kbsrii-202109200001411059FALSE00014110592021-08-262021-08-26
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
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CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 20, 2021
KBS REAL ESTATE INVESTMENT TRUST II, INC.
(Exact Name of Registrant as Specified in Its Charter)
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| Maryland | | 000-53649 | | 26-0658752 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (Commission File Number) | | (I.R.S. Employer Identification No.) |
800 Newport Center Drive, Suite 700
Newport Beach, California 92660
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 417-6500
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | N/A | N/A |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
ITEM 8.01 OTHER EVENTS
Disposition of Fountainhead Plaza
On September 13, 2011, KBS Real Estate Investment Trust II, Inc. (the “Company”), through an indirect wholly owned subsidiary, purchased two office buildings totaling 445,957 rentable square feet located on approximately 11.33 acres of land in Tempe, Arizona (“Fountainhead Plaza”).
On September 20, 2021, the Company completed the sale of Fountainhead Plaza to a purchaser unaffiliated with the Company or KBS Capital Advisors LLC (the “Advisor”) for $117.5 million before closing credits, third-party closing costs and disposition fees payable to the Advisor. In connection with the disposition of Fountainhead Plaza, the Company paid down $61.5 million of the principal balance due under the Portfolio Loan Facility.
Fourth Liquidating Distribution Authorized
Pursuant to the terms of the Company’s plan of complete liquidation and dissolution (the “Plan of Liquidation”), on September 29, 2021, the Company’s board of directors authorized a fourth liquidating distribution in the amount of $0.50 per share of common stock to the Company’s stockholders of record as of the close of business on October 1, 2021 (the “Fourth Liquidating Distribution”). The Fourth Liquidating Distribution will be funded from proceeds from the sales of Fountainhead Plaza and Granite Tower, an office building located in Denver, Colorado, which closed on September 3, 2021. The Company expects to pay the Fourth Liquidating Distribution on October 5, 2021.
Since the Fourth Liquidating Distribution is a liquidating distribution pursuant to the Plan of Liquidation, it will reduce the Company’s stockholders’ remaining investment in the Company and reduce the estimated future liquidating distributions per share to be received by the Company’s stockholders by $0.50 per share. The Fourth Liquidating Distribution will generally be characterized as a return of capital, to the extent the stockholder has sufficient basis, and will be included in each stockholder’s Form 1099 for the year ended December 31, 2021. Stockholders are advised to consult their tax advisors regarding the tax consequences of the Fourth Liquidating Distribution in light of his or her particular investment or tax circumstances.
Updated Estimated Value Per Share
In connection with the authorization of the Fourth Liquidating Distribution, on September 29, 2021, the Company’s board of directors approved an updated estimated value per share of the Company’s common stock of $1.57, effective October 5, 2021 (the “October 2021 Estimated Value Per Share”), to reflect the impact of the payment of the Fourth Liquidating Distribution. The Company is providing the October 2021 Estimated Value Per Share to assist broker-dealers that participated in the Company’s now-terminated initial public offering in meeting their customer account statement reporting obligations under the Financial Industry Regulatory Authority Rule 2231.
On March 11, 2021, the Company’s board of directors approved an estimated value per share of the Company’s common stock of $2.07 based on the Company’s net assets in liquidation, divided by the number of shares outstanding, all as of December 31, 2020 (the “March Estimated Value Per Share”). Net assets in liquidation represents the remaining estimated liquidation value available to stockholders upon liquidation. The October 2021 Estimated Value Per Share is equal to the March Estimated Value Per Share of $2.07 reduced by the Company’s authorization of the Fourth Liquidating Distribution of $0.50 per share of common stock. Thus, the October 2021 Estimated Value Per Share reflects the resulting reduction of the stockholders’ remaining investment in the Company.
The Company did not obtain updated appraisals in connection with the determination of the October 2021 Estimated Value Per Share, and the determination was based solely on the factors above.
Determination of the March 11, 2021 Estimated Value Per Share
The March Estimated Value Per Share was based upon the recommendation and valuation prepared by the Advisor. The Advisor prepared a valuation report for the Company’s conflicts committee and board of directors which included an estimated liquidation value of each of the Company’s real estate properties owned as of December 31, 2020 and the estimated liquidation value for the Company’s other assets and liabilities as of December 31, 2020, in each case as determined by the Advisor. In light of the valuation report and other factors considered by the Company’s conflicts committee and the conflicts committee’s own extensive knowledge of the Company’s assets and liabilities, the conflicts committee: (i) concluded that the estimated range of liquidating distributions per share of $1.91 to $2.24, with an approximate mid-range value of $2.07 per share, each as determined and recommended by the Advisor, and which approximate mid-range value was based on the Advisor’s estimated liquidation value for each of the Company’s real estate properties owned as of December 31, 2020 and the Advisor’s estimated liquidation value for the Company’s other assets and liabilities as of December 31, 2020, was reasonable and (ii) recommended to the Company’s board of directors that it adopt $2.07 as the estimated value per share of the Company’s common stock, which estimated value per share is based on those factors discussed in (i) above. The board of directors unanimously agreed to accept the recommendation of the conflicts committee and approved $2.07 as the estimated value per share of the Company’s common stock, which determination is ultimately and solely the responsibility of the board of directors.
The methodologies and assumptions used to determine the estimated value of the Company’s assets and the estimated value of the Company’s liabilities are described in Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 12, 2021 (the “Annual Report”).
Limitations of the October 2021 Estimated Value Per Share
As mentioned above, the Company is providing the October 2021 Estimated Value Per Share to assist broker-dealers that participated in the Company’s now-terminated initial public offering in meeting their customer account statement reporting obligations. The October 2021 Estimated Value Per Share will first appear on the October 2021 customer account statements that will be mailed in November 2021. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Different parties with different assumptions and estimates could derive a different estimated value per share, and this difference could be significant. The October 2021 Estimated Value Per Share is not audited and does not represent the fair value of the Company’s assets less the fair value of the Company’s liabilities according to GAAP. Moreover, the Company did not obtain updated appraisals in connection with the determination of the October 2021 Estimated Value Per Share, and the determination was based solely on the factors discussed above.
The Company’s expectations about the implementation of the Plan of Liquidation and the amount of any additional liquidating distributions that the Company pays to its stockholders and when the Company will pay them are subject to risks and uncertainties and are based on certain estimates and assumptions, one or more of which may prove to be incorrect. There are many factors that may affect the amount of liquidating distributions the Company will ultimately pay to its stockholders. If the Company underestimates its existing obligations and liabilities or the amount of taxes, transaction fees and expenses relating to the liquidation and dissolution, or if unanticipated or contingent liabilities arise, the amount of liquidating distributions ultimately paid to the Company’s stockholders could be less than estimated. Moreover, the liquidation value will fluctuate over time in response to developments related to individual assets in the Company’s portfolio and the management of those assets, in response to the real estate and finance markets, based on the actual liquidation timing and the amount of net proceeds received from the disposition of the remaining assets and due to other factors.
In particular, the COVID-19 pandemic, together with the resulting measures imposed to help control the spread of the virus, has had a negative impact on the economy and business activity globally. The COVID-19 pandemic is negatively impacting almost every industry, including the U.S. office real estate industry and the industries of the Company’s tenants, directly or indirectly. While the Company has considered the impact from COVID-19 on its October 2021 Estimated Value Per Share, the extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants and the Company’s implementation of the Plan of Liquidation, depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Given the uncertainty and current business disruptions as a result of the outbreak of COVID-19, the Company’s implementation of the Plan of Liquidation may be materially and adversely impacted and this may have a material effect on the ultimate amount and timing of liquidating distributions received by stockholders.
No assurance can be given that any additional liquidating distributions the Company pays to its stockholders will equal or exceed the October 2021 Estimated Value Per Share. Accordingly, with respect to the October 2021 Estimated Value Per Share, the Company can give no assurance:
•of the amount or timing of liquidating distributions the Company will ultimately be able to pay its stockholders;
•that a stockholder would be able to resell his or her shares at the October 2021 Estimated Value Per Share;
•that an independent third-party appraiser or third-party valuation firm would agree with the October 2021 Estimated Value Per Share; or
•that the methodology used to determine the October 2021 Estimated Value Per Share would be acceptable to FINRA or for compliance with ERISA reporting requirements.
Share Redemption Program
The Company’s share redemption program provides only for redemptions sought upon a stockholder’s death, “qualifying disability” or “determination of incompetence” (each as defined in the share redemption program and, together with redemptions sought in connection with a stockholder’s death, “Special Redemptions”). In accordance with the Company’s share redemption program, these Special Redemptions are made at a price per share equal to the Company’s most recent estimated value per share as of the applicable redemption date, provided that if the Company’s board of directors has declared liquidating distributions on such share with a record date prior to the applicable redemption date for such share and the most recent estimated value per share has not been updated to reflect the reduction for such liquidating distributions, then the redemption price per share will be reduced to reflect the amount of such liquidating distributions. Thus, the redemption price per share of the Company’s common stock eligible for redemption on the October 29, 2021 redemption date will equal $1.57. The Company will report future redemption prices in a Current Report on Form 8-K or in its annual or quarterly reports, all publicly filed with the SEC.
Such Special Redemptions are subject to an annual dollar limitation, which is $10.0 million in the aggregate for the calendar year 2021 (subject to review and adjustment during the year by the board of directors), and further subject to the limitations described in the share redemption program. The share redemption program is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 7, 2018, and is available at the SEC’s website at http://www.sec.gov.
Forward-Looking Statements
The foregoing includes forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbors created by Section 21E of the Securities Exchange Act of 1934, as amended. These statements include statements regarding the intent, belief or current expectations of the Company and members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. Such statements are subject to known and unknown risks and uncertainties which could cause actual results to differ materially from those contemplated by such forward-looking statements. The Company makes no representation or warranty (express or implied) about the accuracy of any such forward-looking statements. These statements are based on a number of assumptions involving the judgment of management.
There are many factors that may affect the amount of liquidating distributions the Company will ultimately pay to its stockholders, including, among other things, the ultimate sale price of each asset and the actual liquidation timing, changes in market demand for office properties during the liquidation process, the amount of taxes, transaction fees and expenses relating to the liquidation and dissolution, and unanticipated or contingent liabilities arising hereafter. No assurance can be given as to the amount or timing of liquidating distributions. If the Company underestimated its existing obligations and liabilities or if unanticipated or contingent liabilities arise, the amount of liquidating distributions ultimately paid to the Company’s stockholders could be less than estimated.
The COVID-19 pandemic, together with the resulting measures imposed to help control the spread of the virus, has had a negative impact on the economy and business activity globally. The COVID-19 pandemic is negatively impacting almost every industry, including the U.S. office real estate industry and the industries of the Company’s tenants, directly or indirectly. The extent to which the COVID-19 pandemic impacts the Company’s operations and those of its tenants and the Company’s implementation of the Plan of Liquidation, depends on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Given the uncertainty and current business disruptions as a result of the outbreak of COVID-19, the Company’s implementation of the Plan of Liquidation may be materially and adversely impacted and this may have a material effect on the ultimate amount and timing of liquidating distributions received by stockholders.
Actual events may cause the value and returns on the Company’s investments to be less than that used for purposes of the Company’s estimated range of liquidating distributions as of March 11, 2021. For a full description of the methodologies, limitations and assumptions used in the calculation of the estimated liquidation value of the Company’s assets and liabilities, see the Company’s Annual Report. As with any valuation methodology, the methodologies used are based upon a number of estimates and assumptions that may not be accurate or complete. Moreover, the Company did not obtain appraisals in connection with the valuations. Even small changes to these assumptions could result in significant differences in the estimated range of liquidation distributions as of March 11, 2021.
The forward-looking statements also depend on factors such as: future economic, competitive and market conditions; the Company’s ability to maintain and/or improve occupancy levels and rental rates at its real estate properties during the liquidation process; the Company’s ability to sell its real estate properties at the times and at the prices it expects; the Company’s ability to successfully negotiate modifications, extensions or any needed refinancings of its debt obligations; the Company’s ability to successfully implement the Plan of Liquidation and other risks identified in Part I, Item 1A of the Company’s Annual Report and in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2021.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| KBS REAL ESTATE INVESTMENT TRUST II, INC. |
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| Dated: September 30, 2021 |
| BY: |
| /s/ Jeffrey K. Waldvogel |
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| Jeffrey K. Waldvogel |
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| Chief Financial Officer, Treasurer and Secretary |