $ | 29,934 | $ | 0.160 | $ | 12,644 | $ | 16,072 | $ | 28,716 | $ | 9,396 | ||||||||||||
Second Quarter 2011 | 30,659 | 0.162 | 13,670 | 17,257 | 30,927 | 41,353 | ||||||||||||||||||
Third Quarter 2011 | 31,213 | 0.164 | 13,808 | 17,331 | 31,139 | 36,669 | ||||||||||||||||||
$ | 91,806 | $ | 0.486 | $ | 40,122 | $ | 50,660 | $ | 90,782 | $ | 87,418 |
a) | During the period covered by this Form 10-Q, we did not sell any equity securities that were not registered under the Securities Act of 1933. |
b) | On April 22, 2008, our Registration Statement on Form S-11 (File No. 333-146341), covering a public offering of up to 200,000,000 shares of common stock in our primary offering and 80,000,000 shares of common stock under our dividend reinvestment plan, was declared effective under the Securities Act of 1933. We commenced our initial public offering on April 22, 2008 upon retaining KBS Capital Markets Group LLC, an affiliate of our advisor, as the dealer manager of our offering. We ceased offering shares of common stock in our primary offering on December 31, 2010 and terminated our primary offering on March 22, 2011 upon the completion of review of subscriptions submitted in accordance with our processing procedures. We continue to offer shares of common stock under our dividend reinvestment plan. We may sell shares under our dividend reinvestment plan until we have sold all the shares under the plan. |
Type of Expense Amount | Amount | Estimated/Actual | ||||
(in thousands) | ||||||
Selling commissions and dealer manager fees | $ | 167,207 | Actual | |||
Finders’ fees | — | Actual | ||||
Other underwriting compensation | 10,330 | Actual | ||||
Other organization and offering costs (excluding underwriting compensation) | 9,899 | Actual | ||||
Total expenses | $ | 187,436 |
c) | We have adopted a share redemption program that may enable stockholders to sell their shares to us in limited circumstances. |
• | Unless the shares are being redeemed in connection with a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined under the share redemption program), we may not redeem shares until the stockholder has held the shares for one year. |
• | During any calendar year, the share redemption program limits the number of shares we may redeem to those that we could purchase with the amount of the net proceeds from the issuance of shares under the dividend reinvestment plan during the prior calendar year. |
• | During any calendar year, we may redeem no more than 5% of the weighted-average number of shares outstanding during the prior calendar year. |
• | We have no obligation to redeem shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. |
Month | Total Number of Shares Redeemed (1) | Average Price Paid Per Share (2) | Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program | ||||||
January 2011 | 153,255 | $ | 9.46 | (3) | |||||
February 2011 | 180,593 | $ | 9.49 | (3) | |||||
March 2011 | 148,978 | $ | 9.46 | (3) | |||||
April 2011 | 162,948 | $ | 9.48 | (3) | |||||
May 2011 | 207,488 | $ | 9.59 | (3) | |||||
June 2011 | 141,079 | $ | 9.56 | (3) | |||||
July 2011 | 145,189 | $ | 9.63 | (3) | |||||
August 2011 | 152,813 | $ | 9.52 | (3) | |||||
September 2011 | 210,825 | $ | 9.64 | (3) | |||||
Total (4) | 1,503,168 |
• | The lower of $9.25 or 92.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least one year; |
• | The lower of $9.50 or 95.0% of the price paid to acquire the shares from us for stockholders who have held their shares for at least two years; |
• | The lower of $9.75 or 97.5% of the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and |
• | The lower of $10.00 or 100% of the price paid to acquire the shares from us for stockholders who have held their shares for at least four years. |
Ex. | Description | |
3.1 | Second Articles of Amendment and Restatement of the Company, incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2008 | |
3.2 | Second Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 to Pre-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341 | |
4.1 | Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates), incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 1 to the Company’s Registration Statement on Form S-11, Commission File No. 333-146341 | |
4.2 | Amended and Restated Dividend Reinvestment Plan, incorporated by reference to Appendix A to the prospectus dated April 5, 2011, Commission File No. 333-146341 | |
4.3 | Second Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.1 | The following information from the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders’ Equity; and (iv) Consolidated Statements of Cash Flows. |
KBS REAL ESTATE INVESTMENT TRUST II, INC. | |||
Date: | November 7, 2011 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director | |||
Date: | November 7, 2011 | By: | /S/ DAVID E. SNYDER |
David E. Snyder | |||
Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust II, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 7, 2011 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director |
1. | I have reviewed this quarterly report on Form 10-Q of KBS Real Estate Investment Trust II, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 7, 2011 | By: | /S/ DAVID E. SNYDER |
David E. Snyder | |||
Chief Financial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | November 7, 2011 | By: | /S/ CHARLES J. SCHREIBER, JR. |
Charles J. Schreiber, Jr. | |||
Chairman of the Board, Chief Executive Officer and Director |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
Date: | November 7, 2011 | By: | /S/ DAVID E. SNYDER |
David E. Snyder | |||
Chief Financial Officer |
Consolidated Balance Sheets Parentheticals (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Preferred stock par value | $ 0.01 | $ 0.01 |
Preferred stock-shares authorized | 10,000,000 | 10,000,000 |
Preferred Shares issued | 0 | 0 |
Preferred Shares outstanding | 0 | 0 |
Common stock par value | $ 0.01 | $ 0.01 |
Common shares authorized | 1,000,000,000 | 1,000,000,000 |
Common shares issued | 191,063,817 | 176,739,865 |
Common shares outstanding | 191,063,817 | 176,739,865 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 01, 2011 | |
Document Information [Line Items] | ||
Entity Registrant Name | KBS Real Estate Investment Trust II, Inc. | |
Entity Central Index Key | 0001411059 | |
Current Fiscal Year end | --12-31 | |
Entity Filer category | Non-accelerated Filer | |
Document type | 10-Q | |
Document period end date | Sep. 30, 2011 | |
Document fiscal year focus | 2011 | |
Document fiscal period focus | Q3 | |
Amendment flag | false | |
Entity Common Stock, Shares Outstanding | 191,390,458 |
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Real Estate Loans Receivable | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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REAL ESTATE LOANS RECEIVABLE [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans, Notes, Trade and Other Receivables Disclosure [Text Block] | REAL ESTATE LOANS RECEIVABLE As of September 30, 2011 and December 31, 2010, the Company, through wholly owned subsidiaries, had invested in real estate loans receivable as follows (dollars in thousands):
(1) Outstanding principal balance as of September 30, 2011 represents original principal balance outstanding under the loan, increased for any subsequent fundings and reduced for any principal paydowns. (2) Book value of real estate loans receivable represents outstanding principal balance adjusted for unamortized acquisition discounts, origination fees, and direct origination and acquisition costs. (3) Contractual interest rates are the stated interest rates on the face of the loans. Annualized effective interest rates are calculated as the actual interest income recognized in 2011, using the interest method, divided by the average amortized cost basis of the investment. The annualized effective interest rates and contractual interest rates presented are as of September 30, 2011. (4) Maturity dates are as of September 30, 2011. (5) Monthly installments on the One Liberty Plaza Notes were interest-only until August 2011. For the final six years on the notes, principal on the loan amortizes on a 30-year amortization schedule, with the remaining principal balance due at maturity. (6) Monthly installments on the Chase Tower First Mortgage are interest-only for the first three years, followed by principal and interest payments with principal calculated using an amortization of 30 years for the balance of the term, with the remaining principal balance due at maturity. (7) As of September 30, 2011, $31.9 million had been disbursed under the Pappas Commerce First Mortgage. Interest on the first mortgage is calculated at a fixed rate of 9.5%. Outstanding principal balance also includes a protective advance of $0.8 million made on June 22, 2011 to cover property taxes and to fund the tax and insurance reserve account. Interest on the protective advance is calculated at a fixed rate of 14.5%. (8) Monthly installments on One Kendall Square First Mortgage are interest-only during the initial term of the loan. On April 5, 2011, the Company, through an indirect wholly owned subsidiary, entered into a note splitter agreement with the borrower under the One Kendall Square First Mortgage and restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. See “-Recent Originations - One Kendall Square First Mortgage.” (9) Monthly installments on the Sheraton Charlotte Airport Hotel First Mortgage are interest-only for the first two years, followed by principal and interest payments with principal calculated using an amortization of 30 years for the balance of the term, with the remaining principal balance due at maturity. The following summarizes the activity related to the real estate loans receivable for the nine months ended September 30, 2011 (in thousands):
For the three and nine months ended September 30, 2011 and 2010, interest income from real estate loans receivable consisted of the following (in thousands):
As of September 30, 2011 and December 31, 2010, interest receivable from real estate loans receivable was $2.4 million, respectively, and was included in rents and other receivables. The following is a schedule of maturities for all real estate loans receivable outstanding as of September 30, 2011 (in thousands):
(1) The schedule of current maturities above represents the contractual maturity dates and outstanding balances as of September 30, 2011. Certain of the real estate loans receivable have extension options available to the borrowers, subject to certain conditions, that have been reflected in the schedule of fully extended maturities. Recent Originations One Kendall Square First Mortgage On November 22, 2010, the Company, through an indirect wholly owned subsidiary, originated the One Kendall Square First Mortgage in the amount of $175.0 million (the “One Kendall Square First Mortgage”). The One Kendall Square First Mortgage note bears interest at a floating rate of 550 basis points over one-month LIBOR, but at no point shall the interest rate be less than 7.5% (“Loan Rate”). On November 30, 2010, the Company, through an indirect wholly owned subsidiary, sold, at par, a pari-passu participation interest with respect to 50% of the outstanding principal balance of the One Kendall Square First Mortgage to an unaffiliated buyer (“Participation Holder”), leaving it with an $87.5 million interest. On April 5, 2011, the Company, through an indirect wholly owned subsidiary, restructured the One Kendall Square First Mortgage to provide for two debt tranches with varying interest rates. These tranches consist of Promissory Note A (“Note A”), with an original principal amount of $90.0 million, of which the Company and the Participation Holder each hold an interest of $45.0 million, and Promissory Note B (“Note B”), which is subordinate to Note A, with an original principal amount of $85.0 million, of which the Company and the Participation Holder each hold an interest of $42.5 million. Note A bears interest at a floating rate of 250 basis points over one-month LIBOR, subject to a minimum interest rate of 4.0%. Note B bears interest at an amount that when combined with the interest on Note A, equals the original Loan Rate on the $175.0 million One Kendall Square First Mortgage. On April 6, 2011, the Company, through an indirect wholly owned subsidiary, and Participation Holder sold and transferred their respective $45.0 million interests in Note A, at par, to an unaffiliated buyer. Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its $45.0 million interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company’s entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. For the same reason, its $45.0 million interest in Note A is recorded as a note payable in the accompanying consolidated balance sheets. Interest income allocated to the transferee is recorded as interest expense on the Company’s consolidated statement of operations. Interest income from the One Kendall Square First Mortgage for the three and nine months ended September 30, 2011 was $1.6 million and $4.7 million, net of amortization of closing costs and origination fees, respectively. Interest expense from the One Kendall Square First Mortgage for the three and nine months ended September 30, 2011 was $0.5 million and $1.0 million, respectively. Origination of Sheraton Charlotte Airport Hotel First Mortgage On July 11, 2011, the Company, through an indirect wholly owned subsidiary, originated a first mortgage loan in the amount of $14.5 million (the “Sheraton Charlotte Airport Hotel First Mortgage”) from a borrower unaffiliated with the Company or the Advisor. The borrower used the proceeds from the loan to refinance its existing debt. Payments under the Sheraton Charlotte Airport Hotel First Mortgage are interest-only payments for the first two years, followed by principal and interest payments with principal calculated using an amortization schedule of 30 years for the balance of the term. The Sheraton Charlotte Airport Hotel First Mortgage note bears interest at a fixed rate of 7.5%. The Sheraton Charlotte Airport Hotel First Mortgage matures on August 1, 2018 and may be prepaid in whole (but not in part) subject to a formula-based yield maintenance premium for the majority of the term of the loan and may be prepaid in whole (but not in part) without prepayment penalty on or after June 1, 2018. |
Segment Information | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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SEGMENT INFORMATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | SEGMENT INFORMATION The Company presently operates in two business segments based on its investment types: real estate and real estate‑related. Under the real estate segment, the Company has invested in office, office/flex and industrial properties. Under the real estate-related segment, the Company has invested in or originated mortgage loans, a mortgage participation and an A‑Note. All revenues earned from the Company’s two operating segments were from external customers and there were no intersegment sales or transfers. The Company does not allocate corporate-level accounts to its operating segments. Corporate‑level accounts include corporate general and administrative expenses, non-operating interest income, non-operating interest expense and other corporate-level expenses. The accounting policies of the segments are consistent with those described in Note 2, “Summary of Significant Accounting Policies.” The Company evaluates the performance of its segments based upon net operating income (“NOI”), which is a non‑GAAP supplemental financial measure. The Company defines NOI for its real estate segment as operating revenues (rental income, tenant reimbursements and other operating income) less property and related expenses (property operating expenses, real estate taxes, insurance, asset management fees and provision for bad debt) less interest expense. The Company defines NOI for its real estate-related segment as interest income less loan servicing costs and asset management fees. NOI excludes certain items that are not considered to be controllable in connection with the management of an asset such as non‑property income and expenses, depreciation and amortization, and corporate general and administrative expenses. The Company uses NOI to evaluate the operating performance of the Company’s real estate and real estate-related investments and to make decisions about resource allocations. The Company believes that net income is the GAAP measure that is most directly comparable to NOI; however, NOI should not be considered as an alternative to net income as the primary indicator of operating performance, as it excludes the items described above. Additionally, NOI as defined above may not be comparable to other REITs or companies as their definitions of NOI may differ from the Company’s definition. The following tables summarize total revenues and NOI for each reportable segment for the three and nine months ended September 30, 2011 and 2010 and total assets and total liabilities for each reportable segment as of September 30, 2011 and December 31, 2010 (in thousands):
(1) Total corporate-level assets consisted primarily of proceeds from the Offering being held in the form of cash and cash equivalents of approximately $26.1 million and $58.5 million as of September 30, 2011 and December 31, 2010, respectively. (2) As of September 30, 2011 and December 31, 2010, corporate-level liabilities consisted primarily of distributions payable. The following table reconciles the Company’s net income (loss) to its NOI for the three and nine months ended September 30, 2011 and 2010 (in thousands):
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Summary of Significant Accounting Policies | 9 Months Ended |
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Sep. 30, 2011 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |
Basis of Presentation and Significant Accounting Policies [Text Block] | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES There have been no significant changes to the Company’s accounting policies since it filed its audited financial statements in its Annual Report on Form 10-K for the year ended December 31, 2010, except for the addition of an accounting policy related to the transfers of financial assets described below. For further information about the Company’s accounting policies, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K filed with the SEC. Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company, KBS REIT Holdings II, the Operating Partnership, and their direct and indirect wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Any reference to the number of properties and square footage are unaudited and outside the scope of the Company’s independent registered public accounting firm’s review of the financial statements in accordance with the Standards of United States Public Company Accounting Oversight Board. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Per Share Data Basic net income (loss) per share of common stock is calculated by dividing net income (loss) by the weighted-average number of shares of common stock issued and outstanding during such period. Diluted net income (loss) per share of common stock equals basic net income (loss) per share of common stock as there were no potentially dilutive securities outstanding during the three and nine months ended September 30, 2011 and 2010, respectively. Distributions declared per common share assumes each share was issued and outstanding each day during the three and nine months ended September 30, 2011 and 2010. For the three and nine months ended September 30, 2011 and 2010, distributions were based on daily record dates and calculated at a rate of $0.00178082 per share per day. Each day during the periods from January 1, 2011 through September 30, 2011 and January 1, 2010 through September 30, 2010 was a record date for distributions. Segments The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by investment type: real estate and real estate-related. For financial data by segment, see Note 11, “Segment Information.” Transfers of Financial Assets The Company accounts for transfers of real estate loans receivable to unrelated entities in accordance with ASC 860, Transfers and Servicing (“ASC 860”). When a real estate loan receivable is divided into multiple tranches and one or more of the tranches is transferred to an unrelated third party, the Company determines if each of the tranches of the loan would qualify as participating interests. If the tranches do not qualify as participating interests, the Company would account for the transfer as a secured borrowing with a pledge of collateral. As a result, the Company would continue to report the transferred financial asset in its consolidated balance sheet and recognize interest income on the entire note. Proceeds from the transferee are treated as a secured borrowing and recorded as a note payable. Interest income allocated to the transferee is recorded as interest expense on the Company’s consolidated statement of operations. See Note 6, “Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage.” Recently Issued Accounting Standards Updates In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU No. 2011-05”). ASU No. 2011-05 requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The amendments in this update are effective for the first interim or annual period beginning after December 15, 2011. The adoption of ASU No. 2011-05 will require the Company to change the presentation of comprehensive income in its consolidated financial statements. In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 updates and further clarifies requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, ASU No. 2011-04 clarifies the FASB’s intent about the application of existing fair value measurements. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company does not expect the adoption of ASU No. 2011-04 will have a material impact to its consolidated financial statements. In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring (“ASU No. 2011-02”). ASU No. 2011-02 updated accounting guidance to clarify certain determining factors, such as when a concession has been granted and when a debtor is experiencing financial difficulties, in evaluating whether or not a debt restructuring is deemed to be a “Troubled Debt Restructuring.” The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and are applied retrospectively to the beginning of the annual period of adoption. The Company adopted ASU No. 2011-02 during the quarter ended September 30, 2011, and such adoption did not have a material impact on the Company’s consolidated financial statements. The adoption of ASU No. 2011-02 could result in an increase of future debt restructurings, if any, recorded as “Troubled Debt Restructurings,” which could have a material impact to the Company’s consolidated financial statements. In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU No. 2010-20”). ASU No. 2010-20 requires the Company to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. This ASU also requires the Company to disclose additional information related to credit quality indicators, past due information, information related to loans modified in a troubled debt restructuring and significant purchases and sales of financing receivables disaggregated by portfolio segment. ASU No. 2010-20 was initially effective for interim and annual periods ending on or after December 15, 2010. In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2011-01”). ASU No. 2011-01 announced that it was deferring the effective date of new disclosure requirements for troubled debt restructurings prescribed by ASU No. 2010-20. The effective date for those disclosures will be concurrent with the effective date for proposed ASU No. 2010-20. The Company adopted ASU No. 2010-20 during the quarter ended September 30, 2011, in conjunction with the effective date of ASU No. 2011-02. The adoption of ASU No. 2010-20 requires additional disclosures, but does not have a material impact on the Company’s consolidated financial statements. |
Derivative Instruments | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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DERIVATIVE INSTRUMENTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Text Block] | DERIVATIVE INSTRUMENTS The Company enters into derivative instruments for risk management purposes to hedge its exposure to cash flow variability caused by changing interest rates. The primary goal of the Company’s risk management practices related to interest rate risk is to prevent changes in interest rates from adversely impacting the Company’s ability to achieve its investment return objectives. The Company does not enter into the derivatives for speculative purposes. The Company enters into interest rate swaps as a fixed rate payer to mitigate its exposure to rising interest rates on its variable rate notes payable. The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero. All of the Company’s interest rate swaps are designated as cash flow hedges. The following table summarizes the notional and fair value of the Company’s interest rate swaps designated as cash flow hedges as of September 30, 2011 and December 31, 2010. The notional value is an indication of the extent of the Company’s involvement in each instrument at that time, but does not represent exposure to credit, interest rate or market risks (dollars in thousands):
(1) In connection with entering into the Portfolio Revolving Loan Facility, the Company entered into an interest rate swap agreement with Wells Fargo Bank, N.A. which effectively fixes the interest rate on the initial $55.0 million drawn under the loan at approximately 5.17% for the first three years of the loan and fixes the interest rate on $45.0 million of this amount at approximately 5.17% for the last year of the initial loan term. Asset derivatives are recorded as deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets, and liability derivatives are recorded as other liabilities on the accompanying consolidated balance sheets. The change in fair value of the effective portion of a derivative instrument that is designated as a cash flow hedge is recorded as other comprehensive income (loss) in the accompanying consolidated statements of stockholders’ equity. The Company recorded unrealized losses of $15.7 million on derivative instruments designated as cash flow hedges in accumulated other comprehensive income (loss) for the nine months ended September 30, 2011. Amounts in other comprehensive income (loss) will be reclassified into earnings in the periods in which earnings are affected by the hedged cash flow. As a result of utilizing derivative instruments designated as cash flow hedges to hedge our variable rate notes payable, the Company recognized an additional $6.1 million of interest expense related to the effective portion of cash flow hedges during the nine months ended September 30, 2011. The change in fair value of the ineffective portion is recognized directly in earnings. During the nine months ended September 30, 2011, there was no ineffective portion related to the change in fair value of the cash flow hedges. During the next 12 months, the Company expects to recognize additional unrealized losses related to derivative instruments designated as cash flow hedges. The present value of these additional unrealized losses totaled $7.4 million as of September 30, 2011 and were included in accumulated other comprehensive income (loss). |
Commitments and Contingencies | 9 Months Ended |
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Sep. 30, 2011 | |
COMMITMENTS AND CONTINGENCIES [Abstract] | |
Commitments and Contingencies Disclosure [Text Block] | COMMITMENTS AND CONTINGENCIES Economic Dependency The Company is dependent on the Advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase, and disposition of real estate and real estate-related investments; management of the daily operations of the Company’s real estate and real estate-related investment portfolio; and other general and administrative responsibilities. In the event the Advisor is unable to provide the respective services, the Company will be required to obtain such services from other sources. Geographic Concentration The 300 N. LaSalle Building represented approximately 21% of the Company’s total assets as of September 30, 2011 and 21% of the Company’s total revenues for the three and nine months ended September 30, 2011, respectively. As a result of this investment, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Chicago real estate market. Any adverse economic or real estate developments in this market, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results. Environmental As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. Compliance with existing environmental laws is not expected to have a material adverse effect on the Company’s financial condition and results of operations as of September 30, 2011. Legal Matters From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on its results of operations or financial condition, which would require accrual or disclosure of the contingency and possible range of loss. Additionally, the Company has not recorded any loss contingencies related to legal proceedings in which the potential loss is deemed to be remote. |
Fair Value Disclosures | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Text Block] | FAIR VALUE DISCLOSURES The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company's financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instruments for which it is practicable to estimate the fair value: Cash and cash equivalents, restricted cash, rent and other receivables, and accounts payable and accrued liabilities: These balances approximate their fair values due to the short maturities of these items. Real estate loans receivable: These instruments are presented in the accompanying consolidated balance sheets at their amortized cost net of recorded loan loss reserves and not at fair value. The fair values of real estate loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans, underlying collateral values (for collateral-dependent loans) and estimated yield requirements of institutional investors for loans with similar characteristics, including remaining loan term, loan-to-value, type of collateral and other credit enhancements. Derivative instruments: These instruments are presented at fair value on the accompanying consolidated balance sheets. The valuation of these instruments is determined by a third-party expert using a proprietary model that utilizes observable inputs. As such, the Company classifies these inputs as Level 2 inputs. The proprietary model uses the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are estimated using the market standard methodology of netting the discounted fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of interest rates (forward curves) derived from observable market interest rate curves. In addition, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. Notes payable: The fair value of the Company’s notes payable is estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. Additionally, when determining the fair value of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available, the Company measures fair value using (i) a valuation technique that uses the quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities when traded as assets or (ii) another valuation technique that is consistent with the principles of fair value measurement, such as the income approach or the market approach. Contingent consideration: The fair value of the Company’s contingent consideration is estimated using a probability‑weighted discounted cash flow analysis. The discounted cash flow analysis is based on management’s estimates of current market interest rates for instruments with similar characteristics and expected cash flows under this arrangement. The following were the face values, carrying amounts and fair values of the Company’s financial instruments as of September 30, 2011 and December 31, 2010, which carrying amounts do not approximate the fair value (in thousands):
Disclosure of the fair value of financial instruments is based on pertinent information available to the Company as of September 30, 2011 and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of value at a future date could be materially different. During the nine months ended September 30, 2011, the Company measured the following assets and liabilities at fair value (in thousands):
_____________________ (1) Amount reflects acquisition date fair values of real estate acquired in 2011. |
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Notes Payable [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mortgage Notes Payable Disclosure [Text Block] | NOTES PAYABLE As of September 30, 2011 and December 31, 2010, the Company’s notes payable consisted of the following (dollars in thousands):
(1) Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2011. Effective interest rate is calculated as the actual interest rate in effect at September 30, 2011 (consisting of the contractual interest rate and the effect of interest rate swaps and contractual floor rates), using interest rate indices at September 30, 2011, where applicable. For further information regarding the Company’s derivative instruments, see Note 8, “Derivative Instruments.” (2) Represents the initial maturity date or the maturity date as extended as of September 30, 2011; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown. (3) As of September 30, 2011, $55.0 million had been disbursed to the Company and $9.6 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement. (4) On April 30, 2010, the Company entered into a four-year revolving loan facility for an amount up to $100.0 million. As of September 30, 2011, $100.0 million had been disbursed to the Company. (5) The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month LIBOR, but at no point shall the interest rate be less than 4.25%; however, there is no minimum floor rate for any portion of the loan that is subject to a swap contract with a minimum initial term of two years or any shorter term expiring on the maturity date. (6) On July 26, 2010, the Company entered into a three-year $65.0 million revolving loan. As of September 30, 2011, $33.0 million had been disbursed to the Company and $32.0 million remained available for future disbursements, subject to certain conditions set forth in the loan agreement. The interest rate under this loan is calculated at a variable rate of 300 basis points over one-month, three-month or six-month LIBOR, but at no point during the initial term may the interest rate be less than 4.5% for portions of the loan that are not subject to a swap contract. (7) On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay this loan in full. See “- Recent Financing Transactions - Portfolio Loan.” (8) On September 15, 2010, in connection with the acquisition of the Union Bank Plaza, the Company entered into a five-year mortgage loan for borrowings of up to $119.3 million secured by the Union Bank Plaza. As of September 30, 2011, $105.0 million had been disbursed to the Company with the remaining loan balance of $14.3 million available for future disbursements, subject to certain conditions set forth in the loan agreement. (9) In connection with the closing of the Portfolio Loan, the Company consolidated this loan into the Portfolio Loan. See “-Recent Financing Transactions - Portfolio Loan.” (10) See “-Recent Financing Transactions - Portfolio Loan.” (11) See Note 6, “Real Estate Loans Receivable - Recent Originations - One Kendall Square First Mortgage.” (12) On June 6, 2011, the Company entered into a four-year $32.6 million revolving credit loan. As of September 30, 2011, $16.3 million had been disbursed to the Company under a mortgage loan and $16.3 million remained available for future disbursements under a revolving loan facility, subject to certain conditions set forth in the loan agreement. The interest rate under the $16.3 million outstanding as of September 30, 2011 is calculated at a fixed rate of 3.54% per annum. The interest rate under the $16.3 million available for future disbursements as of September 30, 2011 is calculated at a variable rate of 220 basis points over one-month LIBOR. See “-Recent Financing Transactions - 601 Tower Mortgage Loan.” (13) See “-Recent Financing Transactions - CityPlace Tower Mortgage Loan.” As of September 30, 2011 and December 31, 2010, the Company’s deferred financing costs were $8.3 million and $6.2 million, respectively, net of amortization, and are included in deferred financing costs, prepaid expenses and other assets on the accompanying consolidated balance sheets. During the three and nine months ended September 30, 2011, the Company incurred $13.2 million and $36.7 million of interest expense, respectively. During the three and nine months ended September 30, 2010, the Company incurred $6.0 million and $10.3 million of interest expense, respectively. As of September 30, 2011 and December 31, 2010, $4.1 million and $2.9 million, respectively, of interest expense was payable. Included in interest expense for the three and nine months ended September 30, 2011 was $0.6 million and $2.2 million of amortization of deferred financing costs, respectively. Included in interest expense for the three and nine months ended September 30, 2010 was $0.3 million and $0.5 million of amortization of deferred financing costs, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $2.2 million and $6.1 million for the three and nine months ended September 30, 2011, respectively. Interest expense incurred as a result of the Company’s interest rate swap agreements was $0.5 million and $0.8 million for the three and nine months ended September 30, 2010, respectively. The following is a schedule of maturities for all notes payable outstanding as of September 30, 2011 (in thousands):
(1) Represents the maturities of all notes payable outstanding as of September 30, 2011, assuming the Company exercises all extension options available per the terms of the loan agreements. The Company can give no assurance that it will be able to satisfy the conditions to extend the terms of the loan agreements. Certain of our notes payable contain financial and non-financial debt covenants. As of September 30, 2011, the Company was in compliance with all debt covenants. Recent Financing Transactions Portfolio Loan On January 28, 2011, the Company, through indirect wholly owned subsidiaries (the “Borrowers”), entered into a five‑year portfolio loan with Wells Fargo Bank, N.A. (the “Lender”) dated January 27, 2011 for an amount up to $360.0 million (the “Portfolio Loan ”). As of September 30, 2011, $348.3 million had been disbursed to the Borrowers, and the Borrowers had informed the lender they would not seek disbursement of the remaining $11.7 million available under the loan agreement. However, in the event of certain tenant expansions meeting requirements as defined in the loan agreement, the principal amount of the Portfolio Loan may be increased to $360.3 million. The Company incurred approximately $1.5 million in net loan costs in conjunction with the initial funding of the Portfolio Loan. The initial maturity date of the Portfolio Loan is January 27, 2016, with two one-year extension options, subject to the satisfaction of certain conditions by the Borrowers. The Portfolio Loan bears interest at a floating rate of 215 basis points over one-month LIBOR during the initial term of the loan, 240 basis points over one-month LIBOR during the first extension period of the loan and 265 basis points over one-month LIBOR during the second extension period of the loan. As of September 30, 2011, the Company had entered into various interest rate swap agreements with varying maturity dates, which effectively fixed the interest rate on $313.4 million of the $348.3 million outstanding at an average interest rate of 3.8%. See Note 8, “Derivative Instruments.” Monthly payments are interest only with the entire principal amount due at maturity, assuming no prior prepayment. The Borrowers may, upon no less than three business days’ notice to the Lender, prepay all or a portion of the Portfolio Loan, subject to possible exit fees. Any prepayment made on or after October 27, 2015 will not be subject to a prepayment fee. In connection with the closing of the Portfolio Loan, the Company consolidated into the Portfolio Loan, a portfolio bridge loan with an outstanding balance of $40.6 million and a mortgage loan secured by National City Tower with an outstanding principal balance of $69.0 million. On March 10, 2011, the Company used proceeds from the Portfolio Loan to repay in full a $16.8 million mortgage loan secured by Torrey Reserve West. The Portfolio Loan is secured by Hartman II Business Center, Plano Business Park, Horizon Tech Center, Dallas Cowboys Distribution Center, Crescent VIII, National City Tower, Granite Tower, Gateway Corporate Center, I-81 Industrial Portfolio, Two Westlake Park and Torrey Reserve West. 601 Tower Mortgage Loan On June 6, 2011, the Company, through an indirect wholly owned subsidiary (the “601 Tower Borrower”), entered into a four-year revolving credit loan with TD Bank, N.A. for borrowings up to $32.6 million secured by the 601 Tower at Carlson Center (the “601 Tower Mortgage Loan”). The 601 Tower Mortgage Loan is comprised of two tranches: (i) tranche A, a $16.3 million mortgage loan (“Tranche A”) and (ii) tranche B, a revolving loan facility for an amount up to $16.3 million (“Tranche B”). As of September 30, 2011, the outstanding principal balance was $16.3 million under Tranche A and $16.3 million remains available for future disbursements under Tranche B, subject to certain conditions set forth in the loan agreement. The 601 Tower Mortgage Loan matures on June 3, 2015, subject to two one-year extension options. Tranche A bears interest at a fixed rate of 3.54% per annum through the initial term. During the extended term, Tranche A bears interest at a variable rate of 220 basis points over one-month LIBOR or, at the election of the 601 Tower Borrower, a fixed rate equal to 220 basis points over the swap index rate having a maturity date closest to the extended maturity date. Monthly payments under Tranche A are interest-only during the initial term of the loan. During the extension periods, monthly payments include principal and interest with principal payments calculated using an amortization schedule of 25 years for the balance of the loan, with the remaining principal balance and all accrued and unpaid interest due at maturity. The 601 Tower Borrower has the right to prepay all or a portion of Tranche A at any time, subject to possible prepayment fees. Tranche B bears interest at a variable rate of 220 basis points over one-month LIBOR. Monthly payments under Tranche B are interest-only. KBS REIT Properties II, LLC (“REIT Properties II”), one of the Company’s wholly owned subsidiaries that indirectly owns all of the Company’s properties, is providing a limited guaranty of the 601 Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums which may result from certain actions or inactions by the 601 Tower Borrower. REIT Properties II is also providing a guaranty of any and all sums, including the principal balance outstanding under the 601 Tower Mortgage Loan, in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the 601 Tower at Carlson Center. CityPlace Tower Mortgage Loan On July 6, 2011, the Company, through an indirect wholly owned subsidiary (the “CityPlace Tower Borrower”), entered into a mortgage loan with Metropolitan Life Insurance Company, which is unaffiliated with the Company or the Advisor, for $71.0 million secured by the CityPlace Tower (the “CityPlace Tower Mortgage Loan”). The CityPlace Tower Mortgage Loan matures on August 1, 2015, with an option to extend the maturity date to August 1, 2016, subject to certain conditions. The CityPlace Tower Mortgage Loan bears interest at a fixed rate of 3.59% during the initial term of the loan and a variable rate of 200 basis points over one-month LIBOR during the extension. Monthly payments on the CityPlace Tower Mortgage Loan are interest-only, with the entire principal amount, plus any outstanding interest and fees, due at maturity. REIT Properties II is providing a limited guaranty of the CityPlace Tower Mortgage Loan with respect to certain potential costs, expenses, losses, damages and other sums, including interest thereon, which may result from certain actions or inactions by the CityPlace Tower Borrower. REIT Properties II is also providing a guaranty of the principal balance and any interest or other sums outstanding under the CityPlace Tower Mortgage Loan in the event of certain voluntary or involuntary bankruptcy or insolvency proceedings related to the CityPlace Tower Borrower. |
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RECENT ACQUISITIONS OF REAL ESTATE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combination Disclosure [Text Block] | RECENT ACQUISITIONS OF REAL ESTATE During the nine months ended September 30, 2011, the Company acquired the following properties (in thousands):
The intangible assets and liabilities acquired in connection with these acquisitions have weighted-average amortization periods as of the date of acquisition as follows (in years):
The Company recorded each acquisition as a business combination and expensed $1.3 million and $6.6 million of acquisition costs related to these properties for the three and nine months ended September 30, 2011, respectively. During the three and nine months ended September 30, 2011, the Company recognized $12.8 million and $29.0 million of total revenues from these properties, respectively. During the three and nine months ended September 30, 2011, the Company recognized $5.4 million and $14.4 million of operating income from these properties, respectively. |
Real Estate | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Real Estate [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Disclosure [Text Block] | REAL ESTATE As of September 30, 2011, the Company’s real estate portfolio was composed of 19 office properties, one office/flex property, a portfolio of four industrial properties, two industrial properties and a leasehold interest in one industrial property, encompassing in the aggregate approximately 10.8 million rentable square feet. As of September 30, 2011, the Company’s real estate portfolio was 96% occupied. The following table summarizes the Company’s investments in real estate as of September 30, 2011 and December 31, 2010 (in thousands):
(1) Includes an investment in the rights to a ground lease. The ground lease expires in February 2050. As of September 30, 2011, the following property represented more than 10% of the Company’s total assets:
_____________________ (1) Annualized base rent represents annualized contractual base rental income as of September 30, 2011, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease's inception through the balance of the lease term. Operating Leases The Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of September 30, 2011, the leases had remaining terms (excluding options to extend) of up to 17.4 years with a weighted-average remaining term (excluding options to extend) of 6.6 years. The leases may have provisions to extend the term of the leases, options for early termination after paying a specified penalty, rights of first refusal to purchase the property at competitive market rates, and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit and/or a letter of credit. Amounts required as security deposits vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets and totaled $3.7 million and $2.7 million as of September 30, 2011 and December 31, 2010, respectively. During the nine months ended September 30, 2011 and 2010, the Company recognized deferred rent from tenants of $15.6 million and $4.2 million, respectively, net of lease incentive amortization. As of September 30, 2011 and December 31, 2010, the cumulative deferred rent balance was $32.5 million and $15.5 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $5.1 million and $3.9 million of unamortized lease incentives as of September 30, 2011 and December 31, 2010, respectively. As of September 30, 2011, the future minimum rental income from the Company’s properties under non-cancelable operating leases was as follows (in thousands):
As of September 30, 2011, the Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:
(1) Annualized base rent represents annualized contractual base rental income as of September 30, 2011, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term. No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During the nine months ended September 30, 2011 and 2010, the Company recorded bad debt expense related to its tenant receivables of $0.1 million and $18,000, respectively. As of September 30, 2011, the Company had a bad debt reserve of approximately $0.2 million, which represents less than 1% of annualized base rent. As of September 30, 2011, the Company had a concentration of credit risk related to the following tenant lease that represents more than 10% of the Company’s annualized base rent:
_____________________ (1) Annualized base rent represents annualized contractual base rental income as of September 30, 2011, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term. (2) Represents the expiration date of the lease as of September 30, 2011 and does not take into account any tenant renewal options. |
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PRO FORMA FINANCIAL INFORMATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pro Forma Financial Information [Text Block] | PRO FORMA FINANCIAL INFORMATION The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the three and nine months ended September 30, 2011 and 2010. The Company acquired five individual office properties and a portfolio of four industrial properties during the nine months ended September 30, 2011, all of which were accounted for as business combinations. The following unaudited pro forma information for the three and nine months ended September 30, 2011 and 2010 has been prepared to give effect to the acquisition of I-81 Industrial Portfolio and CityPlace Tower as if the acquisitions occurred on January 1, 2010. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions occurred on this date, nor does it purport to predict the results of operations for future periods (in thousands, except share and per share amounts).
The unaudited pro forma information for the nine months ended September 30, 2011 was adjusted to exclude $3.3 million of acquisition costs related to the above properties incurred in 2011, respectively. |
Tenant Origination and Absorption Costs, Above Market Lease Assets and Below Market Lease Liabilities | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE MARKET LEASE ASSETS AND BELOW MARKET LEASE LIABILITIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets Disclosure [Text Block] | TENANT ORIGINATION AND ABSORPTION COSTS, ABOVE-MARKET LEASE ASSETS AND BELOW‑MARKET LEASE LIABILITIES As of September 30, 2011 and December 31, 2010, the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities (excluding fully amortized assets and liabilities and accumulated amortization) are as follows (in thousands):
Increases (decreases) in net income as a result of amortization of the Company’s tenant origination and absorption costs, above-market lease assets and below-market lease liabilities for the three and nine months ended September 30, 2011 and 2010 are as follows (in thousands):
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Organization | 9 Months Ended |
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Sep. 30, 2011 | |
ORGANIZATION [Abstract] | |
Organization [Text Block] | ORGANIZATION KBS Real Estate Investment Trust II, Inc. (the “Company”) was 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. The Company conducts its business primarily through KBS Limited Partnership II, a Delaware limited partnership formed on August 23, 2007 (the “Operating Partnership”), and its subsidiaries. The Company is the sole general partner of and directly owns a 0.1% partnership interest in the Operating Partnership. The Company’s wholly-owned subsidiary, KBS REIT Holdings II LLC, a Delaware limited liability company formed on August 23, 2007 (“KBS REIT Holdings II”), owns the remaining 99.9% partnership interest in the Operating Partnership and is its sole limited partner. The Company owns a diverse portfolio of real estate and real estate-related investments. As of September 30, 2011, the Company owned 26 real estate properties (consisting of 19 office properties, one office/flex property, a portfolio of four industrial properties and two individual industrial properties), a leasehold interest in one industrial property and seven real estate loans receivable. Subject to certain restrictions and limitations, the business of the Company is managed by KBS Capital Advisors LLC (the “Advisor”), an affiliate of the Company, pursuant to an advisory agreement the Company renewed with the Advisor on May 21, 2011 (the “Advisory Agreement”). The Advisory Agreement may be renewed for an unlimited number of one-year periods upon the mutual consent of the Advisor and the Company. Either party may terminate the Advisory Agreement upon 60 days’ written notice. The Advisor owns 20,000 shares of the Company’s common stock. Upon commencing its initial public offering (the “Offering”), the Company retained KBS Capital Markets Group LLC (the “Dealer Manager”), an affiliate of the Advisor, to serve as the dealer manager of the Offering pursuant to a dealer manager agreement, as amended and restated on April 30, 2010 (the “Dealer Manager Agreement”). The Company ceased offering shares of common stock in its primary offering on December 31, 2010 and terminated its primary offering on March 22, 2011 upon the completion of review of subscriptions submitted in accordance with its processing procedures. The Company continues to offer shares of common stock under its dividend reinvestment plan. The Company sold 182,681,633 shares of common stock in its primary offering for gross offering proceeds of $1.8 billion. As of September 30, 2011, the Company had sold 12,331,776 shares of common stock under its dividend reinvestment plan for gross offering proceeds of $117.2 million. Also as of September 30, 2011, the Company had redeemed 3,969,592 shares sold in the Offering for $37.5 million. |
Related Party Transactions | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions Disclosure [Text Block] | RELATED PARTY TRANSACTIONS The Company has entered into the Advisory Agreement with the Advisor and the Dealer Manager Agreement with the Dealer Manager. These agreements entitle the Advisor and/or the Dealer Manager to specified fees upon the provision of certain services with regard to the Offering, the investment of funds in real estate and real estate-related investments and the management of those investments, among other services, as well as reimbursement of organization and offering costs incurred by the Advisor and the Dealer Manager on behalf of the Company and certain costs incurred by the Advisor in providing services to the Company. The Advisor and Dealer Manager also serve as the advisor and dealer manager, respectively, for KBS Real Estate Investment Trust, Inc., KBS Real Estate Investment Trust III, Inc., KBS Strategic Opportunity REIT, Inc. and KBS Legacy Partners Apartment REIT, Inc. During the nine months ended September 30, 2011 and 2010, no transactions occurred between the Company and these other KBS-sponsored programs. Pursuant to the terms of these agreements, summarized below are the related-party costs incurred by the Company for the three and nine months ended September 30, 2011 and 2010, respectively, and any related amounts payable as of September 30, 2011 and December 31, 2010 (in thousands):
(1) The Advisor may seek reimbursement for certain employee costs under the Advisory Agreement. Commencing July 1, 2010, the Company has reimbursed the Advisor for the Company’s allocable portion of the salaries, benefits and overhead of internal audit department personnel providing services to the Company. These were the only employee costs reimbursed under the Advisory Agreement through September 30, 2011. The Company will not reimburse for employee costs in connection with services for which the Advisor earns acquisition, origination or disposition fees (other than reimbursement of travel and communication expenses) or for the salaries or benefits the Advisor or its affiliates may pay to the Company’s executive officers. (2) For the nine months ended September 30, 2011, the Company capitalized $0.5 million of disposition fees related to the sale and transfer of the Company’s interest in Note A of the One Kendall Square First Mortgage. Since the Note A and Note B tranches of the One Kendall Square First Mortgage do not qualify as participating interests, as defined in ASC 860, the Company accounted for the sale of its interest in Note A as a secured borrowing with a pledge of collateral and continued to record the Company’s entire $87.5 million interest in the One Kendall Square First Mortgage as a real estate loan receivable. Additionally, as Note A did not qualify as a participating interest, the transfer of Note A is recorded as a note payable in the accompanying consolidated balance sheets. The disposition fees are included in deferred financing costs, prepaid expenses and other assets in the accompanying consolidated balance sheets. |
Subsequent Events | 9 Months Ended |
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Sep. 30, 2011 | |
Subsequent Events [Abstract] | |
Subsequent Events [Text Block] | SUBSEQUENT EVENTS The Company evaluates subsequent events up until the date the consolidated financial statements are issued. Distributions Paid On October 14, 2011, the Company paid distributions of $10.2 million, which related to distributions declared for each day in the period from September 1, 2011 through September 30, 2011. Distributions Declared On October 28, 2011, the Company’s board of directors declared distributions based on daily record dates for the period from November 1, 2011 through November 30, 2011, which the Company expects to pay in December 2011. On November 2, 2011, the Company’s board of directors declared distributions based on daily record dates for the period from December 1, 2011 through December 31, 2011, which the Company expects to pay in January 2012, and distributions based on daily record dates for the period from January 1, 2012 through January 31, 2012, which the Company expects to pay in February 2012. Investors may choose to receive cash distributions or purchase additional shares through the Company’s dividend reinvestment plan. Distributions for these periods will be calculated based on stockholders of record each day during these periods at a rate of $0.00178082 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 6.5% annualized rate based on a purchase price of $10.00 per share. Investments and Financings Subsequent to September 30, 2011 Purchase Agreement for One Meadowlands Plaza On October 27, 2011, the Company, through an indirect wholly owned subsidiary, entered into a purchase agreement to purchase an office building containing 421,317 rentable square feet located on approximately 10.5-acres of land in East Rutherford, New Jersey (“One Meadowlands Plaza”). The seller is not affiliated with the Company or the Advisor. The purchase price of One Meadowlands Plaza is approximately $104.9 million plus closing costs. Pursuant to the purchase agreement, the Company would be obligated to purchase the property only after satisfaction of agreed upon closing conditions. There can be no assurance that the Company will complete the acquisition. As of October 31, 2011, the Company had made deposits of $2.5 million, and in some circumstances, if the Company fails to complete the acquisition, the Company may forfeit $2.5 million of earnest money. As of October 27, 2011, One Meadowlands Plaza was 98% leased to 22 tenants. |